As filed with the Securities and Exchange Commission on January 17, 2014
(Exact name of Registrant as specified in charter)
(Address of Principal Executive Offices)
(Name and address of agent for service)
COPIES TO:
Approximate date of proposed public offering: From time to time after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. x
It is proposed that this filing will become effective (check appropriate box):
o when declared effective pursuant to section 8(c).
Title of Securities Being Registered | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee(1)(7)(8) |
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Common Stock, $0.01 par value per share(2)(3) | ||||||||
Preferred Stock, $0.01 par value per share(2) | ||||||||
Subscription Rights(2) | ||||||||
Debt Securities(4) | ||||||||
Warrants(5) | ||||||||
Total(6) | $ | 400,000,000 | $ | 54,560 |
(1) | Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely for the purpose of determining the registration fee. The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale by the Registrant of the securities registered under this Registration Statement. |
(2) | Subject to Note 6 below, there is being registered hereunder an indeterminate number of shares of common stock or preferred stock, or subscription rights to purchase shares of common stock as may be sold, from time to time. |
(3) | Includes such indeterminate number of shares of common stock as may, from time to time, be issued upon conversion or exchange of other securities registered hereunder, to the extent any such securities are, by their terms, convertible or exchangeable for common stock. |
(4) | Subject to Note 6 below, there is being registered hereunder an indeterminate number of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $400,000,000. |
(5) | Subject to Note 6 below, there is being registered hereunder an indeterminate number of warrants as may be sold, from time to time. |
(6) | In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $400,000,000. |
(7) | Prior to the initial filing of this registration statement, $137,875,000 aggregate principal amount of securities remained registered and unsold pursuant to Registration Statement No. 333-180416 (the Prior Registration Statement), which was initially filed by the Registrant on March 28, 2012. Pursuant to Rule 457(p), $15,800.48 of the total filing fee of $54,560 required in connection with the initial registration of $400,000,000 aggregate principal amount of securities under this registration statement was offset against the $15,800.48 filing fee associated with the unsold securities registered under the Prior Registration Statement, and an additional $38,760 was paid in connection herewith. The shares from the Prior Registration Statement to which such fee relates are being carried forward pursuant to Rule 415(a)(6) under the Securities Act of 1933. |
(8) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. Our investment activities are managed by GSV Asset Management, LLC. GSV Capital Service Company, LLC provides the administrative services necessary for us to operate. Although we may elect to be taxed as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) for the 2013 taxable year, we are currently taxed as a regular corporation (a C Corporation) under the Code.
We seek to deploy capital primarily in the form of equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a high equity component. Our investments generally do not produce current income. We will seek to deploy capital primarily in the form of non-controlling investments in our portfolio companies.
We may offer, from time to time, in one or more offerings, up to $400,000,000 of our common stock, preferred stock, subscription rights to purchase shares of our common stock, debt securities, and warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, which we refer to, collectively, as our securities. The preferred stock, subscription rights, warrants and debt securities offered hereby may be convertible or exchangeable into shares of our common stock. The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus.
The offering price per share of our common stock less any underwriting commissions or discounts will generally not be less than the net asset value per share of our common stock at the time we make the offering. However, we may in the future seek to issue shares of our common stock pursuant to this prospectus at a price per share that is less than our net asset value per share (i) with the prior approval of the majority of our common stockholders or (ii) under such other circumstances as the SEC may permit. In addition, even if we seek and obtain shareholder approval to sell our common stock at a price below our net asset value per share, we cannot do so unless our Board of Directors determines that it would be in our and our stockholders' best interests to do so.
Our securities may be offered directly to one or more purchasers, or through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to an offering will identify any agents or underwriters involved in the sale of our securities, and will disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See Plan of Distribution. We may not sell any of our securities through agents, underwriters or dealers or otherwise without delivery of this prospectus and a prospectus supplement describing the method and terms of the offering of securities.
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. As of September 30, 2013 our net asset value was approximately $13.16 per share. On January 16, 2014 the last reported sales price on the NASDAQ Capital Market for our common stock was $13.10 per share.
This prospectus, and any accompanying prospectus supplement, contains important information about us that a prospective investor should know before investing in our securities. Please read this prospectus, and any accompanying prospectus supplement, before investing and keep it for future reference. We will file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission, or the SEC. This information will be available free of charge by contacting us by mail at 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769 or on our website at http://www.gsvcap.com. The SEC also maintains a website at http://www.sec.gov that contains such information. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information to be part of this prospectus.
An investment in our securities is subject to risks and involves a heightened risk of total loss of investment. In particular, shares of closed-end investment companies, including business development companies, such as our company, frequently trade at a discount to their net asset value. In addition, the companies in which we invest are subject to special risks. See Risk Factors beginning on page 21 to read about factors you should consider, including the risk of leverage, before investing in our securities.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus may not be used to consummate sales of securities unless accompanied by a prospectus supplement.
The date of this prospectus is , 2014.
i
This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or SEC, using the shelf registration process. Under the shelf registration process, which constitutes a delayed offering in reliance on Rule 415 under the Securities Act of 1933, as amended, or the Securities Act, we may offer, from time to time, in one or more offerings, up to $400,000,000 of our common stock, preferred stock, subscription rights to purchase shares of our common stock, debt securities, and warrants representing rights to purchase shares of our common stock, preferred stock or debt securities on such terms to be determined at the time of the offering. Our securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of our securities. Each time we use this prospectus to offer our securities, we will provide a prospectus supplement that will contain specific information about the terms of such offering. In particular, such prospectus supplement will include updated risk factors, financial data, portfolio holdings and their respective valuations, and other disclosure that will be tailored to address the pertinent market and other conditions that are prevalent at the time of such offering. Such disclosure will include, for example, the per share dollar amount of dilution, if any, that investors in such offering will incur. A prospectus supplement may also add, update or change information contained in this prospectus. If there is any inconsistency between information in this prospectus and the accompanying prospectus supplement, you should rely only on the information contained in the accompanying prospectus supplement. Please carefully read this prospectus and the accompanying prospectus supplement together with any exhibits and the additional information described under the headings Summary, Risk Factors and Available Information before you make an investment decision.
You should rely on the information contained in this prospectus. We have not authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus or any accompanying prospectus supplement. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus, and any accompanying prospectus supplement, does not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus or any accompanying prospectus supplement. We will amend or supplement this prospectus and any accompanying prospectus supplement in the event of any material change to the information contained herein or therein during any applicable distribution period.
1
This summary, including the Risk Factors summary beginning on page 21, highlights some of the information in this prospectus. This summary is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under Risk Factors beginning on page 21 and the other information included in this prospectus.
Except where the context suggests otherwise, the terms we, us, our and GSV Capital refer to GSV Capital Corp. In addition, the terms GSV Asset Management or investment adviser refer to GSV Asset Management, LLC, and GSV Capital Service Company or the administrator refer to GSV Capital Service Company, LLC.
In May 2011 we completed our initial public offering of 3,335,000 shares of our common stock at an offering price of $15.00 per share.
We completed a follow-on offering of 2,185,000 shares of our common stock in September 2011 at an offering price of $14.15 per share, a following-on offering of 6,900,000 shares of our common stock in February 2012 at an offering price of $15.00 per share and a follow-on offering of 6,900,000 shares of our common stock in May 2012 at an offering price of $16.25 per share. In the aggregate, we have raised approximately $277.7 million in equity capitalization. In addition, on September 17, 2013, we completed a private placement of 5-year unsecured 5.25% Senior Convertible Notes due 2018 (the Convertible Senior Notes). A total of $69.0 million in aggregate principal amount of the Convertible Senior Notes were issued at the closing.
Since the closing of our third follow-on offering on May 16, 2012 through January 15, 2014, our stock price has fluctuated from a high of $18.50 (on May 16, 2012) to a low of $6.84 (on November 14, 2012). Our stock price has not again closed at or above $16.25. On January 16, 2014, the last reported sales price on the NASDAQ Capital Market for our common stock was $13.10 per share.
As of January 16, 2014, we have invested substantially all of the combined net proceeds from our public and private offerings. To the extent that we have uninvested cash, we may make temporary investments in U.S. government securities, money market funds, or high-quality debt securities maturing in one year or less from the time of investment. Such temporary investments will likely produce a return that is significantly less than the 2.00% base management fee on such assets that we will pay to our investment adviser.
We are an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity and equity-related investments. We invest principally in the equity securities of what we believe are rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments with prospective portfolio companies, secondary market places for private companies and negotiations with selling stockholders. We may also invest on an opportunistic basis in select publicly-traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria. Our investment activities are managed by GSV Asset Management, and GSV Capital Service Company provides the administrative services necessary for us to operate.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
2
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
We have limited information about the financial performance and profitability of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit. In addition, our current portfolio company investments are also concentrated in a limited number of companies. As of September 30, 2013, over half of our portfolio company investments were comprised of investments in seven companies.
As of September 30, 2013, we have completed investments in the companies identified below. Amounts include transaction fees and costs. Fair value was determined in good faith by our Board of Directors. See Managements Discussion and Analysis of Financial Condition and Results of Operations Recent Developments for more information about these investments.
Portfolio Company | Cost | Fair Value(1) | % of Net Assets | |||||||||
Twitter, Inc. |
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Common shares | $ | 31,755,821 | $ | 43,242,147 | 17.00 | % | ||||||
Preferred shares, Series A | 1,235,290 | 1,531,238 | 0.60 | % | ||||||||
Palantir Technologies, Inc. |
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Common shares, Class A | 20,051,479 | 25,081,372 | 9.86 | % | ||||||||
Preferred shares, Series G | 1,008,968 | 1,147,057 | 0.45 | % | ||||||||
Dropbox, Inc. |
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Common share | 8,641,153 | 8,740,000 | 3.44 | % | ||||||||
Preferred shares, Series A-1 | 5,015,333 | 6,353,589 | 2.50 | % | ||||||||
Chegg, Inc. |
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Common shares | 10,014,248 | 9,580,153 | 3.77 | % | ||||||||
Preferred shares, Series F | 4,008,654 | 4,555,431 | 1.79 | % | ||||||||
Control4 Corporation |
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Common shares | 7,011,025 | 12,473,776 | 4.90 | % | ||||||||
Solexel, Inc. |
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Preferred shares, Series C | 11,017,224 | 10,999,997 | 4.33 | % | ||||||||
2U, Inc. (f/k/a 2tor, Inc.) |
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Common shares | 8,757,668 | 9,472,352 | 3.72 | % | ||||||||
Preferred shares, Series A | 1,273,125 | 1,376,943 | 0.54 | % | ||||||||
Avenues World Holdings LLC |
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Preferred shares, Class A-1 | 10,028,361 | 10,423,016 | 4.10 | % | ||||||||
Coursera, Inc. |
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Preferred shares, Series B | 9,999,999 | 9,999,998 | 3.93 | % | ||||||||
Facebook, Inc. |
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Common Shares, Class A | 5,236,147 | 8,790,250 | 3.46 | % | ||||||||
Violin Memory, Inc. |
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Common Shares | 14,819,618 | 8,158,498 | 3.21 | % | ||||||||
SugarCRM, Inc. |
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Common shares | 5,193,947 | 5,602,296 | 2.20 | % | ||||||||
Preferred shares, Series E | 1,500,522 | 1,857,408 | 0.73 | % | ||||||||
ZocDoc Inc. |
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Preferred shares, Series A | 3,563,178 | 3,317,091 | 1.30 | % | ||||||||
Common Stock | 1,734,878 | 1,855,348 | 0.73% |
3
Portfolio Company | Cost | Fair Value(1) | % of Net Assets | |||||||||
Whittle Schools, LLC |
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Preferred shares, Series B | 3,000,000 | 3,000,000 | 1.18 | % | ||||||||
Common shares | 1,530,000 | 1,500,000 | 0.59 | % | ||||||||
Bloom Energy Corporation |
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Common shares | 3,855,601 | 4,456,420 | 1.75 | % | ||||||||
Spotify Technology S.A. |
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Common shares | 3,598,472 | 4,247,411 | 1.67 | % | ||||||||
Dataminr, Inc. |
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Preferred shares, Series B | 2,063,356 | 2,936,650 | 1.15 | % | ||||||||
Preferred shares, Series C | 1,100,567 | 1,099,997 | 0.43 | % | ||||||||
StormWind, LLC |
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Preferred shares, Series B | 2,019,687 | 3,955,872 | 1.56 | % | ||||||||
Gilt Groupe, Inc. |
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Common shares | 6,594,433 | 3,783,860 | 1.49 | % | ||||||||
Learnist Inc, (f/k/a Grockit, Inc.) |
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Preferred shares, Series D | 2,005,945 | 2,073,472 | 0.82 | % | ||||||||
Preferred shares, Series E | 1,503,670 | 1,501,601 | 0.59 | % | ||||||||
Fullbridge, Inc. |
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Preferred shares, Series C | 3,193,444 | 3,378,542 | 1.33 | % | ||||||||
Warrants | 67,021 | 67,021 | 0.03 | % | ||||||||
CUX, Inc. (d/b/a CorpU) |
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Common Stock | 2,006,077 | 2,472,902 | 0.97 | % | ||||||||
Convertible preferred shares, Series D | 778,607 | 773,195 | 0.30 | % | ||||||||
Warrants | | | | % | ||||||||
Parchment, Inc. |
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Preferred shares, Series D | 3,000,000 | 3,237,736 | 1.27 | % | ||||||||
Totus Solutions, Inc. |
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Common shares | 3,014,384 | 720,000 | 0.28 | % | ||||||||
Preferred shares, Series A | 2,009,589 | 2,000,000 | 0.79 | % | ||||||||
Preferred shares, Series B | 400,000 | 400,000 | 0.16 | % | ||||||||
Global Education Learning (Holdings) Ltd. |
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Preferred shares, Series A | 2,999,998 | 3,003,237 | 1.18 | % | ||||||||
SharesPost, Inc. |
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Preferred shares, Series B | 2,259,716 | 2,232,283 | 0.88 | % | ||||||||
Common warrants, $0.13 strike price, expire 6/15/2018 | 23,128 | 323,792 | 0.13 | % | ||||||||
Dailybreak, Inc. |
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Preferred shares, Series A-1 | 2,430,950 | 2,429,540 | 0.96 | % | ||||||||
TrueCar, Inc. |
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Common shares | 2,014,863 | 2,414,826 | 0.95 | % | ||||||||
Kno, Inc. |
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Preferred shares, Series C | 2,262,006 | 450,000 | 0.18 | % | ||||||||
Preferred shares, Series C-1 | 7,510,334 | 1,500,000 | 0.59 | % | ||||||||
Common shares | 214,681 | | | % | ||||||||
Term Loan | 232,744 | 225,000 | 0.09 | % | ||||||||
Maven Research, Inc. |
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Preferred shares, Series C | 2,000,447 | 1,854,523 | 0.73 | % | ||||||||
Preferred shares, Series B | 217,206 | 231,386 | 0.09% |
4
Portfolio Company | Cost | Fair Value(1) | % of Net Assets | |||||||||
NestGSV, Inc. |
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Preferred shares, Series A | 1,021,778 | 1,200,000 | 0.47 | % | ||||||||
Preferred shares, Series B | 605,500 | 600,000 | 0.24 | % | ||||||||
Silver Spring Networks, Inc. |
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Common shares | 5,145,271 | 1,768,145 | 0.70 | % | ||||||||
S3 Digital Corp. (d/b/a S3i) |
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Preferred shares, Class A1 | 989,058 | 1,138,441 | 0.45 | % | ||||||||
Preferred warrants, $1.00 strike price, expire 11/21/2017 | 31,354 | 200,000 | 0.08 | % | ||||||||
Strategic Data Command, LLC |
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Common shares | 1,001,650 | 1,000,000 | 0.39 | % | ||||||||
SinoLending Ltd. |
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Preferred shares, Class A | 503,235 | 604,859 | 0.24 | % | ||||||||
Preferred shares, Class B | 250,263 | 250,000 | 0.10 | % | ||||||||
The rSmart Group, Inc. |
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Preferred shares, Series B | 1,267,240 | 840,112 | 0.33 | % | ||||||||
DreamBox Learning, Inc. |
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Preferred shares, Series A | 758,017 | 825,095 | 0.32 | % | ||||||||
AlwaysOn, Inc. |
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Preferred shares, Series A | 1,027,391 | 203,011 | 0.09 | % | ||||||||
Preferred shares, Series A-1 | 624,783 | 600,000 | 0.24 | % | ||||||||
AliphCom, Inc. (d/b/a Jawbone) |
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Common Stock | 793,152 | 792,600 | 0.31 | % | ||||||||
Ozy Media, Inc. |
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Preferred shares, Series Seed | 500,000 | 546,224 | 0.21 | % | ||||||||
NestGSV Silicon Valley, LLC |
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Common membership interest | 500,000 | 519,045 | 0.20 | % | ||||||||
The Echo System Corp. |
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Preferred shares, Series A | 1,436,404 | 373,535 | 0.15 | % | ||||||||
Preferred warrants, $0.20 strike price, expire 11/14/2016 | 75,988 | | | % | ||||||||
NewZoom, Inc. (d/b/a ZoomSystems) |
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Preferred shares, Series A | 260,476 | 262,500 | 0.10 | % | ||||||||
Neuron Fuel, Inc. |
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Preferred shares, Series AAI | 262,530 | 243,658 | 0.10 | % | ||||||||
Odesk Corporation |
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Common Stock | 183,269 | 188,995 | 0.07 | % | ||||||||
Starfish Holdings, Inc. (d/b/a YourOffers) |
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Preferred shares, Series A | 2,177,461 | | | % | ||||||||
Common warrants, $0.00001 strike price, expire 11/13/2019 | | | | % | ||||||||
Total Portfolio Investments | $ | 245,188,384 | $ | 252,983,446 | 99.49 | % |
(1) | Fair value was determined in good faith by our board of directors as of September 30, 2013 |
5
From September 30, 2013 through January 16, 2014, we closed on investments of $49,462,026, plus transaction costs in 15 portfolio investments. See Managements Discussion and Analysis of Financial Condition and Results of Operations Recent Developments for more information about these investments.
Our investment advisers track a broad list of potential investment opportunities based on fit with our key investment themes and financial characteristics. Within our broad list, we identify a subset of the opportunities that we believe provide the most attractive prospects for future investment. We generally have approximately 40 investments actively under evaluation at any given time. We devote most of our research efforts to understanding, analyzing and valuing these top 40 companies. Our investment adviser actively seeks opportunities to invest in these potential portfolio companies at pre-determined target prices. At any time, we may be in negotiations or in a pre-closing escrow period with several of the companies in our pipeline.
We entered into a loan and security agreement (the Loan Agreement), effective December 31, 2013, with Silicon Valley Bank to provide us with a new $18 million senior secured credit facility (the Credit Facility). Under the Credit Facility, we are permitted to borrow an amount equal to the lesser of $18 million or 20% of our then-current net asset value.
The Credit Facility, among other things, matures on December 31, 2016, and bears interest at a per annum rate equal to the greater of (i) the prime rate plus 4.75% and (ii) 8.0%. In addition, a fee of $180,000 per annum (1.0% of the $18 million revolving line of credit) is charged under the Loan Agreement. Under the Loan Agreement, we have made certain customary representations and warranties and we are required to comply with various covenants, reporting requirements, and other customary requirements for similar credit facilities. The Loan Agreement includes usual and customary events of default for credit facilities of this nature, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to certain other indebtedness, bankruptcy, change of control, and the occurrence of a material adverse effect.
The Credit Facility is secured by all of our property and assets, except for our assets pledged to secure certain obligations in connection with our issuance, in September 2013, of the Convertible Notes and, as provided for in the Loan Agreement, as may be pledged in connection with any future issuance by us of convertible senior notes on substantially similar terms.
Borrowing under the Credit Facility is subject to the leverage restrictions contained in the Investment Company Act of 1940, as amended. In addition, under the Loan Agreement, and as provided for therein, we have agreed not to incur certain additional permitted indebtedness in an aggregate amount exceeding 50% of our then-applicable net asset value.
The value of our assets, as well as the market price of our shares, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in GSV Capital involves other risks, including the following:
| Our investments in the rapidly growing venture capital backed emerging companies that we are targeting may be extremely risky and we could lose all or part of our investments; |
| Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments; |
| We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investment in the event of a bankruptcy or liquidation of any of our portfolio companies; |
| Most of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit; |
| The lack of liquidity in, and potentially extended duration of, many of our investments may adversely affect our business and will delay any distributions of gains, if any; |
6
| Our portfolio may be concentrated in a limited number of portfolio companies or market sectors, which will subject us to a risk of significant loss if the business or market position of these companies deteriorates or market sectors experience a market downturn; |
| Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences and periodic downturns; |
| We may be limited in our ability to make follow-on investments, for a number of reasons, including financial or regulatory restrictions, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio; |
| We have only a limited operating history; |
| Our inability to maintain our status as a business development company; |
| We are dependent upon GSV Asset Managements senior investment personnel for our future success; |
| We may experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods; |
| Risk associated with transacting on secondary marketplaces, including the limited availability and reliability of information relating to prospective investments and legal and regulatory risks; |
| We operate in a highly competitive market for direct equity investment opportunities; |
| We will generally make non-controlling investments and are subject to the risks that other significant shareholders may have interests that differ from those of the portfolio company or minority investors; |
| There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies; |
| Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to risks; |
| We were taxable as a C corporation during the 2012 taxable year. We will be subject to corporate-level income tax if we are profitable and we are unable to qualify as a RIC, which we have been unable to do for the 2013 taxable year. Unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations, we will not qualify as a RIC for the 2013 taxable year, which could have a material adverse effect on our financial performance. There can be no assurance that we will qualify as a RIC in the 2013 taxable year or in any subsequent taxable year; |
| Our common stock price may be volatile and may decrease substantially; |
| Our common stock has recently traded, and may in the future trade, at premiums that may prove to be unsustainable or at discounts from net asset value; and |
| There is a risk that you may not receive dividends or that our dividends may not grow over time, particularly since we invest primarily in securities that do not produce current income. As of the date of this filing, all sales of the Companys investments have, in the aggregate, generated a net realized loss. |
See Risk Factors beginning on page 21 and the other information included in this prospectus for additional discussion of factors you should carefully consider before deciding to invest in our securities.
Our investment activities are managed by GSV Asset Management, an investment adviser registered under the Investment Advisers Act of 1940, as amended, or the Advisers Act. GSV Asset Management is led by Michael T. Moe, our president, chief executive officer and chairman of our Board of Directors.
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Mr. Moe is assisted by Stephen D. Bard, our chief financial officer, chief compliance officer, treasurer and corporate secretary and David V. Crowder, our Executive Vice President, whom we refer to collectively as GSV Asset Managements senior investment professionals. Mr. Moe co-founded and previously served as chairman and chief executive officer of ThinkEquity Partners, an asset management and investment banking firm focusing on venture capital, entrepreneurial and emerging private companies. Prior to founding ThinkEquity, Mr. Moe served as Head of Global Growth Research at Merrill Lynch and before that served as Head of Growth Research and Strategy at Montgomery Securities.
We believe we benefit from the ability of our investment advisers senior investment professionals and Board of advisers (the Advisory Board) to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate terms, and manage and monitor a portfolio of those investments. See Portfolio Management Advisory Board to GSV Asset Management. Our investment advisers senior investment professionals and Advisory Board members have broad investment backgrounds, with prior experience at investment banks, commercial banks, unregistered investment funds and other financial services companies, and have collectively developed a broad network of contacts that provides us with an important source of investment opportunities.
We pay GSV Asset Management a fee for its services under an investment advisory agreement (the Investment Advisory Agreement) consisting of two components a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% of our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities). The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. See Investment Advisory Agreement. The terms for calculating the management fee create an incentive for our investment adviser to utilize leverage in the future because our management fee is based on our gross assets, including issuances of preferred stock and borrowings for investment purposes, rather than our net assets. We will be required, however, to obtain the approval of our Board of Directors before we incur any future indebtedness.
We believe that the technology industry is experiencing a convergence of numerous disruptive trends, producing new high-growth markets. The growth of both social networking and connected mobile devices, such as smartphones and tablets, has opened up new channels for communication and real-time collaboration. The number of devices and people that regularly connect to the Internet has increased dramatically in recent years, generating significant demand for always accessible, personalized and localized content and real-time online interactivity. These factors are creating opportunities for new market participants and significant growth for established companies with leading positions capitalizing on these trends.
At the same time, we believe that the initial public offering, or IPO, markets have experienced substantial structural changes which have made it significantly more challenging for private companies to go public. Volatile equity markets, a lack of investment research coverage for private and smaller companies and investor demand for a longer history of revenue and earnings growth have resulted in companies staying private significantly longer than in the past. In addition, increased public company compliance obligations such as those imposed by the Sarbanes-Oxley Act of 2002 have made it more costly and less attractive to become a public company. As a result, there are significantly fewer IPOs today than there were during the 1990s, with prospective public companies taking longer to come to market. For example, from 1991 2000, there were 4,361 IPOs in the United States, of which 1,701 were venture-capital backed. From 2001 2011, there were 1,286 IPOs, of which 600 were venture-capital backed. In 2012, there were 128 IPOs, of which 49 were venture backed.
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We seek to add to our portfolio of potentially high-growth emerging private companies via a repeatable and disciplined investment approach, as well as to provide investors with access to such companies through our publicly traded common stock.
Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity and equity-related investments. We have adopted the following business strategies to achieve our investment objective:
| Identify high quality growth companies. Based on our extensive experience in analyzing technology trends and markets, we have identified the technology sub-sectors of social mobile, cloud computing and big data, internet commerce, sustainability and education technology, as opportunities where we believe companies are capable of producing substantial growth. We rely on our collective industry knowledge as well as an understanding of where leading venture capitalists are investing. |
We leverage a combination of our relationships throughout Silicon Valley and our independent research to identify leaders in our targeted sub-sectors that we believe are differentiated and best positioned for sustained growth. Our evaluation process is based on what we refer to as the four Ps:
| People Organizations led by strong management teams with in-depth operational focus |
| Product Differentiated and disruptive products with leading market positioning |
| Potential Large addressable markets |
| Predictability Ability to forecast and drive predictable and sustainable growth |
We consider these to be the core elements for identifying rapidly growing emerging companies.
| Acquire positions in targeted investments. We seek to add to our portfolio by sourcing investments at an acceptable price through our disciplined investing strategy. To this end, we utilize multiple methods to acquire equity stakes in private companies that are not available to many individual investors. |
Direct equity investments. We seek direct investments in private companies. There is a large market among emerging private companies for equity capital investments. Many of these companies, particularly within the technology sector, lack the necessary cash flows to sustain substantial amounts of debt, and therefore have viewed equity capital as a more attractive long-term financing tool. We seek to be a source of such equity capital as a means of investing in these companies and look for opportunities to invest alongside other venture capital and private equity investors with whom we have established relationships.
Private secondary marketplaces and direct share purchases. We also utilize private secondary marketplaces as a means to acquire equity and equity-related interests in privately-held companies that meet our investment criteria and that we believe are attractive candidates for investment. We believe that such markets offer new channels for access to equity investments in private companies and provide a potential source of liquidity should we decide to exit an investment. In addition, we also purchase shares directly from stockholders, including current or former employees. As certain companies grow and experience significant increased value while remaining private, employees and other stockholders may seek liquidity by selling shares directly to a third party or to a third party via a secondary marketplace. Sales of shares in private companies are typically restricted by contractual transfer restrictions and may be further restricted by provisions in company charter documents, investor rights of first refusal and co-sale and company employment and trading policies, which may impose strict limits on transfer. We believe that our investment professionals reputation within the industry and history of investing affords us a favorable position when seeking approval for a purchase of shares subject to such limitations.
| Create access to a varied investment portfolio. We seek to hold a varied portfolio of non-controlling equity investments, which we believe will minimize the impact on our portfolio of a negative downturn at any one specific company. We believe that our relatively varied portfolio will |
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provide a convenient means for accredited and non-accredited individual investors to obtain access to an asset class that has generally been limited to venture capital, private equity and similar large institutional investors. |
We believe that we will benefit from the following competitive advantages in executing our investment strategy:
| Experienced team of investment professionals. Our investment advisers senior investment professionals, its Advisory Board and our Board of Directors have significant experience researching and investing in the types of potentially rapidly growing venture capital-backed emerging companies we are targeting for investment. Through our proprietary company evaluation process, including our identification of technology trends and themes and company research, we believe we have developed important insight into identifying and valuing emerging private companies. |
| Disciplined and repeatable investment process. We have established a disciplined and repeatable process to locate and acquire available shares at attractive valuations by utilizing multiple sources. In contrast to industry aggregators that accumulate stock at market prices, we conduct valuation analyses and make acquisitions only when we can invest at valuations that we believe are attractive to our investors. Following this process, we have completed investments in the 46 companies in our portfolio as of September 30, 2013. |
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| Deep relationships with significant credibility to source and complete transactions. GSV Asset Management and its senior investment professionals are strategically located in the heart of Silicon Valley in Woodside, California. During the course of over two decades of researching and investing in emerging private companies, our investment advisers senior investment professionals have developed strong reputations within the investing community, particularly within technology-related sectors. Our investment advisers Advisory Board members and our Board of Directors have also developed strong relationships in the financial, investing and technology-related sectors. |
| Source of permanent investing capital. As a publicly-traded corporation, we have access to a source of permanent equity capital which we can use to invest in portfolio companies. This permanent equity capital is a significant differentiator from other potential investors that may be required to return capital to stockholders on a defined schedule. We believe that our ability to invest on a long-term time horizon makes us attractive to companies looking for strong, stable owners of their equity. |
| Early mover advantage. We believe we are one of the few publicly traded business development companies with a specific focus on investing in potentially rapidly growing venture capital-backed emerging companies. The transactions that we have executed to date since our IPO have helped to establish our reputation with the types of secondary sellers and emerging companies that we target for investment. We have leveraged a number of relationships and channels to acquire the equity of private companies. As we continue to grow our portfolio with attractive investments, we believe that our reputation as a committed partner will be further enhanced, allowing us to source and close investments that would otherwise be unavailable. We believe that these factors collectively differentiate us from other potential investors in private company securities and will serve our goal to complete equity transactions in compelling private companies at attractive valuations. |
GSV Capital was formed as a Maryland corporation that is an externally managed, non-diversified closed-end management investment company. We completed our initial public offering in May 2011 and have elected to be treated as a business development company under the 1940 Act. As a business development company, we are required to meet regulatory tests, including the requirement to invest at least 70% of our gross assets in qualifying assets. Qualifying assets generally include, among other things, securities of eligible portfolio companies. Eligible portfolio companies generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any non-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets until such time as 70% of our then current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances. See Regulation as a Business Development Company. We were taxed as a C corporation for our 2012 taxable year. We may elect to be treated as a RIC, if management determines that it is in the best interests of the Company to do so and the Company is able to satisfy the requirements under subchapter M of the Code., which we will be unable to do for the 2013 taxable year unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations. See Material U.S. Federal Income Tax Considerations.
Our investment activities are managed by GSV Asset Management and supervised by our Board of Directors. GSV Asset Management is an investment adviser registered under the Advisers Act. Under our investment advisory agreement, which we refer to as the Investment Advisory Agreement, we have agreed to pay GSV Asset Management an annual base management fee based on our gross assets as well as an incentive fee based on our performance. See Investment Advisory Agreement. We have also entered into an administration agreement, which we refer to as the Administration Agreement, under which we have agreed to reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses incurred.
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Our principal office is located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
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We may offer, from time to time, up to $400,000,000 of our common stock, preferred stock, subscription rights to purchase shares of our common stock, debt securities, and warrants representing rights to purchase shares of our common stock, preferred stock or debt securities on terms to be determined at the time of the offering and set forth in one or more supplements to this prospectus. The offering price per share of our common stock, less any underwriting commissions or discounts, generally will not be less than the net asset value per share of our common stock at the time of an offering. However, we may in the future seek to issue shares of our common stock pursuant to this prospectus at a price per share that is less than our net asset value per share (i) with the prior approval of the majority of our common stockholders or (ii) under such other circumstances as the SEC may permit. In addition, even if we seek and obtain shareholder approval to sell our common stock at a price below our net asset value per share, we cannot do so unless our Board of Directors determines that it would be in our and our stockholders' best interests to do so.
Our securities may be offered directly to one or more purchasers, or through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to an offering will identify any agents or underwriters involved in the sale of our securities, and will disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See Plan of Distribution. We may not sell our securities through agents, underwriters or dealers without delivery of this prospectus and a prospectus supplement describing the method and terms of the offering of our securities.
Set forth below is additional information regarding offerings of our securities:
Use of Proceeds |
Unless otherwise specified in a prospectus supplement, we plan to invest the net proceeds from the sale of our securities pursuant to this prospectus and any accompanying prospectus supplement in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of any such net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of any such offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of such offering. Each supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering. See Use of Proceeds. |
NASDAQ Capital Market symbol |
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. |
Distributions |
The timing and amount of our dividends, if any, will be determined by our Board of Directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. As we focus on making primarily capital gains-based investments in equity securities, we do not anticipate that we will pay dividends on a quarterly basis or become a predictable distributor of dividends, and we expect that our dividends, if any, will be less consistent than the dividends of other business development companies that primarily make debt investments. |
Taxation |
The Company was taxed as a C corporation for its 2012 taxable year. Beginning with its 2013 taxable year, the Company may elect to be treated as a RIC under subchapter the Code, if management determines that it is in the best interests of the Company to do so |
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and the Company is able to satisfy the requirements under subchapter M of the Code. As a RIC, we generally will not be required to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To obtain and maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. There can be no assurances that we will be able to satisfy the requirements to qualify as a RIC under Subchapter M of the Code. See Distributions and Material U.S. Federal Income Tax Considerations. |
Investment Advisory Fees |
We pay GSV Asset Management a fee for its services under the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% of our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities). The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. See Investment Advisory Agreement. The terms for calculating the management fee create an incentive for our investment adviser to utilize leverage because our management fee is based on our gross assets, including borrowings for investment purposes, rather than our net assets. We will be required, however, to obtain the approval of our Board of Directors before we incur any additional indebtedness. |
Administration Agreement |
We reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services. In addition, we reimburse GSV Capital Service Company for the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our chief financial officer, chief compliance officer and other staff providing administrative services. Additionally, GSV Capital Service Company may outsource some of its duties. While there is no limit on the total amount of expenses we may be required to reimburse to GSV Capital Service Company, our administrator will only charge us for the actual expenses it incurs on our behalf, or our allocable portion thereof, |
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without any profit to GSV Capital Service Company. See Administration Agreement. |
Leverage |
We borrow for investment purposes and as a result are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to our investment adviser, GSV Asset Management, will be borne by our security holders. |
Trading |
Shares of closed-end investment companies frequently trade at a discount to their net asset value. The risk that our shares may trade at a discount to our net asset value is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our shares will trade above, at or below net asset value. |
License Agreement |
We have entered into a license agreement with GSV Asset Management, pursuant to which GSV Asset Management has agreed to grant us a non-exclusive, royalty-free license to use the name GSV. See License Agreement. |
Dividend Reinvestment Plan |
We have adopted an opt out dividend reinvestment plan. If your shares of common stock are registered in your own name, your distributions will automatically be reinvested under our dividend reinvestment plan in additional whole and fractional shares of common stock, unless you opt out of our dividend reinvestment plan so as to receive cash dividends by delivering a written notice to our dividend paying agent. If your shares are held in the name of a broker or other nominee, you should contact the broker or nominee for details regarding opting out of our dividend reinvestment plan. Stockholders who receive distributions in the form of stock will be subject to the same federal, state and local tax consequences as stockholders who elect to receive their distributions in cash. See Dividend Reinvestment Plan. |
Certain Anti-Takeover Measures |
Our charter and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our securities the opportunity to realize a premium over the market price for our securities. See Description of Our Securities. |
Risk Factors |
Investing in our securities involves a high degree of risk. You should consider carefully the information found under the heading Risk Factors. We have only a limited operating history as a business development company and as a regulated investment company. If we fail to qualify as a regulated investment company, we could become subject to federal income tax on all of our income, which would have a material adverse effect on our financial performance. We invest in rapidly growing venture capital-backed emerging companies. These activities may involve a high degree of business and financial risk. We are also subject to |
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risks associated with access to additional capital, fluctuating quarterly results and variation in our portfolio value. |
Available Information |
We have filed with the SEC a registration statement on Form N-2 together with all amendments and related exhibits under the Securities Act. The registration statement contains additional information about us and the securities being offered by this prospectus. |
We are required to file periodic reports, current reports, proxy statements and other information with the SEC. This information is available at the SECs public reference room at 100 F Street, NE, Washington, D.C. 20549 and on the SECs website at http://www.sec.gov. The public may obtain information on the operation of the SECs public reference room by calling the SEC at (202) 551-8090. This information is also available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. |
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The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly on an as-converted basis. We caution you that some of the percentages indicated in the table below are estimates and may vary. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by us or GSV Capital, or that we will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in GSV Capital Corp., however, your responsibility for such fees or expenses is limited to your investment in GSV Capital Corp.
Stockholder transaction expenses: |
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Sales load (as a percentage of offering price) | (1) | |||
Offering expenses (as a percentage of offering price) | (2) | |||
Dividend reinvestment plan expenses | None | |||
Total stockholder transaction expenses (as a percentage of offering price) | 0.00 | (2) | ||
Annual expenses (as a percentage of net assets attributable to common stock):(5)(8) |
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Base management fee | 2.37 | %(3) | ||
Incentive fees payable under our investment advisory agreement (20%) | 0.00 | %(4) | ||
Interest payments on borrowed funds | 1.43 | %(5) | ||
Other expenses | 1.52 | %(6) | ||
Acquired fund fees and expenses | 0.00 | %(7) | ||
Total annual expenses | 5.32 | % |
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. See Note 7 below for additional information regarding certain assumptions regarding our level of leverage subsequent to this offering.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return | $ | 63 | $ | 187 | $ | 308 | $ | 596 |
(1) | In the event that our securities are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load. |
(2) | In the event that we conduct an offering of our securities, a corresponding prospectus supplement will disclose the estimated offering expenses. Our common stockholders will bear, directly or indirectly, the expenses of any offering of our securities, including debt securities. |
(3) | Reflects our base management fee as a percentage of our net assets. Our base management fee under the Investment Advisory Agreement is based on our gross assets including an assumed $25 million of additional debt, which is our total assets as reflected on our balance sheet (with no deduction for liabilities), including those acquired using borrowings for investment purposes. See Investment Advisory Agreement. As a result, to the extent we elect to utilize additional leverage in the future, our base management fee as a percentage of our net assets would increase. |
(4) | The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For a more detailed discussion of the calculation of this fee, see Investment Advisory Agreement. For accounting purposes, in order to reflect the theoretical capital |
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gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. As of September 30, 2013, we had no accrued incentive fees. |
(5) | We are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to our investment adviser, GSV Asset Management, are borne by our common stockholders. For purposes of this section, we have assumed that we have $69 million of outstanding borrowings at an annual interest rate of 5.25%, which reflects our oustanding convertible senior notes as of September 30, 2013, and we assume that we issue $25 million of additional debt with an interest rate equal to 8.0% per annum. |
(6) | Other expenses ($5,979,784) are based upon estimates for the 12 months ending January 30, 2015. Due to the volatility of the loss on fair value adjustment for the embedded derivative, we excluded it from the other expenses calculation as it does not accurately reflect the operating expenses of the Company. |
(7) | Amount reflects our estimated expenses for the 12 months ending December 30, 2014 relating to the temporary investment of proceeds in money market funds pending our investment of such proceeds in portfolio companies in accordance with our investment objective and strategies described in this prospectus. |
(8) | Net assets attributable to common stock, (as used to calculate the annual expense ratios) reflect our September 30, 2013 net asset value adjusted for the impact of the Senior Convertible Notes issuance and assumed future common stock offerings. Assumed common stock offerings, for purposes of this calculation, are $50 million each, occurring, respectively, on February 28, 2014; May 31, 2014; August 31, 2014; November 30, 2014. |
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. As the incentive fee under the Investment Advisory Agreement is payable only on realized capital gains, this illustration assumes that the entire 5.0% annual return is in the form of realized capital gains (computed net of all realized capital losses and unrealized capital depreciation) in each of the indicated time periods, and that we will be required to pay an incentive fee on the full amount of the annual return. If we achieve a greater realization of realized capital gains than the assumed 5.0% annual return, our expenses and returns to our investors would be higher. Also, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See Dividend Reinvestment Plan for additional information regarding our dividend reinvestment plan.
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The selected financial and other data below should be read in conjunction with our Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto. The selected financial data at December 31, 2012, and for the period from January 6, 2011 (date of inception) to December 31, 2011 have been derived from financial statements that have been audited by Grant Thornton LLP, an independent registered public accounting firm. Quarterly financial information is derived from unaudited financial data, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) which are necessary to present fairly the results for such interim periods. See Managements Discussion and Analysis of Financial Condition and Results of Operations below for more information.
Nine months ended September 30, 2013 (unaudited) |
At and For the Fiscal Year Ended December 31, 2012 | At and For the Fiscal Year Ended December 31, 2011(1) |
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Income Statement Data: |
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Total investment income | $ | 22,902 | $ | 248,077 | $ | 162,328 | ||||||
Total operating expenses | 7,991,327 | 8,530,958 | 2,196,192 | |||||||||
Net investment loss | (7,968,425 | ) | (8,282,881 | ) | (2,033,864 | ) | ||||||
Net realized loss on investments | (9,837,093 | ) | (1,380,519 | ) | | |||||||
Net change in unrealized appreciation (depreciation) on investments | 19,545,712 | (10,170,850 | ) | (1,579,800 | ) | |||||||
Net increase (decrease) in net assets resulting from operations | 1,740,194 | (19,834,250 | ) | (3,613,664 | ) | |||||||
Balance Sheet Data: |
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Total assets | 324,530,680 | 253,130,728 | 91,798,242 | |||||||||
Total liabilities | 70,207,685 | 547,927 | 20,294,994 | |||||||||
Total net assets | 254,322,995 | 252,582,801 | 71,503,248 | |||||||||
Per Common Share Data: |
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Net decrease in net assets resulting from operations per average share(2). | 0.09 | (1.23 | ) | (1.07 | ) | |||||||
Net asset value per share | 13.16 | 13.07 | 12.95 |
(1) | Includes the period from January 6, 2011 (date of inception) to December 31, 2011. |
(2) | Weighted average common shares for the nine months ended September 30, 2013, were 19,320,100. Weighted average common shares for the fiscal year ended December 31, 2012, were 16,096,330. Weighted average common shares for the period from January 6, 2011 (date of inception) to December 31, 2011 were 3,377,429, which was calculated starting from the issuance on February 28, 2011 of 100 shares. |
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The following table sets forth certain quarterly financial information for each quarter in the fiscal years ended December 31, 2011 and December 31, 2012, and for the nine months ended September 30, 2013. This information was derived from our unaudited financial statements. Results for any quarter are not necessarily indicative of results for the full year or for any future quarter.
At and For the Three Months Ended (in thousands, except per share data) | September 30, 2013 | June 30, 2013 |
March 31, 2013 |
December 30, 2012 | September 30, 2012 | June 30, 2012 |
March 31, 2012 |
December 31, 2011 | September 30, 2011 | June 30, 2011 |
March 31, 2011(1) |
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Total investment income | $ | 3 | $ | 16 | $ | 5 | $ | 6 | $ | 14 | $ | 110 | $ | $118 | $ | 109 | $ | 53 | $ | | $ | | ||||||||||||||||||||||
Total operating expenses | 3,016 | 2,403 | 2,572 | 2,780 | 2,348 | 2,190 | 1,212 | 787 | 733 | 565 | 111 | |||||||||||||||||||||||||||||||||
Net investment loss | (3,013 | ) | (2,387 | ) | (2,568 | ) | (2,774 | ) | (2,335 | ) | (2,080 | ) | (1,094 | ) | (678 | ) | (680 | ) | (565 | ) | (111 | ) | ||||||||||||||||||||||
Net realized loss on investments | (163 | ) | (6,328 | ) | (3,347 | ) | | | (1,380 | ) | | | | | | |||||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on investments | 8,892 | 12,230 | (1,577 | ) | (4,502 | ) | (4,665 | ) | (2,015 | ) | 1,011 | (1,026 | ) | (494 | ) | (60 | ) | | ||||||||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations | 5,716 | 3,516 | (7,491 | ) | (7,276 | ) | (7,000 | ) | (5,475 | ) | (83 | ) | (1,704 | ) | (1,174 | ) | (625 | ) | (111 | ) | ||||||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations per average share(2) | 0.29 | 0.18 | (0.38 | ) | (0.38 | ) | (0.36 | ) | (0.34 | ) | (0.01 | ) | (0.31 | ) | (0.34 | ) | (0.27 | ) | (1,108.08 | ) | ||||||||||||||||||||||||
Net asset value per share | 13.16 | 12.87 | 12.69 | 13.07 | 13.45 | 13.81 | 13.47 | 12.95 | 13.26 | 13.57 | (1,093.08 | ) |
(1) | Includes the period from January 6, 2011 (date of inception) through March 31, 2011, which preceded the completion of our initial public offering in May 2011. |
(2) | Weighted average common shares were 100, 2,345,595, 3,430,100, 5,520,100, 9,387,133, 16,287,133, 19,320,100, 16,096,330, 19,320,100, 19,320,100 and 19,320,100 for the three months ended March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012, June 30, 2012, September 30, 2012, December 31, 2012, March 31, 2013, June 30, 2013 and September 30, 2013, respectively. |
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Investing in our securities involves a number of significant risks. In addition to the other information contained in this prospectus and any accompanying prospectus supplement, you should consider carefully the following information before making an investment in our securities. Although the risks described below represent the material risks associated with investments in our securities, specifically, as well as those factors generally associated with investment in a company with investment objectives, investment policies, capital structure or trading markets similar to GSV Capital Corp.s, they are not the only risks we face. Additional risks and uncertainties not presently known to us might also impair our operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, our net asset value and the trading price of our securities could decline, and you may lose all or part of your investment.
Investment in the rapidly growing venture capital-backed emerging companies that we are targeting involves a number of significant risks, including:
| these companies may have limited financial resources and may be unable to meet their obligations under their existing debt, which may lead to equity financings, possibly at discounted valuations, in which we could be substantially diluted if we do not or cannot participate, bankruptcy or liquidation and the reduction or loss of our equity investment; |
| they typically have limited operating histories, narrower, less established product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors actions, market conditions and consumer sentiment in respect of their products or services, as well as general economic downturns; |
| they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; |
| because they are privately owned, there is generally little publicly available information about these businesses; therefore, although our investment advisers agents will perform due diligence investigations on these portfolio companies, their operations and their prospects, we may not learn all of the material information we need to know regarding these businesses and, in the case of investments we acquire on private secondary transactions, we may be unable to obtain financial or other information regarding the companies with respect to which we invest. Furthermore, there can be no assurance that the information that we do obtain with respect to any investment is reliable; and |
| they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. |
A portfolio companys failure to satisfy financial or operating covenants imposed by its lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our equity investment in such portfolio company. We may incur expenses to the extent necessary to seek recovery of our equity investment or to negotiate new terms with a financially distressed portfolio company.
Our portfolio investments will generally not be in publicly traded securities. As a result, although we expect that some of our equity investments may trade on private secondary marketplaces, the fair value of our direct investments in portfolio companies will often not be readily determinable. Under the 1940 Act, for our
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investments for which there are no readily available market quotations, including securities that while listed on a private securities exchange, have not actively traded, we will value such securities at fair value quarterly as determined in good faith by our Board of Directors based upon the recommendation of the Board of Directors Valuation Committee in accordance with our written valuation policy. In connection with that determination, members of our investment advisers portfolio management team will prepare portfolio company valuations using, where available, the most recent portfolio company financial statements and forecasts. The Valuation Committee intends to utilize the services of an independent valuation firm, which will prepare valuations for each of our portfolio investments that are not publicly traded or for which we do not have readily available market quotations, including securities that while listed on a private securities exchange, have not actively traded. However, the Board of Directors will retain ultimate authority as to the appropriate valuation of each such investment. The types of factors that the Valuation Committee will take into account in providing its fair value recommendation to the Board of Directors with respect to such non-traded investments will include, as relevant and, to the extent available, the portfolio companys earnings, the markets in which the portfolio company does business, comparison to valuations of publicly traded companies, comparisons to recent sales of comparable companies, the discounted value of the cash flows of the portfolio company and other relevant factors. This information may not be available because it is difficult to obtain financial and other information with respect to private companies, and even where we are able to obtain such information, there can be no assurance that it is complete or accurate. Because such valuations are inherently uncertain and may be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a readily available market for these securities existed. Due to this uncertainty, our fair value determinations with respect to any non-traded investments we hold may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our investments. As a result, investors purchasing our common stock based on an overstated net asset value would pay a higher price than the value of our investments might warrant. Conversely, investors selling shares during a period in which the net asset value understates the value of our investments will receive a lower price for their shares than the value of our investments might warrant.
We invest principally in the equity and equity-related securities of rapidly growing venture capital-backed emerging companies. However, the equity interests we acquire may not appreciate in value and, in fact, may decline in value. For example, for the three months ended June 30, 2013, we recognized a loss on investments in Top Hat 430, Inc. Serious Energy, Inc. and AltEgo, LLC in an aggregate amount of $6,327,632. In addition, we recognized a loss on the sales of our investments in Zynga, Inc. and Groupon, Inc. in the aggregate amount of $3,346,892.
In addition, the private company securities we acquire are often subject to drag-along rights, which could permit other stockholders, under certain circumstances, to force us to liquidate our position in a subject company at a specified price, which could be, in our opinion, inadequate or undesirable or even below our cost basis. In this event, we could realize a loss or fail to realize gain in an amount that we deem appropriate on our investment. Further, capital market volatility and the overall market environment may preclude our portfolio companies from realizing liquidity events and impede our exit from these investments. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We will generally have little, if any, control over the timing of any gains we may realize from our equity investments unless and until the portfolio companies in which we invest become publicly traded. In addition, the companies in which we invest may have substantial debt loads. In such cases, we would typically be last in line behind any creditors in a bankruptcy or liquidation, and would likely experience a complete loss on our investment.
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Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on the portfolio, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.
Assumed Return on Portfolio (Net of Expenses) | -10 | % | -5 | % | 0 | % | 5 | % | 10 | % | ||||||||||
Corresponding Return to Stockholders(1) | -15.95 | % | -9.08 | % | -2.21 | % | 4.66 | % | -11.53 | % |
(1) | Assumes $324.5 million in total assets and $94 million in total debt outstanding, which reflects our total assets and total debt outstanding as of September 30, 2013 (adjusted to include the assumption that we issue $25.0 million of additional debt at an interest rate equal to 8% per annum). |
We have limited information about the financial performance and profitability of some of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit.
Our investments will generally not be in publicly traded securities. Although we expect that some of our equity investments will trade on private secondary marketplaces, certain of the securities we hold will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. In addition, while some portfolio companies may trade on private secondary marketplaces, we can provide no assurance that such a trading market will continue or remain active, or that we will be able to sell our position in any portfolio company at the time we desire to do so and at the price we anticipate. The illiquidity of our investments, including those that are traded on private secondary marketplaces, may make it difficult for us to sell such investments if the need arises. Also, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. We will have no limitation on the portion of our portfolio that may be invested in illiquid securities, and a substantial portion or all of our portfolio may be invested in such illiquid securities from time to time.
In addition, because we will generally invest in equity and equity-related securities, with respect to the majority of our portfolio companies, we do not expect regular realization events, if any, to occur in the near term. We expect that many of our holdings of equity securities may require several years to appreciate in value, and we can offer no assurance that such appreciation will occur. Even if such appreciation does occur, it is likely that initial purchasers of our shares could wait for an extended period of time before any appreciation or sale of our investments, and any attendant distributions of gains, may be realized.
A consequence of our limited number of investments is that the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. For example, as of December 31, 2012, over half of our portfolio company investments were comprised of investments in ten portfolio companies. Beyond the asset diversification requirements necessary to qualify as a RIC, we have general guidelines for diversification, however our investments could be concentrated in relatively few issuers. In addition, our investments may be concentrated in a limited number of market sectors, including in technology-related sectors. As a result, a downturn in any market sector in which a significant number of our portfolio companies operate, or the deterioration of the market position of any portfolio company in which we have a material position, could materially adversely affect us.
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Given the experience of our investment advisers senior investment professionals and its Advisory Board members within the technology space, we expect that a number of the companies with respect to which we invest will operate in technology-related sectors. The revenues, income (or losses) and valuations of technology-related companies can and often do fluctuate suddenly and dramatically. In addition, because of rapid technological change, the average selling prices of products and some services provided by technology-related sectors have historically decreased over their productive lives. As a result, the average selling prices of products and services offered by our portfolio companies that operated in technology-related sectors may decrease over time, which could adversely affect their operating results and, correspondingly, the value of any equity securities that we may hold. This could, in turn, materially adversely affect our business, financial condition and results of operations.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as follow-on investments, in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our investment.
We may elect not to make follow-on investments, or may otherwise lack sufficient funds to make those investments or lack access to desired follow-on investment opportunities. We have the discretion to make any follow-on investments, subject to the availability of capital resources and of the investment opportunity. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, or because we are inhibited by compliance with business development company requirements or the desire to qualify to maintain our status as a RIC or lack access to the desired follow-on investment opportunity.
In addition, we may be unable to complete follow-on investments in our portfolio companies that have conducted an initial public offering as a result of regulatory or financial restrictions.
Generally, we will not take controlling equity positions in our portfolio companies. As a result, we will be subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. In addition, other shareholders, such as venture capital and private equity sponsors, that have substantial investments in our portfolio companies may have interests that differ from that of the portfolio company or its minority shareholders, which may lead them to take actions that could materially and adversely affect the value of our investment in the portfolio company. Due to the lack of liquidity for the equity and equity-related investments that we will typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company or its substantial shareholders, and may therefore suffer a decrease in the value of our investments.
While we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies, including those located in emerging markets, that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value
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of our total investment portfolio. Investing in foreign companies, and particularly those in emerging markets, may expose us to additional risks not typically associated with investing in U.S. issues. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Further, we may have difficulty enforcing our rights as equity holders in foreign jurisdictions. In addition, to the extent we invest in non-U.S. companies, we may face greater exposure to foreign economic developments.
Although we expect that most of our investments will be U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments.
If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.
We were initially formed in September 2010 and completed our initial public offering in May 2011. As a result, we have relatively limited financial information on which you can evaluate an investment in our company or our prior performance and a limited history of operating pursuant to the requirements to continue as a BDC under the 1940 Act and to qualify as a RIC under the Code. For example, in the fiscal year ended December 31, 2012, we failed to satisfy certain tests required for us to qualify as a RIC under the Code. In addition, our investment adviser, GSV Asset Management, was formed in November 2009, and has only a limited history of investing experience managing a pool of assets substantially smaller in size than the net proceeds that were received in the initial public offering. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objective and that the value of your investment could decline substantially or fall to zero.
We intend to continue to qualify as a business development company under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of business development companies. For example, business development companies are required to invest at least 70% of their gross assets in specified types of securities, primarily in private companies or thinly-traded U.S. public companies, cash, cash equivalents,
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U.S. government securities and other high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on business development companies by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw our status as a business development company. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a business development company, we may be subject to the substantially greater regulation under the 1940 Act as a closed-end investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our costs of doing business. If we do not remain a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.
We depend on the diligence, skill and network of business contacts of the GSV Asset Managements senior investment professionals. These senior investment professionals, together with other investment professionals employed by GSV Asset Management, evaluate, negotiate, structure, close, monitor and service our investments. Our future success will depend to a significant extent on the continued service and coordination of our investment advisers senior investment professionals, particularly Michael T. Moe, Mark W. Flynn, David V. Crowder, Stephen D. Bard, Luben Pampoulov and Matthew Hanson. None of Messrs. Moe, Flynn, Crowder, Bard, Pampoulov, or Hanson is subject to an employment contract, and none receive any compensation from us. None of Messrs. Moe, Flynn, Crowder, Bard, Pampoulov or Hanson devote all of their business time to our operations, and each have other demands on their time as a result of their other activities. The departure of any of these individuals could have a material adverse effect on our ability to achieve our investment objective.
None of the members of GSV Asset Managements senior investment professionals or its Advisory Board members, including Michael T. Moe, Mark W. Flynn, Stephen D. Bard, David V. Crowder, Luben Pampoulov and Matthew Hanson, are subject to employment agreements. As a result, although Messrs. Moe, Flynn, Bard, Crowder, Pampoulov and Hanson comprise the principals of GSV Asset Management, they are free to terminate their employment with GSV Asset Management at any time. In addition, none of our investment advisers senior investment professionals or the Advisory Board members, including Messrs. Moe, Flynn, Bard, Crowder, Pampoulov and Hanson, are subject to any non-compete agreements that would restrict their ability to provide investment advisory services to an entity with an investment objective similar to our own in the event they were to terminate their employment with GSV Asset Management, or if GSV Asset Management were to no longer serve as our investment adviser. There can be no assurance that our investment adviser will be successful in retaining its senior investment professionals or the Advisory Board members, including Messrs. Moe, Flynn, Bard, Crowder, Pampoulov and Hanson. The departure of any of Messrs. Moe, Flynn, Bard, Crowder, Pampoulov or Hanson could have a material adverse effect on our ability to achieve our investment objective.
Our growth will require that GSV Asset Management retain and attract new investment and administrative personnel in a competitive market. Its ability to attract and retain personnel with the requisite credentials, experience and skills will depend on several factors including, but not limited to, its ability to offer competitive wages, benefits and professional growth opportunities. Many of the entities with which GSV Asset Management will compete for experienced personnel, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, will have greater resources than it.
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We are a relatively new company. As such, we are subject to the business risks and uncertainties associated with any new business enterprise. Our ability to achieve our investment objective will depend on our investment advisers ability to identify, analyze and invest in companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our investment advisers structuring of the investment process and its ability to provide competent, attentive and efficient services to us. We seek a specified number of investments in rapidly growing venture capital-backed emerging companies, which may be extremely risky. There can be no assurance that GSV Asset Management will be successful in identifying and investing in companies that meet our investment criteria, or that we will achieve our investment objective.
In addition to monitoring the performance of our existing investments, GSV Asset Management is required to offer, and may be called upon, to provide, managerial assistance to some of our portfolio companies. GSV Asset Management also currently manages GSV X Fund, LP (GSV X Fund), a global long/short absolute return fund, in which we have no economic interest, and may manage one or more additional vehicles with alternative investment strategies in the future. These demands on their time may distract them or slow the rate of investment. Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described herein, it could negatively impact our ability to pay dividends.
We will likely experience fluctuations in our quarterly operating results due to a number of factors, including the rate at which we make new investments, the level of our expenses, changes in the valuation of our portfolio investments, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. These fluctuations may in certain cases be exaggerated as a result of our focus on realizing capital gains rather than current income from our investments. In addition, there can be no assurance that we will be able to locate or acquire investments that are of a similar nature to those currently in our portfolio. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
We are substantially dependent on our informal relationships, which we use to help identify and gain access to investment opportunities. If we fail to maintain our relationships with key firms, or if we fail to establish strong referral relationships with other firms or other sources of investment opportunities, we will not be able to grow our portfolio of equity investments and achieve our investment objective. In addition, persons with whom we have informal relationships are not obligated to inform us of investment opportunities, and therefore such relationships may not lead to the origination of equity or other investments. Any loss or diminishment of such relationships could effectively reduce our ability to identify attractive portfolio companies that meet our investment criteria, either for direct equity investments or for investments through private secondary market transactions or other secondary transactions.
We have utilized and expect to continue to utilize private secondary marketplaces, such as SharesPost, Inc. and SecondMarket, to acquire investments in our portfolio. When we purchase secondary shares we may have little or no direct access to financial or other information from these portfolio companies. As a result, we are dependent upon the relationships and contacts of our investment advisers senior investment professionals,
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its Advisory Board members and our Board of Directors to obtain the information for our investment adviser to perform research and due diligence, and to monitor our investments after they are made. There can be no assurance that our investment adviser will be able to acquire adequate information on which to make its investment decision with respect to any private secondary marketplace purchases, or that the information it is able to obtain is accurate or complete. Any failure to obtain full and complete information regarding the portfolio companies with respect to which we invest through private secondary marketplaces could cause us to lose part or all of our investment in such companies, which would have a material and adverse effect on our net asset value and results of operations.
In addition, while we believe the ability to trade on private secondary marketplaces provides valuable opportunities for liquidity, there can be no assurance that the portfolio companies with respect to which we invest through private secondary marketplaces will have or maintain active trading markets, and the prices of those securities may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods, which may cause an inability for us to realize full value on our investment. In addition, wide swings in market prices, which are typical of irregularly traded securities, could cause significant and unexpected declines in the value of our portfolio investments. Further, prices in private secondary marketplaces, where limited information is available, may not accurately reflect the true value of a portfolio company, and may overstate a portfolio companys actual value, which may cause us to realize future capital losses on our investment in that portfolio company. If any of the foregoing were to occur, it would likely have a material and adverse effect on our net asset value and results of operations.
Investments in private companies, including through private secondary marketplaces, also entail additional legal and regulatory risks which expose participants to the risk of liability due to the imbalance of information among participants and participant qualification and other transactional requirements applicable to private securities transactions, the non-compliance with which could result in rescission rights and monetary and other sanctions. The application of these laws within the context of private secondary marketplaces and related market practices are still evolving, and, despite our efforts to comply with applicable laws, we could be exposed to liability. The regulation of private secondary marketplaces is also evolving. Additional state or federal regulation of these markets could result in limits on the operation of or activity on those markets. Conversely, deregulation of these markets could make it easier for investors to invest directly in private companies and affect the attractiveness of our company as an access vehicle for investment in private shares. Private companies may also increasingly seek to limit secondary trading in their stock, such as through contractual transfer restrictions, and provisions in company charter documents, investor rights of first refusal and co-sale and/or employment and trading policies further restricting trading. To the extent that these or other developments result in reduced trading activity and/or availability of private company shares, our ability to find investment opportunities and to liquidate our investments could be adversely affected.
Most of our investments are or will be in equity or equity-related securities of privately-held companies. The securities we acquire in private companies are typically subject to contractual transfer limitations, which may include prohibitions on transfer without the companys consent, may require that shares owned by us are held in escrow and may include provisions in company charter documents, investor rights of first refusal and co-sale and/or employment or trading policies further restricting trading. In order to complete a purchase of shares we may need to, among other things, give the issuer, its assignees or its stockholders a particular period of time, often 30 days or more, in which to exercise a veto right, or a right of first refusal over, the sale of such securities. We may be unable to complete a purchase transaction if the subject company or its stockholders chooses to exercise a veto right or right of first refusal. When we complete an investment, we generally become bound to the contractual transfer limitations imposed on the subject companys stockholders as well as other contractual obligations, such as co-sale or tag-along rights. These obligations generally expire only upon an IPO by the subject company. As a result, prior to an IPO, our ability to liquidate may be constrained. Transfer restrictions could limit our ability to liquidate our positions in these securities if we are unable to find buyers acceptable to our portfolio companies, or where applicable, their stockholders. Such buyers may not be willing to purchase our investments at adequate prices or in volumes sufficient to liquidate our position, and even where they are willing, other stockholders could exercise their co-sale or tag-along
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rights to participate in the sale, thereby reducing the number of shares sellable by us. Furthermore, prospective buyers may be deterred from entering into purchase transactions with us due to the delay and uncertainty that these transfer and other limitations create.
Although we believe that secondary marketplaces may offer an opportunity to liquidate our private company investments, there can be no assurance that a trading market will develop for the securities that we wish to liquidate or that the subject companies will permit their shares to be sold through such marketplaces. Even if some of our portfolio companies complete IPOs, we are typically subject to lock-up provisions that prohibit us from selling our investments into the public market for specified periods of time after IPOs. As a result, the market price of securities that we hold may decline substantially before we are able to sell these securities following an IPO.
Due to the illiquid nature of most of our investments, we may not be able to sell these securities at times when we deem it advantageous to do so, or at all. Because our net asset value is only determined on a quarterly basis and due to the difficulty in assessing this value, our net asset value may not fully reflect the illiquidity of our portfolio, which may change on daily basis, depending on many factors, including the status of the private secondary markets and our particular portfolio at any given time.
We invest primarily in rapidly growing venture capital-backed emerging companies, either through private secondary transactions or other secondary transactions or direct investments in companies. Such private companies frequently have much more complex capital structures than traditional publicly-traded companies, and may have multiple classes of equity securities with differing rights, including with respect to voting and distributions. In addition, it is often difficult to obtain financial and other information with respect to private companies, and even where we are able to obtain such information, there can be no assurance that it is complete or accurate. In certain cases, such private companies may also have senior or pari passu preferred stock or senior debt outstanding, which may heighten the risk of investing in the underlying equity of such private companies, particularly in circumstances when we have limited information with respect to such capital structures. Although we believe that our investment advisers senior investment professionals, our Advisory Board members and our Board of Directors have extensive experience evaluating and investing in private companies with such complex capital structures, there can be no assurance that we will be able to adequately evaluate the relative risks and benefits of investing in a particular class of a portfolio companys equity securities. Any failure on our part to properly evaluate the relative rights and value of a class of securities in which we invest could cause us to lose part or all of our investment, which in turn could have a material and adverse effect on our net asset value and results of operations.
As a business development company, we need the ability to raise additional capital for investment purposes. Without sufficient access to the capital markets, we may be forced to curtail our business operations or we may not be able to pursue new business opportunities. Disruptive conditions in the financial industry and any new legislation in response to those conditions could restrict our business operations and could adversely impact our results of operations and financial condition.
To the extent we do utilize leverage and the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the 1940 Act. Any such failure would affect our ability to issue senior securities, including borrowings, and pay dividends, which could materially impair our business operations. Our liquidity could be impaired further by an inability to access the capital markets. For example, we cannot be certain that we will be able to raise additional equity capital to provide funding for normal operations, including new investments. Reflecting concern about the stability of the financial markets, many institutional investors have reduced or ceased providing funding to certain borrowers. This market turmoil has led to increased market volatility and widespread reduction of business activity generally.
A large number of entities compete with us to make the types of direct equity investments that we target as part of our business strategy. We compete for such investments with a large number of private equity and
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venture capital funds, other equity and non-equity based investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and specialty finance companies. Many of our competitors are substantially larger than us and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company. There can be no assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make direct equity investments that are consistent with our investment objective.
The incentive fee payable by us to GSV Asset Management may create an incentive for GSV Asset Management to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to GSV Asset Management is determined, which is calculated as a percentage of the return on invested capital, may encourage GSV Asset Management to use leverage to increase the return on our investments. In addition, the fact that our base management fee is payable based upon our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities), may encourage GSV Asset Management to use leverage to make additional investments. On September 17, 2013, we completed a private placement of 5-year unsecured 5.25% Convertible Senior Notes. A total of $69.0 million in aggregate principal amount of the Convertible Senior Notes were issued at the closing. We will be required, however, to obtain the approval of our Board of Directors before we incur any additional indebtedness. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor holders of our common stock. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.
In addition, our investment adviser has control over the timing of the acquisition and dispositions of our investments, and therefore over when we realize gains and losses on our investments. As a result, our investment adviser may face a conflict of interest in determining when it is appropriate to dispose of a specific investment to the extent doing so may serve to maximize its incentive fee at a point where disposing of such investment may not necessarily be in the best interests of our stockholders. Our Board of Directors monitors such conflicts of interest in connection with its review of the performance of our investment adviser under our Investment Advisory Agreement, as well as during its quarterly review of our financial performance and results of operations.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. In addition to the Convertible Senior Notes, we may borrow from and issue senior debt securities to banks, insurance companies and other lenders. Lenders of such senior securities would have fixed dollar claims on our assets that are superior to the claims of our common stockholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Leverage is generally considered a speculative investment technique. Our ability to service the Convertible Senior Notes and any future debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as the management fee payable to GSV Asset Management will be payable on our gross assets, including those
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assets acquired through the use of leverage, GSV Asset Management may have a financial incentive to incur additional leverage which may not be consistent with our stockholders interests. In addition, our common stockholders will bear the burden of any increase in our expenses as a result of such leverage, including any increase in the management fee payable to GSV Asset Management.
We have entered into an Investment Advisory Agreement with GSV Asset Management. GSV Asset Management is controlled by Michael T. Moe, our president, chief executive officer and chairman of our Board of Directors and Stephen D. Bard, our chief financial officer, chief compliance officer, treasurer and corporate secretary. Messrs. Moe and Bard, as principals of GSV Asset Management, collectively manage the business and internal affairs of GSV Asset Management. In addition, GSV Capital Service Company provides us with office facilities and administrative services pursuant to an Administration Agreement. Mr. Bard is the managing member of and controls GSV Capital Service Company. While there is no limit on the total amount of expenses we may be required to reimburse to GSV Capital Service Company, our administrator will only charge us for the actual expenses it incurs on our behalf, or our allocable portion thereof, without any profit to GSV Capital Service Company.
In addition, our executive officers and directors, and the principals of our investment adviser, GSV Asset Management, serve or may serve as officers and directors of entities that operate in a line of business similar to our own, including new entities that may be formed in the future. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders, such as, for example, the management of GSV X Fund by GSV Asset Management.
While the investment focus of each of these entities may be different from our investment objective, it is likely that new investment opportunities that meet our investment objective will come to the attention of one of these entities, or new entities that will likely be formed in the future in connection with another investment advisory client or program, and, if so, such opportunity might not be offered, or otherwise made available, to us. However, our executive officers, directors and investment adviser intend to treat us in a fair and equitable manner consistent with their applicable duties under law so that we will not be disadvantaged in relation to any other particular client. In addition, while GSV Asset Management anticipates that it will from time to time identify investment opportunities that are appropriate for both GSV Capital and the other funds that are currently or in the future may be managed by GSV Asset Management, to the extent it does identify such opportunities, GSV Asset Management has established an allocation policy to ensure that GSV Capital has priority over such other funds. Our Board of Directors will monitor on a quarterly basis any such allocation of investment opportunities between GSV Capital and any such other funds.
GSV Asset Management is the owner of the GSV name and marks, which we are permitted to use pursuant to a non-exclusive license agreement between us and GSV Asset Management. GSV Asset Management and its principals also use and may permit other entities to use the GSV name and marks in connection with businesses and activities unrelated to our operations. The use of the GSV name and marks in connection with businesses and activities unrelated to our operations may not be in the best interest of us or our stockholder and may result in actual or perceived conflicts of interest.
In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain written policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our executive officers and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek Board review and approval or exemptive relief for such transaction. Our Board of Directors will review these procedures on an annual basis.
We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our chief executive officer and chief financial officer, as well as all of our officers, directors and employees. Our officers and directors also remain subject to the fiduciary obligations imposed by both the 1940 Act and applicable state corporate law. Our Code of Ethics requires that all employees and directors avoid any conflict,
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or the appearance of a conflict, between an individuals personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our chief compliance officer. Our Board of Directors is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties, as such term is defined in Item 404 of Regulation S-K. In accordance with Item 404, related parties generally include our directors and executive officers, any nominees for director, any immediate family member of a director or executive officer or nominee for director, and any other person sharing the household of such director, executive officer or nominee for director.
Finally, we pay GSV Capital Service Company our allocable portion of overhead and other expenses incurred by GSV Capital Service Company in performing its obligations under the Administration Agreement, including a portion of the rent and the compensation of our chief financial officer and chief compliance officer and other staff providing administrative services, which creates conflicts of interest that our Board of Directors must monitor.
Our investment adviser has the right, under the Investment Advisory Agreement, to resign at any time upon not more than 60 days written notice, whether we have found a replacement or not. If our investment adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations.
The 1940 Act imposes numerous constraints on the operations of business development companies. For example, business development companies are required to invest at least 70% of their total assets primarily in securities of U.S.-based private companies or public companies with market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and other high quality debt instruments that mature in one year or less. In addition, qualification for taxation as a RIC requires satisfaction of source-of-income, diversification and distribution requirements. GSV Asset Management has limited experience investing under these constraints. These constraints, among others, may hinder GSV Asset Managements ability to take advantage of attractive investment opportunities and to achieve our investment objective.
Although we focus on achieving capital gains from our investments, in certain cases we may receive current income, such as interest or dividends, on our investments. Because in certain cases we may recognize such current income before or without receiving cash representing such income, we may have difficulty satisfying the annual distribution requirement applicable to RICs. Accordingly, if we qualify and elected to be taxed as a RIC, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investments to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus would be subject to corporate-level income tax.
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We may in the future issue additional debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively (along with the Convertible Senior Notes) as senior securities, up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, are permitted, as a business development company, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Furthermore, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders.
All of the costs of offering and servicing the Convertible Senior Notes and any additional debt or preferred stock we may issue in the future, including interest or preferential dividend payments thereon, will be borne by our common stockholders. The interests of the holders of the Convertible Senior Notes any additional debt or preferred stock we may issue will not necessarily be aligned with the interests of our common stockholders. In particular, the rights of holders of the Convertible Senior Notes and our debt or preferred stock to receive interest, dividends or principal repayment will be senior to those of our common stockholders. Also, in the event we issue preferred stock, the holders of such preferred stock will have the ability to elect two members of our Board of Directors. In addition, we may grant a lender a security interest in a significant portion or all of our assets, even if the total amount we may borrow from such lender is less than the amount of such lenders security interest in our assets. In no event, however, will any lender to us have any veto power over, or any vote with respect to, any change in our, or approval of any new, investment objective or investment policies or strategies.
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board of Directors determines that such sale is in the best interests of GSV Capital and its stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). We are also generally prohibited under the 1940 Act from issuing securities convertible into voting securities without obtaining the approval of our existing stockholders.
The Convertible Senior Notes require us to comply with certain financial and operational covenants. These covenants require us to, among other things, maintain certain financial ratios, including asset coverage, debt to equity and interest coverage. Our ability to continue to comply with these covenants in the future depends on many factors, some of which are beyond our control. There are no assurances that we will be able to comply with these covenants. Failure to comply with these covenants would result in a default which, if we were unable to obtain a waiver from the lenders under the Convertible Senior Notes and accelerate repurchase of the Convertible Senior Notes and thereby have a material adverse impact on our liquidity, financial condition, results of operations and ability to pay dividends. In addition, holders of the Convertible Senior Notes will have the right to require us to repurchase the Convertible Senior Notes upon the occurrence of a fundamental change at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases.
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We were taxed as a regular C corporation under the Code for our 2012 taxable year, but we did not have any taxable income. We may elect to be treated as a RIC under subchapter M of the Code for our 2013 taxable year if management determines that it is in our interests to do so and we are able to satisfy the requirements under subchapter M of the Code. However, for our 2013 taxable year, if we are not certified by the SEC as principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available, we will not be eligible to elect to be treated as a RIC. On December 4, 2013 we filed an application with the SEC for our 2013 taxable year, but no assurance can be given that we will receive it, that Management will determine it is in our best interests to qualify as a RIC for our 2013 taxable year, or if we intend to elect to be treated as a RIC, that we will be able to do so. See Material U.S. Federal Income Tax Considerations Taxation of the Company Taxation of the Company as a RIC. In addition, in the fiscal year ended December 31, 2012, we failed to satisfy certain tests required for us to qualify as a RIC under the Code.
Management generally believes that it will be in our best interests to be treated a RIC in any year in which we are profitable. If we fail to qualify as a RIC for any year in which we are profitable and such profits exceed certain loss carry forwards that we are entitled to utilize, we will be subject to corporate-level tax on our income, which could substantially reduce our net assets, the amount of income available for distribution or reinvestment and the amount of our distributions. Such a failure could have a material adverse effect on us and our stockholders.
In order to qualify for the special treatment accorded to RICs, we must meet certain income source, asset diversification and annual distribution requirements. In order to satisfy the income source requirement, we must derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities or foreign currencies, other income derived with respect to our business of investing in such stock or securities or income from qualified publicly traded partnerships. To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet these tests in any year in which we intend to be treated as a RIC may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments are in private companies, any such dispositions could be made at disadvantageous prices and could result in substantial losses. In addition, in order to satisfy the annual distribution requirement for a RIC, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to our stockholders on an annual basis. We will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under the terms of our indebtedness, including the notes, that could, under certain circumstances, restrict us from making distributions necessary to satisfy the annual distribution requirement. If we are unable to dispose of investments quickly enough to meet the asset diversification requirements at the end of a quarter or obtain cash from other sources in order to meet the annual distribution requirement, we may fail to qualify for special tax treatment accorded to RICs and, thus, be subject to corporate-level income tax on our income.
We may distribute taxable dividends that are payable in part in our common stock. In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service (IRS), a RIC may treat a distribution of its own common stock as fulfilling the RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or common stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash,
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each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in common stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in common stock will be equal to the amount of cash that could have been received instead of common stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to Non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
The base management fee will be calculated at an annual rate of 2.0% of the value of our gross assets, which we pay monthly in arrears. The base management fee is payable regardless of whether the value of our gross assets or your investment declines. As a result, we will owe GSV Asset Management a base management fee regardless of whether we incurred significant realized capital losses and unrealized capital depreciation (losses) during the period for which the base management fee is paid.
As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, and other rules implemented by the Securities and Exchange Commission.
Our charter permits our Board of Directors to reclassify any authorized but unissued shares of stock into one or more classes of preferred stock. Our Board of Directors will generally have broad discretion over the size and timing of any such reclassification, subject to a finding that the reclassification and issuance of such preferred stock is in the best interests of GSV Capital and our existing common stockholders. Any issuance of preferred stock would be subject to certain limitations imposed under the 1940 Act, including the requirement that such preferred stock have equal voting rights with our outstanding common stock. See Description of Securities Preferred Stock. We are authorized to issue up to 100,000,000 shares of common stock. In the event our Board of Directors opts to reclassify a portion of our unissued shares of common stock into a class of preferred stock, those preferred shares would have a preference over our common stock with respect to dividends and liquidation. The cost of any such reclassification would be borne by our existing common stockholders. In addition, the 1940 Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two directors. As a result, our preferred stockholders will have the ability to reject a director that would otherwise be elected by our common stockholders. In addition, while Maryland law generally requires directors to act in the best interests of all of a corporations stockholders, there can be no assurance that a director elected by our preferred stockholders will not chose to act in a manner that tends to favors our preferred stockholders, particularly where there is a conflict between the interests of our preferred stockholders and our common stockholders. The class voting rights of any preferred shares we may issue could make it more difficult for us to take some actions that may, in the future, be proposed by the Board of Directors and/or the holders of our common stock, such as a merger, exchange of securities, liquidation, or alteration of the rights of a class of our securities, if these actions were perceived by
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the holders of preferred shares as not in their best interests. The issuance of preferred shares convertible into shares of common stock might also reduce the net income and net asset value per share of our common stock upon conversion. These effects, among others, could have an adverse effect on your investment in our common stock.
Our Board of Directors has the authority to modify or waive our investment objective, current operating policies, investment criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects might be adverse, which could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment.
We and our portfolio companies are subject to regulation by laws at the local, state and federal levels. These laws and regulations, as well as their interpretation, may be changed from time to time. Any change in these laws or regulations could have a material adverse effect on our business and the value of your investment.
Our charter and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. Our bylaws contain a provision exempting any and all acquisitions by any person of our shares of stock from the Control Share Act under the Maryland General Corporation Law. If our Board of Directors does not otherwise approve a business combination, the Control Share Act (if we amend our bylaws to be subject to that Act) may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Additionally, under our charter, our Board of Directors is divided into three classes serving staggered terms; our Board of Directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock; and our Board of Directors may, without stockholder action, amend our charter to increase the number of shares of stock of any class or series that we have authority to issue. These antitakeover provisions may inhibit a change of control in circumstances that could otherwise give the holders of our common stock the opportunity to realize a premium over the market price for our common stock.
The trading price of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market after any future offering may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:
| price and volume fluctuations in the overall stock market from time to time; |
| investor demand for our shares; |
| significant volatility in the market price and trading volume of securities of regulated investment companies, business development companies or other financial services companies; |
| changes in regulatory policies or tax guidelines with respect to regulated investment companies or business development companies; |
| failure to qualify as a RIC for a particular taxable year, or the loss of RIC status; |
| actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts; |
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| general economic conditions and trends; |
| fluctuations in the valuation of our portfolio investments; |
| operating performance of companies comparable to us; |
| market sentiment against technology-related companies; or |
| departures of any of the senior investment professionals or Advisory Board members of GSV Asset Management. |
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
Shares of business development companies like us may, during some periods, trade at prices higher than their net asset value per share and, during other periods, as frequently occurs with closed-end investment companies, trade at prices lower than their net asset value per share. The perceived value of our investment portfolio may be affected by a number of factors including perceived prospects for individual companies we invest in, market conditions for common stock generally, for initial public offerings and other exit events for venture capital-backed companies, and the mix of companies in our investment portfolio over time. Negative or unforeseen developments affecting the perceived value of companies in our investment portfolio could result in a decline in the trading price of our common stock relative to our net asset value per share.
The possibility that our shares will trade at a discount from net asset value or at premiums that are unsustainable are risks separate and distinct from the risk that our net asset value per share will decrease. The risk of purchasing shares of a business development company that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in net asset value per share. As of January 16, 2014, the closing price of our common stock on the NASDAQ Capital Market was $13.10 per share, which represented an approximately 0.46% discount to our net asset value per share as of September 30, 2013.
We cannot assure you that we will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions or year-to-year increases in cash distributions. As we intend to focus on making primarily capital gains-based investments in equity securities, which generally will not be income producing, we do not anticipate that we will pay dividends on a quarterly basis or become a predictable issuer of dividends, and we expect that our dividends, if any, will be less consistent than other business development companies that primarily make debt investments.
We will have significant flexibility in applying the proceeds of this offering and may use the net proceeds from any future offering pursuant to this prospectus and any accompanying prospectus supplement in ways with which you may not agree, or for purposes other than those contemplated at the time of any such offering. We cannot assure you that we will be able to successfully utilize the proceeds within the timeframe contemplated. We will also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new investments, from the net proceeds of any such offering. Our ability to achieve our investment objective may be limited to the extent that the net proceeds of any such offering, pending full
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investment, are used to pay operating expenses. In addition, we can provide you no assurance that any future offering will be successful, or that by increasing the size of our available equity capital our aggregate expenses, and correspondingly, our expense ratio, will be lowered.
Commissions and discounts payable to any underwriters, together with our organization expense and other expenses of any future offering, will reduce the net proceeds of any such offering available for us to invest. As of September 30, 2013 our net asset value was $254,322,995 or $13.16 per share. Depending upon the public offering price, and after deducting the underwriting discounts and commissions and the related offering expenses payable by us, in connection with any offering pursuant to this prospectus, investors in any such offering may be subject to an immediate and substantial dilution.
The Convertible Senior Notes are convertible into shares of our common stock beginning September 15, 2018, or, under certain circumstances, earlier. The current conversion price of the Convertible Senior Notes is approximately $16.26 per share of common stock, in each case subject to adjustment in certain circumstances. If we elect to deliver shares of common stock upon a conversion at the time our tangible book value per share exceeds the conversion price in effect at such time, our stockholders may incur dilution. In addition, our stockholders will experience dilution in their ownership percentage of common stock upon our issuance of common stock in connection with the conversion of the Convertible Senior Notes and any dividends paid on our common stock will also be paid on shares issued in connection with such conversion after such issuance.
In the event we issue subscription rights to purchase shares of our common stock, stockholders who do not fully exercise their rights should expect that they will, at the completion of the offer, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of the offer.
In addition, if the subscription price is less than our net asset value per share, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offer. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of the rights offering or what proportion of the shares will be purchased as a result of the offer. Such dilution could be substantial.
We cannot assure you that the issuance of preferred stock would result in a higher yield or return to the holders of the common stock. The issuance of preferred stock would likely cause the net asset value and market value of the common stock to become more volatile. If the dividend rate on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of common stock than if we had not issued preferred stock. Any decline in the net asset value of our investments would be borne entirely by the holders of common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of common stock than if we were not leveraged through the issuance of preferred stock. This greater net asset value decrease would also tend to cause a greater decline in the market price for the common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings, if any, on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate
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investments in order to fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher advisory fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.
Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of our Board of Directors at all times and in the event dividends become two full years in arrears would have the right to elect a majority of the directors until such arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, if any, or the terms of our credit facilities, if any, might impair our ability to maintain our qualification as a RIC for federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.
Our convertible notes are convertible into shares of our common stock beginning January 1, 2016 or, under certain circumstances, earlier. Upon conversion, we must deliver shares of our common stock. The conversion rate of our convertible notes was initially, and currently is, 61.5091 shares of our common stock per $1,000 principal amount of our convertible notes (equivalent to a conversion price of approximately $16.26 per share of common stock), subject to adjustment in certain circumstances. Based on the current conversion rate, the maximum number of shares of common stock that would be issued upon conversion of the $69.0 million convertible debt currently outstanding is 4,244,128. If we deliver shares of common stock upon a conversion at the time our net asset value per share exceeds the conversion price in effect at such time, our stockholders may incur dilution. In addition, our stockholders will experience dilution in their ownership percentage of our common stock upon our issuance of common stock in connection with the conversion of our convertible notes and any dividends paid on our common stock will also be paid on shares issued in connection with such conversion after such issuance.
Holders of our convertible notes will have the right to require us to repurchase their notes upon the occurrence of certain significant corporate events involving us, including if our common stock ceases to trade on any national securities exchange or we consolidate or merge into another entity in certain circumstances, at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. We refer to such a corporate event as a fundamental change. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of convertible notes surrendered therefor. In addition, our ability to repurchase our convertible notes or deliver shares of our common stock upon conversions of the convertible notes may be limited by law, by regulatory authority or by agreements governing our indebtedness. Our failure to repurchase the notes at a time when the repurchase is required by the indenture relating to the convertible notes or to deliver any shares of our common stock deliverable on future conversions of the convertible notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the occurrence of a fundamental change itself could also lead to a default under agreements governing our indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase our convertible notes.
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Certain provisions of our convertible notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of a fundamental change, the holders of our convertible notes will have the right, at their option, to require us to repurchase all or a portion of their convertible notes, plus accrued and unpaid interest. We may also be required to increase the conversion rate of the convertible notes in certain other circumstances, including in the event of certain fundamental changes. These provisions could discourage an acquisition of us by a third party.
Pursuant to regulations under the Employee Retirement Income Security Act of 1974 (ERISA), it is possible that, due to their convertibility feature, our convertible notes could be treated as equity interests in us. In that event, if employee benefit plans subject to Title I of ERISA, plans that are not subject to ERISA but that are subject to Section 4975 of the Internal Revenue Code (the Code), such as individual retirement accounts, and entities that are deemed to hold the assets of such plans or accounts (such plans, accounts, and entities, Benefit Plan Investors) were to acquire 25% or more of the aggregate value of our convertible notes, among other consequences, we and our management would be subject to ERISA fiduciary duties, and certain transactions we might enter into, or may have entered into, in the ordinary course of our business might constitute non-exempt prohibited transactions under Section 406 of ERISA or Section 4975 of the Code and might have to be rescinded at significant cost to us. Moreover, if our underlying assets were deemed to be assets constituting plan assets, (i) our assets could be subject to ERISAs reporting and disclosure requirements, (ii) a fiduciary causing a Benefit Plan Investor to make an investment in our equity interests could be deemed to have delegated its responsibility to manage the assets of the Benefit Plan Investor, and (iii) various providers of fiduciary or other services to us, and any other parties with authority or control with respect to our assets, could be deemed to be plan fiduciaries or otherwise parties in interest or disqualified persons by virtue of their provision of such services.
We do not believe that our convertible notes should be treated as equity interests in us for purposes of ERISA in light of the relevant regulations. No assurance can be given, however, that our convertible notes will not be so treated.
The accounting for convertible debt securities is complex and subject to frequent scrutiny by the accounting regulatory bodies and is subject to change. The issuance of our convertible notes may have an accounting effect on our earnings per share on a fully diluted basis. Further, we cannot predict if or when changes in the accounting for convertible debt securities could be made and whether any such change could have an adverse impact on our reported or future financial results. Any such impacts could adversely affect the market price or value of our common stock.
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This prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets, projects, and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this prospectus involve risks and uncertainties, including statements as to:
| our future operating results; |
| our business prospects and the prospects of our portfolio companies; |
| the impact of investments that we expect to make; |
| our contractual arrangements and relationships with third parties; |
| the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| the ability of our portfolio companies to achieve their objectives; |
| our expected financings and investments; |
| the adequacy of our cash resources and working capital; and |
| the timing of cash flows, if any, from the operations of our portfolio companies. |
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
| a contraction of available credit and/or an inability to access the equity markets could impair our investment activities; |
| the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this prospectus and in our filings with the SEC. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in Risk Factors and elsewhere in this prospectus. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. However, we will update this prospectus to reflect any material changes to the information contained herein. The forward-looking statements in this prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act.
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We plan to invest the net proceeds from the sale of our securities pursuant to this prospectus and any accompanying prospectus supplement in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of any such proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of any such offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of any such offering. We cannot assure you we will achieve our targeted investment pace. Pending such investments, we will invest the net proceeds of any such offering primarily in cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment. The management fee payable by us will not be reduced while our assets are invested in such securities. See Regulation as a Business Development Company Temporary Investments for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
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Our common stock is traded on the NASDAQ Capital Market under the symbol GSVC. The following table sets forth, for each fiscal quarter since our initial public offering on April 28, 2011, the net asset value, or NAV, per share of our common stock, the high and low sales prices for our common stock, and such sales prices as a percentage of NAV per share.
Price Range | High Sales Price as a Premium (Discount) to NAV(2) | Low Sales Price as a Premium (Discount) to NAV(2) | ||||||||||||||||||
NAV(1) | High | Low | ||||||||||||||||||
Fiscal 2014 |
||||||||||||||||||||
First Quarter (through January 16, 2014) | $ | * | $ | 13.30 | $ | 11.78 | *% | *% | ||||||||||||
Fiscal 2013 |
||||||||||||||||||||
Fourth Quarter | $ | * | $ | 16.90 | $ | 10.12 | *% | *% | ||||||||||||
Third Quarter | 13.16 | 15.50 | 7.82 | 17.8 | (40.6 | ) | ||||||||||||||
Second Quarter | 12.87 | 8.44 | 7.42 | (34.4 | ) | (42.3 | ) | |||||||||||||
First Quarter | 12.69 | 9.14 | 7.79 | (28.0 | ) | (38.6 | ) | |||||||||||||
Fiscal 2012 |
||||||||||||||||||||
Fourth Quarter | $ | 13.07 | $ | 8.99 | $ | 6.84 | (31.2 | )% | (47.7 | )% | ||||||||||
Third Quarter | 13.45 | 10.38 | 8.29 | (22.8 | ) | (38.4 | ) | |||||||||||||
Second Quarter | 13.81 | 20.25 | 8.83 | 46.6 | (36.1 | ) | ||||||||||||||
First Quarter | 13.47 | 20.89 | 13.03 | 55.1 | (3.3 | ) | ||||||||||||||
Fiscal 2011 |
||||||||||||||||||||
Fourth Quarter | $ | 12.95 | $ | 17.23 | $ | 12.10 | 33.1 | % | (6.6 | )% | ||||||||||
Third Quarter | 13.26 | 19.97 | 12.09 | 50.6 | (8.8 | ) | ||||||||||||||
Second Quarter (from April 28, 2011 through June 30, 2011) | 13.57 | 15.35 | 9.75 | 13.1 | (28.2 | ) |
(1) | NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAV per share figures shown are based on outstanding shares at the end of each period. |
(2) | Calculated as the respective high or low sales price less NAV per share, divided by NAV per share. |
* | Not determinable as of the date of this prospectus. |
On January 16, 2014, the last reported sales price of our common stock was $13.10 per share.
Shares of business development companies may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at premiums that are unsustainable over the long term or at a discount from net asset value are separate and distinct from the risk that our net asset value will decrease. Since our initial public offering on April 28, 2011, our shares of common stock have traded at both a discount and a premium to the net assets attributable to those shares. As of January 16, 2014, our shares of common stock traded at a discount equal to approximately 0.46% of the net assets attributable to those shares based upon our $13.16 NAV per share as of September 30, 2013. It is not possible to predict whether the notes offered hereby will trade at, above, or below net asset value.
The timing and amount of our dividends, if any, will be determined by our Board of Directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. We intend to focus on making capital gains-based investments from which we will derive primarily capital gains. As a consequence, we do not anticipate that we will pay dividends on a quarterly basis or become a predictable distributor of dividends, and we expect that our dividends, if any, will be much less consistent than the
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dividends of other business development companies that primarily make debt investments. However, if there are earnings or realized capital gains to be distributed, we intend to declare and pay a dividend at least annually.
During the taxable year ended December 31, 2012, we were taxed as a C corporation subject to federal and state corporate income taxes. However, we may elect to be treated as a RIC under Subchapter M of the Code, beginning with our 2013 taxable year if management determines that it is in the best interests of the Company and the Company is able to satisfy the requirements to be treated as a RIC. If we are not certified by the SEC as principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available for our 2013 taxable year, we will not be eligible to elect to be treated as a RIC for our 2013 taxable year. On December 4, 2013 we filed an application with the SEC for this certification, but no assurance can be given that we will receive it, or that we will otherwise qualify as a RIC for our 2013 taxable year. If we opt not to elect to be taxed as a RIC or are unable to qualify as a RIC, we will continue to be taxed as a C corporation under the Code for our 2013 taxable year. To obtain and maintain RIC tax treatment, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for each taxable year. See Material U.S. Federal Income Tax Considerations. There is no assurance that we will achieve results that will permit the payment of any cash distributions and we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
Our current intention is to make any distributions out of assets legally available therefrom in additional shares of our common stock under our dividend reinvestment plan, unless you elect to receive your dividends and/or long-term capital gains distributions in cash. Under the dividend reinvestment plan, if a stockholder owns shares of common stock registered in its own name, the stockholder will have all cash distributions automatically reinvested in additional shares of common stock unless the stockholder opts out of our dividend reinvestment plan by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. See Dividend Reinvestment Plan. Any distributions reinvested under the plan will nevertheless be treated as received by the U.S. stockholder for U.S. federal income tax purposes, although no cash distribution has been made. As a result, if you do not elect to opt out of the dividend reinvestment plan, you may be required to pay applicable federal, state and local taxes on any reinvested dividends even though you will not receive a corresponding cash distribution. In addition, reinvested dividends have the effect of increasing our gross assets, which may correspondingly increase the management fee payable to our investment adviser. If you hold shares in the name of a broker or financial intermediary, you should contact the broker or financial intermediary regarding your election to receive distributions in cash.
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We are an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity and equity-related investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments with prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. We may also invest on an opportunistic basis in select publicly-traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria. Our investment activities are managed by GSV Asset Management, and GSV Capital Service Company provides the administrative services necessary for us to operate.
Our investment philosophy is premised on a disciplined approach of identifying high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Many of the companies that our investment adviser evaluates have financial backing from top tier venture capital funds or other financial or strategic sponsors.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component. We used substantially all of the net proceeds of our initial public offering and follow-on offerings for the above purposes.
In May 2011 we completed our initial public offering of 3,335,000 shares of our common stock at an offering price of $15.00 per share. We completed a follow-on offering of 2,185,000 shares of our common stock in September 2011 at an offering price of $14.15 per share, a follow-on offering of 6,900,000 shares of our common stock in February 2012 at an offering price of $15.00 per share and a follow on offering of 6,900,000 shares of our common stock in May 2012 at an offering price of $16.25 per share. In the aggregate, we have raised approximately $277.7 million in equity capitalization. In addition, we issued $69.0 million in aggregate principal amount of Convertible Senior Notes in September 2013. Our shares are currently listed on the NASDAQ Capital Market under the symbol GSVC.
The fair value of our investments can be expected to fluctuate in future periods due to changes in our investments and changes in the fair value of the investments. The investments made during the nine months ended September 30, 2013 include:
Investments totaling $2,879,293 in SugarCRM Inc., a customer relationship management company, comprising an investment of $1,499,999, plus transaction costs, on January 16, 2013 and an investment of $1,379,294, plus transaction costs, on April 1, 2013.
Investments totaling $599,999 in AlwaysOn, Inc., a social media company, comprising an investment of $200,000, plus transaction costs, on February 4, 2013, an investment of $200,000, plus transaction costs, on February 28, 2013, an investment of $24,999, plus transaction costs, on April 26, 2013 and an investment of $175,000, plus transaction costs, on May 24, 2013.
Investments totaling $775,863 in CUX, Inc. (d/b/a CorpU), a corporate education company, comprising an investment of $517,244, plus transaction costs, on February 25, 2013 and an investment of $258,619, plus transaction costs, on May 31, 2013.
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An investment of $1,000,000, plus transaction costs, in Fullbridge, Inc., a business education company, on March 22, 2013.
An investment of $1,733,923, plus transaction costs, in ZocDoc Inc., an online medical scheduling company, on April 4, 2013.
An investment of $750,000, plus transaction costs, in AliphCom Inc. (d/b/a Jawbone), an audio electronics company, on May 17, 2013.
An investment of $430,950, plus transaction costs, in Dailybreak, Inc., a social advertising company, on May 31, 2013.
An investment of $1,000,000, plus transaction costs, in Solexel, Inc., a solar power company, on June 6, 2013.
An investment of $180,000, plus transaction costs, in oDesk Corporation, an online marketplace company, on June 11, 2013.
An investment of $9,999,999, plus transaction costs, in Coursera Inc., an online education company, on June 18, 2013.
An investment of $600,000, plus transaction costs, in NestGSV, Inc., an Incubator company, on July 15, 2013.
An investment of $1,099,997, plus transaction costs, in Dataminr, Inc., a Social Media Analytics company, on July 26, 2013.
An investment of $225,000, plus transaction costs, in Kno, Inc., a Digital Textbooks Company, on August 1, 2013.
An investment of $1,000,000, plus transaction costs, in Strategic Data Command, LLC, a software development company, on August 15, 2013.
An investment of $1,500,000, plus transaction costs, in Whittle Schools, an education technology company, on August 30, 2013.
An investment of $250,000, plus transaction costs, in Sinolending Ltd, a Chinese P2P lending company, on September 4, 2013.
An investment of $400,000, plus transaction costs, in Totus Solutions Inc, a LED lighting company, on September 30, 2013.
The fair value, as of September 30, 2013, of all of our portfolio investments was $252,983,446. We also held $28,443,204 in unrestricted cash on September 30, 2013.
The investments made during the fiscal year ended December 31, 2012 include:
Investments totaling $983,493 in AlwaysOn, LLC, a social media company, comprising an investment of $100,000, plus transaction costs, in, on January 10, 2012, an investment of $150,000, plus transaction costs, on March 9, 2012 and an investment of $733,493, plus transaction costs, on September 7, 2012.
Investments totaling $2,199,998 in Maven Research, Inc., a global knowledge marketplace, comprising an investment of $200,000, plus transaction costs, on February 28, 2012 and an investment of $1,999,998, plus transaction costs, on July 2, 2012.
Investments totaling $1,400,000 in AltEgo, LLC, an avatar technology and games developer, comprising an investment of $500,000, plus transaction costs, on February 29, 2012, an investment of $200,000, plus transaction costs, on May 11, 2012, an investment of $300,000, plus transaction costs, on June 15, 2012 and an investment of $400,000, plus transaction costs, on August 7, 2012.
Investments totaling $8,000,000 in Chegg, Inc., an online textbook rental company, comprising investments of $4,000,000, plus transaction costs, on March 7, 2012 and investments of $2,400,000 and $1,600,000, plus transaction costs, on June 20, 2012 and June 25, 2012, respectively.
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Investments totaling $1,000,000 in The Echo System Corp., a social analytics company, comprising an investment of $250,000, plus transaction costs, on March 21, 2012 and an investment of $750,000, plus transaction costs, on March 30, 2012.
An investment of $1,000,000, plus transaction costs, in StormWind, LLC, an electronic marketing and business services platform, on March 23, 2012.
Investments totaling $1,998,800 in Bloom Energy Corporation, a fuel cell energy company, comprising an investment of $855,000, plus transaction costs, on March 28, 2012 and an investment of $1,143,800, plus transaction costs, on April 4, 2012.
An investment of $2,000,000, plus transaction costs, in CUX, Inc. (d/b/a CorpU), a corporate education company, on March 29, 2012.
An investment of $750,000, plus transaction costs, in The rSmart Group, Inc., a higher education learning platform, on March 30, 2012.
Investments totaling $14,799,996 in Violin Memory, Inc., a flash memory company, comprising an investment of $9,999,996, plus transaction costs, on April 11, 2012, and an investment of $4,800,000, plus transaction costs, on May 22, 2012.
Investments totaling $4,150,000 in Top Hat, Inc., an internet commerce company, comprising an investment of $4,000,000, plus transaction costs, on April 13, 2012 and an investment of $150,000, plus transaction costs, on November 2, 2012.
Investments totaling $5,922,000 in Control4 Corporation, a smart home automation company, comprising investments of $2,369,500, $1,277,500 and $350,000, plus transaction costs, on April 18, 2012, April 19, 2012 and April 20, 2012, respectively, an investment of $1,190,000, plus transaction costs, on August 15, 2012 and an investment of $735,000, plus transaction costs, on October 19, 2012.
An investment of $2,999,998, plus transaction costs, in Global Education Learning (Holdings) Ltd., an Asia-focused education technology company, on April 19, 2012.
Investments totaling $20,602,500 in Twitter, Inc., a social communication company, comprising investments of $5,312,492, $4,875,010 and $7,312,498, plus transaction costs, on April 25, 2012, April 27, 2012, and April 30, 2012, respectively, an investment of $1,900,000, plus transaction costs, on June 1, 2012 and an investment of $1,202,500, plus transaction costs, on July 10, 2012.
An investment of $3,800,000, plus transaction costs, in Silver Spring Networks, Inc., a smart grid company, on May 1, 2012.
Investments totaling $2,250,001 in Fullbridge, Inc., a business education company, comprising an investment of $1,969,996, plus transaction costs, on May 4, 2012 and an investment of $280,005, plus transaction costs, on May 15, 2012.
Investments totaling $21,017,501 in Palantir Technologies, Inc., a cyber-security company, comprising investments of $888,384 and $2,674,048, plus transaction costs, on May 7, 2012 and May 11, 2012, respectively, investments of $40,500, $67,500 and $540,000, plus transaction costs, on May 16, 2012, May 21, 2012 and May 22, 2012, respectively, investments of $999,999, $15,228,070 and $135,000, plus transaction costs, on July 24, 2012, July 27, 2012 and July 31, 2012, respectively, an investment of $174,000, plus transaction costs, on August 24, 2012 and an investment of $270,000, plus transaction costs, on October 17, 2012.
An investment of $10,000,000, plus transaction costs, in Avenues World Holdings LLC, a globally-focused private school, on May 9, 2012.
Investments totaling $3,000,000 in Whittle Schools, LLC, an affiliate of Avenues World Holdings LLC, comprising an investment of $1,500,000, plus transaction costs, on September 6, 2012 and an investment of $1,500,000, plus transaction costs, on December 3, 2012.
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Investments totaling $8,618,500 in Dropbox, Inc., an online storage service, comprising an investment of $6,858,500, plus transaction costs, on May 11, 2012 and an investment of $1,760,000, plus transaction costs, on September 4, 2012.
Investments totaling $1,500,000 in NestGSV, Inc., an entrepreneurial education company, comprising an investment of $1,000,000, plus transaction costs, on May 25, 2012 and an investment of $500,000, plus transaction costs, on July 10, 2012.
An investment of $10,000,000, plus transaction costs, in Solexel, Inc., a solar power company, on June 18, 2012.
An investment of $7,500,000, plus transaction costs, in Kno, Inc., an education software company, on June 27, 2012.
An investment of $2,000,000, plus transaction costs, in Dailybreak, Inc., a social advertising company, on June 29, 2012.
An investment of $1,999,999, plus transaction costs, in Dataminr, Inc., a social media analytics company, on July 2, 2012.
An investment of $10,000,000, plus transaction costs, in 2U, Inc. (f/k/a 2tor, Inc.), an online education company, on July 16, 2012.
An investment of $5,000,000, plus transaction costs, in Totus Solutions, Inc., an LED lighting company, on July 20, 2012.
An investment of $1,001,000, plus transaction costs, in Gilt Groupe, Inc., an eCommerce platform, on July 27, 2012.
An investment of $500,000, plus transaction costs, in SinoLending Ltd, a Chinese P2P lending platform, on August 7, 2012.
An investment of $3,589,659, plus transaction costs, in Spotify Technology S.A., a music streaming service, on August 7, 2012.
An investment of $250,000, plus transaction costs in Neuron Fuel, Inc. (d/b/a Tynker), a computer software company, on August 8, 2012.
An investment of $500,000, plus transaction costs, in Strategic Sports Solutions, LLC, a sports analytics company, on August 31, 2012.
Investments totaling $3,801,165 in SugarCRM Inc., a customer relationship management company, comprising an investment of $1,513,750, plus transaction costs, on September 12, 2012, an investment of $171,353, plus transaction costs, on November 15, 2012, an investment of $1,225,000, plus transaction costs, on November 27, 2012 and an investment of $891,062, plus transaction costs, on December 28, 2012.
An investment of $3,000,000, plus transaction costs, in Parchment, Inc., an education data company, on October 1, 2012.
An investment of $500,000, plus transaction costs, in Ozy Media, Inc., a social media company, on November 2, 2012.
An investment of $2,000,000, plus transaction costs, in Starfish Holdings, Inc. (d/b/a YourOffers), a marketing platform, on November 13, 2012.
An investment of $500,000, plus transaction costs, in S3 Digital Corp. (d/b/a S3i), a sports analytics company, on November 21, 2012.
An investment of $1,499,999, plus transaction costs in Grockit Inc., an online test preparation company, on December 19, 2012.
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The fair value, as of December 31, 2012, of all of our portfolio investments was $225,397,085. In addition, we held $16,000,000 in two money market funds as of December 31, 2012. We also held $11,318,525 in unrestricted cash on December 31, 2012.
For the three months ended September 30, 2013, we had investment income of $2,644, or $0.00 per share, which consisted of $2,256 of interest income from our portfolio investments and $388 of dividend income primarily from our CUX, Inc preferred shares as well as our money market investments.
For the three months ended September 30, 2012, we had investment income of $13,928, or $0.00 per share, which consisted of $7,063 of interest income from our portfolio investments and $6,865 of dividend income from our money market investments.
The decrease in investment income for the three months ended September 30, 2013 relative to the three months ended September 30, 2012 was primarily due to us no longer carrying fixed income investments during the three months ended September 30, 2013.
For the three months ended September 30, 2013, we had $3,016,433 in total operating expenses consisting primarily of investment management fees, administration fees, the loss on fair value adjustment for embedded derivative, interest expense on the Convertible Notes, in addition to legal, audit and consulting fees. The investment advisory fee for the three months ended September 30, 2013, was $1,298,858, representing the base management fee as provided in our investment advisory agreement. Costs incurred under our administration agreement for the three months ended September 30, 2013, were $678,283. The loss on fair value adjustment for embedded derivative was $421,000 for the three months ended September 30, 2013. The interest expense on the Convertible Notes was $191,188. Professional fees, consisting of legal, valuation, and audit and consulting fees, were $198,932 for the three months ended September 30, 2013.
For the three months ended September 30, 2012, we had $2,348,496 in total operating expenses consisting primarily of investment management fees and administration fees, in addition to legal, audit and consulting fees. The investment advisory fee for the three months ended September 30, 2012, was $1,351,169, representing the base management fee as provided in our investment advisory agreement. Costs incurred under our administration agreement for the three months ended September 30, 2012, were $543,171. Professional fees, consisting of legal, valuation, and audit and consulting fees, were approximately $242,683 for the three months ended September 30, 2012.
The increase in total operating expenses for the three months ended September 30, 2013 relative to the three months ended September 30, 2012 was mostly due to an increase in administration fees incurred. These fees increased due to an increase in our gross and net asset values during the same periods, which impact the fees incurred. Refer to note 2 for further details regarding the calculations of these fees.
For the three months ended September 30, 2013, we had a net change in unrealized appreciation of $8,892,104 or $0.46 per share resulting from appreciation of our investments, including our investments in Twitter Inc., Control4 Corporation, Facebook Inc., and Palantir Technologies. Net realized loss was $162,569, or $0.01 per share during the three months ended September 30, 2013, and resulted from sale of investment in Facebook Inc. Net investment loss was $3,013,789, or $0.16 per share, for the three months ended September 30, 2013, resulting primarily from operating expenses incurred during the quarter. Net increase in net assets resulting from operations was $5,715,746, or $0.29 per share, for the three months ended September 30, 2013.
For the three months ended September 30, 2012, we had a net change in unrealized depreciation of $4,665,272, or $0.24 per share, resulting from of our investment in Facebook, Inc. Net realized loss was $0.00
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or $0.00 per share during the three months ended September 30, 2012. Net investment loss was $2,334,568, or $0.12 per share, for the three months ended September 30, 2012, resulting primarily from operating expenses incurred during the quarter. Net decrease in net assets resulting from operations was $6,999,840, or $0.36 per share, for the three months ended September 30, 2012.
The per share figures noted above are based on a weighted-average of 19,320,100 and 19,320,100 shares outstanding for the three months ended September 30, 2013 and 2012, respectively.
For the nine months ended September 30, 2013, we had investment income of $22,902, or $0.00 per share, which consisted of $2,256 of interest income from our portfolio investments and $20,646 of dividend income primarily from our CUX, Inc preferred shares as well as our money market investments.
For the nine months ended September 30, 2012, we had investment income of $242,087, or $0.02 per share, which consisted of $222,047 of interest income from our portfolio investments and $20,040 of dividend income from our money market investments.
The decrease in investment income for the nine months ended September 30, 2013 relative to the nine months ended September 30, 2012 was primarily due to us no longer carrying fixed income investments during the nine months ended September 30, 2013.
For the nine months ended September 30, 2013, we had $7,991,327 in total operating expenses consisting primarily of investment management fees and administration fees, the loss on fair value adjustment for embedded derivative, interest expense on the Convertible Notes in addition to legal, audit and consulting fees. The investment advisory fee for the nine months ended September 30, 2013, was $3,828,835, representing the base management fee as provided in our investment advisory agreement. Our base management fee was significantly higher than the same period in 2012 as a result of the increase in our gross assets. Costs incurred under our administration agreement for the nine months ended September 30, 2013, were $2,276,152. The loss on fair value adjustment for embedded derivative was $421,000 for the nine months ended September 30, 2013. The interest expense on the Convertible Notes as $191,188. Professional fees, consisting of legal, valuation, and audit and consulting fees, were $656,796 for the nine months ended September 30, 2013.
For the nine months ended September 30, 2012, we had $5,750,776 in total operating expenses consisting primarily of investment management fees and administration fees, in addition to legal, audit and consulting fees. The investment advisory fee for the nine months ended September 30, 2012, was $3,099,186, representing the base management fee as provided in our investment advisory agreement. Costs incurred under our administration agreement for the nine months ended September 30, 2012, were $1,490,966. Professional fees, consisting of legal, valuation, and audit and consulting fees, were approximately $597,089 for the nine months ended September 30, 2012.
The increase in total operating expenses for the nine months ended September 30, 2013 relative to the nine months ended September 30, 2012 was mostly due to an increase in management fees as well as administration fees incurred. These fees increased due to an increase in our gross and net asset values during the same periods, which impact the fees incurred. Refer to note 2 for further details regarding the calculations of these fees.
For the nine months ended September 30, 2013, we had a net change in unrealized appreciation of $19,545,712 or $1.01 per share resulting from appreciation of our investments, including our investments in Twitter, Inc., Control4 Corporation, Palantir Technologies, Inc., and Facebook Inc., as well as the reclassification of the losses on our investments in Top Hat 430, Inc., Serious Energy, Inc., and AltEgo, LLC from unrealized loss to realized loss on investments. Net realized loss was $9,837,093, or $0.51 per share, and resulted from sales of investments in Groupon Inc., and Zynga, Inc., as well as the write-off of our investments in Top Hat 430, Inc., Serious Energy, Inc., and AltEgo, LLC. Net investment loss was $7,968,425,
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or $0.41 per share, for the nine months ended September 30, 2013, resulting primarily from operating expenses incurred during the quarter. Net decrease in net assets resulting from operations was $1,740,194, or $0.09 per share, for the nine months ended September 30, 2013.
For the nine months ended September 30, 2012, we had a net change in unrealized depreciation of $5,668,589, or $0.38 per share. The change in unrealized depreciation is primarily a result of our investment in Facebook, Inc. We had a net realized loss of $1,380,519, or $0.09 per share, resulting primarily from our investment in PJB Fund LLC, which resulted from fluctuating share prices of Zynga, Inc. Net investment loss was $5,508,689, or $0.37 per share, for the nine months ended September 30, 2012, resulting primarily from operating expenses incurred during the period. Net decrease in net assets resulting from operations was $12,557,797, or $0.84 per share, for the nine months ended September 30, 2012.
The per share figures noted above are based on a weighted-average of 19,320,100 and 15,013,896 shares outstanding for the nine months ended September 30, 2013 and 2012, respectively.
As January 6, 2011 was our date of inception and April 28, 2011 was the date of our initial public offering, the period from January 6, 2011 to December 31, 2011 is not a directly comparable period to the year ended December 31, 2012.
For the year ended December 31, 2012, we had investment income of $248,077, or $0.02 per share, which consisted of $222,047 of interest income from our portfolio investments and $26,030 of dividend income from our money market investments.
For the period from January 6, 2011 (date of inception) to December 31, 2011, we had investment income of $162,328, or $0.05 per share, which consisted of $158,389 of interest income and $3,939 of dividend income.
The increase in investment income for the year ended December 31, 2012 relative to the period from January 6, 2011 (date of inception) to December 31, 2011, was primarily due to us holding more fixed income investments during the year ended December 31, 2012.
For the year ended December 31, 2012, we had $8,530,958 in total operating expenses consisting primarily of investment management fees and administration fees, in addition to legal, audit and consulting fees. The investment advisory fee for the year ended December 31, 2012, was $4,419,345, representing the base management fee as provided in our investment advisory agreement. Our base management fee was significantly higher than during the period from January 6, 2011 (date of inception) to December 31, 2011 as a result of the increase in our gross assets. Costs incurred under our administration agreement for the year ended December 31, 2012, were $2,384,764. Professional fees, consisting of legal, valuation, audit and consulting fees, were approximately $959,604 for the year ended December 31, 2012.
For the period from January 6, 2011 (date of inception) to December 31, 2011, we had $2,196,192 in total operating expenses consisting primarily of legal, audit and consulting fees, in addition to organizational expenses, investment management fees and administration fees. The investment advisory fee for the period from January 6, 2011 (date of inception) to December 31, 2011, was $618,865, representing the base fee as provided for in our investment advisory agreement. Costs incurred under our administration agreement for the period from January 6, 2011 (date of inception) to December 31, 2011, were $554,232. Professional fees, consisting of legal, valuation, audit, and consulting fees, were approximately $409,983 for the period from January 6, 2011 (date of inception) to December 31, 2011.
The increase in our total operating expenses for the year ended December 31, 2012 as compared to the period from January 6, 2011 (date of inception) to December 31, 2011 is primarily a result of increased investment management fees and administration fees due to the growth of our portfolio.
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For the year ended December 31, 2012, we had a net change in unrealized depreciation of $10,170,850, or $0.63 per share. The change in unrealized depreciation is primarily a result of our investments in Top Hat 430, Inc., Silver Spring Networks, Inc., Gilt Groupe, Inc., Zynga, Inc., and Facebook, Inc. We had a net realized loss of $1,380,519, or $0.09 per share, resulting primarily from our investment in PJB Fund LLC, which resulted from fluctuating share prices of Zynga, Inc. Net investment loss was $8,282,881, or $0.51 per share, for the year ended December 31, 2012, resulting primarily from operating expenses incurred during the year. Net decrease in net assets resulting from operations was $19,834,250, or $1.23 per share, for the year ended December 31, 2012.
For the period from January 6, 2011 (date of inception) to December 31, 2011, we had a net change in unrealized depreciation of $1,579,800, or $0.47 per share. Net investment loss was $2,033,864, or $0.60 per share, for the period from January 6, 2011 (date of inception) to December 31, 2011, resulting primarily from operating expenses incurred during the period. Net decrease in net assets resulting from operations was $3,613,664, or $1.07 per share, for the period from January 6, 2011 (date of inception) to December 31, 2011.
The per share figures noted above are based on a weighted-average of 16,096,330 and 3,377,429 shares outstanding for the year ended December 31, 2012 and for the period from January 6, 2011 (date of inception) to December 31, 2011, respectively.
At September 30, 2013, we had investments in 46 portfolio companies with costs totaling $245,188,384, and unrestricted cash in the amount of $28,443,204.
We completed a follow-on offering of 6,900,000 shares of our common stock in February 2012 at an offering price of $15.00 per share and on May 11, 2012, we priced a subsequent follow-on equity offering of 6,900,000 shares of our common stock at an offering price of $16.25 per share resulting in approximately $105.4 million in equity capitalization. Our shares are currently listed on the NASDAQ Capital Market under the symbol GSVC.
Our primary use of cash is to make investments and to pay our operating expenses. We used substantially all of the proceeds of the offerings to invest in portfolio companies as of September 30, 2013, except for amounts retained for purposes of funding our ongoing expenses.
Our current policy is to maintain cash and marketable security reserves in an amount sufficient to pay our operating expenses, including investment management fees, incentive fees and costs incurred under the administration agreement, for approximately two years. For a description of the investment advisory and administration services we receive, see Related Party Transactions and Certain Relationships. We incurred approximately $1,298,858 and $3,828,835 in investment management fees and $678,283 and $2,276,152 in costs incurred under the administration agreement for the three and nine months ended September 30, 2013, respectively. We incurred approximately $1,351,169 and $3,099,186 in investment management fees and $543,171 and $1,490,966 in costs incurred under the administration agreement for the three and nine months ended September 30, 2012, respectively.
As of September 30, 2013, the fair value of our portfolio investments was equal to the cost of the investments, net of unrealized depreciation representing transaction costs and any fair value adjustments. Fair value adjustments may include subsequent financing rounds, discounts due to lack of marketability, senior management changes or any other developments that factor into our valuations. The fair value of our investments can be expected to fluctuate in future periods due to changes in our investments and changes in the fair value of the investments.
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Payments Due By Period (dollars in millions) |
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Total | Less than 1 year |
1 3 years | 3 5 years | More than 5 years |
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Convertible Notes | $ | 69.0 | $ | | $ | | $ | | $ | 69.0 | ||||||||||
Total | $ | 69.0 | $ | | $ | | $ | | $ | 69.0 |
As of September 30, 2013, we had no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices. However, we may employ hedging and other risk management techniques in the future.
The timing and amount of our dividends, if any, will be determined by our board of directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. We intend to focus on making capital gains-based investments from which we will derive primarily capital gains. As a consequence, we do not anticipate that we will pay dividends on a quarterly basis or become a predictable distributor of dividends, and we expect that our dividends, if any, will be much less consistent than the dividends of other business development companies that primarily make debt investments. However, if there are earnings or realized capital gains to be distributed, we intend to declare and pay a dividend at least annually.
During the taxable year ended December 31, 2012, we were taxed as a C Corporation subject to federal and state corporate income taxes. We may elect to be treated as a RIC under Subchapter M of the Code, beginning with our 2013 taxable year if management determines that it is in the best interests of the Company and the Company is able to satisfy the requirements to be treated as a RIC. However, if we are not certified by the SEC as principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available for our 2013 taxable year, we will not be eligible to elect to be treated as a RIC for our 2013 taxable year. On December 4, 2013, we filed an application with the SEC for this certification, but no assurance can be given that we will receive it, or that we will otherwise qualify as a RIC for our 2013 taxable year. If we opt not to elect to be taxed as a RIC or are unable to qualify as a RIC, we will continue to be taxed as a C corporation under the Code for our 2013 taxable year. To obtain and maintain RIC tax treatment, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for each taxable year. See Material U.S. Federal Income Tax Considerations. There is no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. In addition, although it is currently its intention to do so, at the present time, the Company cannot assure you whether it will elect to be treated as a RIC for its 2013 taxable year. If it opts not to do so, the Company will continue to be taxed as a C corporation under the Code for its 2013 taxable year.
Our current intention is to make any distributions out of assets legally available therefrom in additional shares of our common stock under our dividend reinvestment plan, unless you elect to receive your dividends and/or long-term capital gains distributions in cash. Under the dividend reinvestment plan, if a stockholder owns shares of common stock registered in its own name, the stockholder will have all cash distributions automatically reinvested in additional shares of common stock unless the stockholder opts out of our dividend reinvestment plan by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. See Dividend Reinvestment Plan. Any distributions reinvested under the plan will nevertheless remain taxable to the U.S. stockholder, although no cash distribution has been made. As a result, if you do not elect to opt out of the dividend reinvestment plan, you will be required to pay applicable federal, state and local taxes on any reinvested dividends even though you will not receive a corresponding cash distribution. In addition, reinvested dividends have the effect of increasing our gross assets, which may
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correspondingly increase the management fee payable to our investment adviser. If you hold shares in the name of a broker or financial intermediary, you should contact the broker or financial intermediary regarding your election to receive distributions in cash.
On September 17, 2013, the Company issued $69,000,000 aggregate principal amount of the Convertible Notes (the Convertible Notes) (including $9,000,000 aggregate principal amount issued pursuant to the exercise of the initial purchasers option to purchase additional Convertible Notes). The Convertible Notes bear interest at a rate of 5.25% per year, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2014. The Convertible Notes are convertible into shares of our common stock based on an initial conversion rate of 61.5091 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $16.26 per share of common stock. The Convertible Notes mature on September 15, 2018, unless previously purchased or converted in accordance with their terms. The Company does not have the right to redeem the Convertible Notes prior to maturity.
The terms of the offering require the Company to place a portion of the proceeds of the offering in an escrow account (the Interest Escrow) with U.S. Bank National Association, (the trustee) under the indenture pursuant to which the notes are issued. Funds in the escrow account will be invested in government securities and will be used to make the first six scheduled interest payments on the notes, unless the Company elects to make the interest payments from the Companys available funds. The interest payments on the Convertible Notes will be secured by a pledge of the companys interest in the escrow account. In accordance with the Interest Escrow, the Company placed $10,845,236 of government securities in an escrow account with the Trustee. These government securities are shown on the consolidated schedule of investments.
As of September 30, 2013, the principal amount of the Convertible Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Companys common stock.
The Convertible Notes are the Companys senior, unsecured obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes, equal in right of payment to any future unsecured indebtedness that is not so subordinated to the Convertible Notes, junior (other than to the extent of the interest escrow), to any future secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all future indebtedness (including trade payables) incurred by our subsidiaries.
The Convertible Notes contain an interest make-whole payment provision pursuant to which holders who convert their notes prior to September 15, 2016 will receive, in addition to a number of shares of our common stock calculated at the applicable conversion rate for principal amount of notes being converted, the cash proceeds from sale by the escrow agent of the portion of the government securities in the escrow account that are remaining with respect to any of the first six interest payments that have not been made on the notes being converted. Under ASC 815-10-15-74(a), the interest make-whole payment is considered an embedded derivative and is separated from the host contract, the Convertible Notes, and carried at fair value.
We entered into an investment advisory agreement with GSV Asset Management (the Advisory Agreement) in connection with our initial public offering. Pursuant to the Advisory Agreement, GSV Asset Management will be paid a base annual fee of 2.00% of gross assets, and an annual incentive fee equal to the lesser of (i) 20% of the GSV Capitals realized capital gains during each calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of the GSV Capitals realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. GSV Asset Management earned $1,298,858 and $3,828,835 in base management fees and $0 in
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incentive fees for the three and nine months ended September 30, 2013, respectively. GSV Asset Management earned $1,351,169 and $3,099,186 in base fees and $0 in incentive fees for the three and nine months ended September 30, 2012, respectively.
As of September 30, 2013, we were owed $15,067 from GSV Asset Management for reimbursement of expenses paid for by us that were the responsibility of GSV Asset Management.
In addition as of September 30, 2013, we owed GSV Asset Management $33,803, which relates to the reimbursement of expenses paid for by GSV Asset Management that were the responsibility of the Company.
As of September 30, 2012, we were owed $3,315 from GSV Asset Management for reimbursement of legal fees paid for by us that were the responsibility of GSV Asset Management.
In addition as of September 30, 2012, we owed GSV Asset Management $41,197 for reimbursement of travel-related and other expenses. We owed certain officers and directors $917 in reimbursements for travel-related and other expenses.
We entered into an Administration Agreement with GSV Capital Service Company (the Administration Agreement) to provide administrative services, including furnishing us with office facilities, equipment, clerical, bookkeeping services and other administrative services, in connection with our initial public offering. We reimburse GSV Capital Service Company an allocable portion of overhead and other expenses in performing its obligations under the Administration Agreement. There were $678,283 and $2,276,152 in such costs incurred under the Administration Agreement for the three and nine months ended September 30, 2013 respectively. There were $543,171 and $1,490,966 in such costs incurred under the Administration Agreement for the three and nine months ended September 30, 2012, respectively.
We also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individuals personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our board of directors is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our board of directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).
In April 2012, in connection with our investment in Top Hat, Inc., Cherry Tree & Associates, LLC, an investment banking firm, received a fee of approximately $259,000 for its representation of Top Hat, Inc. Mark Moe, who is the brother of our Chief Executive Officer, Michael Moe, served as a Managing Director of Cherry Tree & Associates, LLC, and may therefore be deemed to have had an indirect material interest in such transaction. In February 2013, Mark Moe joined NestGSV, Inc., one of our portfolio companies, as a Vice President of Business Development, Global Expansion.
We carry our investments at fair value, as determined in good faith by our board of directors, in accordance with GAAP. Fair value is the price that one would receive upon selling an investment or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the investment or liability. GAAP emphasizes that valuation techniques should maximize the use of observable market inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from sources independent of the entity and should not be limited to information that is only available to the entity making the fair value determination, or to a small group of users. Observable market inputs should be readily available to participants in that market. In addition, observable market inputs should include a level of transparency that is reliable and verifiable.
GAAP fair value measurement guidance classifies the inputs used to measure these fair values into the following hierarchy:
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Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access.
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
a) | Quoted prices for similar assets or liabilities in active markets; |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets; |
c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability; and |
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the asset or liability.
An assets categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Securities that are publicly traded are generally valued at the close price on the valuation date; however, if they remain subject to lock-up restrictions they are discounted accordingly. Securities that are not publicly traded or for which there are no readily available market quotations are valued at fair value as determined in good faith by our board of directors.
In connection with that determination, portfolio company valuations are prepared using the most currently available data. As appropriate, we obtain updates on each portfolio companys financial performance, including information such as economic and industry trends, new product development, and other operational issues.
In making our good faith determination of the fair value of investments, we consider valuation methodologies consistent with industry practice, including but not limited to (i) publicly available information regarding the valuation of the securities based on recent sales in comparable transactions of private companies, (ii) when management believes there are comparable companies that are publicly traded, a review of these publicly traded companies and applicable market multiples of their equity securities and, (iii) an income approach that estimates value based on the expectation of future cash flows that an asset or business will generate.
We engage independent valuation firms to perform valuations of our investments that are not publicly traded or for which there are no readily available market quotations. We also engage independent valuation firms to perform valuations of any securities that trade on private secondary markets, but are not otherwise publicly traded, where there is a lack of appreciable trading or a wide disparity in recently reported trades. We consider the independent valuations, among other factors, in making our fair value determinations.
On October 10, 2013, we formed a wholly-owned subsidiary, Coursera@GSV Fund, L.P., a Delaware limited partnership, to hold portfolio investments.
Subsequent to September 30, 2013, we closed on investments of $49.5 million, plus transaction costs as follows:
An investment of $250,000, plus transaction costs, in S3 Digital Corp, a sports analytics company, on October 1, 2013.
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Investments totaling $1,333,332 in Global Education Learning Ltd, an education technology company, comprised of an investment of $900,000, plus transaction costs, on October 2, 2013 and an investment of $433,332, plus transaction costs, on October 4, 2013.
An investment of $250,000, plus transaction costs, in Fullbridge Inc., a business education company, on October 10, 2013.
Investments totaling $950,000, in Sugar CRM Inc., a customer relationship company, comprised of an investment of $855,000, plus transaction costs, on October 17, 2013 and an investment of $95,000, plus transaction costs, on October 28, 2013.
An investment of $2,430,016, plus transaction costs, in ePals Inc., an education technology company, on October 22, 2013.
An investment of $4,519,444, plus transaction costs, in Coursera Inc., an online education company, on October 31, 2013.
An investment of $10,000,003, plus transaction costs, in Curious.com Inc, an online education company, on November 22, 2013.
An investment of $600,000, plus transaction costs, in Totus Solutions Inc., an LED lighting company, on November 25, 2013.
An investment of $4,999,964, plus transaction costs, in JAMF Holdings, Inc., a software development company, on December 6, 2013.
An investment of $1,500,000, plus transaction costs, in Dreambox Learning, Inc., an education technology company, on December 6, 2013.
An investment of $10,000,001, plus transaction costs, in PayNearMe Inc., cash transaction network company, on December 6, 2013.
An investment of $644,738, plus transaction costs, in Sugar CRM Inc., a customer relationship company, on December 10, 2013.
An investment of $3,000,000, plus transaction costs, in Ozy Media Inc., a social media company, on December 11, 2013.
An investment of $4,999,999, plus transaction costs, in Knewton Inc., an education technology company, on December 16, 2013.
An investment of $1,000,000, plus transaction costs, in Parchment Inc., an education data company, on December 18, 2013.
An investment of $2,984,530, plus transaction costs, in Stormwind, LLC, an interactive learning platform company, on January 7, 2014.
On November 7, 2013, Twitter Inc. priced its initial public offering, selling 70,000,000 shares at a price of $26 per share. To the extent that the underwriters sell more than 70,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 10,500,000 shares from Twitter Inc. at the public offering price less the underwriting discount. Our shares in Twitter Inc. are subject to a lock-up agreement.
On November 8, 2013, Kno Inc., a digital technology company, paid off the term loan for $225,000, plus interest of $7,425, issued by GSV on August 8, 2013. Also on November 8, 2013, Kno Inc. was acquired by Intel Corporation in order to further develop Intels new education business.
We entered into the Loan Agreement, effective December 31, 2013, with Silicon Valley Bank to provide us with the new $18 million Credit Facility. Under the Credit Facility, we are permitted to borrow an amount equal to the lesser of $18 million or 20% of our then-current net asset value.
The Credit Facility, among other things, matures on December 31, 2016, and bears interest at a per annum rate equal to the greater of (i) the prime rate plus 4.75% and (ii) 8.0%. In addition, a fee of $180,000
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per annum (1.0% of the $18 million revolving line of credit) is charged under the Loan Agreement. Under the Loan Agreement, we have made certain customary representations and warranties and we are required to comply with various covenants, reporting requirements, and other customary requirements for similar credit facilities. The Loan Agreement includes usual and customary events of default for credit facilities of this nature, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to certain other indebtedness, bankruptcy, change of control, and the occurrence of a material adverse effect.
The Credit Facility is secured by all of our property and assets, except for our assets pledged to secure certain obligations in connection with our issuance, in September 2013, of the Convertible Notes and, as provided for in the Loan Agreement, as may be pledged in connection with any future issuance by us of convertible senior notes on substantially similar terms.
Borrowing under the Credit Facility is subject to the leverage restrictions contained in the Investment Company Act of 1940, as amended. In addition, under the Loan Agreement, and as provided for therein, we have agreed not to incur certain additional permitted indebtedness in an aggregate amount exceeding 50% of our then-applicable net asset value.
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We are an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity and equity-related investments. We invest principally in the equity securities of what we believe are rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments with prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. We may also invest on an opportunistic basis in select publicly-traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria. Our investment activities are managed by GSV Asset Management, and GSV Capital Service Company provides the administrative services necessary for us to operate.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
Our investment activities are managed by GSV Asset Management, an investment adviser registered under the Investment Advisers Act of 1940, as amended, or the Advisers Act. GSV Asset Management is led by Michael T. Moe, our president, chief executive officer and chairman of our Board of Directors. Mr. Moe is assisted by Stephen D. Bard, our chief financial officer, chief compliance officer, treasurer and corporate secretary and David V. Crowder, our Executive Vice President, whom we refer to collectively as GSV Asset Managements senior investment professionals. Mr. Moe co-founded and previously served as chairman and chief executive officer of ThinkEquity Partners, an asset management and investment banking firm focusing on venture capital, entrepreneurial and emerging private companies. Prior to founding ThinkEquity, Mr. Moe served as Head of Global Growth Research at Merrill Lynch and before that served as Head of Growth Research and Strategy at Montgomery Securities.
We believe we benefit from the ability of our investment advisers senior investment professionals and Board of advisers (the Advisory Board) to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate terms, and manage and monitor a portfolio of those investments. See Portfolio Management Advisory Board to GSV Asset Management. Our investment advisers senior investment professionals and Advisory Board members have broad investment backgrounds, with prior experience at investment banks, commercial banks, unregistered investment funds and other financial services companies, and have collectively developed a broad network of contacts that provides us with an important source of investment opportunities.
We pay GSV Asset Management a fee for its services under an investment advisory agreement (the Investment Advisory Agreement) consisting of two components a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% of our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities). The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an
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investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. See Investment Advisory Agreement. The terms for calculating the management fee create an incentive for our investment adviser to utilize leverage because our management fee is based on our gross assets, including issuances of preferred stock and borrowings for investment purposes, rather than our net assets. We will be required, however, to obtain the approval of our Board of Directors before we incur any future indebtedness. We have obtained approval from our Board of Directors to issue the notes.
We believe that the technology industry is experiencing a convergence of numerous disruptive trends, producing new high-growth markets. The growth of both social networking and connected mobile devices, such as smartphones and tablets, has opened up new channels for communication and real-time collaboration. The number of devices and people that regularly connect to the Internet has increased dramatically in recent years, generating significant demand for always accessible, personalized and localized content and real-time online interactivity. These factors are creating opportunities for new market participants and significant growth for established companies with leading positions capitalizing on these trends.
At the same time, we believe that the initial public offering, or IPO, markets have experienced substantial structural changes which have made it significantly more challenging for private companies to go public. Volatile equity markets, a lack of investment research coverage for private and smaller companies and investor demand for a longer history of revenue and earnings growth have resulted in companies staying private significantly longer than in the past. In addition, increased public company compliance obligations such as those imposed by the Sarbanes-Oxley Act of 2002 have made it more costly and less attractive to become a public company. As a result, there are significantly fewer IPOs today than there were during the 1990s, with prospective public companies taking longer to come to market. For example, from 1991 2000, there were 4,361 IPOs in the United States, of which 1,701 were venture-capital backed. From 2001 2011, there were 1,286 IPOs, of which 600 were venture-capital backed. In 2012, there were 128 IPOs, of which 49 were venture backed.
We seek to add to our portfolio of potentially high-growth emerging private companies via a repeatable and disciplined investment approach, as well as to provide investors with access to such companies through our publicly traded common stock.
Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity and equity-related investments. We have adopted the following business strategies to achieve our investment objective:
| Identify high quality growth companies. Based on our extensive experience in analyzing technology trends and markets, we have identified the technology sub-sectors of social mobile, cloud computing and big data, internet commerce, sustainability and education technology as opportunities where we believe companies are capable of producing substantial growth. We rely on our collective industry knowledge as well as an understanding of where leading venture capitalists are investing. |
We leverage a combination of our relationships throughout Silicon Valley and our independent research to identify leaders in our targeted sub-sectors that we believe are differentiated and best positioned for sustained growth. Our evaluation process is based on what we refer to as the four Ps:
| People Organizations led by strong management teams with in-depth operational focus |
| Product Differentiated and disruptive products with leading market positioning |
| Potential Large addressable markets |
| Predictability Ability to forecast and drive predictable and sustainable growth |
We consider these to be the core elements for identifying rapidly growing emerging companies.
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| Acquire positions in targeted investments. We seek to add to our portfolio by sourcing investments at an acceptable price through our disciplined investing strategy. To this end, we utilize multiple methods to acquire equity stakes in private companies that are not available to many individual investors. |
Direct equity investments. We also seek direct investments in private companies. There is a large market among emerging private companies for equity capital investments. Many of these companies, particularly within the technology sector, lack the necessary cash flows to sustain substantial amounts of debt, and therefore have viewed equity capital as a more attractive long-term financing tool. We seek to be a source of such equity capital as a means of investing in these companies and look for opportunities to invest alongside other venture capital and private equity investors with whom we have established relationships.
Private secondary marketplaces and direct share purchases. We also utilize private secondary marketplaces as a means to acquire equity and equity-related interests in privately-held companies that meet our investment criteria and that we believe are attractive candidates for investment. We believe that such markets offer new channels for access to equity investments in private companies and provide a potential source of liquidity should we decide to exit an investment. In addition, we also purchase shares directly from stockholders, including current or former employees. As certain companies grow and experience significant increased value while remaining private, employees and other stockholders may seek liquidity by selling shares directly to a third party or to a third party via a secondary marketplace. Sales of shares in private companies are typically restricted by contractual transfer restrictions and may be further restricted by provisions in company charter documents, investor rights of first refusal and co-sale and company employment and trading policies, which may impose strict limits on transfer. We believe that our investment professionals reputation within the industry and history of investing affords us a favorable position when seeking approval for a purchase of shares subject to such limitations.
| Create access to a varied investment portfolio. We seek to hold a varied portfolio of non-controlling equity investments, which we believe will minimize the impact on our portfolio of a negative downturn at any one specific company. We believe that our relatively varied portfolio will provide a convenient means for accredited and non-accredited individual investors to obtain access to an asset class that has generally been limited to venture capital, private equity and similar large institutional investors. |
We believe that we will benefit from the following competitive advantages in executing our investment strategy:
| Experienced team of investment professionals. Our investment advisers senior investment professionals, its Advisory Board and our Board of Directors have significant experience researching and investing in the types of potentially rapidly growing venture capital-backed emerging companies we are targeting for investment. Through our proprietary company evaluation process, including our identification of technology trends and themes and company research, we believe we have developed important insight into identifying and valuing emerging private companies. |
| Disciplined and repeatable investment process. We have established a disciplined and repeatable process to locate and acquire available shares at attractive valuations by utilizing multiple sources. In contrast to industry aggregators that accumulate stock at market prices, we conduct valuation analyses and make acquisitions only when we can invest at valuations that we believe are attractive to our investors. Following this process, we have completed investments in the 46 companies in our portfolio as of September 30, 2013. |
| Deep relationships with significant credibility to source and complete transactions. GSV Asset Management and its senior investment professionals are strategically located in the heart of Silicon Valley in Woodside, California. During the course of over two decades of researching and investing in emerging private companies, our investment advisers senior investment professionals have |
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developed strong reputations within the investing community, particularly within technology-related sectors. Our investment advisers Advisory Board members and our Board of Directors have also developed strong relationships in the financial, investing and technology-related sectors. |
| Source of permanent investing capital. As a publicly-traded corporation, we have access to a source of permanent equity capital which we can use to invest in portfolio companies. This permanent equity capital is a significant differentiator from other potential investors that may be required to return capital to stockholders on a defined schedule. We believe that our ability to invest on a long-term time horizon makes us attractive to companies looking for strong, stable owners of their equity. |
| Early mover advantage. We believe we are one of the few publicly traded business development companies with a specific focus on investing in potentially rapidly growing venture capital-backed emerging companies. The transactions that we have executed to date since our IPO have helped to establish our reputation with the types of secondary sellers and emerging companies that we target for investment. We have leveraged a number of relationships and channels to acquire the equity of private companies. As we continue to grow our portfolio with attractive investments, we believe that our reputation as a committed partner will be further enhanced, allowing us to source and close investments that would otherwise be unavailable. We believe that these factors collectively differentiate us from other potential investors in private company securities and will serve our goal to complete equity transactions in compelling private companies at attractive valuations. |
GSV Capital was formed as a Maryland corporation that is an externally managed, non-diversified closed-end management investment company. We completed our initial public offering in May 2011 and have elected to be treated as a business development company under the 1940 Act. As a business development company, we are required to meet regulatory tests, including the requirement to invest at least 70% of our gross assets in qualifying assets. Qualifying assets generally include, among other things, securities of eligible portfolio companies. Eligible portfolio companies generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any non-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets until such time as 70% of our then current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances. See Regulation as a Business Development Company. We were taxed as a regular corporation (a C corporation) under subchapter C of the Internal Revenue Code of 1986, as amended (the Code) for our 2012 taxable year. We may elect to be treated as a regulated investment company (RIC) under subchapter M of the Code, if management determines that it is in the best interests of the Company to do so and the Company is able to satisfy the requirements under subchapter M of the Code, which we will be unable to do for the 2013 taxable year unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations. See Material U.S. Federal Income Tax Considerations.
Our investment activities are managed by GSV Asset Management and supervised by our Board of Directors. GSV Asset Management is an investment adviser registered under the Advisers Act. Under our investment advisory agreement, which we refer to as the Investment Advisory Agreement, we have agreed to pay GSV Asset Management an annual base management fee based on our gross assets as well as an incentive fee based on our performance. See Investment Advisory Agreement. We have also entered into an administration agreement, which we refer to as the Administration Agreement, under which we have agreed to reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses incurred.
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During the course of over two decades of researching and investing in non-public companies, we have identified five areas from which we expect to see significant numbers of high-growth companies emerge: new media, communication, alternative energy, education technology, and the consumerization of information technology. These broad markets have the potential to produce disruptive technologies, reach a large addressable market and provide significant commercial opportunities. Within these areas we have identified broad trends that could create significant positive effects on growth such as globalization, consolidation, branding, convergence and network effects. From within these broad technology themes, we have selected five sub-segments in which we target companies for investment: social mobile, cloud computing and big data, internet commerce, sustainability and education technology. We remain focused on selecting market leaders within the sub-segments we have identified, while continuing to review our pipeline to ensure we are tracking the next phase of leaders.
We identify prospective portfolio companies through an extensive network of relationships developed by our investment professionals, supplemented by the knowledge and relationships of our investment advisers Advisory Board and our Board of Directors. Investment opportunities that fall within our identified themes are validated against the observed behavior of leading venture capitalists and through our own internal and external research. We evaluate potential portfolio companies across a spectrum of criteria, including the four Ps, industry positioning and leadership, stage of growth, and several other factors that collectively characterize our proprietary investment process. We typically seek to invest approximately 90% of our portfolio in well-established, late stage companies and the remaining approximately 10% in emerging companies that fit within our targeted areas, where we see the potential for higher returns from early investment. Based on our initial screening, we identify a select set of companies which we evaluate in greater depth.
Once we identify those companies that we believe warrant more in-depth analysis, we focus on their revenue growth, revenue quality and sustainability and earnings growth, as well as other metrics that may be strongly correlated with higher valuations. We also focus on the companys management team and any significant financial sponsor, the current business model, competitive positioning, regulatory and legal issues, the quality of any intellectual property and other investment-specific due diligence. Each prospective portfolio company that passes our initial due diligence review is given a qualitative ranking to allow us to evaluate it against others in our pipeline, and we review and update these companies on a regular basis.
Our due diligence process will vary depending on whether we are investing through a private secondary transaction on a marketplace or with a selling stockholder or by direct equity investment. We access information on our potential investments through a variety of sources, including information made available on secondary marketplaces, publications by private company research firms, industry publications, commissioned analysis by third-party research firms, and, to a limited extent, directly from the company or financial sponsor. We utilize a combination of each of these sources to help us set a target value for the companies we ultimately select for investment.
Upon completion of our research and due diligence process, we select investments for inclusion in our portfolio based on their relative qualitative ranking, fundamentals and valuation. We seek to create a relatively varied portfolio that we expect will include investments in companies representing a broad range of investment themes. We generally choose to pursue specific investments based on the availability of shares and valuation expectations. We utilize a combination of secondary marketplaces, direct purchases from stockholders and direct equity investments in order to make investments in our portfolio companies. Once we have established an initial position in a portfolio company, we may choose to increase our stake through subsequent purchases. Maintaining a balanced portfolio is a key to our success, and as a result we constantly evaluate the composition of our investments and our pipeline to ensure we are exposed to a diverse set of companies within our target segments.
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We enter into purchase agreements for each of our private company portfolio investments. Private company securities are typically subject to contractual transfer limitations, which may, among other things, give the issuer, its assignees and/or its stockholders a particular period of time, often 30 days or more, in which to exercise a veto right, or a right of first refusal over, the sale of such securities. Accordingly, the purchase agreements we enter into for secondary transactions typically require the lapse or satisfaction of these rights as a condition to closing. Under these circumstances, we are may be required to deposit the purchase price into escrow upon signing with the funds released to the seller at closing or returned to us if the closing conditions are not met.
We monitor the financial trends of each portfolio company to assess our exposure to individual companies as well as to evaluate overall portfolio quality. We establish valuation targets at the portfolio level and for gross and net exposures with respect to specific companies and industries within our overall portfolio. In cases where we make a direct investment in a portfolio company, we may also obtain Board positions, Board observation rights and/or information rights from that portfolio company in connection with our equity investment. We regularly monitor our portfolio for compliance with the diversification requirements for purposes of maintaining our status as a 1940 Act business development company and a RIC for tax purposes.
At September 30, 2013, our portfolio was invested approximately 61.80% in common shares, 37.70% in preferred shares, 0.20% in membership interests, 0.10% in term loans and 0.20% in equity warrants. Such percentages are not inclusive of our holdings in money market funds or U.S. Treasury Strips.
Our ten largest portfolio company investments as of September 30, 2013, based on the combined fair value of the securities we hold in each portfolio company, were as follows:
At September 30, 2013 | ||||||||||||||||
Portfolio Company | Industry | Cost | Fair Value | % of Net Asset Value | ||||||||||||
Twitter Inc. | Social Communications |
$ | 32,991,111 | $ | 44,773,385 | 17.6 | ||||||||||
Palantir Technologies, Inc. | Cyber Security | 21,060,447 | 26,228,429 | 10.3 | ||||||||||||
Dropbox, Inc. | Online Storage | 13,656,486 | 15,093,589 | 5.9 | ||||||||||||
Chegg, Inc. | Textbook Rental | 14,022,902 | 14,135,584 | 5.6 | ||||||||||||
Control4 Corporation | Home Automation | 7,011,025 | 12,473,776 | 4.9 | ||||||||||||
Solexel, Inc. | Solar Power | 11,017,224 | 10,999,997 | 4.3 | ||||||||||||
2U, Inc. (f/k/a 2tor, Inc.) | Online Education | 10,030,793 | 10,849,295 | 4.3 | ||||||||||||
Avenues World Holdings, LLC | Globally-focused Private School |
10,028,361 | 10,423,016 | 4.1 | ||||||||||||
Coursera, Inc. | Online Education | 9,999,999 | 9,999,998 | 3.9 | ||||||||||||
Facebook Inc. | Social Networking | 5,236,147 | 8,790,250 | 3.5 | ||||||||||||
Total | $ | 135,054,495 | $ | 163,767,319 | 64.4 | % |
Set forth below are descriptions of the ten largest portfolio investments as of September 30, 2013:
Twitter is a social networking company. Twitter is a real-time information network that allows users to send and receive information.
Palantir solves critical intelligence and security issues for government agencies, banks, and large institutions.
Dropbox is a provider of cloud storage that enables users to store and share files across the internet.
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Chegg is an online textbook rental company with a leading market presence in the online education industry. Chegg has built a social education learning platform that assists students by providing course planning and selection services, textbooks, study materials and homework assistance.
Control4 is a leading provider of automation and control solutions for the connected home. Control4 has made entertainment systems easier to use, appliances more energy efficient, and homes more secure.
Solexel is developing high-efficiency, low-cost, crystalline silicon solar cells and modules for photovoltaic electricity generation
2U partners with universities, providing technology solutions to manage students from recruitment to post-graduation job placement, as well as develop and deliver curriculum in a virtual environment.
Avenues is a private pre-K through 12th grade school that aspires to ultimately become a single school with multiple integrated global campuses, raising the global standard for top-tier private schools.
Coursera is an online open course provider that partners with universities and organizations in the world to offer courses online for anyone to take, for free.
Facebook is a leading social networking company. Facebooks social networking website allows users to create a personal profile, add other users to the network, and exchange messages, photographs and other information that can be shared across a network.
As a business development company, we are required to offer, and in some cases may provide and be paid for, significant managerial assistance to portfolio companies. This assistance typically involves monitoring the operations of portfolio companies, participating in their Board and management meetings, consulting with and advising their officers and providing other organizational and financial guidance.
Our primary competitors include specialty finance companies including late stage venture capital funds, private equity funds, other crossover funds, public funds investing in private companies and business development companies. Many of these entities have greater financial and managerial resources than we will have. For additional information concerning the competitive risks we face, see Risk Factors Risks Relating to Our Business and Structure.
While we have executive officers, they receive no direct compensation from us, and we have no direct employees. Our day-to-day investment operations are managed by our investment adviser. In addition, we reimburse GSV Capital Service Company for an allocable portion of expenses incurred by it in performing its obligations under the Administration Agreement, including a portion of the rent and the compensation of our chief financial officer and chief compliance officer and other staff providing administration services. See Investment Advisory Agreement.
Our principal office is located at 2925 Woodside Road, Woodside, California, in the offices of GSV Capital Service Company. We do not own or lease any office space directly; however, we will pay a
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portion of the rent as allocated to us by GSV Capital Service Company. Our office facilities are suitable and adequate for our business as it is presently conducted.
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
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The following table sets forth certain information as of September 30, 2013 for each portfolio company in which we had an investment. The general terms of our investments are described in Business Investment Process. Other than these investments, our only formal relationships with our portfolio companies are the managerial assistance we may provide upon request and the Board observer or participation rights we may receive in connection with our investment. We do not control and are not an affiliate of any of our portfolio companies, each as defined in the 1940 Act, other than as indicated in the table below. In general, under the 1940 Act, we would control a portfolio company if we owned more than 25% of its voting securities and would be an affiliate of a portfolio company if we owned more than 5% of its voting securities.
Name and Address of Portfolio Company |
Industry | Investment | % of Class Held(1) |
Number of Shares Held |
Cost(2) | Fair Value(3) |
||||||||||||||||||
Twitter, Inc. (San Francisco, CA) |
Social Communication |
Common shares | * | 1,835,600 | 31,755,821 | 43,242,147 | ||||||||||||||||||
Twitter, Inc. (San Francisco, CA) |
Social Communication |
Preferred shares, Series A |
* | 65,000 | 1,235,290 | 1,531,238 | ||||||||||||||||||
Palantir Technologies, Inc. (Palo Alto, CA) |
Cyber Security | Common shares, Class A |
* | 7,145,690 | 20,051,479 | 25,081,372 | ||||||||||||||||||
Palantir Technologies, Inc. (Palo Alto, CA) |
Cyber Security | Preferred shares, Series G |
* | 326,797 | 1,008,968 | 1,147,057 | ||||||||||||||||||
Dropbox, Inc. (San Francisco, CA) |
Online Storage | Common share | * | 760,000 | 8,641,153 | 8,740,000 | ||||||||||||||||||
Dropbox, Inc. (San Francisco, CA) |
Online Storage | Preferred shares, Series A-1 |
* | 552,486 | 5,015,333 | 6,353,589 | ||||||||||||||||||
Chegg, Inc. (Santa Clara, CA) |
Textbook Rental | Common shares | 1.66 | % | 849,462 | 10,014,248 | 9,580,153 | |||||||||||||||||
Chegg, Inc. (Santa Clara, CA) |
Textbook Rental | Preferred shares, Series F |
1.66 | % | 333,333 | 4,008,654 | 4,555,431 | |||||||||||||||||
Control4 Corporation (Salt Lake City, UT) |
Home Automation | Common shares | * | 782,821 | 7,011,025 | 12,473,776 | ||||||||||||||||||
Solexel, Inc. (Milpitas, CA) |
Solar Power | Preferred shares, Series C |
3.40 | % | 5,034,324 | 11,017,224 | 10,999,998 | |||||||||||||||||
2U, Inc. (f/k/a 2tor, Inc.) (Landover, MD) |
Online Education | Common shares | 3.62 | % | 1,151,802 | 8,757,668 | 9,472,352 | |||||||||||||||||
2U, Inc. (f/k/a 2tor, Inc.) (Landover, MD) |
Online Education | Preferred shares, Series A |
3.62 | % | 167,431 | 1,273,125 | 1,376,943 | |||||||||||||||||
Avenues World Holdings LLC (New York, NY) |
Globally-focused Private School |
Preferred shares, Class A-1 |
3.87 | % | 5,000,000 | 10,028,361 | 10,423,016 | |||||||||||||||||
Coursera, Inc. (Mountain View, CA) |
Online Education | Preferred shares, Series B |
3.20 | % | 2,039,609 | 9,999,999 | 9,999,998 | |||||||||||||||||
Facebook, Inc. (Menlo Park, CA) |
Social Networking | Common shares, Class A |
* | 175,000 | 5,236,147 | 8,790,250 | ||||||||||||||||||
Violin Memory (Mountain View, CA) |
Memory Flash | Common shares | 1.34 | % | 1,233,333 | 14,819,618 | 8,158,498 | |||||||||||||||||
SugarCRM, Inc. (Cupertino, CA) |
Customer Relationship Manager |
Common shares | 3.38 | % | 1,480,131 | 5,193,947 | 5,602,296 | |||||||||||||||||
SugarCRM, Inc. (Cupertino, CA) |
Customer Relationship Manager |
Preferred shares, Series E |
3.38 | % | 373,134 | 1,500,522 | 1,857,408 | |||||||||||||||||
ZocDoc Inc. (New York, NY) |
Online Medical Scheduling |
Preferred shares, Series A |
* | 200,000 | 3,563,178 | 3,317,091 | ||||||||||||||||||
ZocDoc Inc. (New York, NY) |
Online Medical Scheduling |
Common Stock | * | 111,866 | 1,734,878 | 1,855,348 | ||||||||||||||||||
Whittle Schools, LLC (New York, NY) |
Globally-focused Private School |
Preferred shares, Series B |
2.32 | % | 3,000,000 | 3,000,000 | 3,000,000 | |||||||||||||||||
Whittle Schools, LLC (New York, NY) |
Globally-focused Private School |
Common shares | 2.32 | % | 100 | 1,530,000 | 1,500,000 | |||||||||||||||||
Bloom Energy Corporation (Sunnyvale, CA) |
Fuel Cell Energy |
Common shares | * | 201,589 | 3,855,601 | 4,456,420 |
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Name and Address of Portfolio Company |
Industry | Investment | % of Class Held(1) |
Number of Shares Held |
Cost(2) | Fair Value(3) |
||||||||||||||||||
Spotify Technology S.A. (Stockholm, Sweden) |
Music Streaming Service |
Common shares | * | 3,658 | 3,598,472 | 4,247,411 | ||||||||||||||||||
Dataminr, Inc. (New York, NY) |
Social Media Analytics |
Preferred shares, Series B |
3.39 | % | 904,977 | 2,063,356 | 2,936,650 | |||||||||||||||||
Dataminr, Inc. (New York, NY) |
Social Media Analytics |
Preferred shares, Series C |
3.39 | % | 301,369 | 1,100,567 | 1,099,997 | |||||||||||||||||
StormWind, LLC (Scottsdale, AZ) |
Interactive Learning Platform | Preferred shares, Series B |
16.08 | % | 3,279,629 | 2,019,687 | 3,955,872 | |||||||||||||||||
Gilt Groupe, Inc. (New York, NY) |
e-Commerce Flash Sales |
Common shares | * | 248,600 | 6,594,433 | 3,783,860 | ||||||||||||||||||
Learnist Inc, (f/k/a Grockit, Inc.) (San Francisco, CA) |
Online Test Preparation |
Preferred shares, Series D |
7.50 | % | 2,728,252 | 2,005,945 | 2,073,472 | |||||||||||||||||
Learnist Inc, (f/k/a Grockit, Inc.) (San Francisco, CA) |
Online Test Preparation |
Preferred shares, Series E |
7.50 | % | 1,731,501 | 1,503,670 | 1,501,601 | |||||||||||||||||
Fullbridge, Inc (Cambridge, MA) |
Business Education | Preferred shares, Series C |
11.06 | % | 1,728,724 | 3,193,444 | 3,378,542 | |||||||||||||||||
Fullbridge, Inc (Cambridge, MA) |
Business Education | Warrants | 11.06 | % | 186,170 | 67,021 | 67,021 | |||||||||||||||||
CUX, Inc. (d/b/a CorpU) (San Francisco, CA) |
Corporate Education | Common Stock | 9.59 | % | 615,763 | 2,006,077 | 2,472,902 | |||||||||||||||||
CUX, Inc. (d/b/a CorpU) (San Francisco, CA) |
Corporate Education | Convertible preferred shares, Series D |
9.59 | % | 169,033 | 778,607 | 773,195 | |||||||||||||||||
CUX, Inc. (d/b/a CorpU) (San Francisco, CA) |
Corporate Education | Warrants | 9.59 | % | 16,903 | | | |||||||||||||||||
Parchment, Inc. (Scottsdale, AZ) |
E-Transcript Exchange | Preferred shares, Series D |
3.43 | % | 2,400,384 | 3,000,000 | 3,237,736 | |||||||||||||||||
Totus Solutions, Inc. (Carrollton, TX) |
LED Lighting | Common shares | 17.62 | % | 12,000,000 | 3,014,384 | 720,000 | |||||||||||||||||
Totus Solutions, Inc. (Carrollton, TX) |
LED Lighting | Preferred shares, Series A |
17.62 | % | 8,000,000 | 2,009,589 | 2,000,000 | |||||||||||||||||
Totus Solutions, Inc. (Carrollton, TX) |
LED Lighting | Preferred shares, Series B |
17.62 | % | 4,444,444 | 400,000 | 400,000 | |||||||||||||||||
Global Education Learning (Holdings) Ltd. (Hong Kong) |
Education Technology | Preferred shares, Series A |
14.10 | % | 1,472,175 | 2,999,998 | 3,003,237 | |||||||||||||||||
SharesPost, Inc. (San Bruno, CA) |
Online Marketplace (Finance) |
Preferred shares, Series B |
4.49 | % | 1,771,653 | 2,259,716 | 2,232,283 | |||||||||||||||||
SharesPost, Inc. (San Bruno, CA) |
Online Marketplace (Finance) |
Common warrants | 4.49 | % | 770,934 | 23,128 | 323,792 | |||||||||||||||||
Dailybreak, Inc. (Boston, MA) |
Social Advertising | Preferred shares, Series A-1 |
13.80 | % | 1,878,129 | 2,430,950 | 2,429,540 | |||||||||||||||||
TrueCar, Inc. (Santa Monica, CA) |
Online Marketplace | Common shares | 0.31 | % | 377,358 | 2,014,863 | 2,414,826 | |||||||||||||||||
Kno, Inc. (Santa Clara, CA) |
Digital Textbooks | Preferred shares, Series A |
1.72 | % | 440,313 | 2,262,006 | 450,000 | |||||||||||||||||
Kno, Inc. (Santa Clara, CA) |
Digital Textbooks | Preferred shares, series C-1 |
1.72 | % | 1 | 7,510,334 | 1,500,000 | |||||||||||||||||
Kno, Inc. (Santa Clara, CA) |
Digital Textbooks | Common shares | 1.72 | % | 50,000 | 214,681 | | |||||||||||||||||
Kno, Inc. (Santa Clara, CA) |
Digital Textbooks | Term Loan | 1.72 | % | 225,000 | 232,744 | 225,000 | |||||||||||||||||
Maven Research, Inc. (San Francisco, CA) |
Knowledge Networks | Preferred shares, Series C |
16.29 | % | 318,979 | 2,000,447 | 1,854,523 | |||||||||||||||||
Maven Research, Inc. (San Francisco, CA) |
Knowledge Networks | Preferred shares, Series B |
16.29 | % | 49,505 | 217,206 | 231,386 | |||||||||||||||||
NestGSV, Inc. (Redwood City, CA) |
Incubator | Preferred shares, Series A |
24.17 | % | 1,000,000 | 1,021,778 | 1,200,000 |
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Name and Address of Portfolio Company |
Industry | Investment | % of Class Held(1) |
Number of Shares Held |
Cost(2) | Fair Value(3) |
||||||||||||||||||
NestGSV, Inc. (Redwood City, CA) |
Incubator | Preferred shares, Series B |
24.17 | 450,000 | 605,500 | 600,000 | ||||||||||||||||||
Silver Spring Networks, Inc. (Redwood City, CA) |
Smart Grid | Common shares | * | 102,028 | 5,145,271 | 1,768,145 | ||||||||||||||||||
S3 Digital Corp. (d/b/a S3i) (New York, NY) |
Sports Analytics | Preferred shares, Class A1 |
20.36 | % | 1,033,452 | 989,058 | 1,138,441 | |||||||||||||||||
S3 Digital Corp. (d/b/a S3i) (New York, NY) |
Sports Analytics | Preferred warrants | 20.36 | % | 500,000 | 31,354 | 200,000 | |||||||||||||||||
Strategic Data Command, LLC (Sunnyvale, CA) |
Software Development | 6.36 | % | 800,000 | 1,001,650 | 1,000,000 | ||||||||||||||||||
SinoLending Ltd. (Shanghai, China) |
Chinese P2P Lending |
Preferred shares, Class A |
4.41 | % | 6,414,368 | 503,235 | 604,859 | |||||||||||||||||
SinoLending Ltd. (Shanghai, China) |
Chinese P2P Lending |
Preferred shares, Class B |
4.41 | % | 2,333,108 | 250,263 | 250,000 | |||||||||||||||||
The rSmart Group, Inc. (Scottsdale, AZ) |
Higher Education Learning Platform |
Preferred shares, Series B |
4.71 | % | 1,201,923 | 1,267,240 | 840,112 | |||||||||||||||||
DreamBox Learning, Inc. (Bellevue, WA) |
Education | Preferred shares, Series A |
1.47 | % | 3,579,610 | 758,017 | 825,095 | |||||||||||||||||
AlwaysOn, Inc. (Woodside, CA) |
Social Media | Preferred shares, Series A |
19.68 | % | 1,066,626 | 1,027,391 | 203,011 | |||||||||||||||||
AlwaysOn, Inc. (Woodside, CA) |
Social Media | Preferred shares, Series A-1 |
19.68 | % | 3,152,417 | 624,783 | 600,000 | |||||||||||||||||
AliphCom, Inc. (d/b/a Jawbone) (San Francisco, CA) |
Smart Device Company |
Common Stock | * | 150,000 | 793,152 | 792,600 | ||||||||||||||||||
Ozy Media, Inc. (Mountain View, CA) |
Social Media | Preferred shares, Series Seed |
4.55 | % | 500,000 | 500,000 | 546,224 | |||||||||||||||||
NestGSV Silicon Valley, LLC (Redwood City, CA) |
Incubator | Common membership interest |
13.33 | % | 500,000 | 500,000 | 519,045 | |||||||||||||||||
The Echo System Corp. (New York, NY) |
Social Analytics | Preferred shares, Series A |
4.94 | % | 512,365 | 1,436,404 | 373,535 | |||||||||||||||||
The Echo System Corp. (New York, NY) |
Social Analytics | Preferred warrants | 4.94 | % | 68,359 | 75,988 | | |||||||||||||||||
NewZoom, Inc. (d/b/a ZoomSystems) (San Francisco, CA) |
Smart e-tail (Retail) |
Preferred shares, Series A |
* | 1,250,000 | 260,476 | 262,500 | ||||||||||||||||||
Neuron Fuel, Inc. (San Jose, CA) |
Computer Software | Preferred shares, Series AAI |
1.21 | % | 250,000 | 262,530 | 243,658 | |||||||||||||||||
Odesk Corporation (Redwood City, CA) |
Online Workplace Platform | Common Stock | * | 30,000 | 183,269 | 188,995 | ||||||||||||||||||
Starfish Holdings, Inc. (d/b/a YourOffers) (Beverly Hills, CA) |
Marketing Platform | Preferred shares, Series A |
11.77 | % | 43,878,894 | 2,177,461 | | |||||||||||||||||
Starfish Holdings, Inc. (d/b/a YourOffers) (Beverly Hills, CA) |
Marketing Platform | Common warrants | 11.77 | % | 144,800,351 | | |
* | Percentage of class held represents less than 1.00% of fully diluted shares outstanding. |
(1) | Percentage of class held represents the percentage of fully diluted shares outstanding. Information regarding percentage of class held is based on information available to us with respect to the capitalization and capital structure of the company. There can be no assurance that such information is complete or accurate. |
(2) | Amounts include transaction fees and costs. |
(3) | Fair value was determined in good faith by our Board of Directors as of September 30, 2013. |
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From September 30, 2013 through January 16, 2014, we closed on investments of $49,462,026, plus transaction costs in 15 portfolio investments. See Managements Discussion and Analysis of Financial Condition and Results of Operations Recent Developments for more information about these investments. Set forth below is a brief description of each portfolio company in which we have made an investment that represents greater than 5% of the fair value of our investment portfolio as of September 30, 2013.
Twitter is a social networking company. Twitter is a real-time information network that allows users to send and receive information.
Palantir solves critical intelligence and security issues for government agencies, banks, and large institutions.
Dropbox is a provider of cloud storage that enables users to store and share files across the internet.
Chegg is an online textbook rental company with a leading market presence in the online education industry. Chegg has built a social education learning platform that assists students by providing course planning and selection services, textbooks, study materials and homework assistance.
Control4 is a leading provider of automation and control solutions for the automated home. Control4 has made entertainment systems easier to use, appliances more energy efficient, and homes more secure.
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Our Board of Directors oversees our management. The Board of Directors currently consists of seven members, four of whom are not interested persons of GSV Capital as defined in Section 2(a)(19) of the 1940 Act. We refer to these individuals as our independent directors. Our Board of Directors elects our officers, who serve at the discretion of the Board of Directors. The responsibilities of each director will include, among other things, the oversight of our investment activity, the quarterly valuation of our assets, and oversight of our financing arrangements. The Board of Directors has also established an audit committee, a nominating and corporate governance committee and a valuation committee, and may establish additional committees in the future.
Information regarding the Board of Directors is as follows:
Name | Age | Position | Director Since | Expiration of Term | ||||
Interested Directors |
||||||||
Michael T. Moe | 51 | President, Chief Executive Officer and Chairman of the Board of Directors | 2010 | 2015 | ||||
Mark W. Flynn | 57 | Director | 2011 | 2015 | ||||
Mark D. Klein | 51 | Director | 2011 | 2014 | ||||
Independent Directors | ||||||||
Leonard A. Potter | 52 | Director | 2011 | 2016 | ||||
R. David Spreng | 52 | Director | 2011 | 2014 | ||||
William V. Campbell | 73 | Director | 2012 | 2016 | ||||
Catherine J. Friedman | 53 | Director | 2013 | 2016 |
The address for each of our directors is 2925 Woodside Road, Woodside, California 94062.
Name | Age | Position | Executive Officer Since | |||
David V. Crowder | 48 | Executive Vice President | 2012 | |||
Stephen D. Bard | 54 | Chief Financial Officer, Chief Compliance Officer, Treasurer and Corporate Secretary | 2011 |
Our directors have been divided into two groups interested directors and independent directors. An interested director is an interested person as defined in Section 2(a)(19) of the 1940 Act.
Mr. Moe is an interested person of GSV Capital as defined in the 1940 Act due to his positions as President and Chief Executive Officer of GSV Capital and as a principal of and Chief Investment Officer for GSV Asset Management. Mr. Klein is an interested person of GSV Capital as defined in the 1940 Act due to his financial relationship as a consultant for GSV Asset Management. Mr. Flynn is an interested person of GSV Capital as defined in the 1940 Act due to his position as Co-Managing Partner of GSV Asset Management.
Michael T. Moe has served as our President and Chief Executive Officer and Chairman of our Board of Directors since 2010 and is primarily responsible for overall investment strategies and portfolio management. In addition, Mr. Moe has served as Co-Founder, Chief Executive Officer and Chief Investment Officer of GSV
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Asset Management since 2010. Mr. Moe previously co-founded and served as Chairman and Chief Executive Officer of ThinkEquity Partners, an investment banking firm focusing on venture capital, entrepreneurial and emerging growth companies, from 2001 to 2008. Prior to founding ThinkEquity, Mr. Moe served as head of Global Growth Research at Merrill Lynch from 1998 to 2001, and before that served as head of Growth Research and Strategy at Montgomery Securities from 1995 to 1998. In 2006, Mr. Moe published his critically acclaimed book Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow (Penguin/Portfolio Books, 2006). Mr. Moe is currently a member of the Board of Directors of SharesPost, a private secondary market, and ePals, the worlds largest K-12 social learning network. He is also a member of the advisory Board of Institutional Venture Partners (IVP). Mr. Moe earned his BA in Political Science and Economics at the University of Minnesota and is a CFA charter holder. Our Board of Directors has concluded that Mr. Moes depth of experience in managerial positions in investment management, securities research and financial services, as well as his intimate knowledge of our business and operations, gives the Board of Directors valuable industry-specific knowledge and expertise on these and other matters, and that therefore he is qualified to serve as a member of our Board of Directors.
Mark D. Klein has served as a member of our Board of Directors since 2011. Mr. Klein also served as a director of New University Holdings Corp., (NUH) a capital pool company listed on the TSX Venture Exchange, since its inception in 2010 through August 2011, when NUH merged with ePals, Inc., the worlds largest K-12 learning network provider. In addition, from April 2010 until May 2011, Mr. Klein served as the Chief Executive Officer, President and a Director of 57th Street General Acquisition Corp, a special purpose acquisition company, until it completed a merger with Crumbs Bake Shop. Mr. Klein continues to serve as a Director of Crumbs. Between 2007 and 2009, Mr. Klein served as the Chief Executive Officer, President and a Director of Alternative Asset Management Acquisition Corporation, a special purpose acquisition company he helped form in 2007, and which completed a merger with Great American Group LLC. Mr. Klein continues to serve on the Board of Directors of Great American Group. From 2007 until 2008, Mr. Klein served as the Chief Executive Officer of Hanover Group US LLC, an indirect US subsidiary of the Hanover Group. Prior to joining Hanover in 2007, Mr. Klein served as Chairman of Ladenburg Thalmann & Co. Inc. From March 2005 to September 2006, he was Chief Executive Officer and President of Ladenburg Thalmann Financial Services, Inc., the parent of Ladenburg Thalmann & Co. Inc., and Chief Executive Officer of Ladenburg Thalmann Asset Management Inc., a subsidiary of Ladenburg Financial Services, Inc. Prior to joining Ladenburg Thalmann, from June 2000 to March 2005, Mr. Klein served as the Chief Executive Officer and President of NBGI Asset Management, Inc. and NBGI Securities, which were the US subsidiaries of the National Bank of Greece. Mr. Klein has been a registered representative at Ladenburg Thalmann & Co. Inc. since 2005, and a portfolio manager of the LTAM Titan Fund, a fund of funds hedge fund, since 2004. Mr. Klein is also a Managing Member and Majority Partner of M. Klein & Company, LLC, which owns the Klein Group, LLC, a registered broker dealer. Mr. Klein also maintains registration with the Klein Group, LLC as a registered representative and Principal. Mr. Klein is a graduate of the J.L. Kellogg Graduate School of Management at Northwestern University, with a Masters of Management Degree, and also received a Bachelors of Business Administration Degree with high distinction from Emory University. Our Board of Directors has concluded that Mr. Kleins extensive familiarity with the financial and investment banking industries and experience as a director of other publicly-traded companies provides our Board of Directors with valuable insight and perspective, and that therefore he is qualified to serve as a member of our Board of Directors.
Mark W. Flynn has served as a member of our Board of Directors since 2011 and has served as Co-Managing Partner of GSV Asset Management since 2013. Mr. Flynn has managed Trilogy Capital Partners (Trilogy), a Menlo Park, California based private investment firm, since its formation in 1997. Prior to forming Trilogy, Mr. Flynn worked in various capacities in the investment banking groups at Salomon Brothers and Volpe, Brown & Whelan. During his investment-banking career Mr. Flynn primarily worked with technology and health care companies. At Salomon Brothers, he was responsible for the Global Software and Internet investment banking activities. Previously Mr. Flynn worked for Arthur Young and Company in the High Technology practice. Mr. Flynn previously served as a regent at St. Johns University and as Chairman of The Preserve Company. He was also a member of the Board of Directors of the DAPER Fund at Stanford University as well as a number of privately held companies. He is a graduate of Saint Johns University in Collegeville, Minnesota and received an MBA from Harvard Business School. Our Board of Directors has
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concluded that Mr. Flynns extensive familiarity with the financial and investment management industries and experience evaluating technology-related companies provides our Board of Directors with valuable insight and perspective, and that therefore he is qualified to serve as a member of our Board of Directors.
The following directors are not interested persons of GSV Capital, as defined in the 1940 Act.
Leonard A. Potter has served as a member of our Board of Directors since 2011. Mr. Potter is currently the President of a private family investment office. From August 2009 through August 2011, Mr. Potter served as the Chief Investment Officer of Salt Creek Hospitality, a private acquirer and owner of hospitality related assets. From December 2002 through July 2009, Mr. Potter was a Managing Director Soros Private Equity at Soros Fund Management LLC (SFM) where, from May 2005 through July 2009, Mr. Potter served as co-head of the Private Equity group and a member of the Private Equity Investment Committee. From September 1998 until joining SFM in 2002, Mr. Potter was a Managing Director of Alpine Consolidated LLC, a private merchant bank, and from April 1996 through September 1998, Mr. Potter founded and served as a Managing Director of Capstone Partners LLC, a private merchant bank. Prior to founding Capstone Partners, Mr. Potter was an attorney specializing in mergers, acquisitions and corporate finance at Morgan, Lewis & Bockius and Willkie Farr & Gallagher. Mr. Potter is currently a member of the Board of Directors of Solar Senior Capital, Ltd. (SUNS), Solar Capital Ltd. (SLRC) and GSV Capital, each a business development company, and 57th Street General Acquisition Corp., the owner of Crumbs Holdings LLC (CRMB), and has previously served as a Board member of several other public companies. He also serves on the Boards of three private companies, including Hilton Worldwide. Mr. Potter has a B.A. from Brandeis University and a J.D. from the Fordham University School of Law. Our Board of Directors has concluded that Mr. Potters experience practicing as a corporate lawyer provides valuable insight to the Board of Directors on regulatory and risk management issues, and that his tenure in private equity investments and service as a director of both public and private companies provides industry-specific knowledge and expertise to our Board of Directors, and that therefore he is qualified to serve as a member of our Board of Directors.
R. David Spreng has served as a member of our Board of Directors since 2011. Mr. Spreng is the founder and has served as Managing General Partner of Crescendo Ventures, a venture capital firm, since its formation in 1998. Mr. Spreng has been active in the formation and development of nearly 50 technology companies, 17 of which have completed initial public offerings. Mr. Spreng has been a participant and a panelist at the World Economic Forums annual meeting in Davos, Switzerland, and is a member of the World Economic Forums Technology Pioneers selection committee and on the World Economic Forums Steering Committee for Entrepreneurship and Successful Growth Strategies. Mr. Spreng also presently sits on the Advisory Board of the Silicon Valley Executive Network, is a member of the Silicon Valley Leadership Group and previously served as a member of the Board of, and Chairman of the Government Affairs Committee of, the National Venture Capital Association (NVCA). Mr. Spreng currently serves on the Board of Directors of a number of private technology-focused companies. In addition, Mr. Spreng previously served on the Board of Directors of Compellent Technologies, a publicly-traded provider of enterprise-class network solutions, from 2006 to 2011, prior to its acquisition by Dell. Mr. Spreng has previously been named as a defendant in several cases arising out of his service as a member of the Board of Directors of three public companies. Mr. Spreng is a graduate, with distinction, of the University of Minnesota. Our Board of Directors has concluded that Mr. Sprengs extensive familiarity with the venture capital industry and experience as a director of other publicly traded companies, provides our Board of Directors with valuable insight and perspective, and that therefore he is qualified to serve as a member of our Board of Directors.
William V. Campbell has served as a member of our Board of Directors since 2012. Mr. Campbell has served as Chairman of the Board of Directors of Intuit Inc. since 1998 and has served on the Board of Directors of Apple Inc. since 1997. Mr. Campbell previously served as Intuit's president and CEO from 1994 to 1998 and as CEO from 1999 until 2000. Mr. Campbell is also the Chair of the Board of Trustees of Columbia University and a director of The National Football Foundation & College Hall of Fame, Inc. Mr. Campbell has a bachelors degree in economics and a Master of Science from Columbia University. Our Board of Directors has concluded that Mr. Campbell brings extensive qualifications and acumen to the Board as a result of his executive leadership experience, including his service as a Chairman of a public company,
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along with extensive financial expertise and technological and industry experience, and that therefore he is qualified to serve as a member of our Board of Directors.
Catherine J. Friedman has served as a member of our Board of Directors since 2013. Ms. Friedman has served as an independent consultant serving public and private growth companies since 2006. Prior to that, Ms. Friedman held the position of Managing Director at Morgan Stanley from 1997 to 2006 and Head of West Coast Healthcare and Co-Head of the Biotechnology Practice at Morgan Stanley from 1993 to 2006. Ms. Friedman has served on the Board of Directors of XenoPort Inc., a publicly traded biopharmaceutical company, since 2007 and also serves on its Audit and Governance Committees. Ms. Friedman joined the Board of Enteromedics, a publicly traded medical device company in 2007 and also serves as the Chair of its Audit Committee. She has been a Board member of the Boys and Girls Club of the Peninsula for seven years, where she serves on the Executive and Program committees. Ms. Friedman is a member of the Board of Trustees for Sacred Heart Schools in Atherton. She has a B.A. from Harvard University and received an MBA from the University of Virginias Darden School of Business. Our Board of Directors has concluded that Ms. Friedmans experience as an independent consultant to growth companies in both private and public markets, along with her extensive experience in the financial sector, provides valuable expertise to the Board of Directors, and that therefore, she is qualified to serve as a member of our Board of Directors.
Stephen D. Bard has served as our Chief Financial Officer, Chief Compliance Officer, Treasurer and Corporate Secretary since 2011. In addition, Mr. Bard has served as a principal and Managing Member of GSV Asset Management since 2010. Mr. Bard co-founded GSV Asset Management in 2010, and he is the firms Chief Operating Officer. From 2001 to 2009, Mr. Bard served as Chief Operating Officer and a member of the Board of Directors of Fuller & Thaler Asset Management (Fuller & Thaler), an institutional investment firm. As Chief Operating Officer of Fuller & Thaler, Mr. Bard built out and managed the firms non-investment team and infrastructure. From 1998 to 2001, Mr. Bard managed the West Coast for Fidelity Management Trust Company (now Pyramis Global Advisors). Mr. Bard has also held senior consultant and business development roles at Hewitt Associates from 1988 to 1996 and New York Life Investment Management from 1996 to 1998. Mr. Bard is currently a Board and Executive Committee member of the CFA Society of San Francisco, where he chairs the Investment Committee. Mr. Bards other Board and committee service includes work with Purisima West Funds, Crystal Springs Uplands School, the Hillsborough Schools Foundation, The Olympic Club Investment & Endowment Committee and Blue Chip Exec. Mr. Bard earned his BS from Duke University and his MBA from the University of California, Berkeley. Mr. Bard is also a CFA charter holder.
David V. Crowder has served as our Executive Vice President since 2012. Mr. Crowder has been an Advisory Board Member at GSV Asset Management since 2011, where he has focused primarily on sourcing and managing investments. Before he joined GSV Asset Management, Mr. Crowder was a General Partner of Thomas Weisel Venture Partners, which he co-founded in 2000. During that time, Mr. Crowder played a key role in raising the funds, recruiting the team, and managing the funds investments, while also serving on the Boards of several portfolio companies. Prior to his time at Thomas Weisel Venture Partners, Mr. Crowder was a founding partner of Thomas Weisel Partners, a Senior Managing Director and head of the Software and Internet Group at Montgomery Securities, and an investment banker at Goldman, Sachs & Co. Mr. Crowder received his BA in Finance from the University of Utah and his MBA from Harvard Business School.
Our Board of Directors monitors and performs an oversight role with respect to the business and affairs of GSV Capital, including with respect to investment practices and performance, compliance with regulatory requirements and the services, expenses and performance of service providers to GSV Capital. Among other things, our Board of Directors approves the appointment of our investment adviser and officers, reviews and monitors the services and activities performed by our investment adviser and executive officers and approves the engagement, and reviews the performance of, our independent public accounting firm.
Under GSV Capitals bylaws, our Board of Directors may designate a Chairman to preside over the meetings of the Board of Directors and meetings of the stockholders and to perform such other duties as may be assigned to him by the Board. We do not have a fixed policy as to whether the Chairman of the Board
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should be an independent director and believe that we should maintain the flexibility to select the Chairman and reorganize the leadership structure, from time to time, based on the criteria that is in the best interests of GSV Capital and its stockholders at such times.
Presently, Mr. Moe serves as the Chairman of our Board of Directors. Mr. Moe is an interested person of GSV Capital as defined in Section 2(a)(19) of the 1940 Act because he is the President and Chief Executive Officer of GSV Capital and a principal of and the Chief Investment Officer for GSV Asset Management. Mr. Moes history with the GSV Asset Management, familiarity with GSV Asset Managements investment platform, and extensive knowledge of the financial services industry and the investment valuation process in particular qualify him to serve as the Chairman of our Board of Directors. Our view is that GSV Capital is best served through this existing leadership structure, as Mr. Moes relationship with GSV Capitals investment adviser provides an effective bridge and encourages an open dialogue between management and the Board of Directors, ensuring that both groups act with a common purpose.
Our Board of Directors does not currently have a designated lead independent director. We are aware of the potential conflicts that may arise when a non-independent director is Chairman of the Board, but believe these potential conflicts are offset by our strong corporate governance policies. Our corporate governance policies include regular meetings of the independent directors in executive session without the presence of interested directors and management, the establishment of audit, valuation and nominating and corporate governance committees comprised solely of independent directors and the appointment of a Chief Compliance Officer, with whom the independent directors meet regularly without the presence of interested directors and other members of management, for administering our compliance policies and procedures.
We recognize that different Board leadership structures are appropriate for companies in different situations. We intend to re-examine our corporate governance policies on an ongoing basis to ensure that they continue to meet GSV Capitals needs.
Our Board of Directors performs its risk oversight function primarily through (a) its three standing committees, which report to the entire Board of Directors and are comprised solely of independent directors, and (b) active monitoring of our chief compliance officer and our compliance policies and procedures.
As described below in more detail under Committees of the Board of Directors, the audit committee, nominating and corporate governance committee and valuation committee assist the Board of Directors in fulfilling its risk oversight responsibilities. The audit committees risk oversight responsibilities include overseeing GSV Capitals accounting and financial reporting processes, GSV Capitals systems of internal controls regarding finance and accounting, and audits of GSV Capitals financial statements. The nominating and corporate governance committees risk oversight responsibilities include selecting, researching and nominating directors for election by our stockholders, developing and recommending to the Board a set of corporate governance principles and overseeing the evaluation of the Board and our management. The valuation committees risk oversight responsibilities include establishing guidelines and making recommendations to our Board of Directors regarding the valuation of our investments.
Our Board of Directors also performs its risk oversight responsibilities with the assistance of the Chief Compliance Officer. The Board of Directors will annually review a written report from the Chief Compliance Officer discussing the adequacy and effectiveness of the compliance policies and procedures of GSV Capital and its service providers. The Chief Compliance Officers annual report will address, at a minimum, (a) the operation of the compliance policies and procedures of GSV Capital and its service providers since the last report; (b) any material changes to such policies and procedures since the last report; (c) any recommendations for material changes to such policies and procedures as a result of the Chief Compliance Officers annual review; and (d) any compliance matter that has occurred since the date of the last report about which the Board of Directors would reasonably need to know to oversee our compliance activities and risks. In addition, the Chief Compliance Officer will meet separately in executive session with the independent directors at least once each year.
Our Boards role in risk oversight is effective, and appropriate given the extensive regulation to which we are already subject as a business development company. As a business development company, we are required
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to comply with certain regulatory requirements that control the levels of risk in our business and operations. For example, our ability to incur indebtedness is limited such that our asset coverage must equal at least 200% immediately after each time we incur indebtedness, we generally have to invest at least 70% of our gross assets in qualifying assets and we are not generally permitted to invest in any portfolio company in which one of our affiliates currently has an investment.
We recognize that different Board roles in risk oversight are appropriate for companies in different situations. We intend to re-examine the manners in which the Board administers its oversight function on an ongoing basis to ensure that they continue to meet GSV Capitals needs.
Our Board of Directors has established an Audit Committee, Nominating and Corporate Governance Committee and a Valuation Committee. During 2012, our Board of Directors held four Board meetings, four Audit Committee meetings, seven Valuation Committee meetings and one Nominating and Corporate Governance Meetings. With the exception of Mr. Campbell, all directors attended at least 75% of the aggregate number of meetings of our Board of Directors and of the respective committees on which they served. We require each director to make a diligent effort to attend all Board and committee meetings, as well as each annual meeting of stockholders.
The audit committee operates pursuant to a charter approved by our Board of Directors, which sets forth the responsibilities of the audit committee. The audit committees responsibilities include selecting the independent registered public accounting firm for GSV Capital, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of GSV Capitals financial statements, pre-approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing GSV Capitals annual financial statements and periodic filings and receiving GSV Capitals audit reports and financial statements. The audit committee is currently composed of Ms. Friedman and Messrs. Potter, and Spreng, all of whom are considered independent under the rules of the NASDAQ Capital Market and are not interested persons of GSV Capital as that term is defined in Section 2(a)(19) of the 1940 Act. Ms. Friedman serves as Chair of the audit committee. Our Board of Directors has determined that Ms. Friedman is an audit committee financial expert as that term is defined under Item 407 of Regulation S-K, as promulgated under the Exchange Act. Ms. Friedman meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.
The nominating and corporate governance committee operates pursuant to a charter approved by our Board of Directors. The members of the nominating and corporate governance committee are Ms. Friedman and Messrs. Potter and Spreng, all of whom are considered independent under the rules of the NASDAQ Capital Market and are not interested persons of GSV Capital as that term is defined in Section 2(a)(19) of the 1940 Act. Mr. Potter serves as Chairman of the nominating and corporate governance committee. The nominating and corporate governance committee is responsible for selecting, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on the Board of Directors or a committee thereof, developing and recommending to the Board of Directors a set of corporate governance principles and overseeing the evaluation of the Board of Directors and our management. The nominating and corporate governance committee currently does not consider nominees recommended by our stockholders.
The nominating and corporate governance committee seeks candidates who possess the background, skills and expertise to make a significant contribution to the Board of Directors, GSV Capital and its stockholders. In considering possible candidates for election as a director, the nominating and corporate governance committee takes into account, in addition to such other factors as it deems relevant, the desirability of selecting directors who:
| are of high character and integrity; |
| are accomplished in their respective fields, with superior credentials and recognition; |
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| have relevant expertise and experience upon which to be able to offer advice and guidance to management; |
| have sufficient time available to devote to the affairs of GSV Capital; |
| are able to work with the other members of the Board of Directors and contribute to the success of GSV Capital; |
| can represent the long-term interests of GSV Capitals stockholders as a whole; and |
| are selected such that the Board of Directors represents a range of backgrounds and experience. |
The nominating and corporate governance committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the nominating and corporate governance committee considers and discusses diversity, among other factors, with a view toward the needs of the Board of Directors as a whole. The nominating and corporate governance committee generally conceptualizes diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to the Board of Directors, when identifying and recommending director nominees. The nominating and corporate governance committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the nominating and corporate governance committees goal of creating a Board of Directors that best serves the needs of GSV Capital and the interests of its stockholders.
The valuation committee establishes guidelines and makes recommendations to our Board of Directors regarding the valuation of our investments. The Board of Directors and valuation committee utilize the services of nationally recognized third-party valuation firms to help determine the fair value of our securities that are not publicly traded and for which there are no readily available market quotations including securities that, while listed on a private securities exchange, have not actively traded. The valuation committee is presently composed of Ms. Friedman and Messrs. Potter, and Spreng, all of whom are considered independent under the rules of the NASDAQ Capital Market and are not interested persons of GSV Capital as that term is defined in Section 2(a)(19) of the 1940 Act. Mr. Spreng serves as Chairman of the valuation committee.
We do not have a compensation committee and do not engage any compensation consultants because our executive officers do not receive any direct compensation from us.
The following table sets forth compensation of the Companys directors for the year ended December 31, 2012.
Name | Fees Earned or Paid in Cash(1) | All Other Compensation(2) | Total | |||||||||
Interested Directors |
||||||||||||
Michael T. Moe | | | | |||||||||
Mark D. Klein | | | | |||||||||
Mark W. Flynn(3) | $ | 82,500 | | $ | 82,500 | |||||||
Independent Directors |
||||||||||||
Leonard A. Potter | $ | 77,500 | | $ | 77,500 | |||||||
R. David Spreng | $ | 77,500 | | $ | 77,500 | |||||||
William V. Campbell | | | | |||||||||
Catherine J. Friedman | | | |
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(1) | For a discussion of the independent directors compensation, see below. |
(2) | We do not maintain a stock or option plan, non-equity incentive plan or pension plan for our directors. |
(3) | Mr. Flynn became an interested director, effective March 9, 2013, as a result of his new position as Co-Managing Partner of GSV Asset Management. |
Our independent directors currently receive an annual fee of $80,000. They also receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each Board and committee meeting attended in person. In addition, the Chairman of the audit committee receives an annual fee of $10,000 and each Chairman of any other committee receives an annual fee of $5,000 for their additional services, if any, in these capacities. No compensation is paid to directors who are interested persons of GSV Capital, as such term is defined in Section 2(a)(19) of the 1940 Act.
None of our officers receives direct compensation from the Company. As a result, we do not have a compensation committee and do not engage any compensation consultants. Mr. Moe, our Chief Executive Officer and Mr. Bard, our Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary, through their ownership interests in GSV Asset Management, LLC, our investment adviser, are entitled to a portion of any profits earned by GSV Asset Management, LLC in performing its services under the Investment Advisory Agreement, which includes any fees payable to GSV Asset Management under the terms of the Investment Advisory Agreement, less expenses incurred by GSV Asset Management in performing its services under the Investment Advisory Agreement. The compensation of our finance, compliance, operations and administrative staff is paid by our administrator, GSV Capital Service Company, under the terms of the Administration Agreement, subject to reimbursement by us of an allocable portion of such compensation for services rendered to GSV Capital. During 2012, pursuant to our Administration Agreement, we reimbursed GSV Capital Service Company approximately $1.6 million for overhead expenses, which includes the allocable portion of compensation expenses incurred by GSV Capital Service Company on our behalf for our finance, compliance, operations and administrative staff, as well rent, the fees and expenses associated with performing compliance functions for GSV Asset Management, and its allocable portion of the compensation of any administrative support staff.
We have entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that GSV Capital shall indemnify the director who is a party to the agreement (an Indemnitee), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.
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The management of our investment portfolio is the responsibility of our investment adviser, GSV Asset Management, and its investment committee, composed of Messrs. Moe, Bard, Flynn Pampoulov and Hanson. For more information regarding the business experience of Messrs. Moe, Flynn and Bard, see Management Board of Directors and Executive Officers. Biographical information for Messrs. Pampoulov and Hanson are set forth below. GSV Asset Managements investment committee must approve each new investment that we make. Messrs. Moe, Bard, Flynn, Pampoulov and Hanson are not employed by us, and receive no compensation from us in connection with their portfolio management activities. However, Messrs. Moe, Bard, Flynn Pampoulov and Hanson, through their financial interests in GSV Asset Management, are entitled to a portion of any investment advisory fees paid by GSV Capital to GSV Asset Management.
Our investment adviser is led by Michael T. Moe, our president and chief executive officer, chairman of our Board of Directors and co-founder, chief executive officer and chief investment officer of GSV Asset Management, Stephen D. Bard, our chief financial officer, chief compliance officer, treasurer and corporate secretary and co-founder and chief operating officer of GSV Asset Management, David V. Crowder, our Executive Vice President, Mark W. Flynn, our co-managing partner, Luben Pampoulov, co-founder, co-portfolio manager and managing director of GSV Asset Management and Matthew Hanson, managing director of GSV Asset Management. We consider Messrs. Moe, Bard, Flynn, Pampoulov and Hanson, who are the members of our investment advisers investment committee, to be our portfolio managers.
Our portfolio managers are currently providing management and advisory services to the following other entities:
Name | Entity | Investment Focus | Total Assets(1) | |||||||||
GSV X Fund | private fund | global long/short absolute return fund | $ | 505,435 |
(1) | Total assets are calculated as of September 30, 2013. GSV X Fund, which was launched in September 2009, currently remains in its incubation stage. |
The table below shows the dollar range of shares of our common stock beneficially owned by each of our portfolio managers as of January 16, 2014.
Name of Portfolio Manager | Dollar Range of Equity Securities in GSV Capital(1)(2) |
|||
Michael T. Moe | $100,000 500,000 | |||
Stephen D. Bard | $500,001 $1,000,000 | |||
David V. Crowder | $100,000 500,000 | |||
Mark W. Flynn | None | |||
Luben Pampoulov | None | |||
Matthew Hanson | None |
(1) | The dollar range of equity securities beneficially owned in us is based on a price per share of our common stock of $13.30, the highest reported sale price of our common stock on the NASDAQ Capital Market on January 16, 2014. |
(2) | The dollar ranges are: None, $1 $10,000, $10,001 $50,000, $50,001 $100,000, $100,001 $500,000, $500,001 $1,000,000, or Over $1,000,000. |
The following information pertains to the members of GSV Asset Managements investment team who are not executive officers or directors of GSV Capital Corp.:
Luben Pampoulov is a co-founder and has served as co-portfolio manager of GSV Asset Management since 2010. Mr. Pampoulov also co-founded GSV Media, a research firm focused on private rapidly-growing
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companies, in 2009. Prior to joining GSV Asset Management, Mr. Pampoulov served as an analyst and co-portfolio manager at ThinkEquity Partners from 2006 to 2008. Mr. Pampoulov earned his BA from UCLA in 2006.
Matthew Hanson joined GSV Asset Management as a New York-based Partner in 2012. Prior to joining GSV Asset Management, Mr. Hanson served as Head of Corporate Finance for ThinkEquity Partners, where he worked from 2005 to 2011. From 2003 to 2004, Mr. Hanson was an investment banker in the Global Corporate & Investment Banking Division at Banc of America Securities, LLC, and was a financial analyst at Goldman, Sachs & Co., from 2001 to 2003. Mr. Hanson earned his BA in Economics (General Honors) from the University of Chicago in 2001. Mr. Hanson is a CFA charterholder, holds FINRA Series 24, 79, 7 and 66 licenses, and is a member of the New York Society of Securities Analysts and the Manhattan Institute Young Leaders Circle.
None of the members of GSV Asset Managements investment team receive any direct compensation from us in connection with the management of our portfolio. Messrs. Messrs. Moe, Bard, Flynn Pampoulov and Hanson, through their financial interests in GSV Asset Management, are entitled to a portion of any profits earned by GSV Asset Management, which includes any fees payable to GSV Asset Management under the terms of our Investment Advisory Agreement, less expenses incurred by GSV Asset Management in performing its services under our Investment Advisory Agreement. The compensation paid by GSV Asset Management to its other investment personnel includes: (i) annual base salary; (ii) annual cash bonus; (iii) portfolio-based performance award; and (iv) individual performance award and/or individual performance bonus.
GSV Asset Management has access to an Advisory Board that consists of investment professionals with extensive experience within the financial, investing and technology-related sectors. None of the members of the Advisory Board will be compensated by us. Set forth below are the current members of our investment advisers Advisory Board.
Scott A. Bedford founded Peninsula Capital Management, Inc. in 1989 and serves as the firms President, Chief Investment Officer and the lead Portfolio Manager of Peninsula Master Fund, Ltd. Prior to Peninsula, Mr. Bedford was a General Partner of Volpe Welty & Co. He also was Vice President in Institutional Sales in the investment banking department of L.F. Rothschild, Unterberg, Towbin. Mr. Bedford has a B.S. in Finance from California State University, Chico.
Todd Bradley has been executive vice president of Personal Systems Group worldwide at Hewlett-Packard Co., since June 2005. Mr. Bradley also serves as a member of HPs Executive Council. He served as Chief Executive Officer of the Solutions Group of Palm Inc., since June 2002. Mr. Bradley served as the Chief Executive Officer of Palm, and also served as its President since April 30, 2004 and its Advisor since 2005. He served as the President and the Chief Operating Officer of the Solutions Group since May 2002. From June 2001 to May 2002, Mr. Bradley served as an Executive Vice President and the Chief Operating Officer of the Solutions Group. From September 1998 to January 2001, Mr. Bradley held several Executive positions at Gateway Corporation, serving most recently as a Senior Vice President of Consumer and Executive Vice President of global operations. From February 1997 to September 1998, he served as the President and the Chief Executive Officer of Transport International Pool, a GE Capital Services company that is a global transportation equipment leasing and rental business. From September 1993 to February 1997, Mr. Bradley was with Dun & Bradstreet, most recently serving as the President of NCH Promotional Services, a Dun & Bradstreet subsidiary. Mr. Bradley previously held various management positions within logistics, production and quality control at Federal Express Corporation and the Miller Brewing Company. He has been Director of LiveOps Inc. since January 30, 2008. He serves as Director of Challenger Capital Group, Ltd. He served as a Director of Palm since July 2002. Mr. Bradley also serves on the Advisory Boards of the Consumer Electronics Association of America and Sonic Wall Corporation. He serves as a Trustee of the American Film Institute. He is a member of the University of Marylands Board of Visitors. Mr. Bradley holds a Bachelor of Science degree in Business Administration from Towson State University.
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Robert E. Grady is a managing director and partner at Cheyenne Capital Fund, L.P. He joined the firm in 2009 and has 17 years of experience in private equity. Prior to joining the firm, he was a partner and member of Management Committee of The Carlyle Group for nine years from 2000 through 2009. Mr. Grady joined Carlyle in 2000 as Global Head of Venture Capital and served as a Member of Carlyles Management Committee. At Carlyle, Mr. Grady served as the global coordinator of venture and growth capital (which had $5 billion in assets under management), Chairman and Fund Head of Carlyle Venture Partners I, II, and III, and on the investment committees of Carlyle Venture Partners, Carlyle Asia Growth Partners, and Carlyle Europe Technology Partners. He focused on investments in the technology and business services sectors and was based in San Francisco. Mr. Grady was the Managing Partner and Chairman of Carlyle Venture Partners. Mr. Grady is on the Board of Directors of The Carlyle Groups portfolio companies including: Secure Elements Inc, eScreen, The Health Central Network, Choice Media, Keen.com, Panasas Inc., Verari Systems Inc., USBX Inc., Viator, Inc., Eleutian Technology, Symbio, and Wall Street Institute, as well as Maxim Integrated Products. He has been a Director of The Symbio Group since 19 August, 2008. Mr. Grady serves on the Investment Committees of CVP, Carlyle Asia Growth Partners, and Carlyle Europe Technology Partners. He is the Chairman of Resources for the Future, is a Member of Advisory Board of RBC Venture Partners and Strategic Technology Fund and the National Commission on Energy Policy, and a Trustee of Environmental Defense. He is also a Director of Stifel Financial Corp. since August 3, 2010. Mr. Grady serves on the Boards of Directors of the Environmental Defense Fund, TechNet, Asia America Multi-Industry Association, the Jackson Hole Land Trust, and the Pardee RAND Graduate School. He is a Member of the Council on Foreign Relations. Mr. Grady was appointed by President George H.W. Bush to be a Member of Advisory Committee on Trade and Policy Negotiations and by the Administrator of NASA to be a Member of the NASA Advisory Councils Task Force on the cost and management of the International Space Station. Prior to this, he served in the White House from 1989 to 1993 as a Deputy Assistant to President George H.W. Bush and as an Executive Associate Director of the Office of Management and Budget. Mr. Grady received a B.A. from Harvard College and an M.B.A. from the Stanford Graduate School of Business.
Marc B. Mazur is the Chairman of Elsworthy Capital Management Ltd. a London based European Equity Long/Short hedge fund. Mr. Mazur was previously the CEO of Brevan Howard U.S. Asset Management, the U.S. arm of Europe's largest hedge fund. His experience includes management positions at Salomon Brothers, Swiss Bank Corporation and Goldman Sachs, where he was responsible for businesses in the international fixed income and credit areas. Mr. Mazur has been a Senior Advisor to both Tsinghua Venture Capital Company and Think Equity Partners LLC. In 1998, Mr. Mazur was named Vice President for strategic business development at CareInsite (subsequently acquired by WebMD). He has been an advisor to leading private equity firms and serves on a number of private company Boards. He is currently a member of the Board of Fibrocell Science Inc (FCSC). He has also been an active angel and venture investor. Mr. Mazurs non-profit Board affiliations include the executive committee of the Columbia College Alumni Association, The Jed Foundation which works to prevent college suicide, East Palo Alto-based College Track which provides educational and mentoring support for economically challenged youth in the San Francisco Bay Area as well as New Orleans and Aurora, CO, and the National Association on Drug Abuse Problems.
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GSV Asset Management serves as our investment adviser. GSV Asset Management is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our Board of Directors, GSV Asset Management manages the day-to-day operations of, and provides investment advisory services to, GSV Capital. Under the terms of the Investment Advisory Agreement, GSV Asset Management:
| determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; |
| determines what securities we will purchase, retain or sell; |
| identifies, evaluates and negotiates the structure of the investments we make; and |
| closes, monitors and services the investments we make. |
GSV Asset Managements services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. GSV Asset Management currently serves as the investment adviser for GSV X Fund, a global long/short absolute return fund. GSV Asset Management does not anticipate that it will ordinarily identify investment opportunities that are appropriate for both GSV Capital and the other funds that are currently or in the future may be managed by GSV Asset Management. However, to the extent it does identify such opportunities, GSV Asset Management will allocate such opportunities between GSV Capital and such other funds pursuant to an established procedure that is designed to ensure that such allocation is fair and equitable.
We pay GSV Asset Management a fee for its services under the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee. The cost of both the base management fee payable to GSV Asset Management, and any incentive fees earned by GSV Asset Management, are ultimately borne by our common stockholders.
The base management fee (the Base Fee) is calculated at an annual rate of 2.00% of our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities). For the period from the close of our initial public offering through and including December 31, 2011, the Base Fee was payable monthly in arrears, and was calculated based on the initial value of our assets upon the closing of our initial public offering. For services rendered after December 31, 2011, the Base Fee will be payable monthly in arrears, and will be calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any equity or debt capital raises, repurchases or redemptions during the current calendar quarter. The Base Fee for any partial month or quarter will be appropriately prorated.
The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of:
| 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and |
| 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. |
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Our realized capital gains from each investment, expressed as a non-compounded annual rate of return on the cost of such investment since we initially acquired it, will be compared to a hurdle rate of 8.00% per year. We will only pay an incentive fee on any realized capital gains from an investment that exceeds the hurdle rate. We will pay GSV Asset Management an incentive fee with respect to our realized capital gains from each investment as follows:
| No incentive fee will be payable on the amount of any realized capital gains from an investment that, when expressed as a non-compounded annual rate of return on the cost of such investment since we initially acquired it, does not exceed the hurdle rate of 8.00% per year. |
| We will pay as an incentive fee 100% of the amount of any realized capital gains from an investment that, when expressed as a non-compounded annual rate of return on the cost of such investment since we initially acquired it, exceeds the hurdle rate of 8.00% per year but is less than a rate of 10.00% per year. We refer to this portion of our realized capital gains from each investment (which exceeds the hurdle rate but is less than 10.00%) as the catch-up. The catch-up is meant to provide our investment adviser with 20% of the amount of our realized capital gains from an investment that, when expressed as a non-compounded annual rate of return on the cost of such investment since we initially acquired it, exceeds a rate of 10.00% per year. |
| We will pay as an incentive fee 20% of the amount of any realized capital gains from an investment that, when expressed as a non-compounded annual rate of return on the cost of such investment since we initially acquired it, exceeds a rate of 10.00% per year. |
In no event, however, will we pay an incentive fee for any calendar year that exceeds 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of such calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees.
The following is a graphical representation of the calculation of our incentive fee with respect to a single investment:
Realized Capital Gains Received From Investment
(expressed as a non-compounded annual rate of return)
Percentage of realized capital gains from such investment
allocated to GSV Asset Management
For accounting purposes, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement.
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| Hurdle rate = 8.00% non-compounded annual rate of return |
| Hurdle rate = (purchase price) × (8% × (days owned/365)) |
| Catch-up rate = 10.00% non-compounded annual rate of return |
| Catch-up rate = (purchase price) × (10% × (days owned/365)) |
| Year 1: $20,000,000 investment made on March 15 in Company A (Investment A), and $30,000,000 investment made on February 1 in Company B (Investment B) |
| Year 2: Investment A is sold on September 15 for $25,000,000, and fair market value (FMV) of Investment B is determined to be $28,000,000 |
| Year 3: FMV of Investment B is determined to be $28,000,000 |
| Year 4: Investment B is sold on March 1 for $38,000,000 |
The incentive fee would be calculated as follows:
| Year 1: None |
| Year 2: Incentive fee calculation: |
| Hurdle rate for Investment A = ($20,000,000) × (8% × (550 days/365)) |
| Hurdle rate for Investment A = $2,410,959 |
| Catch-up rate for Investment A = ($20,000,000) × (10% × (550 days/365)) |
| Catch-up rate for Investment A = $3,013,699 |
| Incentive fee on Investment A = 20% × $5,000,000 (since the hurdle rate has been satisfied and the catch up has been fully achieved) |
| Incentive fee on Investment A = $1,000,000 |
| Maximum incentive fee = 20% × (cumulative realized capital gains - (cumulative realized losses + cumulative net unrealized depreciation)) - (previously paid incentive fees) |
| Maximum incentive fee = 20% × ($5,000,000 - $2,000,000 (unrealized depreciation on Investment B)) |
| Maximum incentive fee = 20% × $3,000,000 |
| Maximum incentive fee = $600,000 |
| Incentive fee paid = $600,000 (because the incentive fee payable on Investment A exceeds the maximum incentive fee, the maximum incentive fee applies) |
| Year 3: None |
| Year 4: Incentive fee calculation: |
| Hurdle rate for Investment B = ($30,000,000) × (8% × (1,124 days/365)) |
| Hurdle rate for Investment B = $7,390,685 |
| Catch-up rate for Investment B = ($30,000,000) × (10% × (1,124 days/365)) |
| Catch-up rate for Investment B = $9,238,356 |
| Incentive fee on Investment B = 100% × ($8,000,000 - $7,390,685 (since the hurdle rate has been satisfied, but the catch up has not been fully achieved) |
| Incentive fee on Investment B = $609,315 |
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| Maximum incentive fee = 20% × (cumulative realized capital gains - (cumulative realized losses + cumulative net unrealized depreciation)) - (previously paid incentive fees) |
| Maximum incentive fee = (20% × $13,000,000) - ($600,000 (previously paid incentive fees)) |
| Maximum incentive fee = $2,000,000 |
| Incentive fee paid = $609,315 (because the incentive fee payable on Investment B does not exceed the maximum incentive fee) |
| Hurdle rate = 8.00% non-compounded annual rate of return |
| Hurdle rate = (purchase price) × (8% × (days owned/365)) |
| Catch-up rate = 10.00% non-compounded annual rate of return |
| Catch-up rate = (purchase price) × (10% × (days owned/365)) |
| Year 1: $20 million investment made on March 15 in Company A (Investment A), $30 million investment made on February 1 in Company B (Investment B), and $25 million investment made on September 1 in Company C (Investment C) |
| Year 2: Investment A is sold on September 15 for $50 million, FMV of Investment B is determined to be $25 million, and FMV of Investment C is determined to be $25 million |
| Year 3: FMV of Investment B is determined to be $27 million and Investment C is sold on December 1 for $30 million |
| Year 4: FMV of Investment B is determined to be $35 million |
| Year 5: Investment B is sold on March 1 for $20 million |
The incentive fee would be calculated as follows:
| Year 1: None |
| Year 2: Incentive fee calculation: |
| Hurdle rate for Investment A = ($20,000,000) × (8% × (550 days/365)) |
| Hurdle rate for Investment A = $2,410,959 |
| Catch-up rate for Investment A = ($20,000,000) × (10% × (550 days/365)) |
| Catch-up rate for Investment A = $3,013,699 |
| Incentive fee on Investment A = 20% × $30,000,000 (since the hurdle rate has been satisfied and the catch up has been fully achieved) |
| Incentive fee on Investment A = $6,000,000 |
| Maximum incentive fee = 20% × (cumulative realized capital gains - (cumulative realized losses + cumulative net unrealized depreciation)) - (previously paid incentive fees) |
| Maximum incentive fee = 20% × ($30,000,000 - $5,000,000 (unrealized depreciation on Investment B)) |
| Maximum incentive fee = $5,000,000 |
| Incentive fee paid = $5,000,000 (because the incentive fee payable on Investment A exceeds the maximum incentive fee, the maximum incentive fee applies) |
| Year 3: Incentive fee calculation: |
| Hurdle rate for Investment C = ($25,000,000) × (8% × (822 days/365)) |
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| Hurdle rate for Investment C = $4,504,110 |
| Catch-up rate for Investment C = ($25,000,000) × (10% × (822 days/365)) |
| Catch-up rate for Investment C = $5,630,137 |
| Incentive fee on Investment C = 100% × ($5,000,000 - $4,504,110 (since the hurdle rate has been satisfied, but the catch up has not been fully achieved)) |
| Incentive fee on Investment C = $495,890 |
| Maximum incentive fee = 20% × (cumulative realized capital gains - (cumulative realized losses + cumulative net unrealized depreciation)) - (previously paid incentive fees) |
| Maximum incentive fee = 20% × ($35,000,000 - $3,000,000 (unrealized depreciation on Investment B)) - ($5,000,000 (previously paid incentive fees)) |
| Maximum incentive fee = $1,400,000 |
| Incentive fee paid = $495,890 (because the incentive fee payable on Investment C does not exceed the maximum incentive fee) |
| Year 4: None |
| Year 5: None |
We seek to deploy capital primarily in the form of non-controlling investments in our portfolio companies. Although we primarily invest through private secondary markets, to the extent we make a direct minority investment in a portfolio company, neither we, nor our investment adviser, GSV Asset Management, may have the ability to control the timing of when we realize capital gains or losses with respect to such investment. We expect the timing of such realization events to be determined by our portfolio companies in such cases. To the extent we have non-minority investments, or the securities we hold are traded on a private secondary market or public securities exchange, GSV Asset Management will have greater control over the timing of a realization event. In such cases, our Board of Directors will monitor such investments in connection with their general oversight of the investment management services provided by GSV Asset Management. In addition, as of the end of each fiscal quarter, we will evaluate whether the cumulative aggregate unrealized appreciation on our portfolio would be sufficient to require us to pay an incentive fee to our investment adviser if such unrealized appreciation were actually realized as of the end of such quarter, and if so, we will accrue an expense equal to the amount of such incentive fee. Any such accrual of incentive fees will be reflected in the calculation of our net asset value.
All personnel of our investment adviser when and to the extent engaged in providing investment advisory services, and the compensation and expenses of such personnel allocable to such services, are provided and paid for by GSV Asset Management. We are responsible for all other costs and expenses of our operations and transactions, including (without limitation) the cost of calculating our net asset value; the cost of effecting sales and repurchases of shares of our common stock and other securities; investment advisory fees; fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments (in each case subject to approval of our Board of Directors); transfer agent and custodial fees; fees and expenses associated with marketing efforts (including attendance at investment conference and similar events); federal and state registration fees; any exchange listing fees; federal, state and local taxes; independent directors fees and expenses; brokerage commissions; costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws including costs of proxy statements, stockholders reports and notices; fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums; direct costs such as printing, mailing, long distance telephone, staff, independent audits and outside legal costs and all other expenses incurred by either GSV Capital Service Company or us in connection with administering our business, including payments under the administration agreement that will be based upon our allocable portion of overhead and other expenses incurred by GSV Capital Service Company in performing its obligations under the Administration Agreement, including a portion of the rent and the
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compensation of our chief financial officer and chief compliance officer and other staff providing administrative services. All of these expenses are ultimately borne by our common stockholders.
The Investment Advisory Agreement was initially approved by our Board of Directors on March 28, 2011 and was reapproved by our Board of Directors on March 8, 2013. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect from year to year if approved annually by our Board of Directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons of any such party, as such term is defined in Section 2(a)(19) of the 1940 Act. The Investment Advisory Agreement will automatically terminate in the event of its assignment. The Investment Advisory Agreement may be terminated by either party without penalty upon not more than 60 days written notice to the other. The Investment Advisory Agreement may also be terminated, without penalty, upon the vote of a majority of our outstanding voting securities.
The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GSV Asset Management and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of GSV Asset Managements services under the Investment Advisory Agreement or otherwise as our investment adviser.
GSV Asset Management is a Delaware limited liability company. The principal executive offices of GSV Asset Management are located at 2925 Woodside Road, Woodside, CA 94062.
A discussion regarding the basis for our Board of directors approval of our Investment Advisory Agreement will be included in our first annual report on Form 10-K filed subsequent to any such Board approval, or incorporated by reference therein.
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Pursuant to a separate Administration Agreement, GSV Capital Service Company, a Delaware limited liability company, furnishes us with office facilities, together with equipment and clerical, bookkeeping and record keeping services at such facilities. The principal executive offices of GSV Capital Service Company are located at 2925 Woodside Road, Woodside, CA 94062. Under the Administration Agreement, GSV Capital Service Company also performs, or oversees the performance of, our required administrative services, which includes being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, GSV Capital Service Company assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the Administration Agreement are based upon our allocable portion of overhead and other expenses incurred by GSV Capital Service Company in performing its obligations under the administration agreement, including a portion of the rent and the compensation of our chief financial officer and chief compliance officer and other staff providing administrative services. In accordance with the terms of the Administration Agreement, overhead and other administrative expenses are generally allocated between us and GSV Asset Management by reference to the relative time spent by personnel in performing administrative and similar functions on our behalf as compared to performing investment advisory or administrative functions on behalf of GSV Asset Management. To the extent personnel retained by GSV Service Company perform administrative tasks for GSV Asset Management, the fees incurred with respect to the actual time dedicated to such tasks will be reimbursed by GSV Asset Management. While there is no limit on the total amount of expenses we may be required to reimburse to GSV Capital Service Company, our administrator will only charge us for the actual expenses it incurs on our behalf, or our allocable portion thereof, without any profit to GSV Capital Service Company. The Administration Agreement may be terminated by either party without penalty upon 60 days written notice to the other party.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, GSV Capital Service Company and its officers, manager, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of GSV Capital Service Companys services under the Administration Agreement or otherwise as our administrator.
GSV Capital Service Company also provides administrative services to our investment adviser, GSV Asset Management. As a result, GSV Asset Management also reimburses GSV Capital Service Company for its allocable portion of GSV Capital Service Companys overhead, including rent, the fees and expenses associated with performing compliance functions for GSV Asset Management, and its allocable portion of the compensation of any administrative support staff. We estimate that we will incur approximately $2.4 million in aggregate expenses under our Administration Agreement during the 12 months of operations following the date of this prospectus.
We have entered into a license agreement with GSV Asset Management pursuant to which GSV Asset Management has agreed to grant us a non-exclusive, royalty-free license to use the name GSV. Under this agreement, we have a right to use the GSV name for so long as the Investment Advisory Agreement with GSV Asset Management is in effect. Other than with respect to this limited license, we will have no legal right to the GSV name.
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We have entered into an Investment Advisory Agreement with GSV Asset Management. GSV Asset Management is controlled by Michael T. Moe, our president, chief executive officer and chairman of our Board of Directors and Stephen D. Bard, our chief financial officer, chief compliance officer, treasurer and corporate secretary. Messrs. Moe and Bard, as principals of GSV Asset Management, collectively manage the business and internal affairs of GSV Asset Management. Mr. Klein or entities he controls may receive fees from GSV Asset Management in connection with this offering and, from time to time, subsequent thereto for non-investment advisory services he may provide. In addition, GSV Capital Service Company provides us with office facilities and administrative services pursuant to an Administration Agreement. Mr. Moe is the managing member of and controls GSV Capital Service Company. While there is no limit on the total amount of expenses we may be required to reimburse to GSV Capital Service Company, our administrator will only charge us for the actual expenses it incurs on our behalf, or our allocable portion thereof, without any profit to GSV Capital Service Company.
In April 2012, in connection with our investment in Top Hat, Inc., Cherry Tree & Associates, LLC, an investment banking firm, received a fee of approximately $259,000 for its representation of Top Hat, Inc. Mark Moe, who is the brother of our Chief Executive Officer, Michael Moe, presently serves as a Managing Director of Cherry Tree & Associates, LLC, and may therefore be deemed to have an indirect material interest in such transaction. In February 2013, Mark Moe joined NestGSV, Inc., one of our portfolio companies, as a Vice President of Business Development, Global Expansion. Mark Moe receives no compensation from NestGSV for serving in such capacity.
In addition, our executive officers and directors, and the principals of our investment adviser, GSV Asset Management, serve or may serve as officers and directors of entities that operate in a line of business similar to our own, including new entities that may be formed in the future. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. For example, GSV Asset Management currently manages GSV X Fund, a global long/short absolute return fund, and will likely manage one or more private funds in the future.
While the investment focus of each of these entities may be different from our investment objective, it is likely that new investment opportunities that meet our investment objective will come to the attention of one of these entities, or new entities that will likely be formed in the future in connection with another investment advisory client or program, and, if so, such opportunity might not be offered, or otherwise made available, to us. However, our executive officers, directors and investment adviser intend to treat us in a fair and equitable manner consistent with their applicable duties under law so that we will not be disadvantaged in relation to any other particular client. In addition, while GSV Asset Management anticipates that it will from time to time identify investment opportunities that are appropriate for both GSV Capital and the other funds that are currently or in the future may be managed by GSV Asset Management, to the extent it does identify such opportunities, GSV Asset Management has established an allocation policy to ensure that GSV Capital has priority over such other funds. Our Board of Directors will monitor on a quarterly basis any such allocation of investment opportunities between GSV Capital and any such other funds.
GSV Asset Management is the owner of the GSV name and marks, which we are permitted to use pursuant to a non-exclusive license agreement between us and GSV Asset Management. GSV Asset Management and its principals also use and may permit other entities to use the GSV name and marks in connection with businesses and activities unrelated to our operations. The use of the GSV name and marks in connection with businesses and activities unrelated to our operations may not be in the best interest of us or our stockholder and may result in actual or perceived conflicts of interest.
In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain written policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our executive officers and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if
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such concerns exist, we have taken appropriate actions to seek Board review and approval or exemptive relief for such transaction. Our Board of Directors will review these procedures on an annual basis.
We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our chief executive officer and chief financial officer, as well as all of our officers, directors and employees. Our officers and directors also remain subject to the fiduciary obligations imposed by both the 1940 Act and applicable state corporate law. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individuals personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our chief compliance officer. Our Board of Directors is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).
Finally, we pay GSV Capital Service Company our allocable portion of overhead and other expenses incurred by GSV Capital Service Company in performing its obligations under the Administration Agreement, including a portion of the rent and the compensation of our chief financial officer and chief compliance officer and other staff providing administrative services, which creates conflicts of interest that our Board of Directors must monitor. We estimate that we will incur approximately $2.5 million in aggregate expenses under our Administration Agreement during the 12 months of operations following the date of this prospectus.
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The following table sets forth certain ownership information as of January 16, 2014 with respect to our common stock for those persons who directly or indirectly own, control or hold with the power to vote, 5% or more of our outstanding common stock and all officers and directors, as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Ownership information for those persons who beneficially own 5% or more of our shares of common stock, if any, is based upon Schedule 13G and Schedule 13D filings by such persons with the SEC and other information obtained from such persons, if available.
Unless otherwise indicated, the Company believes that each beneficial owner set forth in the table has sole voting and investment power and has the same address as the Company. Our address is 2925 Woodside Road, Woodside, CA 94062.
Name and Address of Beneficial Owner | Number of Shares Owned Beneficially(1) |
Percentage of Class(2) |
||||||
Interested Directors |
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Michael T. Moe | 13,145 | *% | ||||||
Mark D. Klein | 28,367 | (3) | * | |||||
Mark W. Flynn | None | * | ||||||
Independent Directors |
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Leonard A. Potter | 20,333 | * | ||||||
R. David Spreng | 1,666 | * | ||||||
William V. Campbell | None | * | ||||||
Catherine J. Friedman | None | * | ||||||
Executive Officers |
||||||||
Stephen D. Bard | 61,536 | (4) | * | |||||
David Crowder | 13,550 | (5) | * | |||||
Executive officers and directors as a group |
138,597 | * | ||||||
Citadel Advisors LLC(6) | 1,016,847 | 5.26 | ||||||
Citadel Advisors Holdings LP(6) | 1,022,205 | 5.29 | ||||||
Citadel GP LLC(6) | 1,072,327 | 5.55 | ||||||
Kenneth Griffith(6) | 1,072,327 | 5.55 |
* | Represents less than one percent |
(1) | Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. |
(2) | Based on a total of 19,320,100 shares of the Companys common stock issued and outstanding as of January 16, 2014. |
(3) | Includes 1,667 shares owned by Mr. Kleins spouse, which may be deemed to be beneficially owned by Mr. Klein. |
(4) | Includes 867 shares owned by Mr. Bards spouse, 6,668 shares owned by Mr. Bards daughters and 22,334 shares owned by Mr. Bards family trust, which may be deemed to be beneficially owned by Mr. Bard. |
(5) | Includes 50 shares owned by Mr. Crowders son, which may be deemed to be beneficially owned by Mr. Crowder. |
(6) | Based on information obtained in a Schedule 13G filed on October 18, 2013. The address of Citadel Advisors LLC, Citadel Advisor Holdings LP, Citadel GP LLC and Kenneth Griffith is c/o Citadel LLC, 131 S. Dearborn Street, 32nd Floor, Chicago, IL 60603 |
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The following table sets forth the dollar range of our equity securities that are beneficially owned by each of our directors as of January 16, 2014.
Name of Director | Dollar Range of Equity Securities Beneficially Owned(1)(2) | |||
Interested Directors |
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Michael T. Moe | Over $100,000 | |||
Mark D. Klein | Over $100,000 | |||
Mark W. Flynn | None | |||
Independent Directors |
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Leonard A. Potter | Over $100,000 | |||
R. David Spreng | $10,001 $50,000 | |||
William V. Campbell | None | |||
Catherine J. Friedman | None |
(1) | Dollar ranges are as follows: None, $1 $10,000, $10,001 $50,000, $50,001 $100,000, or Over $100,000. |
(2) | The dollar range of equity securities beneficially owned in us is based on a price per share of our common stock of $13.30, the highest reported sale price of our common stock on the NASDAQ Capital Market on January 16, 2014. Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Exchange Act. |
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A business development company is regulated by the 1940 Act. A business development company must be organized in the United States for the purpose of investing in or lending to primarily private companies and making significant managerial assistance available to them. A business development company may use capital provided by public stockholders and from other sources to make long-term, private investments in businesses. A business development company provides stockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits, if any, of investing in primarily privately owned companies.
We may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company unless authorized by vote of a majority of the outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such companys voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company. We do not anticipate any substantial change in the nature of our business.
As with other companies regulated by the 1940 Act, a business development company must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the business development company. Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such persons office.
As a business development company, we are generally required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our gross assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 200% after each issuance of senior securities. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the SEC.
We are generally not able to issue and sell our common stock at a price below net asset value per share. See Risk Factors Risks Relating to Our Business and Structure Regulations governing our operation as a business development company affect our ability to, and the way in which we, raise additional capital. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.
As a business development company, we are generally limited in our ability to invest in any portfolio company in which our investment adviser or any of its affiliates currently has an investment or to make any co-investments with our investment adviser or its affiliates without an exemptive order from the SEC, subject to certain exceptions.
We are subject to periodic examination by the SEC for compliance with the 1940 Act.
As a business development company, we are subject to certain risks and uncertainties. See Risk Factors Risks Relating to Our Business and Structure.
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Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development companys gross assets. The principal categories of qualifying assets relevant to our business are the following:
1. | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: |
a. | is organized under the laws of, and has its principal place of business in, the United States; |
b. | is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and |
c. | satisfies any of the following: |
i. | does not have any class of securities that is traded on a national securities exchange; |
ii. | has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million; |
iii. | is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or |
iv. | is a small and solvent company having gross assets of not more than $4.0 million and capital and surplus of not less than $2.0 million. |
2. | Securities of any eligible portfolio company which we control. |
3. | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
4. | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. |
5. | Securities received in exchange for or distributed on or with respect to securities described in 1 through 4 above, or pursuant to the exercise of warrants or rights relating to such securities. |
6. | Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. |
If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any non-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets, other than office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the business development company, deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a business development company, until such time as 70% of our then current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances.
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In addition, a business development company must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above in Qualifying Assets categories 1, 2 or 3. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the business development company must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above in Qualifying Assets category 1.c.iv.) significant managerial assistance; except that, where the business development company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the business development company, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our gross assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see Risk Factors Risks Relating to Our Business and Structure We may borrow money, which would magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.
We and GSV Asset Management have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain transactions by our personnel. Our codes of ethics generally do not permit investments by our employees in securities that may be purchased or held by us. You may read and copy these codes of ethics at the SECs Public Reference Room in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, each code of ethics is available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. You may also obtain copies of the codes of ethics, after paying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov, or by writing the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
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We and our investment adviser have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures. Stephen D. Bard currently serves as our chief compliance officer.
The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. For example:
| pursuant to Rule 13a-14 of the Exchange Act, our chief executive officer and chief financial officer must certify the accuracy of the financial statements contained in our periodic reports; |
| pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; |
| pursuant to Rule 13a-15 of the Exchange Act, our management must prepare an annual report regarding its assessment of our internal control over financial reporting and must obtain an audit of the effectiveness of internal control over financial reporting performed by our independent registered public accounting firm should we become an accelerated filer; and |
| pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the 1934 Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.
We have delegated our proxy voting responsibility to GSV Asset Management. The Proxy Voting Policies and Procedures of GSV Asset Management are set forth below. The guidelines will be reviewed periodically by GSV Asset Management and our non-interested directors, and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below, we, our and us refers to GSV Asset Management.
An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, we recognize that we must vote client securities in a timely manner free of conflicts of interest and in the best interests of our clients.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
We will vote proxies relating to our portfolio securities in what we perceive to be the best interest of our clients stockholders. We will review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by our clients. Although we will generally vote against proposals that may have a negative impact on our clients portfolio securities, we may vote for such a proposal if there exist compelling long-term reasons to do so.
Our proxy voting decisions will be made by the senior officers who are responsible for monitoring each of our clients investments. To ensure that our vote is not the product of a conflict of interest, we will require that: (1) anyone involved in the decision making process disclose to our managing members any potential
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conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.
You may obtain information about how we voted proxies by making a written request for proxy voting information to: GSV Asset Management, 2925 Woodside Road, Woodside, CA 94062.
We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).
We restrict access to non-public personal information about our stockholders to employees of our investment adviser and its affiliates with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.
We have registered our common stock under the Securities Exchange Act of 1934, and have reporting obligations thereunder, including the requirement that we file annual and quarterly reports with the SEC. In accordance with the requirements of the Securities Exchange Act of 1934, this prospectus contains financial statements audited and reported on by our independent registered public accounting firm. You may obtain our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K on our website at http://www.gsvcap.com free of charge as soon as reasonably practicable after we file such reports electronically with the SEC.
We have adopted certain policies and procedures intended to comply with the NASDAQ Capital Markets corporate governance rules. We will continue to monitor our compliance with all future listing standards that are approved by the SEC and will take actions necessary to ensure that we are in compliance therewith.
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We determine the net asset value of our investment portfolio after the conclusion of each fiscal quarter in connection with the preparation of our annual and quarterly reports filed under the Exchange Act, or more frequently if required under the 1940 Act.
Securities that are publicly traded are generally valued at the close price on the valuation date; however, if they remain subject to lock-up restrictions, they are discounted accordingly. Securities that are not publicly traded or for which there are no readily available market quotations, including securities that trade on secondary markets for private securities, are valued at fair value as determined in good faith by our Board of Directors. In connection with that determination, members of our investment advisers portfolio management team will prepare portfolio company valuations using, where available, the most recent portfolio company financial statements and forecasts. We also engage an independent valuation firm to perform independent valuations of our investments that are not publicly traded or for which there are no readily available market quotations. We may also engage an independent valuation firm to perform independent valuations of any securities that trade on private secondary markets, but are not otherwise publicly traded, where there is a lack of appreciable trading or a wide disparity in recently reported trades.
For those securities that are not publicly traded or for which there are no readily available market quotations, our Board of Directors, with the assistance of our Valuation Committee, will use the recommended valuations as prepared by management and the independent valuation firm, respectively, as a component of the foundation for its final fair value determination. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have resulted had others made the determination using the same or different procedures or had a readily available market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the gains or losses implied by the valuation currently assigned to such investments. For those investments that are publicly traded, we generally record unrealized appreciation or depreciation based on changes in the market value of the securities as of the valuation date. Publicly traded securities that remain subject to lock-up restrictions are discounted accordingly. For those investments that are not publicly traded and for which there are no readily available market quotations, we record unrealized depreciation if the underlying portfolio company has depreciated in value and our equity security has also depreciated in value, and record unrealized appreciation if the underlying portfolio company has appreciated in value and our equity security has also appreciated in value. Changes in fair value are recorded in the statement of operations as the net change in unrealized appreciation or depreciation.
We generally determine the fair value of our investments by considering a number of factors. The following represent factors that could impact our fair value determinations:
1. | Public trading of our portfolio securities, taking into consideration lock-up requirements and liquidity; |
2. | Active trading of our portfolio securities on a private secondary market, where we have determined that there is meaningful volume and the transactions are considered arms length by sophisticated investors; |
3. | Qualified funding rounds in the companies in which we are invested, where there is meaningful and reputable information available on size, valuation and investors; and |
4. | Additional investments by us in current portfolio companies, where the price of the new investment differs materially from prior investments. |
There is inherent subjectivity in determining the fair value of our investments. In addition, we will accrue as a liability, each time we calculate net asset value, the amount which we may owe our Adviser for the income incentive fee and the capital gains incentive fee, the latter of which is based on the amount of unrealized and realized capital appreciation. We expect that most of our portfolio investments, other than those for which market quotations are readily available and that may be sold without restriction, will be valued at fair value as determined in good faith by our Board of Directors, with the assistance of our valuation committee.
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In connection with future offerings of shares of our common stock, our Board of Directors or an authorized committee thereof will be required to make the determination that we are not selling shares of our common stock at a price below the then current net asset value of our common stock at the time at which the sale is made. Our Board of Directors or an authorized committee thereof will consider the following factors, among others, in making such a determination:
| the net asset value of our common stock disclosed in the most recent periodic report that we filed with the SEC; |
| our managements assessment of whether any material change in the net asset value of our common stock has occurred (including through the realization of gains on the sale of our portfolio securities) during the period beginning on the date of the most recently disclosed net asset value of our common stock and ending two days prior to the date of the sale of our common stock; and |
| the magnitude of the difference between (i) a value that our Board of Directors or an authorized committee thereof has determined reflects the current net asset value of our common stock, which is generally based upon the net asset value of our common stock disclosed in the most recent periodic report that we filed with the SEC, as adjusted to reflect our managements assessment of any material change in the net asset value of our common stock since the date of the most recently disclosed net asset value of our common stock, and (ii) the offering price of the shares of our common stock in the proposed offering. |
These processes and procedures are part of our compliance policies and procedures. Records will be made contemporaneously with all determinations described in this section and these records will be maintained with other records that we are required to maintain under the 1940 Act.
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We have adopted a dividend reinvestment plan, through which all dividends are paid to stockholders in the form of additional shares of our common stock, unless a stockholder elects to receive cash as provided below. In this way, a stockholder can maintain an undiluted investment in us and still allow us to pay out the required distributable income.
No action is required on the part of a registered stockholder to receive a distribution in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying American Stock Transfer & Trust Company, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive distributions in cash and hold such shares in non-certificated form. Upon request by a participant, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participants account, issue a certificate registered in the participants name for the number of whole shares of our common stock and a check for any fractional share.
Those stockholders whose shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We use only newly-issued shares to implement the plan, whether our shares are trading at a premium or at a discount to net asset value. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of our common stock at the close of regular trading on the NASDAQ Capital Market on the valuation date for such distribution. Market price per share on that date will be the closing price for such shares on the NASDAQ Capital Market or, if no sale is reported for such day, at the average of their electronically-reported bid and asked prices. The number of shares of our common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated.
There is no charge to stockholders for receiving their distributions in the form of additional shares of our common stock. The plan administrators fees for handling distributions in stock are paid by us. There are no brokerage charges with respect to shares we have issued directly as a result of distributions payable in stock. If a participant elects by written or telephonic notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the participants account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15 transaction fee plus brokerage commissions from the proceeds.
Stockholders who receive distributions in the form of stock are subject to the same federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. A stockholders basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable to the stockholder. As a result, if you do not elect to opt out of the dividend reinvestment plan, you will be required to pay applicable federal, state and local taxes on any reinvested dividends even though you will not receive a corresponding cash distribution. In addition, reinvested dividends have the effect of increasing our gross assets, which may correspondingly increase the management fee payable to our investment adviser.
The plan may be terminated by us upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any dividend or distribution by us. All correspondence concerning the plan should be directed to the plan administrator by mail at 59 Maiden Lane, New York, New York 10038 or by phone at (800) 937-5449.
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The following discussion is a general summary of certain material U.S. federal income tax considerations relating to our qualification and taxation as a regulated investment company RIC under subchapter M of the Internal Revenue Code of 1986, as amended (the Code), and the acquisition, ownership and disposition of our common stock. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, we have not described all of the tax consequences that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, traders in securities that elect to use a market-to-market method of accounting for their securities holdings, pension plans and trusts, and financial institutions. This summary is limited to beneficial owners of our common stock that will hold such common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this prospectus and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service (IRS) regarding the offering of the common stock. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.
Tax matters are complicated and the tax consequences to an investor of an investment in our common stock will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax advisers regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.
This summary does not discuss the consequences of an investment in our preferred stock, subscription rights to purchase shares of our common stock, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities. The U.S. federal income tax consequences of such an investment will be discussed in the relevant prospectus supplement.
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds the shares of our common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Investors treated as a partnership for U.S. federal income tax purposes (or investors that are partners in such a partnership), are encouraged to consult with their own tax advisors with respect to the tax consequences relating to the acquisition, ownership and disposition of our common stock.
A U.S. stockholder generally is a beneficial owner of common stock who is for U.S. federal income tax purposes:
| a corporation created or organized in or under the laws of the United States or any state thereof or the District of Columbia; |
| a citizen or individual resident of the United States; |
| a trust, if a court within the United States has primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or if the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or |
| an estate, the income of which is subject to U.S. federal income taxation regardless of its source. |
As used herein, the term Non-U.S. stockholder means a beneficial owner of common stock that is not a U.S. stockholder or a partnership for U.S. federal income tax purposes. A Non-U.S. stockholder does not include an individual present in the United States for 183 days or more in the taxable year of disposition of the common stock. Such a stockholder is encouraged to consult his or her own tax advisor regarding U.S. federal income tax consequences of the sale, exchange or other taxable disposition of the common stock.
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We were taxed as a regular corporation (a C corporation) under subchapter C of the Code, for our 2012 taxable year.
Beginning with our 2013 taxable year, we may elect to be treated as a regulated investment company (RIC) under subchapter M of the Code, if management determines that it is in our best interests to do so and we are able to satisfy the requirements under subchapter M of the Code. If we are not certified by the SEC as principally engaged in the furnishing of capital to other corporations which are principally engaged in the development or exploitation of inventions, technological improvements, new processes, or products not previously generally available (an SEC Certification) for our 2013 taxable year, in which case certain of the asset diversification requirements will be modified as described below, we will not be eligible to elect to be treated as a RIC for our 2013 taxable year. On December 4, 2013 we filed an application with the SEC for an SEC Certification for our 2013 taxable year, but no assurance can be given that we will receive an SEC Certification or that we will otherwise qualify as a RIC for our 2013 taxable year.
To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to qualify for the special treatment accorded to RICs, we are required to distribute to our stockholders on a timely basis each year at least 90% of investment company taxable income, which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the Annual Distribution Requirement), and to meet certain asset diversification requirements on a quarterly basis. Although it is currently our intention to do so, at the present time, we cannot assure you whether we will elect to be treated as a RIC for our 2013 taxable year. If we opt not to do so or are unable to qualify, we will continue to be taxed as a C corporation under the Code for our 2013 taxable year.
If we:
| qualify as a RIC; and |
| satisfy the Annual Distribution Requirement, |
then the following rules will apply to us. We will not be subject to U.S. federal income tax on the portion of our income we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income, including capital gains not distributed (or deemed distributed) to our stockholders.
We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending October 31 in that calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years (the Excise Tax Avoidance Requirement). We generally will endeavor in each year to make sufficient distributions to our stockholders to avoid any U.S. federal excise tax on our earnings.
In order to qualify as a RIC for federal income tax purposes, we must, among other things:
| have in effect an election to be treated as a business development company under the 1940 Act at all times during each taxable year; |
| derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, other income derived with respect to our business of investing in such stock or securities and net income from qualified publicly traded partnerships (the 90% Income Test); and |
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| diversify our holdings so that at the end of each quarter of the taxable year: |
| at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (the 50% Diversification Test); and |
| no more than 25% of the value of our assets is invested in the securities, other than U.S. Government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses, or of qualified publicly traded partnerships (the 25% Diversification Test, and together with the 50% Diversification Test, the Diversification Tests). |
Provided that we satisfy the Diversification Tests as of the close of any quarter, we will not fail the Diversification Tests as of the close of a subsequent quarter as a consequence of a discrepancy between the value of our assets and the requirements of the Diversification Tests that is attributable solely to fluctuations in the value of our assets. Rather, we will fail the Diversification Tests as of the end of a subsequent quarter only if such a discrepancy existed immediately after our acquisition of any asset and such discrepancy is wholly or partly the result of that acquisition. In addition, if we fail the Diversification Tests as of the end of any quarter, we will not lose our status as a RIC if we eliminate the discrepancy within thirty days of the end of such quarter and, if we eliminate the discrepancy within that thirty-day period, we will be treated as having satisfied the Diversification Tests as of the end of such quarter for purposes of applying the rule described in the preceding sentence.
An alternative 50% Diversification Test applies to certain RICs that obtain SEC Certification for the applicable taxable year. Such SEC Certification may not be received earlier than 60 days prior to the close of the taxable year to which it applies. If a RIC has received this certification, then, for purposes of the 50% Diversification Test, securities of an issuer will be treated as good investments as long as the RICs basis in the securities of such issuer did not exceed 5% of the RICs total assets when acquired whether or not the RIC owns more than 10% of the voting securities of such issuer. This alternative test does not apply to the securities of any issuer if the RIC has continuously held securities of the issuer for 10 or more years preceding the applicable quarter end. The 25% Diversification Test is not affected by this alternative 50% Diversification Test. On December 4, 2013 we filed an application with the SEC for SEC Certification for our 2013 taxable year. We can provide no assurance that we will receive such certification. If we fail to receive this certification, we will not be eligible to make an election to be treated as a RIC for our 2013 taxable year.
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (which may arise if we receive warrants in connection with the origination of a loan or if we receive contractual payment-in-kind, or PIK, interest (which represents contractual interest added to the loan balance and due at the end of the loan term) or possibly in other circumstances), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether we receive cash representing such income in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as dividends and deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement, even though we will not have received any corresponding cash amount.
We will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual Distribution Requirement. See Regulation as a Business Development Company Senior Securities. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in
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order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things: (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions; (ii) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income; (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited); (iv) cause us to recognize income or gain without a corresponding receipt of cash; (v) adversely affect the time as to when a purchase or sale of securities is deemed to occur; (vi) adversely alter the characterization of certain complex financial transactions; and (vii) produce income that will not be qualifying income for purposes of the 90% Income Test described above. We will monitor our transactions and may make certain tax elections in order to mitigate the potential adverse effect of these provisions.
Gain or loss that we realize from the sale or exchange of warrants acquired by us, as well as any loss attributable to the lapse of such warrants, generally will be treated as capital gain or loss. The treatment of such gain or loss as long-term or short-term will depend on how long we held a particular warrant. Upon the exercise of a warrant acquired by us, our tax basis in the stock purchased under the warrant will equal the sum of the amount paid for the warrant plus the strike price paid on the exercise of the warrant.
The remainder of this discussion assumes that we will qualify as a RIC and satisfy the Annual Distribution Requirement for the 2013 taxable year and each future taxable year.
Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our investment company taxable income (which is, generally, our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such distributions paid by us to non-corporate U.S. stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions (Qualifying Dividends) may be eligible for a maximum tax rate of 20%. In this regard, it is anticipated that distributions paid by us generally will not be attributable to dividends and, therefore, generally will not qualify for the 20% maximum rate applicable to Qualifying Dividends. Distributions of our net capital gains (which are generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly reported by us as capital gain dividends will be taxable to a U.S. stockholder as long-term capital gains which are currently taxable at a maximum rate of 20% in the case of individuals or estates, regardless of the U.S. stockholders holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our current and accumulated earnings and profits first will reduce a U.S. stockholders adjusted tax basis in such U.S. stockholders common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder.
Under the dividend reinvestment plan, our U.S. stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions. Any distributions reinvested under the plan will nevertheless be treated as received by the U.S. stockholders for U.S. federal income tax purposes. A U.S. stockholder will have an adjusted basis in the additional common stock purchased through the plan equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholders account.
We may retain some or all of our realized net long-term capital gains in excess of realized net short-term capital losses, but designate the retained net capital gain as a deemed distribution. In that case, among other consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. Because we expect to pay tax on any retained capital gains at our regular corporate tax rate, and because that rate is in excess of the maximum rate currently payable by non-corporate taxpayers on long-term capital gains, the amount of tax that individual U.S. stockholders will be treated as
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having paid will exceed the tax they owe on the capital gain distribution and such excess generally may be refunded or claimed as a credit against the U.S. stockholders other U.S. federal income tax obligations. The amount of the deemed distribution net of such tax will be added to the U.S. stockholders tax basis for his, her or its common stock. In order to utilize the deemed distribution approach, we must provide written notice to our U.S. stockholders within 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a deemed distribution.
In accordance with certain applicable Treasury regulations and private letter rulings issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% of his or her entire distribution in cash. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these Treasury regulations or private letter rulings.
As a RIC, we are required to apportion any items that are treated differently for alternative minimum tax (AMT) purposes between us and our U.S. stockholders, and such apportionment may affect our U.S. stockholders AMT liabilities. Although regulations explaining the precise method of apportionment have not yet been issued by the IRS, we intend in general to apportion these items in the same proportion that dividends paid to each U.S. stockholder bear to our taxable income (determined without regard to the dividends paid deduction we are entitled to claim), unless we determine that a different method for a particular item is warranted under the circumstances.
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will nonetheless be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by our U.S. stockholders on December 31 of the year in which the dividend was declared.
If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment.
A U.S. stockholder generally will recognize taxable gain or loss if the U.S. stockholder sells or otherwise disposes of his, her or its shares of our common stock. The amount of gain or loss will be measured by the difference between such U.S. stockholders adjusted tax basis in the common stock sold and the amount of the proceeds received in exchange. Any gain or loss arising from such sale or disposition generally will be treated as long-term capital gain or loss if the U.S. stockholder has held his, her or its shares for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized by a U.S. stockholder upon a disposition of shares of our common stock will generally be disallowed if the U.S. stockholder purchases other shares of our common stock (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition.
The maximum federal income tax rate on long-term capital gains for non-corporate taxpayers is 20%. In addition, individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and certain estates and trusts are subject to an additional 3.8% tax on their net investment income, which generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital
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gains (other than certain amounts earned from trades or businesses). Corporate U.S. stockholders currently are subject to federal income tax on net capital gain at the maximum 35% rate also applied to ordinary income. Non-corporate U.S. stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income that year; any net capital losses of a non-corporate U.S. stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate U.S. stockholders generally may not deduct any net capital losses for a year, but may carry back such losses for three years or carry forward such losses for five years.
We or the applicable withholding agent will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing the amounts includible in such U.S. stockholders taxable income for such year as ordinary income, Qualifying Dividends and as long-term capital gain. In addition, the federal tax status of each years distributions generally will be reported to the IRS. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholders particular situation.
If we were unable to qualify for treatment as a RIC, we would continue to be subject to U.S. federal income tax on all of our taxable income at regular corporate rates, regardless of whether we made any distributions to our stockholders. We would, however, be eligible to offset our net capital gains, if any, by any ordinary losses, including potential any net operating loss carryovers. Distributions would not be required, and any distributions would be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Any such dividend paid to a non-corporate U.S. stockholder would be eligible for the reduced maximum rates of tax applicable to qualified dividends provided that certain holding periods and other requirements were met. Subject to certain holding period requirements and other limitations under the Code, corporate U.S. stockholders would be eligible for the dividends-received deduction with respect to such dividends. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholders tax basis, and any remaining distributions would be treated as a capital gain. To qualify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements for that year and dispose of any earnings and profits from any year in which we failed to qualify as a RIC. Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year following the non-qualifying year, we could be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which we failed to qualify as a RIC that were recognized within the subsequent 10 years (or shorter applicable period), unless we made a special election to pay corporate-level tax on such built-in gain at the time of our requalification as a RIC. If we have previously qualified as a RIC but subsequently fail to satisfy the 90% Income Test or the Diversification Test described above, we may be able to avoid losing our status as a RIC by timely providing notice of such failure to the IRS, curing such failure and possibly paying an additional tax.
Whether an investment in the shares is appropriate for a Non-U.S. stockholder will depend upon that persons particular circumstances. An investment in the shares by a Non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisers before investing in our common stock.
Distributions of our investment company taxable income to Non-U.S. stockholders (including interest income and realized net short-term capital gains in excess of realized long-term capital losses, which generally would be free of withholding if paid to Non-U.S. stockholders directly) will be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent such distributions do not exceed our current and accumulated earnings and profits unless an applicable exception applies. If the distributions are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if a treaty applies, are attributable to a U.S. permanent establishment of the Non-U.S. stockholder), we will not be required to withhold U.S. federal tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements, although the distributions will be subject to U.S. federal income tax at the rates
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applicable to U.S. persons. Special certification requirements apply to a Non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.
For taxable years of RICs beginning before January 1, 2014, U.S. source withholding taxes are not imposed on dividends paid by RICs to the extent the dividends are reported as interest-related dividends or short-term capital gain dividends. Interest-related dividends and short-term capital gain dividends generally represented distributions of interest or short-term capital gains that would not have been subject to U.S. withholding tax at the source if they had been received directly by a foreign person, and that satisfied certain other requirements. NO assurance can be given as to whether this extension of the exemption will be extended for taxable years after 2013. In addition, no assurance can be given whether any of our distributions will be reported as eligible for this exemption from withholding tax (if extended).
Actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains realized by a Non-U.S. stockholder upon the sale or redemption of our common stock, will not be subject to U.S. federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States) or, in the case of an individual, the Non-U.S. stockholder was present in the United States for 183 days or more during the taxable year and certain other conditions are met.
If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the allocable share of the corporate-level tax we pay on the capital gains deemed to have been distributed; however, in order to obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return.
If any actual or deemed distributions of our net capital gains, or any gains realized upon the sale or redemption of our common stock, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if an income tax treaty applies, are attributable to a U.S. permanent establishment maintained by the Non-U.S. stockholder), such amounts will be subject to U.S. income tax, on a net income basis, in the same manner, and at the graduated rates applicable to, a U.S. stockholder. For a corporate Non-U.S. stockholder, the after-tax amount of distributions (both actual and deemed) and gains realized upon the sale or redemption of our common stock that are effectively connected to a U.S. trade or business (and, if a treaty applies, are attributable to a U.S. permanent establishment), may, under certain circumstances, be subject to an additional branch profits tax at a 30% rate (or at a lower rate if provided for by an applicable treaty).
Under the dividend reinvestment plan, our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions. If the distribution is a distribution of our investment company taxable income, is not properly reported by us as a short-term capital gains dividend or interest-related dividend (assuming an extension of the exemption discussed above), and is not effectively connected with a U.S. trade or business of the Non-U.S. stockholder (or if a treaty applies, is not attributable to a U.S. permanent establishment), the amount distributed (to the extent of our current and accumulated earnings and profits) will be subject to U.S. federal withholding tax at a 30% rate (or lower rate provided by an applicable treaty) and only the net after-tax amount will be reinvested in our common stock. If the distribution is effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if a treaty applies, is attributable to a U.S. permanent establishment), generally the full amount of the distribution will be reinvested in the plan and will nevertheless be subject to U.S. federal income tax at the ordinary income rates applicable to U.S. persons. The Non-U.S. stockholder will have an adjusted basis in the additional common stock purchased through the plan equal to the amount reinvested. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the Non-U.S. stockholders account.
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Non-U.S. persons should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares.
If we were unable to qualify for treatment as a RIC, any distributions by us would be treated as dividends to the extent of our current and accumulated earnings and profits. We would not be eligible to report any such dividends as interest-related dividends, short-term capital gain dividends, or capital gain dividends. As a result, any such dividend paid to a Non-U.S. stockholder that is not effectively connected with a U.S. trade or business of the Non-U.S. stockholder (and, if an income tax treaty applies, attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States) would be subject to the 30% (or reduced applicable treaty rate) withholding tax discussed above regardless of the source of the income giving rise to such distribution. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the Non-U.S. stockholders tax basis, and any remaining distributions would be treated as a gain from the sale of the Non-U.S. stockholders shares subject to taxation as discussed above. For the consequences to the Company for failing to qualify as a RIC, see Failure to Qualify as a RIC above.
U.S. stockholders. Information returns are required to be filed with the IRS in connection with dividends on the common stock and proceeds received from a sale or other disposition of the common stock to a U.S. stockholder unless the U.S. stockholder is an exempt recipient. U.S. stockholders may also be subject to backup withholding on these payments in respect of the common stock unless such U.S. stockholder provides its taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules or provides proof of an applicable exemption.
Non-U.S. stockholders. Information returns are required to be filed with the IRS in connection with payment of dividends on the common stock to Non-U.S. stockholders. Unless a Non-U.S. stockholder complies with certification procedures to establish that it is not a United States person, information returns may also be filed with the IRS in connection with the proceeds from a sale or other disposition of the common stock. A Non-U.S. stockholder may be subject to backup withholding on these payments unless it complies with certification procedures to establish that it is not a United States person or otherwise establishes an exemption. The certification procedures required to claim the exemption from withholding tax on interest described above under Taxation of Non-U.S. Stockholders will satisfy the certification requirements necessary to avoid backup withholding as well.
Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited against a U.S. stockholders or Non-U.S. stockholders U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS.
Provisions commonly referred to as FATCA impose withholding of 30% on payments of interest or dividends on (as proposed, on or after July 1, 2014), and sales or redemption proceeds from dispositions of (beginning in 2017), U.S. common stock to foreign financial institutions (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of certain interests in or accounts with those entities) have been satisfied or an exemption applies. No withholding will be required with respect to debt securities outstanding on July 1, 2014 unless they are significantly modified on or after such date. If any withholding is imposed, a beneficial owner that is not a foreign financial institution generally will be entitled to a refund of any amounts withheld by filing a U.S. federal income tax return, which may entail significant administrative burden. Non-U.S. stockholders should consult their tax advisors regarding the implications of FATCA on any shares of common stock they receive.
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This prospectus contains a summary of the common stock, preferred stock, subscription rights, warrants and debt securities that may be offered hereunder. These summaries are not meant to be a complete description of each security. However, this prospectus and the accompanying prospectus supplement will contain the material terms and conditions for each security.
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This prospectus contains a summary of our capital stock and is not meant to be a complete description. However, this prospectus and any accompanying prospectus supplement will contain the material terms and conditions for each security sold thereunder. The following description is based on relevant portions of the Maryland General Corporation Law and on our charter and bylaws.
The authorized stock of GSV Capital as of January 15, 2014 consists of 100,000,000 shares of stock, par value $0.01 per share, all of which are initially designated as common stock. Our common stock is listed on the NASDAQ Capital Market under the ticker symbol GSVC. There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.
The following are our outstanding classes of securities as of January 16, 2014:
Title of Class | Amount Authorized | Amount Held by Us or for Our Account | Amount Outstanding Exclusive of Amounts Shown Under (3) | |||||||||
Common stock | 100,000,000 | | 19,320,100 |
Under our charter our Board of Directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our charter provides that the Board of Directors, without any action by our stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.
All shares of our common stock have equal rights as to earnings, assets, voting, and dividends and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our Board of Directors and declared by us out of assets legally available therefor. Shares of our common stock have no preemptive, conversion or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock can elect all of our directors, and holders of less than a majority of such shares will be unable to elect any director.
Our charter authorizes our Board of Directors to classify and reclassify any unissued shares of stock into other classes or series of stock, including preferred stock. The cost of any such reclassification would be borne by our existing common stockholders. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our
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common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our gross assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two full years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a business development company. We expect that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions. However, we do not currently have any plans to issue preferred stock.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision which eliminates directors and officers liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as our director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as our director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor. In accordance with the 1940 Act, we will not indemnify any person for any liability to which such person would be subject by reason of such persons willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received unless, in either, case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer in advance of final disposition of a proceeding upon the
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corporations receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
We have entered into indemnification agreements with our directors. The indemnification agreements provide our directors the maximum indemnification permitted under Maryland law and the 1940 Act.
Our insurance policy does not currently provide coverage for claims, liabilities and expenses that may arise out of activities that our present or former directors or officers have performed for another entity at our request. There is no assurance that such entities will in fact carry such insurance. However, we note that we do not expect to request our present or former directors or officers to serve another entity as a director, officer, partner or trustee unless we can obtain insurance providing coverage for such persons for any claims, liabilities or expenses that may arise out of their activities while serving in such capacities.
The Maryland General Corporation Law and our charter and bylaws contain provisions that could make it more difficult for a potential acquirer to acquire us by means of a tender offer, proxy contest or otherwise, the material ones of which are discussed below. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. We expect the benefits of these provisions to outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.
Our Board of Directors is divided into three classes of directors serving staggered three-year terms. The current terms of the first, second and third classes will expire in 2014, 2015, and 2016, respectively, and in each case, those directors will serve until their successors are elected and qualify. Upon expiration of their terms, directors of each class will be elected to serve for three-year terms and until their successors are duly elected and qualify and each year one class of directors will be elected by the stockholders. A classified Board may render a change in control of us or removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified Board of Directors will help to ensure the continuity and stability of our management and policies.
Our charter and bylaws provide that the affirmative vote of the holders of a plurality of the outstanding shares of stock entitled to vote in the election of directors cast at a meeting of stockholders duly called and at which a quorum is present will be required to elect a director. Pursuant to our charter our Board of Directors may amend the bylaws to alter the vote required to elect directors.
Our charter provides that the number of directors will be set only by the Board of Directors in accordance with our bylaws. Our bylaws provide that a majority of our entire Board of Directors may at any time increase or decrease the number of directors. However, unless our bylaws are amended, the number of directors may never be less than one nor more than nine. Our charter provides that, at such time as we have at least three independent directors and our common stock is registered under the Exchange Act, as amended, we elect to be subject to the provision of Subtitle 8 of Title 3 of the Maryland General Corporation Law regarding the filling of vacancies on the Board of Directors. Accordingly, at such time, except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any and all vacancies on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.
Our charter provides that a director may be removed only for cause, as defined in our charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors.
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Under the Maryland General Corporation Law, stockholder action can be taken only at an annual or special meeting of stockholders or (unless the charter provides for stockholder action by less than unanimous written consent, which our charter does not) by unanimous written consent in lieu of a meeting. These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the Board of Directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by the Board of Directors or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of our bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the Board of Directors at a special meeting may be made only (1) pursuant to our notice of the meeting, (2) by the Board of Directors or (3) provided that the Board of Directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.
The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board of Directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our Board of Directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our Board of Directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
Our bylaws provide that special meetings of stockholders may be called by our Board of Directors and certain of our officers. Additionally, our bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by the secretary of the corporation upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter generally provides for approval of charter amendments and extraordinary transactions by the stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. Our charter also provides that certain charter amendments, any proposal for our conversion, whether by charter amendment, merger or otherwise, from a closed-end company to an open-end company and any proposal for our liquidation or dissolution requires the approval of the stockholders entitled to cast at least 80% of the votes entitled to be cast on such matter. However, if such amendment or proposal is approved by a majority of our continuing directors (in addition to approval by our Board of Directors), such amendment or proposal may be approved by a majority of the votes entitled to be cast on such a matter. The continuing directors are defined in our charter as (1) our current directors, (2) those directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved by
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a majority of our current directors then on the Board of Directors or (3) any successor directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved by a majority of continuing directors or the successor continuing directors then in office.
Our charter and bylaws provide that the Board of Directors will have the exclusive power to make, alter, amend or repeal any provision of our bylaws.
Except with respect to appraisal rights arising in connection with the Control Share Act discussed below, as permitted by the Maryland General Corporation Law, our charter provides that stockholders will not be entitled to exercise appraisal rights unless a majority of the Board of Directors shall determine such rights apply.
The Maryland General Corporation Law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter (the Control Share Act). Shares owned by the acquirer, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:
| one-tenth or more but less than one-third; |
| one-third or more but less than a majority; or |
| a majority or more of all voting power. |
The requisite stockholder approval must be obtained each time an acquirer crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the Board of Directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations, including, as provided in our bylaws compliance with the 1940 Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The Control Share Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the Control Share Act any and all acquisitions by any person of our shares of stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future. However, we will amend our bylaws to be subject to the
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Control Share Act only if the Board of Directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Control Share Act does not conflict with the 1940 Act.
Under Maryland law, business combinations between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder (the Business Combination Act). These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
| any person who beneficially owns 10% or more of the voting power of the corporations outstanding voting stock; or |
| an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under this statute if the Board of Directors approved in advance the transaction by which the stockholder otherwise would have become an interested stockholder. However, in approving a transaction, the Board of Directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the Board of Directors of the corporation and approved by the affirmative vote of at least:
| 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
| two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporations common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute permits various exemptions from its provisions, including business combinations that are exempted by the Board of Directors before the time that the interested stockholder becomes an interested stockholder. Our Board of Directors has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the Board of Directors, including a majority of the directors who are not interested persons as defined in the 1940 Act. This resolution may be altered or repealed in whole or in part at any time; however, our Board of Directors will adopt resolutions so as to make us subject to the provisions of the Business Combination Act only if the Board of Directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Business Combination Act does not conflict with the 1940 Act. If this resolution is repealed, or the Board of Directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Our bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, including the Control Share Act (if we amend our bylaws to be subject to such Act) and the Business Combination Act, or any provision of our charter or bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.
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In addition to shares of common stock, our charter authorizes the issuance of preferred stock. If we offer preferred stock under this prospectus, we will issue an appropriate prospectus supplement. We may issue preferred stock from time to time in one or more classes or series, without stockholder approval. Prior to issuance of shares of each class or series, our Board of Directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Any such an issuance must adhere to the requirements of the 1940 Act, Maryland law and any other limitations imposed by law.
The 1940 Act currently requires, among other things, that (a) immediately after issuance and before any distribution is made with respect to common stock, the liquidation preference of the preferred stock, together with all other senior securities, must not exceed an amount equal to 50% of our total assets (taking into account such distribution), (b) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on the preferred stock are in arrears by two years or more and (c) such class of stock have complete priority over any other class of stock as to distribution of assets and payment of dividends, which dividends shall be cumulative.
For any series of preferred stock that we may issue, our Board of Directors will determine and the articles supplementary and the prospectus supplement relating to such series will describe:
| the designation and number of shares of such series; |
| the rate and time at which, and the preferences and conditions under which, any dividends will be paid on shares of such series, as well as whether such dividends are participating or non-participating; |
| any provisions relating to convertibility or exchangeability of the shares of such series, including adjustments to the conversion price of such series; |
| the rights and preferences, if any, of holders of shares of such series upon our liquidation, dissolution or winding up of our affairs; |
| the voting powers, if any, of the holders of shares of such series; |
| any provisions relating to the redemption of the shares of such series; |
| any limitations on our ability to pay dividends or make distributions on, or acquire or redeem, other securities while shares of such series are outstanding; |
| any conditions or restrictions on our ability to issue additional shares of such series or other securities; |
| if applicable, a discussion of certain U.S. federal income tax considerations; and |
| any other relative powers, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof. |
All shares of preferred stock that we may issue will be identical and of equal rank except as to the particular terms thereof that may be fixed by our Board of Directors, and all shares of each series of preferred stock will be identical and of equal rank except as to the dates from which dividends, if any, thereon will be cumulative.
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We may issue subscription rights to our stockholders to purchase common stock. Subscription rights may be issued independently or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription rights. In connection with a subscription rights offering to our stockholders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to our stockholders on the record date that we set for receiving subscription rights in such subscription rights offering.
The applicable prospectus supplement would describe the following terms of subscription rights in respect of which this prospectus is being delivered:
| the period of time the offering would remain open (which shall be open a minimum number of days such that all record holders would be eligible to participate in the offering and shall not be open longer than 120 days); |
| the title of such subscription rights; |
| the exercise price for such subscription rights (or method of calculation thereof); |
| the ratio of the offering (which, in the case of transferable rights, will require a minimum of three shares to be held of record before a person is entitled to purchase an additional share); |
| the number of such subscription rights issued to each stockholder; |
| the extent to which such subscription rights are transferable and the market on which they may be traded if they are transferable; |
| if applicable, a discussion of certain U.S. federal income tax considerations applicable to the issuance or exercise of such subscription rights; |
| the date on which the right to exercise such subscription rights shall commence, and the date on which such right shall expire (subject to any extension); |
| the extent to which such subscription rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such over-subscription privilege; |
| any termination right we may have in connection with such subscription rights offering; and |
| any other terms of such subscription rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise of such subscription rights. |
Each subscription right would entitle the holder of the subscription right to purchase for cash such amount of shares of common stock at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the subscription rights offered thereby. Subscription rights may be exercised at any time up to the close of business on the expiration date for such subscription rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights would become void.
Subscription rights may be exercised as set forth in the prospectus supplement relating to the subscription rights offered thereby. Upon receipt of payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription rights agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the shares of common stock purchasable upon such exercise. To the extent permissible under applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.
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Any stockholder who chooses not to participate in a rights offering should expect to own a smaller interest in us upon completion of such rights offering. Any rights offering will dilute the ownership interest and voting power of stockholders who do not fully exercise their subscription rights. Further, because the net proceeds per share from any rights offering may be lower than our then current net asset value per share, the rights offering may reduce our net asset value per share. The amount of dilution that a stockholder will experience could be substantial, particularly to the extent we engage in multiple rights offerings within a limited time period. In addition, the market price of our common stock could be adversely affected while a rights offering is ongoing as a result of the possibility that a significant number of additional shares may be issued upon completion of such rights offering. All of our stockholders will also indirectly bear the expenses associated with any rights offering we may conduct, regardless of whether they elect to exercise any rights.
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We may issue debt securities in one or more series. The specific terms of each series of debt securities will be described in the particular prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For a complete description of the terms of a particular series of debt securities, you should read both this prospectus and the prospectus supplement relating to that particular series.
As required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document called an indenture. An indenture is a contract between us and the financial institution acting as trustee on your behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described in the second paragraph under Events of Default Remedies if an Event of Default Occurs. Second, the trustee performs certain administrative duties for us with respect to our debt securities.
This section includes a description of the material provisions of the indenture. Because this section is a summary, however, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of debt securities. A copy of the form of indenture is attached as an exhibit to the registration statement of which this prospectus is a part. We will file a supplemental indenture with the SEC in connection with any debt offering, at which time the supplemental indenture would be publicly available. See Available Information for information on how to obtain a copy of the indenture.
The prospectus supplement, which will accompany this prospectus, will describe the particular series of debt securities being offered by including:
| the designation or title of the series of debt securities; |
| the total principal amount of the series of debt securities; |
| the percentage of the principal amount at which the series of debt securities will be offered; |
| the date or dates on which principal will be payable; |
| the rate or rates (which may be either fixed or variable) and/or the method of determining such rate or rates of interest, if any; |
| the date or dates from which any interest will accrue, or the method of determining such date or dates, and the date or dates on which any interest will be payable; |
| whether any interest may be paid by issuing additional securities of the same series in lieu of cash (and the terms upon which any such interest may be paid by issuing additional securities); |
| the terms for redemption, extension or early repayment, if any; |
| the currencies in which the series of debt securities are issued and payable; |
| whether the amount of payments of principal, premium or interest, if any, on a series of debt securities will be determined with reference to an index, formula or other method (which could be based on one or more currencies, commodities, equity indices or other indices) and how these amounts will be determined; |
| the place or places, if any, other than or in addition to the Borough of Manhattan in the City of New York, of payment, transfer, conversion and/or exchange of the debt securities; |
| the denominations in which the offered debt securities will be issued (if other than $1,000 and any integral multiple thereof); |
| the provision for any sinking fund; |
| any restrictive covenants; |
| any Events of Default (as defined in Events of Default below); |
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| whether the series of debt securities are issuable in certificated form; |
| any provisions for defeasance or covenant defeasance; |
| any special federal income tax implications, including, if applicable, federal income tax considerations relating to original issue discount; |
| whether and under what circumstances we will pay additional amounts in respect of any tax, assessment or governmental charge and, if so, whether we will have the option to redeem the debt securities rather than pay the additional amounts (and the terms of this option); |
| any provisions for convertibility or exchangeability of the debt securities into or for any other securities; |
| whether the debt securities are subject to subordination and the terms of such subordination; |
| whether the debt securities are secured and the terms of any security interest; |
| the listing, if any, on a securities exchange; and |
| any other terms. |
The debt securities may be secured or unsecured obligations. Unless the prospectus supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.
We are permitted, under specified conditions, to issue multiple classes of indebtedness if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance after giving effect to any exemptive relief granted to us by the SEC. In addition, while any indebtedness and senior securities remain outstanding, we must make provisions to prohibit the distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. For a discussion of the risks associated with leverage, see Risk Factors Risks Relating to Our Business and Structure Regulations governing our operation as a business development company affect our ability to raise additional capital and the way in which we do so. As a business development company, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
The indenture provides that any debt securities proposed to be sold under this prospectus and the accompanying prospectus supplement (offered debt securities) and any debt securities issuable upon the exercise of warrants or upon conversion or exchange of other offered securities (underlying debt securities) may be issued under the indenture in one or more series.
For purposes of this prospectus, any reference to the payment of principal of, or premium or interest, if any, on, debt securities will include additional amounts if required by the terms of the debt securities.
The indenture does not limit the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the indenture securities. The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities. See Resignation of Trustee below. At a time when two or more trustees are acting under the indenture, each with respect to only certain series, the term indenture securities means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.
The indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by another entity.
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We refer you to the prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk protection or similar protection.
We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.
If any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.
We may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in certificated form. Debt securities issued in book-entry form will be represented by global securities. We expect that we will usually issue debt securities in book-entry only form represented by global securities.
We will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold them on behalf of financial institutions that participate in the depositarys book-entry system. These participating institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may hold these interests on behalf of themselves or customers.
Under the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently, for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and we will make all payments on the debt securities to the depositary. The depositary will then pass along the payments it receives to its participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the debt securities.
As a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositarys book-entry system or holds an interest through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders, and not holders, of the debt securities.
In the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to hold their debt securities in their own names or in street name. Debt securities held in street name are registered in the name of a bank, broker or other financial institution chosen by the investor, and the investor would hold a beneficial interest in those debt securities through the account he or she maintains at that institution.
For debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the debt securities are registered as the holders of those debt securities,
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and we will make all payments on those debt securities to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in street name will be indirect holders, and not holders, of the debt securities.
Our obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee, run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a debt security or has no choice because we are issuing the debt securities only in book-entry form.
For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect holders is up to the holders.
When we refer to you in this Description of Debt Securities, we mean those who invest in the debt securities being offered by this prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt securities in which you hold a direct or indirect interest.
If you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name, we urge you to check with that institution to find out:
| how it handles securities payments and notices; |
| whether it imposes fees or charges; |
| how it would handle a request for the holders consent, if ever required; |
| whether and how you can instruct it to send you debt securities registered in your own name so you can be a holder, if that is permitted in the future for a particular series of debt securities; |
| how it would exercise rights under the debt securities if there were a default or other event triggering the need for holders to act to protect their interests; and |
| if the debt securities are in book-entry form, how the depositarys rules and procedures will affect these matters. |
As noted above, we usually will issue debt securities as registered securities in book-entry form only. A global security represents one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will have the same terms.
Each debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all debt securities issued in book-entry form.
A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under Termination of a Global Security. As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented by a global security, and investors
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will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.
As an indirect holder, an investors rights relating to a global security will be governed by the account rules of the investors financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the global security will be considered the holder of the debt securities represented by the global security.
If debt securities are issued only in the form of a global security, an investor should be aware of the following:
| an investor cannot cause the debt securities to be registered in his or her name and cannot obtain certificates for his or her interest in the debt securities, except in the special situations we describe below; |
| an investor will be an indirect holder and must look to his or her own bank or broker for payments on the debt securities and protection of his or her legal rights relating to the debt securities, as we describe under Issuance of Securities in Registered Form above; |
| an investor may not be able to sell interests in the debt securities to some insurance companies and other institutions that are required by law to own their securities in non-book-entry form; |
| an investor may not be able to pledge his or her interest in a global security in circumstances where certificates representing the debt securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective; |
| the depositarys policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an investors interest in a global security. We and the trustee have no responsibility for any aspect of the depositarys actions or for its records of ownership interests in a global security. We and the trustee also do not supervise the depositary in any way; |
| if we redeem less than all the debt securities of a particular series being redeemed, DTCs practice is to determine by lot the amount to be redeemed from each of its participants holding that series; |
| an investor is required to give notice of exercise of any option to elect repayment of its debt securities, through its participant, to the applicable trustee and to deliver the related debt securities by causing its participant to transfer its interest in those debt securities, on DTCs records, to the applicable trustee; |
| DTC requires that those who purchase and sell interests in a global security deposited in its book-entry system use immediately available funds, your broker or bank may also require you to use immediately available funds when purchasing or selling interests in a global security; |
| financial institutions that participate in the depositarys book-entry system, and through which an investor holds its interest in a global security, may also have their own policies affecting payments, notices and other matters relating to the debt securities; there may be more than one financial intermediary in the chain of ownership for an investor, we do not monitor and are not responsible for the actions of any of those intermediaries. |
If a global security is terminated for any reason, interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of legal holders and street name investors under Issuance of Securities in Registered Form above.
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The prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities covered by the prospectus supplement. If a global security is terminated, only the depositary, and not we or the applicable trustee, is responsible for deciding the investors in whose names the debt securities represented by the global security will be registered and, therefore, who will be the holders of those debt securities.
We will pay interest to the person listed in the applicable trustees records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, usually about two weeks in advance of the interest due date, is called the record date. Because we will pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called accrued interest.
We will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holders right to those payments will be governed by the rules and practices of the depositary and its participants, as described under Special Considerations for Global Securities.
We will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date to the holder of debt securities as shown on the trustees records as of the close of business on the regular record date at our office and/or at other offices that may be specified in the prospectus supplement. We will make all payments of principal and premium, if any, by check at the office of the applicable trustee and/or at other offices that may be specified in the prospectus supplement or in a notice to holders against surrender of the debt security.
Alternatively, at our option, we may pay any cash interest that becomes due on the debt security by mailing a check to the holder at his, her or its address shown on the trustees records as of the close of business on the regular record date or by transfer to an account at a bank in the United States, in either case, on the due date.
If any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.
Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.
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You will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later in this subsection.
The term Event of Default in respect of the debt securities of your series means any of the following:
| we do not pay the principal of, or any premium on, a debt security of the series within five days of its due date; |
| we do not pay interest on a debt security of the series within 30 days of its due date; |
| we do not deposit any sinking fund payment in respect of debt securities of the series within five days of its due date; |
| we remain in breach of a covenant in respect of debt securities of the series for 60 days after we receive a written notice of default stating we are in breach (the notice must be sent by either the trustee or holders of at least 25% of the principal amount of the outstanding debt securities of the series); |
| we file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and remain undischarged or unstayed for a period of 90 days; or |
| the series of debt securities has an asset coverage, as such term is defined in the 1940 Act, of less than 100 per centum on the last business day of each of twenty-four consecutive calendar months, giving effect to any exemptive relief granted to the Company by the SEC; or |
| any other Event of Default in respect of debt securities of the series described in the prospectus supplement occurs. |
An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of any default, except in the payment of principal, premium, interest, or sinking or purchase fund installment, if it in good faith considers the withholding of notice to be in the interest of the holders.
If an Event of Default has occurred and is continuing, the trustee or the holders of not less than 25% in principal amount of the outstanding debt securities of the affected series may (and the trustee shall at the request of such holders) declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. A declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the outstanding debt securities of the affected series if (1) we have deposited with the trustee all amounts due and owing with respect to the securities (other than principal that has become due solely by reason of such acceleration) and certain other amounts, and (2) any other Events of Default have been cured or waived.
Except in cases of default, where the trustee has some special duties, the trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee reasonable protection from expenses and liability (called an indemnity). If reasonable indemnity is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.
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Before you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:
| you must give the trustee written notice that an Event of Default with respect to the relevant series of debt securities has occurred and remains uncured; |
| the holders of at least 25% in principal amount of all outstanding debt securities of the relevant series must make a written request that the trustee take action because of the default and must offer reasonable indemnity, security or both to the trustee against the costs, expenses and other liabilities of taking that action; |
| the trustee must not have taken action for 60 days after receipt of the above notice and offer of indemnity and/or security; and |
| the holders of a majority in principal amount of the outstanding debt securities of that series must not have given the trustee a direction inconsistent with the above notice during that 60-day period. |
However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.
Each year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities, or else specifying any default.
Holders of a majority in principal amount of the outstanding debt securities of the affected series may waive any past defaults other than:
| the payment of principal, any premium or interest; or |
| in respect of a covenant that cannot be modified or amended without the consent of each holder. |
Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:
| where we merge out of existence or sell substantially all our assets, the resulting entity or transferee must agree to be legally responsible for our obligations under the debt securities; |
| the merger or sale of assets must not cause a default on the debt securities and we must not already be in default (unless the merger or sale would cure the default). For purposes of this no-default test, a default would include an Event of Default that has occurred and has not been cured, as described under Events of Default above. A default for this purpose would also include any event that would be an Event of Default if the requirements for giving us a notice of default or our default having to exist for a specific period of time were disregarded; |
| we must deliver certain certificates and documents to the trustee; and |
| we must satisfy any other requirements specified in the prospectus supplement relating to a particular series of debt securities. |
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There are three types of changes we can make to the indenture and the debt securities issued thereunder.
First, there are changes that we cannot make to your debt securities without your specific approval. The following is a list of those types of changes:
| change the stated maturity of the principal of or interest on a debt security or the terms of any sinking fund with respect to any security; |
| reduce any amounts due on a debt security; |
| reduce the amount of principal payable upon acceleration of the maturity of an original issue discount or indexed security following a default or upon the redemption thereof or the amount thereof provable in a bankruptcy proceeding; |
| adversely affect any right of repayment at the holders option; |
| change the place or currency of payment on a debt security (except as otherwise described in the prospectus or prospectus supplement); |
| impair your right to sue for payment; |
| adversely affect any right to convert or exchange a debt security in accordance with its terms; |
| modify the subordination provisions in the indenture in a manner that is adverse to outstanding holders of the debt securities; |
| reduce the percentage of holders of debt securities whose consent is needed to modify or amend the indenture; |
| reduce the percentage of holders of debt securities whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults; |
| modify any other aspect of the provisions of the indenture dealing with supplemental indentures with the consent of holders, waiver of past defaults, changes to the quorum or voting requirements or the waiver of certain covenants; and |
| change any obligation we have to pay additional amounts. |
The second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications, establishment of the form or terms of new securities of any series as permitted by the indenture and certain other changes that would not adversely affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects only debt securities to be issued under the indenture after the change takes effect.
Any other change to the indenture and the debt securities would require the following approval:
| if the change affects only one series of debt securities, it must be approved by the holders of a majority in principal amount of that series; and |
| if the change affects more than one series of debt securities issued under the same indenture, it must be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose. |
In each case, the required approval must be given by written consent.
The holders of a majority in principal amount of a series of debt securities issued under the indenture, voting together as one class for this purpose, may waive our compliance with some of our covenants
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applicable to that series of debt securities. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under Changes Requiring Your Approval.
When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:
| for original issue discount securities, we will use the principal amount that would be due and payable on the voting date if the maturity of these debt securities were accelerated to that date because of a default; |
| for debt securities whose principal amount is not known (for example, because it is based on an index), we will use the principal face amount at original issuance or a special rule for that debt security described in the prospectus supplement; and |
| for debt securities denominated in one or more foreign currencies, we will use the U.S. dollar equivalent. |
Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption or if we, any other obligor, or any affiliate of us or any obligor own such debt securities. Debt securities will also not be eligible to vote if they have been fully defeased as described later under Defeasance Full Defeasance.
We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote or take other action under the indenture. However, the record date may not be more than 30 days before the date of the first solicitation of holders to vote on or take such action. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities of those series on the record date and must be taken within eleven months following the record date.
The following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that the provisions of covenant defeasance and full defeasance will not be applicable to that series.
Under current U.S. federal tax law and the indenture, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the particular series was issued. This is called covenant defeasance. In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay your debt securities. If we achieved covenant defeasance and your debt securities were subordinated as described under Indenture Provisions Subordination below, such subordination would not prevent the trustee under the indenture from applying the funds available to it from the deposit described in the first bullet below to the payment of amounts due in respect of such debt securities for the benefit of the subordinated debt holders. In order to achieve covenant defeasance, we must do the following:
| we must deposit in trust for the benefit of all holders of a series of debt securities a combination of cash (in such currency in which such securities are then specified as payable at stated maturity) or government obligations applicable to such securities (determined on the basis of the currency in which such securities are then specified as payable at stated maturity) that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates and any mandatory sinking fund payments or analogous payments; and |
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| we must deliver to the trustee a legal opinion of our counsel confirming that, under current U.S. federal income tax law, we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit. |
| we must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers certificate stating that all conditions precedent to covenant defeasance have been complied with. |
| defeasance must not result in a breach or violation of, or result in a default under, of the indenture or any of our other material agreements or instruments. |
| no default or event of default with respect to such debt securities shall have occurred and be continuing and no defaults or events of default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
| satisfy the conditions for covenant defeasance contained in any supplemental indentures. |
If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the trustee is prevented from making payment. For example, if one of the remaining Events of Default occurred (such as our bankruptcy) and the debt securities became immediately due and payable, there might be such a shortfall. However, there is no assurance that we would have sufficient funds to make payment of the shortfall.
If there is a change in U.S. federal tax law or we obtain an IRS ruling, as described in the second bullet below, we can legally release ourselves from all payment and other obligations on the debt securities of a particular series (called full defeasance) if we put in place the following other arrangements for you to be repaid:
| we must deposit in trust for the benefit of all holders of a series of debt securities a combination of cash (in such currency in which such securities are then specified as payable at stated maturity) or government obligations applicable to such securities (determined on the basis of the currency in which such securities are then specified as payable at stated maturity) that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates and any mandatory sinking fund payments or analogous payments. |
| we must deliver to the trustee a legal opinion confirming that there has been a change in current U.S. federal tax law or an IRS ruling that allows us to make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit. Under current U.S. federal tax law, the deposit and our legal release from the debt securities would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or bonds were deposited in trust in exchange for your debt securities and you would recognize gain or loss on the debt securities at the time of the deposit. |
| we must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers certificate stating that all conditions precedent to defeasance have been complied with. |
| defeasance must not result in a breach or violation of, or constitute a default under, of the indenture or any of our other material agreements or instruments. |
| no default or event of default with respect to such debt securities shall have occurred and be continuing and no defaults or events of default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days. |
| satisfy the conditions for full defeasance contained in any supplemental indentures. |
If we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and
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other creditors if we ever became bankrupt or insolvent. If your debt securities were subordinated as described later under Indenture Provisions Subordination, such subordination would not prevent the trustee under the indenture from applying the funds available to it from the deposit referred to in the first bullet of the preceding paragraph to the payment of amounts due in respect of such debt securities for the benefit of the subordinated debt holders.
If registered debt securities cease to be issued in book-entry form, they will be issued:
| only in fully registered certificated form; |
| without interest coupons; and |
| unless we indicate otherwise in the prospectus supplement, in denominations of $1,000 and amounts that are multiples of $1,000. |
Holders may exchange their certificated securities for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed and as long as the denomination is greater than the minimum denomination for such securities.
Holders may exchange or transfer their certificated securities at the office of the trustee. We have appointed the trustee to act as our agent for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform them ourselves.
Holders will not be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holders proof of legal ownership.
If we have designated additional transfer agents for your debt security, they will be named in the prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.
If any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.
If a registered debt security is issued in book-entry form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be the sole holder of the debt security.
Each trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act with respect to these series and has accepted such appointment. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.
Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all Senior Indebtedness (as defined below), but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities will not otherwise be affected. In addition, no payment on account of principal (or premium, if
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any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if any), sinking fund and interest on Senior Indebtedness has been made or duly provided for in money or moneys worth.
In the event that, notwithstanding the foregoing, any payment by us is received by the trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities, upon our dissolution, winding up, liquidation or reorganization before all Senior Indebtedness is paid in full, the payment or distribution must be paid over to the holders of the Senior Indebtedness or on their behalf for application to the payment of all the Senior Indebtedness remaining unpaid until all the Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made to the holders of the Senior Indebtedness out of the distributive share of such subordinated debt securities.
By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover more, ratably, than holders of any subordinated debt securities or the holders of any indenture securities that are not Senior Indebtedness. The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance provisions of the indenture.
Senior Indebtedness is defined in the indenture as the principal of (and premium, if any) and unpaid interest on:
| our indebtedness (including indebtedness of others guaranteed by us), whenever created, incurred, assumed or guaranteed, for money borrowed, that we have designated as Senior Indebtedness for purposes of the indenture and in accordance with the terms of the indenture (including any indenture securities designated as Senior Indebtedness), and |
| renewals, extensions, modifications and refinancings of any of this indebtedness. |
If this prospectus is being delivered in connection with the offering of a series of indenture securities denominated as subordinated debt securities, the accompanying prospectus supplement will set forth the approximate amount of our Senior Indebtedness and of our other Indebtedness outstanding as of a recent date.
Certain of our indebtedness, including certain series of indenture securities, may be secured. The prospectus supplement for each series of indenture securities will describe the terms of any security interest for such series and will indicate the approximate amount of our secured indebtedness as of a recent date. Any unsecured indenture securities will effectively rank junior to any secured indebtedness, including any secured indenture securities, that we incur in the future to the extent of the value of the assets securing such future secured indebtedness. The debt securities, whether secured or unsecured, of the Company will rank structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
In the event of our bankruptcy, liquidation, reorganization or other winding up, any of our assets that secure secured debt will be available to pay obligations on unsecured debt securities only after all indebtedness under such secured debt has been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all unsecured debt securities then outstanding after fulfillment of this obligation. As a result, the holders of unsecured indenture securities may recover less, ratably, than holders of any of our secured indebtedness.
U.S. Bank National Association will serve as the trustee under the indenture.
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Debt securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus supplement.
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The following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer will be described in the prospectus supplement relating to such warrants.
We may issue warrants to purchase shares of our common stock. Such warrants may be issued independently or together with shares of common stock and may be attached or separate from such shares of common stock. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.
A prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:
| the title of such warrants; |
| the aggregate number of such warrants; |
| the price or prices at which such warrants will be issued; |
| the currency or currencies, including composite currencies, in which the price of such warrants may be payable; |
| the number of shares of common stock issuable upon exercise of such warrants; |
| the price at which and the currency or currencies, including composite currencies, in which the shares of common stock purchasable upon exercise of such warrants may be purchased; |
| the date on which the right to exercise such warrants shall commence and the date on which such right will expire; |
| whether such warrants will be issued in registered form or bearer form; |
| if applicable, the minimum or maximum amount of such warrants which may be exercised at any one time; |
| if applicable, the number of such warrants issued with each share of common stock; |
| if applicable, the date on and after which such warrants and the related shares of common stock will be separately transferable; |
| information with respect to book-entry procedures, if any; |
| if applicable, a discussion of certain U.S. federal income tax considerations; and |
| any other terms of such warrants, including terms, procedures and limitations relating to the exchange and exercise of such warrants. |
We and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.
Under the 1940 Act, we may generally only offer warrants provided that (1) the warrants expire by their terms within ten years; (2) the exercise or conversion price is not less than the current market value at the date of issuance; (3) our stockholders authorize the issuance of such warrants, and our Board of Directors approves such issuance on the basis that the issuance is in the best interests of the Company and its stockholders; and (4) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants at the time of issuance may not exceed 25% of our outstanding voting securities. As of the date of this prospectus, our stockholders have not authorized any issuance of warrants beyond those that would otherwise be permitted without stockholder approval under the 1940 Act.
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We may offer, from time to time, in more than one offering, up to $400,000,000 of our securities in one or more underwritten public offerings, at-the-market offerings to or through a market maker or into an existing trading market for our securities, on an exchange or otherwise, negotiated transactions, block trades, best efforts or a combination of these methods. The holders of our common stock will indirectly bear any fees and expenses in connection with any such offering. We may sell our securities through underwriters or dealers, directly to one or more purchasers, through agents or through a combination of any such methods of sale. Any underwriter or agent involved in the offer and sale of our securities will be named in the applicable prospectus supplement. A prospectus supplement or supplements will also describe the terms of the offering of our securities, including: the purchase price and the proceeds we will receive from the sale; any over-allotment options under which underwriters may purchase additional securities from us; any agency fees or underwriting discounts and other items constituting agents or underwriters compensation; the public offering price; any discounts or concessions allowed or re-allowed or paid to dealers; and any securities exchange or market on which our securities may be listed. Only underwriters or agents named in the prospectus supplement will be underwriters or agents of securities offered by the prospectus supplement.
The distribution of our securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at prevailing market prices at the time of sale, at prices related to such prevailing market prices, or at negotiated prices, provided, however, that the offering price per share of our common stock, less any underwriting commissions or discounts, must equal or exceed the net asset value per share of our common stock at the time of the offering except (a) with the consent of the majority of our common stockholders or (b) under such other circumstances as the SEC may permit. The price at which our securities may be distributed may represent a discount from prevailing market prices. As an investor in our securities, you will indirectly bear the expenses incurred in connection with all of the distribution activities described herein.
In connection with the sale of our securities, underwriters or agents may receive compensation from us or from purchasers of our securities, for whom they may act as agents, in the form of discounts, concessions or commissions. Underwriters may sell our securities to or through dealers and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of our securities may be deemed to be underwriters under the Securities Act, and any discounts and commissions they receive from us and any profit realized by them on the resale of our securities may be deemed to be underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will be identified and any such compensation received from us will be described in the applicable prospectus supplement. The maximum aggregate commission or discount to be received by any member of FINRA or independent broker-dealer will not be greater than 10% of the gross proceeds of the sale of our securities offered pursuant to this prospectus and any applicable prospectus supplement. We may also reimburse the underwriter or agent for certain fees and legal expenses incurred by it.
Any underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering or other short-covering transactions involve purchases of our securities, either through exercise of the over-allotment option or in the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when our securities originally sold by the dealer are purchased in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of our securities to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.
Any underwriters that are qualified market makers on the NASDAQ Capital Market may engage in passive market making transactions in our common stock on the NASDAQ Capital Market in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the commencement of offers or sales of our common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market
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maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market makers bid, however, the passive market makers bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize the market price of our common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
We may sell our securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale of our securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
Unless otherwise specified in the applicable prospectus supplement, each class or series of securities will be a new issue with no trading market, other than our common stock, which is traded on The NASDAQ Capital Market. We may elect to list any other class or series of securities on any exchanges, but we are not obligated to do so. We cannot guarantee the liquidity of the trading markets for any securities.
Under agreements that we may enter, underwriters, dealers and agents who participate in the distribution of our securities may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these liabilities. Underwriters, dealers and agents may engage in transactions with, or perform services for, us in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase our securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of our securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth the commission payable for solicitation of such contracts.
In order to comply with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers.
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Our securities will be held under a custody agreement by U.S. Bank National Association. The address of the custodian is One Federal Street, Boston, MA 02110. American Stock Transfer & Trust Company will act as our transfer agent, distribution paying agent and registrar. The principal business address of our transfer agent is 59 Maiden Lane, New York, New York 10038, telephone number: (800) 937-5449.
Since we will generally acquire and dispose of our investments in privately negotiated transactions, including in connection with private secondary market transactions, we will infrequently use brokers in the normal course of our business. Subject to policies established by our Board of Directors, our investment adviser will be primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and the allocation of brokerage commissions. Our investment adviser does not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for GSV Capital, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firms risk and skill in positioning blocks of securities. While our investment adviser generally will seek reasonably competitive trade execution costs, GSV Capital will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, our investment adviser may select a broker based partly upon brokerage or research services provided to the investment adviser and GSV Capital and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if the investment adviser, in accordance with Section 28(e) under the Exchange Act, determines in good faith that such commission is reasonable in relation to the services provided.
Certain legal matters in connection with the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, DC. Certain legal matters in connection with any offering pursuant to this prospectus, will be passed upon for the underwriters, if any, by counsel named in the applicable prospectus supplement.
The audited financial statements included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants located at 150 Almaden Blvd, Suite 600, San Jose, CA 95113, upon the authority of said firm as experts in giving said report.
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We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our securities offered by this prospectus. The registration statement contains additional information about us and our securities being offered by this prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com.
We are committed to protecting your privacy. This privacy notice explains the privacy policies of GSV and its affiliated companies. This notice supersedes any other privacy notice you may have received from GSV.
We will safeguard, according to strict standards of security and confidentiality, all information we receive about you. The only information we collect from you is your name, address, number of shares you hold and your social security number. This information is used only so that we can send you annual reports and other information about us, and send you proxy statements or other information required by law.
We do not share this information with any non-affiliated third party except as described below.
| Authorized Employees of Our Investment Adviser. It is our policy that only authorized employees of our investment adviser who need to know your personal information will have access to it. |
| Service Providers. We may disclose your personal information to companies that provide services on our behalf, such as recordkeeping, processing your trades, and mailing you information. These companies are required to protect your information and use it solely for the purpose for which they received it. |
| Courts and Government Officials. If required by law, we may disclose your personal information in accordance with a court order or at the request of government regulators. Only that information required by law, subpoena, or court order will be disclosed. |
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F-1
Item 1. | Financial Statements |
September 30, 2013 | December 31, 2012 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Investments at fair value: |
||||||||
Investments in affiliated securities (cost of $32,625,999 and $38,210,753, respectively) | $ | 30,321,787 | $ | 34,648,363 | ||||
Investments in non-control/non-affiliated securities (cost of $212,562,385 and $198,936,982, respectively) | 222,661,659 | 190,748,722 | ||||||
Investments in money market funds (cost of $28,000,000 and $16,000,000, respectively) | 28,000,000 | 16,000,000 | ||||||
Investments owned and pledged (cost of $10,845,236 and $0, respectively) | 10,845,236 | | ||||||
Total Investments (cost of $284,033,620 and $253,147,735, respectively) | 291,828,682 | 241,397,085 | ||||||
Cash | 28,443,204 | 11,318,525 | ||||||
Restricted Cash | 22,264 | | ||||||
Due from: |
||||||||
GSV Asset Management | 15,067 | 5,723 | ||||||
Portfolio companies | 209,559 | 316,377 | ||||||
Interest receivable | 2,256 | | ||||||
Prepaid expenses | 358,324 | 63,953 | ||||||
Dividend receivable | 13,384 | 1,920 | ||||||
Deferred credit facility fees | 58,998 | | ||||||
Deferred debt issuance costs | 3,209,462 | | ||||||
Deferred offering costs | 365,873 | | ||||||
Other assets | 3,607 | 27,145 | ||||||
Total Assets | 324,530,680 | 253,130,728 | ||||||
LIABILITIES |
||||||||
Due to: |
||||||||
GSV Asset Management | 33,803 | 51,194 | ||||||
Accounts payable | 268,601 | 204,093 | ||||||
Accrued offering costs | 253,100 | | ||||||
Accrued credit facility fees | 3,078 | | ||||||
Accrued interest payable | 191,188 | | ||||||
Accrued expenses | 36,915 | 292,640 | ||||||
Convertible senior notes embedded derivative liability | 1,121,000 | | ||||||
Convertible senior notes payable 5.25% due September 15, 2018 | 68,300,000 | | ||||||
Total Liabilities | 70,207,685 | 547,927 | ||||||
Commitments and contingencies (Note 6) |
||||||||
Net Assets | $ | 254,322,995 | $ | 252,582,801 | ||||
NET ASSETS |
||||||||
Common stock, par value $0.01 per share (100,000,000 authorized; 19,320,100 and 19,320,100 issued and outstanding, respectively) |
$ | 193,201 | $ | 193,201 | ||||
Paid-in capital in excess of par | 275,837,514 | 275,837,514 | ||||||
Accumulated net investment loss | (18,285,170 | ) | (10,316,745 | ) | ||||
Accumulated net realized loss on investments | (11,217,612 | ) | (1,380,519 | ) | ||||
Accumulated net unrealized appreciation (depreciation) on investments | 7,795,062 | (11,750,650 | ) | |||||
Net Assets | $ | 254,322,995 | $ | 252,582,801 | ||||
Net Asset Value Per Share | $ | 13.16 | $ | 13.07 |
See Notes to the Consolidated Financial Statements.
F-1
Three Months Ended September 30, | Nine Months Ended September 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
INVESTMENT INCOME |
||||||||||||||||
Interest income from affiliated securities |
$ | | $ | 2,418 | $ | | $ | 200,195 | ||||||||
Interest income from non-control/non-affiliated securities | 2,256 | 4,645 | 2,256 | 21,852 | ||||||||||||
Dividend income from non-control/non-affiliated securities | | | 7,638 | | ||||||||||||
Dividend income from affiliated securities |
388 | 6,865 | 13,008 | 20,040 | ||||||||||||
Total Investment Income | 2,644 | 13,928 | 22,902 | 242,087 | ||||||||||||
OPERATING EXPENSES |
||||||||||||||||
Investment management fees | 1,298,858 | 1,351,169 | 3,828,835 | 3,099,186 | ||||||||||||
Costs incurred under administration agreement | 678,283 | 543,171 | 2,276,152 | 1,490,966 | ||||||||||||
Directors fees | 65,000 | 65,000 | 195,250 | 172,500 | ||||||||||||
Professional fees | 198,932 | 242,683 | 656,796 | 597,089 | ||||||||||||
Interest expense | 191,188 | | 191,188 | | ||||||||||||
Insurance expense | 62,732 | 56,133 | 179,807 | 158,287 | ||||||||||||
Investor relations expense | 54,760 | 34,698 | 171,265 | 143,986 | ||||||||||||
Other expenses | 45,680 | 55,642 | 71,034 | 88,762 | ||||||||||||
Loss on fair value adjustment for embedded derivative | 421,000 | | 421,000 | | ||||||||||||
Total Operating Expenses | 3,016,433 | 2,348,496 | 7,991,327 | 5,750,776 | ||||||||||||
Net Investment Loss | (3,013,789 | ) | (2,334,568 | ) | (7,968,425 | ) | (5,508,689 | ) | ||||||||
Net Realized Loss on Investments | (162,569 | ) | | (9,837,093 | ) | (1,380,519 | ) | |||||||||
Net Change in Unrealized Appreciation (Depreciation) on Investments | 8,892,104 | (4,665,272 | ) | 19,545,712 | (5,668,589 | ) | ||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 5,715,746 | $ | (6,999,840 | ) | $ | 1,740,194 | $ | (12,557,797 | ) | ||||||
Net Increase (Decrease) in Net Assets Resulting from Operations per Common Share basic and diluted |
$ | 0.29 | $ | (0.36 | ) | $ | 0.09 | $ | (0.84 | ) | ||||||
Weighted Average Common Shares Outstanding | 19,320,100 | 19,320,100 | 19,320,100 | 15,013,896 |
See Notes to the Consolidated Financial Statements.
F-2
Nine months ended September 30, 2013 | Nine months ended September 30, 2012 | |||||||
Decrease in Net Assets Resulting From Operations |
||||||||
Net Investment Loss | $ | (7,968,425 | ) | $ | (5,508,689 | ) | ||
Net Realized Loss on Investments | (9,837,093 | ) | (1,380,519 | ) | ||||
Net Change in Unrealized Appreciation (Depreciation) on Investments | 19,545,712 | (5,668,589 | ) | |||||
Net Increase (Decrease) in Net Assets Resulting From Operations | 1,740,194 | (12,557,797 | ) | |||||
Capital Share Transactions |
||||||||
Net Proceeds from Common Shares Issued | | 201,652,500 | ||||||
Offering Costs | | (738,697 | ) | |||||
Net Capital Share Transactions | | 200,913,803 | ||||||
Total Increase (Decrease) in Net Assets | 1,740,194 | 188,356,006 | ||||||
Net Assets at Beginning of Period | 252,582,801 | 71,503,248 | ||||||
Net Assets at End of Period | $ | 254,322,995 | $ | 259,859,254 | ||||
Capital Share Activity |
||||||||
Shares Issued | | 13,800,000 | ||||||
Shares Outstanding at Beginning of Period | 19,320,100 | 5,520,100 | ||||||
Shares Outstanding at End of Period | 19,320,100 | 19,320,100 |
See Notes to the Consolidated Financial Statements.
F-3
Nine months ended September 30, 2013 | Nine months ended September 30, 2012 | |||||||
Cash Flows from Operating Activities |
||||||||
Net increase (decrease) in net assets resulting from operations | $ | 1,740,194 | $ | (12,557,797 | ) | |||
Adjustments to reconcile net change in net assets resulting from operations to net cash used in operating activities: |
||||||||
Net realized loss on investments | 9,837,093 | 1,380,519 | ||||||
Net change in unrealized (appreciation) depreciation on investments | (19,545,712 | ) | 5,668,589 | |||||
Loss on fair value adjustment for embedded derivative | 421,000 | | ||||||
Amortization of deferred debt issuance costs | 28,371 | | ||||||
Purchases of investments in: |
||||||||
Portfolio investments | (24,736,663 | ) | (160,411,324 | ) | ||||
Money market funds | (28,000,000 | ) | (19,999,128 | ) | ||||
United States treasury strips | (10,845,236 | ) | (10,000,000 | ) | ||||
Proceeds from sales of investments in: |
||||||||
Portfolio investments | 6,858,921 | 0 | ||||||
Money market funds | 16,000,000 | 19,998,872 | ||||||
United States treasury strips | | 1,000,000 | ||||||
Change in operating assets and liabilities: |
||||||||
Due from GSV Asset Management | (9,344 | ) | 10,155 | |||||
Due from portfolio companies | 106,818 | (282,305 | ) | |||||
Accrued interest | (2,256 | ) | 158,389 | |||||
Prepaid expenses | (294,371 | ) | (43,346 | ) | ||||
Dividend receivable | (11,464 | ) | (1,127 | ) | ||||
Other assets | 23,538 | (100,154 | ) | |||||
Due to GSV Asset Management | (17,391 | ) | (37,230 | ) | ||||
Due to other affiliates | | (9,865 | ) | |||||
Accounts payable | 64,508 | 143,004 | ||||||
Accrued offering costs | 253,100 | | ||||||
Accrued credit facility fees | 3,078 | | ||||||
Accrued interest payable | 191,188 | | ||||||
Accrued expenses | (255,725 | ) | 114,432 | |||||
Net Cash Used in Operating Activities | (48,190,353 | ) | (174,968,316 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Net proceeds from common shares issued | | 201,652,500 | ||||||
Offering costs | | (738,697 | ) | |||||
Deferred credit facility fees | (58,998 | ) | | |||||
Deferred debt issuance costs | (3,237,833 | ) | | |||||
Deferred offering costs | (365,873 | ) | | |||||
Change in restricted cash | (22,264 | ) | | |||||
Gross proceeds from convertible senior notes issued | 69,000,000 | | ||||||
Net Cash Provided by Financing Activities | 65,315,032 | 200,913,803 | ||||||
Total Increase (Decrease) in Cash Balance | 17,124,679 | 25,945,487 | ||||||
Cash Balance at Beginning of Period | 11,318,525 | 385,995 | ||||||
Cash Balance at End of Period | $ | 28,443,204 | $ | 26,331,482 | ||||
Non-Cash Operating Items |
||||||||
Investments in structured notes converted to preferred shares | $ | | $ | 924,651 | ||||
Investments in structured notes converted to common shares | $ | | $ | 3,002,665 | ||||
Investments in preferred shares converted to common shares | $ | 1,999,997 | $ | | ||||
Investments in common shares converted to preferred shares | $ | 12,481,883 | $ | | ||||
Investments in warrants exercised for preferred shares | $ | | $ | 53,665 | ||||
Non-Cash Financing Items |
||||||||
Fair value of make-whole derivative resulting from issuance of convertible debt | $ | 700,000 | $ | |
See Notes to the Consolidated Financial Statements.
F-4
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets | |||||||||||||||
Twitter, Inc. | San Francisco, CA | |||||||||||||||||||
Common shares | Social Communication | 1,835,600 | $ | 31,755,821 | $ | 43,242,147 | 17.00 | % | ||||||||||||
Preferred shares, Series A | 65,000 | 1,235,290 | 1,531,238 | 0.60 | % | |||||||||||||||
Total | 32,991,111 | 44,773,385 | 17.60 | % | ||||||||||||||||
Palantir Technologies, Inc. | Palo Alto, CA | |||||||||||||||||||
Common shares, Class A | Cyber Security | 7,145,690 | 20,051,479 | 25,081,372 | 9.86 | % | ||||||||||||||
Preferred shares, Series G | 326,797 | 1,008,968 | 1,147,057 | 0.45 | % | |||||||||||||||
Total | 21,060,447 | 26,228,429 | 10.31 | % | ||||||||||||||||
Dropbox, Inc. | San Francisco, CA | |||||||||||||||||||
Common share | Online Storage | 760,000 | 8,641,153 | 8,740,000 | 3.44 | % | ||||||||||||||
Preferred shares, Series A-1 | 552,486 | 5,015,333 | 6,353,589 | 2.50 | % | |||||||||||||||
Total | 13,656,486 | 15,093,589 | 5.94 | % | ||||||||||||||||
Chegg, Inc.(16) | Santa Clara, CA | |||||||||||||||||||
Common shares | Textbook Rental | 849,462 | 10,014,248 | 9,580,153 | 3.77 | % | ||||||||||||||
Preferred shares, Series F | 333,333 | 4,008,654 | 4,555,431 | 1.79 | % | |||||||||||||||
Total | 14,022,902 | 14,135,584 | 5.56 | % | ||||||||||||||||
Control4 Corporation(9)(10) | Salt Lake City, UT | |||||||||||||||||||
Common shares | Home Automation | 782,821 | 7,011,025 | 12,473,776 | 4.90 | % | ||||||||||||||
Solexel, Inc. | Milpitas, CA | |||||||||||||||||||
Preferred shares, Series C | Solar Power | 5,034,324 | 11,017,224 | 10,999,997 | 4.33 | % | ||||||||||||||
2U, Inc. (f/k/a 2tor, Inc.) | Landover, MD | |||||||||||||||||||
Common shares | Online Education | 1,151,802 | 8,757,668 | 9,472,352 | 3.72 | % | ||||||||||||||
Preferred shares, Series A | 167,431 | 1,273,125 | 1,376,943 | 0.54 | % | |||||||||||||||
Total | 10,030,793 | 10,849,295 | 4.26 | % | ||||||||||||||||
Avenues World Holdings LLC(3) | New York, NY | |||||||||||||||||||
Preferred shares, Class A-1 | Globally-focused Private School | 5,000,000 | 10,028,361 | 10,423,016 | 4.10 | % | ||||||||||||||
Coursera, Inc. | Mountain View, CA | |||||||||||||||||||
Preferred shares, Series B | Online Education | 2,039,609 | 9,999,999 | 9,999,998 | 3.93 | % | ||||||||||||||
Facebook, Inc.(7) | Menlo Park, CA | |||||||||||||||||||
Common shares, Class A | Social Networking | 175,000 | 5,236,147 | 8,790,250 | 3.46 | % | ||||||||||||||
Violin Memory, Inc.(11) | Mountain View, CA | |||||||||||||||||||
Common Shares | Memory Flash | 1,233,333 | 14,819,618 | 8,158,498 | 3.21 | % | ||||||||||||||
SugarCRM, Inc. | Cupertino, CA | |||||||||||||||||||
Common shares | Customer Relationship Manager | 1,480,131 | 5,193,947 | 5,602,296 | 2.20 | % | ||||||||||||||
Preferred shares, Series E | 373,134 | 1,500,522 | 1,857,408 | 0.73 | % | |||||||||||||||
Total | 6,694,469 | 7,459,704 | 2.93 | % | ||||||||||||||||
ZocDoc Inc. | New York, NY | |||||||||||||||||||
Preferred shares, Series A | Online Medical Scheduling | 200,000 | 3,563,178 | 3,317,091 | 1.30 | % | ||||||||||||||
Common Stock | 111,866 | 1,734,878 | 1,855,348 | 0.73 | % | |||||||||||||||
Total | 5,298,056 | 5,172,439 | 2.03 | % | ||||||||||||||||
Whittle Schools, LLC(4) | New York, NY | |||||||||||||||||||
Preferred shares, Series B | Globally-focused Private School | 3,000,000 | 3,000,000 | 3,000,000 | 1.18 | % | ||||||||||||||
Common shares | 100 | 1,530,000 | 1,500,000 | 0.59 | % | |||||||||||||||
Total | 4,530,000 | 4,500,000 | 1.77 | % |
See Notes to the Consolidated Financial Statements.
F-5
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets | |||||||||||||||
Bloom Energy Corporation | Sunnyvale, CA | |||||||||||||||||||
Common shares | Fuel Cell Energy | 201,589 | $ | 3,855,601 | $ | 4,456,420 | 1.75 | % | ||||||||||||
Spotify Technology S.A.(7) | Stockholm, Sweden | |||||||||||||||||||
Common shares | Music Streaming Service | 3,658 | 3,598,472 | 4,247,411 | 1.67 | % | ||||||||||||||
Dataminr, Inc. | New York, NY | |||||||||||||||||||
Preferred shares, Series B | Social Media Analytics | 904,977 | 2,063,356 | 2,936,650 | 1.15 | % | ||||||||||||||
Preferred shares, Series C | 301,369 | 1,100,567 | 1,099,997 | 0.43 | % | |||||||||||||||
Total | 3,163,923 | 4,036,647 | 1.58 | % | ||||||||||||||||
StormWind, LLC(2)(5) | Scottsdale, AZ | |||||||||||||||||||
Preferred shares, Series B | Interactive Learning Platform | 3,279,629 | 2,019,687 | 3,955,872 | 1.56 | % | ||||||||||||||
Gilt Groupe, Inc. | New York, NY | |||||||||||||||||||
Common shares | e-Commerce Flash Sales | 248,600 | 6,594,433 | 3,783,860 | 1.49 | % | ||||||||||||||
Learnist Inc, (f/k/a Grockit, Inc.)(2)(12) | San Francisco, CA | |||||||||||||||||||
Preferred shares, Series D | Online Test Preparation | 2,728,252 | 2,005,945 | 2,073,472 | 0.82 | % | ||||||||||||||
Preferred shares, Series E | 1,731,501 | 1,503,670 | 1,501,601 | 0.59 | % | |||||||||||||||
Total | 3,509,615 | 3,575,073 | 1.41 | % | ||||||||||||||||
Fullbridge, Inc.(2) | Cambridge, MA | |||||||||||||||||||
Preferred shares, Series C | Business Education | 1,728,724 | 3,193,444 | 3,378,542 | 1.33 | % | ||||||||||||||
Warrants | 186,170 | 67,021 | 67,021 | 0.03 | % | |||||||||||||||
Total | 3,260,465 | 3,445,563 | 1.36 | % | ||||||||||||||||
CUX, Inc. (d/b/a CorpU)(1)(2) | San Francisco, CA | |||||||||||||||||||
Common Stock | Corporate Education | 615,763 | 2,006,077 | 2,472,902 | 0.97 | % | ||||||||||||||
Convertible preferred shares, Series D | 169,033 | 778,607 | 773,195 | 0.30 | % | |||||||||||||||
Warrants | 16,903 | | | | % | |||||||||||||||
Total | 2,784,684 | 3,246,097 | 1.27 | % | ||||||||||||||||
Parchment, Inc. | Scottsdale, AZ | |||||||||||||||||||
Preferred shares, Series D | E-Transcript Exchange | 2,400,384 | 3,000,000 | 3,237,736 | 1.27 | % | ||||||||||||||
Totus Solutions, Inc.(2) | Carrollton, TX | |||||||||||||||||||
Common shares | LED Lighting | 12,000,000 | 3,014,384 | 720,000 | 0.28 | % | ||||||||||||||
Preferred shares, Series A | 8,000,000 | 2,009,589 | 2,000,000 | 0.79 | % | |||||||||||||||
Preferred shares, Series B | 4,444,444 | 400,000 | 400,000 | 0.16 | % | |||||||||||||||
Total | 5,423,973 | 3,120,000 | 1.23 | % | ||||||||||||||||
Global Education Learning (Holdings) Ltd.(2)(7) | Hong Kong | |||||||||||||||||||
Preferred shares, Series A | Education Technology | 1,472,175 | 2,999,998 | 3,003,237 | 1.18 | % | ||||||||||||||
SharesPost, Inc.(14) | San Bruno, CA | |||||||||||||||||||
Preferred shares, Series B | Online Marketplace Finance | 1,771,653 | 2,259,716 | 2,232,283 | 0.88 | % | ||||||||||||||
Common warrants, $0.13 strike price, expire 6/15/2018 |
770,934 | 23,128 | 323,792 | 0.13 | % | |||||||||||||||
Total | 2,282,844 | 2,556,075 | 1.01 | % |
See Notes to the Consolidated Financial Statements.
F-6
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets | |||||||||||||||
Dailybreak, Inc.(2) | Boston, MA | |||||||||||||||||||
Preferred shares, Series A-1 | Social Advertising | 1,878,129 | $ | 2,430,950 | $ | 2,429,540 | 0.96 | % | ||||||||||||
TrueCar, Inc. | Santa Monica, CA | |||||||||||||||||||
Common shares | Online Marketplace | 377,358 | 2,014,863 | 2,414,826 | 0.95 | % | ||||||||||||||
Kno, Inc. | Santa Clara, CA | |||||||||||||||||||
Preferred shares, Series C | Digital | 440,313 | 2,262,006 | 450,000 | 0.18 | % | ||||||||||||||
Preferred shares, Series C-1 | Textbooks | 1 | 7,510,334 | 1,500,000 | 0.59 | % | ||||||||||||||
Common shares | 50,000 | 214,681 | | | % | |||||||||||||||
Term Loan | 225,000 | 232,744 | 225,000 | 0.09 | % | |||||||||||||||
Total | 10,219,765 | 2,175,000 | 0.86 | % | ||||||||||||||||
Maven Research, Inc.(2) | San Francisco, CA | |||||||||||||||||||
Preferred shares, Series C | Knowledge | 318,979 | 2,000,447 | 1,854,523 | 0.73 | % | ||||||||||||||
Preferred shares, Series B | Networks | 49,505 | 217,206 | 231,386 | 0.09 | % | ||||||||||||||
Total | 2,217,653 | 2,085,909 | 0.82 | % | ||||||||||||||||
NestGSV, Inc.(2) | Redwood City, CA | |||||||||||||||||||
Preferred shares, Series A | Incubator | 1,000,000 | 1,021,778 | 1,200,000 | 0.47 | % | ||||||||||||||
Preferred shares, Series B | 450,000 | 605,500 | 600,000 | 0.24 | % | |||||||||||||||
Total | 1,627,278 | 1,800,000 | 0.71 | % | ||||||||||||||||
Silver Spring Networks, Inc.(8) | Redwood City, CA | |||||||||||||||||||
Common shares | Smart Grid | 102,028 | 5,145,271 | 1,768,145 | 0.70 | % | ||||||||||||||
S3 Digital Corp. (d/b/a S3i)(2) | New York, NY | |||||||||||||||||||
Preferred shares, Class A1 | Sports Analytics | 1,033,452 | 989,058 | 1,138,441 | 0.45 | % | ||||||||||||||
Preferred warrants, $1.00 strike price, expire 11/21/2017 |
500,000 | 31,354 | 200,000 | 0.08 | % | |||||||||||||||
Total | 1,020,412 | 1,338,441 | 0.53 | % | ||||||||||||||||
Strategic Data Command, LLC(15) | Sunnyvale, CA | |||||||||||||||||||
Common shares | Software Development | 800,000 | 1,001,650 | 1,000,000 | 0.39 | % | ||||||||||||||
SinoLending Ltd.(7) | Shanghai, China | |||||||||||||||||||
Preferred shares, Class A | Chinese P2P | 6,414,368 | 503,235 | 604,859 | 0.24 | % | ||||||||||||||
Preferred shares, Class B | Lending | 2,333,108 | 250,263 | 250,000 | 0.10 | % | ||||||||||||||
Total | 753,498 | 854,859 | 0.34 | % | ||||||||||||||||
The rSmart Group, Inc. | Scottsdale, AZ | |||||||||||||||||||
Preferred shares, Series B | Higher Education Learning Platform | 1,201,923 | 1,267,240 | 840,112 | 0.33 | % | ||||||||||||||
DreamBox Learning, Inc. | Bellevue, WA | |||||||||||||||||||
Preferred shares, Series A | Education Technology | 3,579,610 | 758,017 | 825,095 | 0.32 | % | ||||||||||||||
AlwaysOn, Inc.(2) | Woodside, CA | |||||||||||||||||||
Preferred shares, Series A | Social Media | 1,066,626 | 1,027,391 | 203,011 | 0.09 | % | ||||||||||||||
Preferred shares, Series A-1 | 3,152,417 | 624,783 | 600,000 | 0.24 | % | |||||||||||||||
Total | 1,652,174 | 803,011 | 0.33 | % | ||||||||||||||||
AliphCom, Inc. (d/b/a Jawbone) | San Francisco, CA | |||||||||||||||||||
Common Stock | Smart Device Company | 150,000 | 793,152 | 792,600 | 0.31 | % |
See Notes to the Consolidated Financial Statements.
F-7
Portfolio Investments* | Headquarters/Industry | Shares/ Capital Transactions/Principal |
Cost | Fair Value | % of Net Assets | |||||||||||||||
Ozy Media, Inc. | Mountain View, CA | |||||||||||||||||||
Preferred shares, Series Seed | Social Media | 500,000 | $ | 500,000 | $ | 546,224 | 0.21 | % | ||||||||||||
NestGSV Silicon Valley, LLC(2)(6) | Redwood City, CA | |||||||||||||||||||
Common membership interest | Incubator |
$ | 500,000 | 500,000 | 519,045 | 0.20 | % | |||||||||||||
The Echo System Corp. | New York, NY | |||||||||||||||||||
Preferred shares, Series A | Social Analytics | 512,365 | 1,436,404 | 373,535 | 0.15 | % | ||||||||||||||
Preferred warrants, $0.20 strike price, expire 11/14/2016 |
68,359 | 75,988 | | | % | |||||||||||||||
Total | 1,512,392 | 373,535 | 0.15 | % | ||||||||||||||||
NewZoom, Inc. (d/b/a ZoomSystems) | San Francisco, CA | |||||||||||||||||||
Preferred shares, Series A | Smart e-tail (Retail) | 1,250,000 | 260,476 | 262,500 | 0.10 | % | ||||||||||||||
Neuron Fuel, Inc. | San Jose, CA | |||||||||||||||||||
Preferred shares, Series AAI | Computer Software | 250,000 | 262,530 | 243,658 | 0.10 | % | ||||||||||||||
Odesk Corporation | Redwood City, CA | |||||||||||||||||||
Common Stock | Online Workplace Platform | 30,000 | 183,269 | 188,995 | 0.07 | % | ||||||||||||||
Starfish Holdings, Inc. (d/b/a YourOffers)(2) | Beverly Hills, CA | |||||||||||||||||||
Preferred shares, Series A | Marketing Platform | 43,878,894 | 2,177,461 | | | % | ||||||||||||||
Common warrants, $0.00001 strike price, expire 11/13/2019 | 144,800,351 | | | | % | |||||||||||||||
Total | 2,177,461 | | | % | ||||||||||||||||
Total Portfolio Investments | 245,188,384 | 252,983,446 | 99.49 | % | ||||||||||||||||
Money Market Funds(1) |
||||||||||||||||||||
Fidelity Institutional Money Market Funds | ||||||||||||||||||||
Money Market Portfolio | 7,000,000 | 7,000,000 | 7,000,000 | 2.75 | % | |||||||||||||||
Prime Money Market Portfolio | 7,000,000 | 7,000,000 | 7,000,000 | 2.75 | % | |||||||||||||||
JPMorgan Prime Money Market Fund | 7,000,000 | 7,000,000 | 7,000,000 | 2.75 | % | |||||||||||||||
U.S. Bank Money Market Fund | 7,000,000 | 7,000,000 | 7,000,000 | 2.75 | % | |||||||||||||||
Total Money Market Funds | 28,000,000 | 28,000,000 | 11.00 | % | ||||||||||||||||
U.S Treasury Strips(13) |
||||||||||||||||||||
United States Treasury Strip 02/15/2014 | $ | 1,791,000 | 1,790,785 | 1,790,785 | 0.71 | % | ||||||||||||||
United States Treasury Strip 02/15/2015 | $ | 1,816,000 | 1,810,625 | 1,810,625 | 0.71 | % | ||||||||||||||
United States Treasury Strip 02/15/2016 | $ | 1,834,000 | 1,810,323 | 1,810,323 | 0.71 | % | ||||||||||||||
United States Treasury Strip 08/15/2014 | $ | 1,813,000 | 1,811,187 | 1,811,187 | 0.71 | % | ||||||||||||||
United States Treasury Strip 08/15/2015 | $ | 1,823,000 | 1,811,205 | 1,811,205 | 0.71 | % | ||||||||||||||
United States Treasury Strip 08/15/2016 | $ | 1,851,000 | 1,811,111 | 1,811,111 | 0.71 | % | ||||||||||||||
Total | 10,845,236 | 10,845,236 | 4.26 | % | ||||||||||||||||
Total Investments | $ | 284,033,620 | $ | 291,828,682 | 114.75 | % |
See Notes to the Consolidated Financial Statements.
F-8
* | All portfolio investments are non-control/non-affiliated and non-income producing, unless identified. Equity investments are subject to lock-up restrictions upon their initial public offering. |
(1) | Investment is income producing. |
(2) | Denotes an Affiliate Investment. Affiliate Investments are investments in those companies that are Affiliated Companies of GSV Capital Corp., as defined in the Investment Company Act of 1940. A company is deemed to be an Affiliate of GSV Capital Corp. if GSV Capital Corp. owns 5% or more of the voting securities of such company. |
(3) | GSV Capital Corp.s investment in Avenues WorldHoldings LLC is held through its wholly-owned subsidiary GSVC AV Holdings, Inc. |
(4) | GSV Capital Corp.s investment in Whittle Schools, LLC is held through its wholly-owned subsidiary GSVC WS Holdings, Inc. |
(5) | GSV Capital Corp.s investment in StormWind, LLC is held through its wholly-owned subsidiary GSVC SW Holdings, Inc. |
(6) | GSV Capital Corp.s investment in NestGSV Silicon Valley, LLC is held through its wholly-owned subsidiary GSVC NG Holdings, Inc. |
(7) | Indicates assets that GSV Capital Corp. believes do not represent qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of GSV Capital Corp.s total assets at the time of acquisition of any additional non-qualifying assets. |
(8) | On March 12, 2013, Silver Spring Networks, Inc. priced its initial public offering, selling 4,750,000 shares at a price of $17 per share. GSV Capital Corp.s shares in Silver Spring Networks, Inc. are subject to a lock-up agreement that expired on September 8, 2013. At September 30, 2013, GSV Capital Corp. valued Silver Spring Networks, Inc based on its September 30, 2013 closing price. |
(9) | On July 22, 2013, Control4 Corporation completed a 1:5.2 reverse stock split which has been reflected above. |
(10) | On August 2, 2013, Control4 Corporation priced its initial public offering, selling 4,000,000 shares at a price of $16 per share. GSV Capital Corp.s shares in Control4 are subject to a lock-up agreement which expires on January 29, 2014. At September 30, 2013, GSV Capital Corp. valued Control4 Corporation based on its September 30, 2013 closing price, adjusted for a discount due to lack of marketability of 8%. |
(11) | On September 27, 2013, Violin Memory Inc. priced its initial public offering, selling 18,000,000 shares at a price of $9 per share. GSV Capital Corp.s shares in Control4 are subject to a lock-up agreement which expires on March 26, 2014. At September 30, 2013, GSV Capital Corp. valued Violin Memory Inc. based on its September 30, 2013 closing price, adjusted for a discount due to lack of marketability of 10%. |
(12) | On July 31 2013, Grockit, Inc. changed its name to Learnist, Inc. |
(13) | Refer to Note 9 Long Term Liabilities. In accordance with the terms of its Convertible Notes payable, the Company deposited $10,867,500 in an escrow account with the trustee. These funds were used to purchase $10,845,236 of government securities. The cost of the US Treasury Strips approximates their fair value at September 30, 2013. |
(14) | GSV Capital Corp.s investment in SharesPost Inc. is held through its wholly-owned subsidiary SPNPM Holdings, LLC. |
(15) | GSV Capital Corp.s investment in Strategic Data Command, LLC is held through its wholly-owned subsidiary GSVC SVDS Holdings, Inc. |
(16) | On September 3, 2013, Chegg Inc. completed a 2:3 reverse stock split which has been reflected above. |
See Notes to the Consolidated Financial Statements.
F-9
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets | |||||||||||||||
Twitter, Inc. | San Francisco, CA | |||||||||||||||||||
Common shares | Social Communication | 1,835,600 | $ | 31,755,821 | $ | 34,876,400 | 13.81 | % | ||||||||||||
Preferred shares, Series A | 65,000 | 1,235,290 | 1,235,000 | 0.49 | % | |||||||||||||||
Total | 32,991,111 | 36,111,400 | 14.30 | % | ||||||||||||||||
Palantir Technologies, Inc. | Palo Alto, CA | |||||||||||||||||||
Common shares, Class A | Cyber Security | 7,145,690 | 20,051,479 | 20,150,846 | 7.98 | % | ||||||||||||||
Preferred shares, Series G | 326,797 | 1,008,968 | 921,568 | 0.36 | % | |||||||||||||||
Total | 21,060,447 | 21,072,414 | 8.34 | % | ||||||||||||||||
Violin Memory, Inc. | Mountain View, CA | |||||||||||||||||||
Preferred shares, Series B | Flash Memory | 800,000 | 4,800,798 | 4,800,000 | 1.90 | % | ||||||||||||||
Preferred shares, Series D | 1,666,666 | 10,018,045 | 9,999,996 | 3.96 | % | |||||||||||||||
Total | 14,818,843 | 14,799,996 | 5.86 | % | ||||||||||||||||
Dropbox, Inc. | San Francisco, CA | |||||||||||||||||||
Common share | Online Storage | 760,000 | 8,641,153 | 8,360,000 | 3.31 | % | ||||||||||||||
Preferred shares, Series A-1 | 552,486 | 5,015,333 | 6,077,346 | 2.41 | % | |||||||||||||||
Total | 13,656,486 | 14,437,346 | 5.72 | % | ||||||||||||||||
Chegg, Inc. | Santa Clara, CA | |||||||||||||||||||
Common shares | Textbook Rental | 1,274,193 | 10,012,543 | 10,193,544 | 4.03 | % | ||||||||||||||
Preferred shares, Series F | 500,000 | 4,008,654 | 4,000,000 | 1.58 | % | |||||||||||||||
Total | 14,021,197 | 14,193,544 | 5.61 | % | ||||||||||||||||
Avenues World Holdings LLC(5) | New York, NY | |||||||||||||||||||
Preferred shares, Class A-1 | Globally-focused Private School | 5,000,000 | 10,025,123 | 10,000,000 | 3.96 | % | ||||||||||||||
Solexel, Inc. | Milpitas, CA | |||||||||||||||||||
Preferred shares, Series C | Solar Power | 4,576,659 | 10,016,559 | 10,000,000 | 3.96 | % | ||||||||||||||
2U, Inc. (f/k/a 2tor, Inc.) | Landover, MD | |||||||||||||||||||
Common shares | Online Education | 1,151,802 | 8,757,599 | 8,730,659 | 3.46 | % | ||||||||||||||
Preferred shares, Series A | 167,431 | 1,273,125 | 1,269,127 | 0.50 | % | |||||||||||||||
Total | 10,030,724 | 9,999,786 | 3.96 | % | ||||||||||||||||
Kno, Inc. | Santa Clara, CA | |||||||||||||||||||
Preferred shares, Series C | Digital Textbooks | 440,313 | 2,262,006 | 2,249,999 | 0.89 | % | ||||||||||||||
Preferred shares, Series C-1 | 1 | 7,510,334 | 7,500,000 | 2.97 | % | |||||||||||||||
Common shares | 50,000 | 214,681 | 178,850 | 0.07 | % | |||||||||||||||
Total | 9,987,021 | 9,928,849 | 3.93 | % | ||||||||||||||||
Facebook, Inc.(3)(10) | Menlo Park, CA | |||||||||||||||||||
Common shares, Class B | Social Networking | 350,000 | 10,472,294 | 9,317,000 | 3.69 | % | ||||||||||||||
Control4 Corporation(14) | Salt Lake City, UT | |||||||||||||||||||
Common shares | Home Automation | 782,821 | 7,011,025 | 7,123,667 | 2.82 | % | ||||||||||||||
Totus Solutions, Inc.(2) | Carrollton, TX | |||||||||||||||||||
Common shares | LED Lighting | 20,000,000 | 5,023,748 | 5,000,000 | 1.98 | % | ||||||||||||||
Learnist Inc, (f/k/a Grockit, Inc.)(2)(13) | San Francisco, CA | |||||||||||||||||||
Preferred shares, Series D | Online Test Preparation | 2,728,252 | 2,005,945 | 2,373,579 | 0.94 | % | ||||||||||||||
Preferred shares, Series E | 1,731,501 | 1,503,670 | 1,506,406 | 0.60 | % | |||||||||||||||
Total | 3,509,615 | 3,879,985 | 1.54 | % |
See Notes to the Consolidated Financial Statements.
F-10
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets | |||||||||||||||
SugarCRM, Inc. | Cupertino, CA | |||||||||||||||||||
Common shares | Customer Relationship Manager | 1,086,047 | $ | 3,813,378 | $ | 3,801,165 | 1.50 | % | ||||||||||||
Gilt Groupe, Inc. | New York, NY | |||||||||||||||||||
Common shares | e-Commerce Flash Sales | 248,600 | 6,594,346 | 3,637,329 | 1.44 | % | ||||||||||||||
Spotify Technology S.A.(10) | Stockholm, Sweden | |||||||||||||||||||
Common shares | Music Streaming Service | 3,658 | 3,598,472 | 3,589,669 | 1.42 | % | ||||||||||||||
ZocDoc Inc. | New York, NY | |||||||||||||||||||
Preferred shares, Series A | Online Medical Scheduling | 200,000 | 3,563,178 | 3,500,000 | 1.38 | % | ||||||||||||||
Bloom Energy Corporation | Sunnyvale, CA | |||||||||||||||||||
Common shares | Fuel Cell Energy | 201,589 | 3,855,601 | 3,225,424 | 1.28 | % | ||||||||||||||
Global Education Learning (Holdings) Ltd.(2)(10) | Hong Kong | |||||||||||||||||||
Preferred shares, Series A | Education Technology | 1,472,175 | 2,999,998 | 3,003,237 | 1.19 | % | ||||||||||||||
Parchment, Inc. | Scottsdale, AZ | |||||||||||||||||||
Preferred shares, Series D | E-Transcript Exchange | 2,400,384 | 3,000,000 | 3,000,480 | 1.19 | % | ||||||||||||||
Whittle Schools, LLC(2)(6) | New York, NY | |||||||||||||||||||
Preferred shares, Series B | Globally-focused Private School | 3,000,000 | 3,000,000 | 3,000,000 | 1.19 | % | ||||||||||||||
StormWind, LLC(2)(7) | Scottsdale, AZ | |||||||||||||||||||
Preferred shares, Series B | Interactive Learning Platform | 3,279,629 | 2,019,687 | 2,545,812 | 1.01 | % | ||||||||||||||
SharesPost, Inc. | San Bruno, CA | |||||||||||||||||||
Preferred shares, Series B | Online Marketplace (Finance) | 1,771,653 | 2,257,984 | 2,249,999 | 0.89 | % | ||||||||||||||
Common warrants, $0.13 strike price, expire 6/15/2018 | 770,934 | 23,128 | 123,349 | 0.05 | % | |||||||||||||||
Total | 2,281,112 | 2,373,348 | 0.94 | % | ||||||||||||||||
Maven Research, Inc.(2) | San Francisco, CA | |||||||||||||||||||
Preferred shares, Series B | Knowledge Networks | 49,505 | 217,206 | 310,396 | 0.12 | % | ||||||||||||||
Preferred shares, Series C | 318,979 | 1,999,998 | 1,999,998 | 0.79 | % | |||||||||||||||
Total | 2,217,204 | 2,310,394 | 0.91 | % | ||||||||||||||||
Fullbridge, Inc.(2) | Cambridge, MA | |||||||||||||||||||
Preferred shares, Series C | Business Education | 1,196,809 | 2,250,001 | 2,250,001 | 0.89 | % | ||||||||||||||
Starfish Holdings, Inc. (d/b/a YourOffers)(2)(12) | Beverly Hills, CA | |||||||||||||||||||
Preferred shares, Series A | Marketing Platform | 43,878,894 | 2,012,103 | 2,193,945 | 0.87 | % | ||||||||||||||
Common warrants, $0.00001 strike price, expire 11/13/2019 | 144,800,351 | | | | % | |||||||||||||||
Total | 2,012,103 | 2,193,945 | 0.87 | % | ||||||||||||||||
TrueCar, Inc. | Santa Monica, CA | |||||||||||||||||||
Common shares | Online Marketplace (Cars) | 377,358 | 2,014,863 | 2,011,318 | 0.79 | % | ||||||||||||||
Dataminr, Inc. | New York, NY | |||||||||||||||||||
Preferred shares, Series B | Social Media Analytics | 904,977 | 2,060,602 | 1,999,999 | 0.79 | % | ||||||||||||||
CUX, Inc. (d/b/a CorpU)(2) | San Francisco, CA | |||||||||||||||||||
Preferred shares, Series C | Corporate Education | 246,305 | 2,006,077 | 1,999,997 | 0.79 | % | ||||||||||||||
Dailybreak, Inc.(2) | Boston, MA | |||||||||||||||||||
Preferred shares, Series A-1 | Social Advertising | 1,545,181 | $ | 2,000,000 | $ | 1,993,283 | 0.79 | % |
See Notes to the Consolidated Financial Statements.
F-11
Portfolio Investments* | Headquarters/Industry | Shares/Capital Transactions | Cost | Fair Value | % of Net Assets | |||||||||||||||
Silver Spring Networks, Inc. | Redwood City, CA | |||||||||||||||||||
Common shares(11) | Smart Grid | 510,143 | 5,145,271 | 1,976,804 | 0.78 | % | ||||||||||||||
The Echo System Corp.(2) | New York, NY | |||||||||||||||||||
Preferred shares, Series A | Social Analytics | 512,365 | 1,436,404 | 1,639,568 | 0.65 | % | ||||||||||||||
Preferred warrants, $0.20 strike price, expire 11/14/2016 | 68,359 | 75,988 | 68,359 | 0.03 | % | |||||||||||||||
Total | 1,512,392 | 1,707,927 | 0.68 | % | ||||||||||||||||
AltEgo, LLC(2)(8) | Santa Monica, CA | |||||||||||||||||||
Preferred shares, Series B-2 | Social Media Customer Acquisition Platform |
1,400,000 | 1,420,406 | 1,400,000 | 0.55 | % | ||||||||||||||
Zynga, Inc.(10) | San Francisco, CA | |||||||||||||||||||
Common shares | Social Gaming | 533,333 | 3,003,462 | 1,258,666 | 0.50 | % | ||||||||||||||
The rSmart Group, Inc. | Scottsdale, AZ | |||||||||||||||||||
Preferred shares, Series B | Higher Education Learning Platform | 1,201,923 | 1,266,940 | 1,250,000 | 0.49 | % | ||||||||||||||
S3 Digital Corp. (d/b/a S3i)(2) |
New York, NY | |||||||||||||||||||
Preferred shares, Class A1 | Sports Analytics | 1,033,452 | 989,058 | 1,033,452 | 0.41 | % | ||||||||||||||
Preferred warrants, $1.00 strike price, expire 11/21/2017 | 500,000 | 31,354 | 31,354 | 0.01 | % | |||||||||||||||
Total | 1,020,412 | 1,064,806 | 0.42 | % | ||||||||||||||||
NestGSV, Inc.(2) | Redwood City, CA | |||||||||||||||||||
Preferred shares, Series A | Incubator | 1,000,000 | 1,021,778 | 1,000,000 | 0.40 | % | ||||||||||||||
DreamBox Learning, Inc. | Bellevue, WA | |||||||||||||||||||
Preferred shares, Series A | Education Technology | 3,579,610 | 758,017 | 751,718 | 0.30 | % | ||||||||||||||
SinoLending Ltd.(2)(10) | Shanghai, China | |||||||||||||||||||
Preferred shares, Class A | Chinese P2P Lending | 6,414,368 | 501,998 | 500,321 | 0.20 | % | ||||||||||||||
Ozy Media, Inc. | Mountain View, CA | |||||||||||||||||||
Preferred shares, Series Seed | Social Media | 500,000 | 500,000 | 500,000 | 0.20 | % | ||||||||||||||
NestGSV Silicon Valley, LLC(2)(9) | Redwood City, CA | |||||||||||||||||||
Common membership interest | Incubator |
$ | 500,000 | 500,000 | 500,000 | 0.20 | % | |||||||||||||
Groupon, Inc.(4)(10) | Chicago, IL | |||||||||||||||||||
Common shares | Online Deals | 80,000 | 2,128,774 | 388,800 | 0.15 | % | ||||||||||||||
AlwaysOn, Inc.(2) | Woodside, CA | |||||||||||||||||||
Preferred shares, Series A | Social Media | 1,066,626 | 1,027,391 | 298,655 | 0.12 | % | ||||||||||||||
NewZoom, Inc. (d/b/a ZoomSystems) |
San Francisco, CA | |||||||||||||||||||
Preferred shares, Series A | Smart e-tail (Retail) | 1,250,000 | 260,476 | 250,000 | 0.10 | % | ||||||||||||||
Neuron Fuel, Inc. | San Jose, CA | |||||||||||||||||||
Preferred shares, Series AAI | Computer Software | 250,000 | 262,530 | 250,000 | 0.10 | % |
See Notes to the Consolidated Financial Statements.
F-12
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets | |||||||||||||||
Serious Energy, Inc.(10) | Sunnyvale, CA | |||||||||||||||||||
Common shares | Green Materials | 178,095 | $ | 739,130 | $ | | | % | ||||||||||||
Top Hat 430, Inc.(2)(10) | Shakopee, MN | |||||||||||||||||||
Preferred shares, Series A | Jewelry Retailing Technology | 1,844,444 | 4,167,943 | | | % | ||||||||||||||
Preferred warrants, $2.25 strike price, expire 11/2/2017 | 13,333 | | | | % | |||||||||||||||
Total | 4,167,943 | | | % | ||||||||||||||||
Total Portfolio Investments | 237,147,735 | 225,397,085 | 89.23 | % | ||||||||||||||||
Money Market Funds(1) |
||||||||||||||||||||
Fidelity Institutional Money Market Funds | ||||||||||||||||||||
Money Market Portfolio | 8,000,000 | 8,000,000 | 8,000,000 | 3.17 | % | |||||||||||||||
Prime Money Market Portfolio | 8,000,000 | 8,000,000 | 8,000,000 | 3.17 | % | |||||||||||||||
Total Money Market Funds | 16,000,000 | 16,000,000 | 6.34 | % | ||||||||||||||||
Total Investments | $ | 253,147,735 | $ | 241,397,085 | 95.57 | % |
* | All portfolio investments are non-control/non-affiliated and non-income producing, unless identified. Equity investments are subject to lock-up restrictions upon their initial public offering. |
(1) | Investment is income producing. |
(2) | Denotes an Affiliate Investment. Affiliate Investments are investments in those companies that are Affiliated Companies of GSV Capital Corp., as defined in the Investment Company Act of 1940. A company is deemed to be an Affiliate of GSV Capital Corp. if GSV Capital Corp. owns 5% or more of the voting securities of such company. |
(3) | On May 17, 2012, Facebook, Inc. priced its initial public offering, selling 421,233,615 shares at a price of $38.00 per share. GSV Capital Corp.s shares in Facebook, Inc. are subject to a lock-up agreement that expired on November 14, 2012. At December 31, 2012, GSV Capital Corp. valued Facebook based on its December 31, 2012 closing price. |
(4) | On November 8, 2011, Groupon, Inc. priced its initial public offering, selling 35,000,000 shares at a price of $20.00 per share. GSV Capital Corp.s shares in Groupon, Inc. are subject to a lock-up agreement that expired on June 1, 2012. At December 31, 2012, GSV Capital Corp. valued Groupon, Inc. based on its December 31, 2012 closing price. |
(5) | GSV Capital Corp.s investment in Avenues World Holdings LLC is held through its wholly-owned subsidiary GSVC AV Holdings, Inc. |
(6) | GSV Capital Corp.s investment in Whittle Schools, LLC is held through its wholly-owned subsidiary GSVC WS Holdings, Inc. |
(7) | GSV Capital Corp.s investment in StormWind, LLC is held through its wholly-owned subsidiary GSVC SW Holdings, Inc. |
(8) | GSV Capital Corp.s investment in AltEgo, LLC is held through its wholly-owned subsidiary GSVC AE Holdings, Inc. |
(9) | GSV Capital Corp.s investment in NestGSV Silicon Valley, LLC is held through its wholly-owned subsidiary GSVC NG Holdings, Inc. |
(10) | Indicates assets that GSV Capital Corp. believes do not represent qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of GSV Capital Corp.s total assets at the time of acquisition of any additional non-qualifying assets. |
See Notes to the Consolidated Financial Statements.
F-13
(11) | On February 11, 2013, Silver Spring Networks, Inc. conducted a five-for-one reverse stock split of its common stock, which has not been reflected above. |
(12) | The common warrants held in Starfish Holdings, Inc. (d/b/a YourOffers) is presented separately in order to be consistent with the presentation in the September 30, 2013 Consolidated Schedule of Investments. |
(13) | On July 31 2013, Grockit, Inc. changed its name to Learnist, Inc. The schedule of investments was updated in order to be consistent with the presentation in the September 30, 2013 Consolidated Schedule of Investments. Refer to note 9 for further detail. |
(14) | On July 22, 2013, Control4 Corporation completed a 1:5.2 reverse stock split which has been reflected above. |
See Notes to the Consolidated Financial Statements.
F-14
GSV Capital Corp. (the Company, we, our or GSV Capital) was formed in September 2010 as a Maryland corporation structured as an externally managed, non-diversified closed-end management investment company. The Company has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the 1940 Act). The Company is managed by GSV Asset Management, LLC (GSV Asset Management).
The Companys date of inception is January 6, 2011, which is the date it commenced its development stage activities. The Companys shares are currently listed on the NASDAQ Capital Market under the symbol GSVC. The Company began its investment operations during the second quarter.
On April 13, 2012, the Company formed a wholly-owned subsidiary, GSV Capital Lending, LLC (GCL), a Delaware limited liability company, which will originate portfolio loan investments within the state of California. An application for a California lender license was submitted by GCL to the California Department of Corporations. GCL received approval of the license from the California Department of Corporations effective August 14, 2013.
On November 28, 2012, the Company formed wholly-owned subsidiaries, GSVC AE Holdings, Inc. (GAE), GSVC AV Holdings, Inc. (GAV), GSVC NG Holdings, Inc. (GNG), GSVC SW Holdings, Inc. (GSW) and GSVC WS Holdings, Inc. (GWS). On July 12, 2013, the Company formed a wholly-owned subsidiary, SPNPM Holdings, LLC (SPN PM). On August 13, 2013, the Company formed a wholly-owned subsidiary, GSVC SVDS Holdings, Inc. (SVDS). Collectively, these entities are known as the GSVC Holdings, all Delaware corporations, formed to hold portfolio investments.
The Companys investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. The Company invests principally in the equity securities of venture capital-backed and rapidly growing emerging companies. The Company may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet its investment criteria.
On February 10, 2012, the Company priced a subsequent follow-on equity offering, selling 6,900,000 of common shares at a price of $15.00 per share, including an exercise in full by the underwriters of their option to purchase an additional 900,000 shares of common stock to cover overallotments. The follow-on equity offering resulted in net proceeds to the Company of approximately $96.2 million.
On May 11, 2012, the Company priced an additional follow-on equity offering, selling 6,900,000 of common shares at a price of $16.25 per share, including an exercise in full by the underwriters of their option to purchase an additional 900,000 shares of common stock to cover overallotments. The follow-on equity offering resulted in net proceeds to the Company of approximately $105.4 million.
The interim consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments, all of which were of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period have been included. The results of operations for the current period are not necessarily indicative of results that ultimately may be achieved for any other interim period or for the year ending December 31, 2013. The interim unaudited consolidated financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
F-15
Under Article 6 of Regulation S-X and the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company, a controlled operating company which provides substantially all of its services and benefits to us and certain entities established for tax purposes where we hold a 100% interest (the GSVC Holdings Entities). Accordingly, our financial statements include our accounts and the accounts of the GSVC Holdings Entities and GCL, our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We began consolidating the GSVC Holdings Entities during the quarter ended September 30, 2013. The change has no impact on our financial position or results of operations through September 30, 2013. Future periods may be impacted by tax related assets and liabilities recorded at the GSVC Holdings entity level that arise in the normal course of business and which will be included in our consolidated statement of assets and liabilities Such tax assets and liabilities had a $0 balance at September 30, 2013 and for all periods previously reported.
The preparation of consolidated financial statements requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities and other estimates that affect the reported amounts of those assets and liabilities as of the date of the consolidated financial statements and the reported amounts of related revenues and expenses during the reported period. It is likely that changes in these estimates will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.
The Company applies fair value accounting in accordance with GAAP. The Company generally values its assets on a quarterly basis, or more frequently if required under the 1940 Act. Securities for which market quotations are readily available on an exchange are valued at the closing price of such security on the valuation date; however, if they remain subject to lock-up restrictions they are discounted accordingly. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.
Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of GSV Asset Management, the Board or the Valuation Committee of the Board (the Valuation Committee), does not represent fair value, shall each be valued as follows:
1. | The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment; |
2. | Preliminary valuation conclusions are then documented and discussed with GSV Asset Management senior management; |
3. | An independent third-party valuation firm is engaged by, or on behalf of, the Valuation Committee to conduct independent appraisals and review managements preliminary valuations and make their own independent assessment, for all material investments; |
4. | The Valuation Committee discusses valuations and recommends the fair value of each investment in the portfolio in good faith based on the input of GSV Asset Management and the independent third-party valuation firm; and, |
F-16
5. | The Board then discusses the valuations and determines in good faith the fair value of each investment in the portfolio based upon input of GSV Asset Management, estimates from the independent valuation firm and the recommendations of the Valuation Committee. |
In making our good faith determination of the fair value of investments, we consider valuation methodologies consistent with industry practice. Valuation methods, among other measures and as applicable, may include comparisons to prices from secondary market transactions and recent venture capital financings, analysis of financial ratios and valuation metrics of the portfolio companies that issued such private equity securities to peer companies that are public, analysis of the portfolio companies most recent financial statements and forecasts, and the markets in which the portfolio company does business, and other relevant factors. The Company assigns a weighting based upon the relevance of each factor to determine the fair value of each investment.
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, and most U.S. Government and agency securities).
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
a) | Quoted prices for similar assets or liabilities in active markets; |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); |
c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and, |
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include certain of our private equity investments).
F-17
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 table set forth in Note 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur.
The carrying amounts of our financial instruments, consisting of cash, receivables, accounts payable, and accrued expenses, approximate fair value due to their short-term nature.
Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date). Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively.
We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual directly or indirectly owns beneficially more than 25% of the voting securities of an investee company. We do not own more than 25% of voting securities of a portfolio company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist when a company or individual directly or indirectly owns, controls, or holds the power to vote 5% or more of the outstanding voting securities of another person.
The Company places its cash with U.S. Bank, N.A. and First Republic Bank, N.A., and at times, cash held in these accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash in money market funds, within limitations of the 1940 Act.
Restricted cash consists of excess funds remaining in escrow from the purchase of the government securities that will be used to make the scheduled interest payments on the convertible senior notes. As of September 30, 2013, the Company had restricted cash of $22,264 and is included on the Consolidated Statements of Assets and Liabilities.
The Companys revenue recognition policies are as follows:
Sales: Gains or losses on the sale of investments are determined using the specific identification method.
F-18
Interest: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis.
Dividends: Dividend income is recognized on the ex-dividend date.
Commissions and other costs associated with an investment transaction, including legal expenses not reimbursed by the issuer, are included in the cost basis of purchases and deducted from the proceeds of sales. The Company makes certain acquisitions on the secondary markets which may involve making deposits to escrow accounts until certain conditions are met including the underlying private companys right of first refusal. If the underlying private company does not exercise or assign its right of first refusal and all other conditions are met, then the funds in the escrow account are delivered to the seller and the account is closed. These transactions are reflected on the Consolidated Statement of Assets and Liabilities as Escrow deposits. At September 30, 2013 and December 31, 2012, the Company had $0 in Escrow deposits.
Unrealized appreciation or depreciation is calculated as the difference between the fair value of the investment and the cost basis of such investment.
The Company was taxed as a regular corporation (a C corporation) under subchapter C of the Internal Revenue Code of 1986, as amended, for its 2012 taxable year. The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded for tax loss carryforwards and temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. Certain tax attributes may be subject to limitations on timing and usage. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Beginning with its 2013 taxable year, the Company may elect to be treated as a regulated investment company (RIC) under subchapter M of the Internal Revenue Code of 1986, as amended (the Code), if management determines that it is in the best interests of the Company to do so and the Company is able to satisfy the requirements under subchapter M of the Code. In order to qualify as a RIC, among other things, the Company is required to distribute to its stockholders on a timely basis at least 90% of investment company taxable income, as defined by the Code, for each year, and meet certain asset diversification requirements on a quarterly basis. So long as the Company qualifies and maintains its status as a RIC, it generally will not pay corporate-level U.S. federal and state income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the RIC will represent obligations of the Companys investors and will not be reflected in the consolidated financial statements of the Company. Included in the Companys consolidated financial statements, the GSVC Holdings are taxable subsidiaries of the RIC. These taxable subsidiaries are not consolidated for income tax purposes and may generate income tax expenses as a result of their ownership of the portfolio companies. Such income tax expenses and deferred taxes, if any, will be reflected in the Companys consolidated financial statements. Although it is currently its intention to do so, at the present time, the Company cannot assure you whether it will elect to be treated as a RIC for its 2013 taxable year. If it opts not to do so, the Company will continue to be taxed as a C corporation under the Code for its 2013 taxable year. Until such time as it is able to be taxes as a ROC, GSV will provide for income taxes, if any, as a C Corp.
F-19
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where the position has met the more-likely-than-not threshold. The Company classifies penalties and interest associated with income taxes, if any, as income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, ongoing analyses of tax laws, regulations and interpretations thereof.
On August 6, 2013, the Company entered into a non-binding term sheet with Silicon Valley Bank (SVB) relating to a proposed credit facility (the Proposed SVB Facility) and incurred legal costs of $58,998 as of September 30, 2013. These costs are included as deferred credit facility fees on the Companys Consolidated Statement of Assets and Liabilities and $58,998 will be amortized over the life of the credit facility if and when a credit agreement is finalized. Should the Company not finalize and execute the credit agreement, these fees will be expensed. Negotiations regarding the final credit agreement remain ongoing.
Offering costs include legal fees and other costs pertaining to public offerings. On September 23, 2013, the Company filed a registration statement on form N-2 with the Securities and Exchange Commission (the SEC) to register the Companys common stock, preferred stock, subscription rights, debt securities, and warrants under the Securities Act of 1933, as amended. In accordance with ASC 340-10, the Company has deferred the offering costs of $365,873. As of September 30, 2013, the deferred offering costs are shown on the Statement of Assets and Liabilities. If the registration statement is declared effective by the SEC and the Companys securities are offered pursuant to the registration statement, the Company will reclassify the deferred offering costs into additional paid-in capital for equity offerings and will amortize the offering costs related to any debt securities issued. As of December 31, 2012, $738,697 of offering costs were offset against capital proceeds from the secondary offerings on May 11, 2012 and February 10, 2012.
Basic earnings (loss) per common share is computed using the weighted average number of shares outstanding for the period presented. Diluted earnings per share is computed by dividing net income (loss) for the period by the weighted average number of common shares plus, if diluative, potential common shares outstanding during the period.
Certain capital accounts including undistributed net investment income or loss, accumulated net realized gain or loss, net unrealized appreciation or depreciation, and paid-in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP. GAAP requires that certain components of net assets relating to permanent differences are to be reclassified between financial statement reporting and tax reporting. These reclassifications have no effect on the net assets or net asset value per share and are intended to enable the Companys stockholders to determine the amount of accumulated and undistributed earnings they potentially could receive in the future and on which they could be taxed.
F-20
The Company entered into an investment advisory agreement with GSV Asset Management (the Advisory Agreement) in connection with its initial public offering. Pursuant to the Advisory Agreement, GSV Asset Management will be paid a base annual fee of 2% of gross assets, and an annual incentive fee equal to the lesser of (i) 20% of the Companys realized capital gains during each calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of the Companys realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. There were $1,298,858 and $3,828,835 in base management fees and $0 in incentive fees incurred for the three and nine months ended September 30, 2013, respectively. There were $1,351,169 and $3,099,186 in base management fees and $0 in incentive fees incurred for the three and nine months ended September 30, 2012, respectively.
As of September 30, 2013, the Company was due $15,067 from GSV Asset Management for reimbursement of expenses paid for by the Company that were the responsibility of GSV Asset Management, and is included in the Consolidated Statement of Assets and Liabilities.
As of September 30, 2013, the Company owed GSV Asset Management $33,803 of which relates to reimbursement of expenses paid for by GSV Asset Management that were the responsibility of the Company, and is included in the Consolidated Statement of Assets and Liabilities.
As of December 31, 2012, the Company was due $5,723 from GSV Asset Management for reimbursement of expenses paid by the Company that were the responsibility of GSV Asset Management, and is included in the Consolidated Statement of Assets and Liabilities.
As of December 31, 2012, the Company owed GSV Asset Management $51,194 for reimbursements of travel-related expenses. These are included in the Consolidated Statement of Assets and Liabilities.
The Company entered into an administration agreement with GSV Capital Service Company (the Administration Agreement) to provide administrative services, including furnishing the Company with office facilities, equipment, clerical, bookkeeping, record keeping services and other administrative services, in connection with its initial public offering and ongoing operations. The Company reimburses GSV Capital Service Company an allocable portion of overhead and other expenses in performing its obligations under the Administration Agreement. There were $678,283 and $2,276,152 in such costs incurred under the Administration Agreement for the three and nine months ended September 30, 2013, respectively. There were $543,171 and $1,490,966 in such costs incurred under the Administration Agreement for the three and nine months ended September 30, 2012, respectively.
The Company entered into a license agreement with GSV Asset Management pursuant to which GSV Asset Management has agreed to grant the Company a non-exclusive, royalty-free license to use the name GSV. Under this agreement, the Company has the right to use the GSV name for so long as the Advisory Agreement with GSV Asset Management is in effect. Other than with respect to this limited license, the Company has no legal right to the GSV name.
F-21
At September 30, 2013, the Company had 72 positions in 46 portfolio companies. The total cost and fair value of the 72 positions were $245,188,384 and $252,983,446, respectively. At December 31, 2012, the Company had 61 positions in 47 portfolio companies. The total cost and fair value of the 61 positions were $237,147,735 and $225,397,085, respectively. The composition of our investments as of September 30, 2013 and December 31, 2012 are as follows:
September 30, 2013 (Unaudited) | December 31, 2012 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Common Stock | $ | 143,167,837 | $ | 156,341,351 | $ | 132,833,640 | $ | 123,820,141 | ||||||||
Preferred Stock | 101,090,312 | 95,307,237 | 103,683,625 | 100,853,882 | ||||||||||||
Common Membership Interest | 500,000 | 519,045 | 500,000 | 500,000 | ||||||||||||
Term Loan | 232,744 | 225,000 | | | ||||||||||||
Warrants | 197,491 | 590,813 | 130,470 | 223,062 | ||||||||||||
Total Portfolio Investments | 245,188,384 | 252,983,446 | 237,147,735 | 225,397,085 | ||||||||||||
Non-Portfolio Investments | 38,845,236 | 38,845,236 | 16,000,000 | 16,000,000 | ||||||||||||
Total Investments | $ | 284,033,620 | $ | 291,828,682 | $ | 253,147,735 | $ | 241,397,085 |
F-22
The table below presents the valuation techniques and the nature of significant inputs used to determine the fair values of our Level 3 investments and embedded derivative as of September 30, 2013.
Asset | Fair Value | Valuation Techniques | Unobservable inputs | Range (Average) | ||||
Common stock in private companies | $125,150,682 | Market approach | Precedent transactions | N/A | ||||
Income approach | Revenue multiples | 2.2x 5.6x (4.2x) | ||||||
Revenue growth rate (5 year) |
40% 50% (40%) | |||||||
EBIT multiples | 10.0x 37.3x (24.2x) | |||||||
EBIT margin (5 year) | 15% 30% (22%) | |||||||
Discount rate | 35% 40% (37%) | |||||||
Scenario analysis | IPO/M&A probability | 10/90% 90/10% | ||||||
409A Valuation | N/A | |||||||
Going Concern | N/A | |||||||
Preferred stock in private companies | 95,307,237 | Market approach | Precedent transactions | N/A | ||||
Income approach | Revenue multiples | 0.8x 5.7x (3.0x) | ||||||
Revenue growth rate (5 year) |
0% 50% (32%) | |||||||
EBIT multiples | 0.8x 35.0x (13.9x) | |||||||
EBIT margin (5 year) | 5% 50% (23%) | |||||||
Discount rate | 35% 50% (40%) | |||||||
Scenario analysis | IPO/M&A probability | 20/80% 25/75% | ||||||
Liquidity preference | N/A | |||||||
Going Concern | N/A | |||||||
Redemption rights backed by real estate | N/A | |||||||
Common membership interest | 519,045 | Market approach | Precedent transactions | N/A | ||||
Income approach | Revenue multiples | 2.3x 2.6x (2.5x) | ||||||
Revenue growth rate (5 year) |
0% | |||||||
EBIT multiples | 7.9x 8.0x (8.0x) | |||||||
EBIT margin (5 year) | 50% | |||||||
Discount rate | 45% | |||||||
Term Loan | 225,000 | Market approach | Precedent transactions | N/A | ||||
Warrants | 590,813 | Option pricing model |
Term to expiration | 3 years | ||||
Stock price | $0.25 $1.16 | |||||||
Volatility | 30% 40% | |||||||
Embedded Derivative | (1,121,000) | Binomial lattice model | Stock Price* | $13.39 $14.82 | ||||
Strike Price | $16.26 | |||||||
Risk free rate* | 1.4% 1.6% | |||||||
Volatility | 45% | |||||||
Annual risk rate | 12.50% |
* Ranges from inputs at September 17, 2013 to September 30, 2013
The significant unobservable inputs that may be used in the fair value measurement of the Companys investments in common stock, preferred stock, common membership interests, and term loans for which market quotations are not readily available include: (i) prior or contemporaneous transactions in the equity of the portfolio company, prior or contemporaneous transactions in the equity of comparable companies (Precedent Transactions), (ii) revenue multiples for comparable companies, and earnings before interest, taxes, depreciation multiples (EBIT), (collectively, Multiples) for comparable companies, (iii) discount
F-23
rates, revenue growth rates, EBIT margins applied in a discounted cash flow analysis of the portfolio company, and (iv) IPO/M&A probabilities. A change in the assumptions used for Precedent Transactions, Multiples, revenue growth rates, EBIT margins, and IPO/M&A probabilities may indicate a directionally similar change in the fair value of the Companys investments in common stock, preferred stock, and common membership interests, while a change in the assumptions used for discount rates may indicate a directionally opposite change in the fair value of the Companys investments in common stock, preferred stock, common membership interests, and term loans.
The significant unobservable inputs used in determining the fair value of the warrants are the term to expiration, stock price and volatility. Volatility is based on a combination of implied and historical volatility indications. A higher stock price and a longer time to expiration result in higher values, all else equal.
The Company applied the binomial lattice model to value the embedded derivative using a with-and-without method, where the value of the convertible senior notes including the embedded derivative, is defined as the with, and the value of the convertible senior notes excluding the embedded derivative, is defined as the without. This method estimates the value of the embedded derivative by looking at the difference in the values between the convertible senior notes with the embedded derivative and the value of the convertible senior notes without the embedded derivative. The lattice model requires the following inputs: (i) price of GSV common stock; (ii) the conversion rate; (iii) strike price; (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) annual risk rate.
The fair values of our financial assets and liabilities disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of September 30, 2013 and December 31, 2012 are as follows:
As of September 30, 2013 (Unaudited) | ||||||||||||||||
Quoted Prices in Active Markets for Identical Securities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets: |
||||||||||||||||
Common Stock | $ | 10,558,395 | $ | 20,632,274 | $ | 125,150,682 | $ | 156,341,351 | ||||||||
Preferred Stock | | | 95,307,237 | 95,307,237 | ||||||||||||
Money Market Funds | 28,000,000 | | | 28,000,000 | ||||||||||||
US Treasury Strips | 10,845,236 | | | 10,845,236 | ||||||||||||
Common Membership Interest | | | 519,045 | 519,045 | ||||||||||||
Term Loan | | | 225,000 | 225,000 | ||||||||||||
Warrants | | | 590,813 | 590,813 | ||||||||||||
Total Assets at Fair Value | $ | 49,403,631 | $ | 20,632,274 | $ | 221,792,777 | $ | 291,828,682 | ||||||||
Liabilities: |
||||||||||||||||
Derivative Liabilities | $ | | $ | | $ | 1,121,000 | $ | 1,121,000 |
F-24
As of December 31, 2012 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Securities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Assets: |
||||||||||||||||
Common Stock | $ | 10,964,466 | $ | | $ | 112,855,675 | $ | 123,820,141 | ||||||||
Preferred Stock | | | 100,853,882 | 100,853,882 | ||||||||||||
Money Market Funds | 16,000,000 | | | 16,000,000 | ||||||||||||
Common Membership Interest | | | 500,000 | 500,000 | ||||||||||||
Warrants | | | 223,062 | 223,062 | ||||||||||||
Total Assets at Fair Value | $ | 26,964,466 | $ | | $ | 214,432,619 | $ | 241,397,085 |
The aggregate values of Level 3 portfolio investments and embedded derivative changed during the nine months ended September 30, 2013 and the year ended December 31, 2012 as follows:
Nine months ended September 30, 2013 (Unaudited) | ||||||||||||||||||||||||||||
Common Stock |
Preferred Stock |
Common Membership Interest | Term Loans |
Warrants | Embedded Derivative |
Total | ||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||
Fair value as of December 31, 2012 | $ | 112,855,675 | $ | 100,853,882 | $ | 500,000 | $ | | $ | 223,062 | $ | | $ | 214,432,619 | ||||||||||||||
Purchases of investments | 6,625,603 | 22,394,521 | | 232,744 | | | 29,252,868 | |||||||||||||||||||||
Exercises, conversions and assignments In(1) | (2,000,000 | ) | 2,000,000 | | | 67,021 | | 67,021 | ||||||||||||||||||||
Sales and settlements | | (4,516,206 | ) | | | | | (4,516,206 | ) | |||||||||||||||||||
Realized loss included in earnings | (748,719 | ) | (5,588,501 | ) | | | | | (6,337,220 | ) | ||||||||||||||||||
Exercises, conversions and assignments Out(1) | 1,999,997 | (2,067,018 | ) | | | | | (67,021 | ) | |||||||||||||||||||
Change in unrealized appreciation (depreciation) included in earnings | 20,483,233 | (9,610,943 | ) | 19,045 | (7,744 | ) | 300,730 | | 11,184,321 | |||||||||||||||||||
Transfer to Level 2 and Level 1 | (14,065,107 | ) | (8,158,498 | ) | | | | | (22,223,605 | ) | ||||||||||||||||||
Fair Value as of September 30, 2013 | $ | 125,150,682 | $ | 95,307,237 | $ | 519,045 | $ | 225,000 | $ | 590,813 | $ | | $ | 221,792,777 | ||||||||||||||
Change in unrealized appreciation (depreciation) on Level 3 investments still held as of September 30, 2013 | $ | 15,512,517 | $ | (2,953,333 | ) | $ | 19,045 | $ | (7,744 | ) | $ | 300,730 | $ | | $ | 12,871,215 | ||||||||||||
Liabilities: |
||||||||||||||||||||||||||||
Fair Value as of December 31, 2012 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
Embedded derivative from issuance of convertible senior notes | | | | | | 700,000 | 700,000 | |||||||||||||||||||||
Loss on fair value adjustment for embedded derivative | | | | | | 421,000 | 421,000 | |||||||||||||||||||||
Fair Value as of September 30, 2013 | $ | | $ | | $ | | $ | | $ | | $ | 1,121,000 | $ | 1,121,000 |
(1) | During the period ended September 31, 2013, the Company converted its preferred shares to common shares in CUX Inc. and converted its common shares to preferred shares in Totus Solutions Inc. |
F-25
Year ended December 31, 2012 | ||||||||||||||||||||||||
Common Stock |
Preferred Stock |
Structured Note |
Common Membership Interest | Warrants | Total | |||||||||||||||||||
Fair value as of December 31, 2011 | $ | 40,865,381 | $ | 17,453,085 | $ | 4,500,000 | $ | | $ | 71,396 | $ | 62,889,862 | ||||||||||||
Purchases of investments | 86,378,395 | 85,104,161 | 854,236 | 500,000 | 31,354 | 172,868,146 | ||||||||||||||||||
Exercises, conversions and assignments(1) | | 984,067 | (1,006,390 | ) | | 22,323 | | |||||||||||||||||
Sales and settlements | | | (3,002,665 | ) | | | (3,002,665 | ) | ||||||||||||||||
Realized loss included in earnings | | | (1,380,263 | ) | | | (1,380,263 | ) | ||||||||||||||||
Change in unrealized appreciation (depreciation) included in earnings | (5,027,001 | ) | (2,687,431 | ) | 35,082 | | 97,989 | (7,581,361 | ) | |||||||||||||||
Transfer to Level 2 | (9,361,100 | ) | | | | | (9,361,100 | ) | ||||||||||||||||
Fair Value as of December 31, 2012 | $ | 112,855,675 | $ | 100,853,882 | $ | | $ | 500,000 | $ | 223,062 | $ | 214,432,619 | ||||||||||||
Change in unrealized appreciation (depreciation) on Level 3 investments still held as of December 31, 2012 | $ | (3,919,288 | ) | $ | (2,687,431 | ) | $ | | $ | | $ | 97,989 | $ | (6,508,730 | ) |
(1) | During the year ended December 31, 2012, the Company converted its structured notes to preferred shares in AlwaysOn, Inc. and The Echo System Corp., and exercised its warrants for preferred shares in StormWind, LLC. A portion of The Echo System Corp. structured notes attributable to the warrants was reclassified during the same period. |
During the nine months ended September 30, 2013, there were four transfers between levels. Three of these transfers occurred as of September 30, 2013, and one occurred as of March 31, 2013. These transfers occurred as a result of the initial public offering of several of our portfolio companies as described below.
Due to a public offering of Violin Memory on September 27, 2013, observable inputs became available for our valuation at September 30, 2013. This resulted in a transfer of Violin Memory from Level 3 to Level 2. Our shares in Violin Memory are presently subject to a lock-up agreement that expires on March 26, 2014. The fair value for Violin Memory was estimated using the close price on a public exchange as of the valuation date, adjusted for a discount due to lack of marketability of 10% that was primarily based on the market value of publicly traded put options with a similar term as our lock-up as of September 30, 2013.
Due to a public offering of Control4 Corporation on August 2, 2013, observable inputs became available for our valuation at September 30, 2013. This resulted in a transfer of Control4 Corp from Level 3 to Level 2. Our shares in Control4 Corporation are presently subject to a lock-up agreement that expires on January 29, 2014. The fair value for Control4 Corporation was estimated using the close price on a public exchange as of the valuation date, adjusted for a discount due to lack of marketability of 8% that was primarily based on the market value of publicly traded put options with a similar term as our lock-up as of September 30, 2013.
Due to a public offering of Silver Spring Networks, Inc. on March 12, 2013, observable inputs became available for our valuation at March 31, 2013. However, our shares in Silver Spring Networks, Inc. were subject to a lock-up agreement that expired on September 8, 2013. As such, the fair value for Silver Spring was estimated using the close price on a public exchange as of the valuation date, adjusted for a discount due to lack of marketability of 7% that was primarily based on the market price of publicly traded put options with a similar term as the lock-up as of June 30, 2013. This resulted in a transfer of Silver Spring from Level 3 to Level 2. Due to the expiration of the lock-up agreement on our shares in Silver Spring Networks on September 8, 2013, the closing price on a public exchange on September 30, 2013 was used for our valuation as of September 30, 2013. This resulted in a transfer of Silver Spring Networks from Level 2 to Level 1.
F-26
During the nine months ended September 30, 2013, the Company wrote-off its investments in Top Hat 430, Inc., Serious Energy, Inc., and AltEgo, LLC and recorded a realized loss.
During the year ended December 31, 2012, there were three transfers between levels. Two of these transfers occurred as of June 30, 2012, and one occurred as of December 31, 2012. These transfers occurred as a result of the initial public offering of several of our portfolio companies as described below.
Due to the expiration of the lock-up agreement on our shares in Groupon, Inc. on June 1, 2012, the closing price on a public exchange on June 29, 2012 was used for our valuation as of June 30, 2012. This resulted in a transfer of Groupon, Inc. from Level 2 to Level 1. At December 31, 2012, Groupon, Inc. was valued using the closing price on a public exchange on December 31, 2012.
Due to the initial public offering of Facebook, Inc. on May 17, 2012, observable inputs became available for our valuation as of June 30, 2012. However, our shares in Facebook, Inc. were subject to a lock-up agreement that expired on November 14, 2012. As such, the fair value for Facebook, Inc. was estimated using the closing price on a public exchange as of June 29, 2012, adjusted for a discount due to a lack of marketability of 14% that was primarily based on the market price of publicly traded put options with a similar term as our lock-up as of June 30, 2012. This resulted in a transfer of Facebook, Inc. from Level 3 to Level 2. Due to the expiration of the lock-up agreement on our shares in Facebook, Inc. on November 14, 2012, the closing price on a public exchange on December 31, 2012 was used for our valuation as of December 31, 2012. This resulted in a transfer of Facebook, Inc. from Level 2 to Level 1.
During the year ended December 31, 2012, the Company recorded a realized loss on our investment in PJB Fund LLC. The note matured and was repaid by transfer of shares of common stock of Zynga, Inc.
We issued 13,800,000 shares of our common stock during the year ended December 31, 2012. No new shares of our common stock were issued during the nine months ended September 30, 2013. The proceeds raised, the related underwriting fees, the offering expenses and the prices at which these shares were issued are as follows:
Issuances of Common Stock | Number of Shares | Gross Proceeds Raised | Underwriting Fees | Offering Expenses | Offering Price |
|||||||||||||||
February 28, 2011 | 100 | $ | 1,500 | $ | | $ | | $ | 15.00 | |||||||||||
April 28, 2011 | 3,335,000 | 50,025,000 | 3,501,750 | 527,166 | (1) | 15.00 | ||||||||||||||
September 27, 2011 | 2,185,000 | 30,917,750 | 1,267,300 | 531,122 | (2) | 14.15 | ||||||||||||||
February 10, 2012 | 6,900,000 | 103,500,000 | 7,245,000 | 326,077 | 15.00 | |||||||||||||||
May 11, 2012 | 6,900,000 | 112,125,000 | 6,727,500 | 412,620 | (3) | 16.25 |
(1) | Includes $3,585 of offering expenses that were accrued as of September 30, 2011. |
(2) | Amount was reduced by $18,878 after actual expenses for the offering were determined as of December 31, 2011. |
(3) | Includes $960 of offering expenses that were accrued as of September 30, 2012. |
F-27
The Company considered the potential dilutive effects of the convertible senior notes on earnings per share in accordance with the requirement of ASC 260-10, using the if-converted method. The effect of the assumed conversion of the convertible senior notes would have been to increase earnings per share. As such, the Company has excluded the effects of the assumed conversion of the convertible senior notes from the diluted EPS calculation. The following information sets forth the computation of net increase (decrease) in net assets resulting from operations per common share for the three and nine months ended September 30, 2013, and September 30, 2012, respectively.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net increase (decrease) in net assets resulting from operations | $ | 5,715,746 | $ | (6,999,840 | ) | $ | 1,740,194 | $ | (12,557,797 | ) | ||||||
Weighted average common shares | 19,320,100 | 19,320,100 | 19,320,100 | 15,013,896 | ||||||||||||
Basic and diluted earnings per common share | $ | 0.29 | $ | (0.36 | ) | $ | 0.09 | $ | (0.84 | ) |
The Company is currently not subject to any legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies.
Three months ended September 30, 2013 | Three months ended September 30, 2012 | |||||||
Per Share Data: |
||||||||
Net asset value at beginning of period | $ | 12.87 | $ | 13.81 | ||||
Issuance of common shares | | | ||||||
Underwriters discount | | | ||||||
Offering costs | | | ||||||
Net investment loss | (0.16 | )(1) | (0.12 | )(1) | ||||
Realized loss | (0.01 | )(1) | | |||||
Change in unrealized appreciation (depreciation) | 0.46 | (1) | (0.24 | )(5) | ||||
Net asset value at end of period | $ | 13.16 | $ | 13.45 | ||||
Per share market value at end of period | $ | 14.82 | $ | 8.63 | ||||
Total return based on market value | 88.55 | %(6) | (7.20 | )%(6) | ||||
Total return based on net asset value | 2.25% (6) | (2.61 | )%(6) | |||||
Shares outstanding at end of period | 19,320,100 | 19,320,100 | ||||||
Ratio/Supplemental Data: |
||||||||
Net assets at end of period | $ | 254,322,995 | $ | 259,859,254 | ||||
Average net assets | $ | 249,457,996 | $ | 263,278,115 | ||||
Annualized ratio of gross operating expenses to average net assets(8) | 4.85 | % | 3.54 | % | ||||
Annualized ratio of net operating expenses to average net assets(8) | 4.85 | % | 3.54 | % | ||||
Annualized ratio of net investment income to average net assets(8) | (4.85 | )% | (3.52 | )% |
F-28
Nine months ended September 30, 2013 | Nine months ended September 30, 2012 | |||||||
Per Share Data: |
||||||||
Net asset value at beginning of period | $ | 13.07 | $ | 12.95 | ||||
Issuance of common shares | | 1.91 | (3) | |||||
Underwriters discount | | (0.72) (2) | ||||||
Offering costs | | (0.04) (2) | ||||||
Net investment loss | (0.41 | )(1) | (0.37) (1) | |||||
Realized loss | (0.51 | )(1) | (0.07) (2) | |||||
Change in unrealized appreciation (depreciation) | 1.01 | (1) | (0.21) (5) | |||||
Net asset value at end of period | $ | 13.16 | $ | 13.45 | ||||
Per share market value at end of period | $ | 14.82 | $ | 8.63 | ||||
Total return based on market value | 75.80 | %(6) | (38.14)% (6) | |||||
Total return based on net asset value | 0.69 | %(6) | 3.86% (6) | |||||
Shares outstanding at end of period | 19,320,100 | 19,320,100 | ||||||
Ratio/Supplemental Data: |
||||||||
Net assets at end of period | $ | 254,322,995 | $ | 259,859,254 | ||||
Average net assets | $ | 248,962,372 | $ | 190,300,817 | ||||
Annualized ratio of gross operating expenses to average net assets(8) | 4.29 | % | 4.03 | % | ||||
Annualized ratio of net operating expenses to average net assets(8) | 4.29 | % | 4.03 | % | ||||
Annualized ratio of net investment income to average net assets(8) | (4.28 | )% | (3.86 | )% |
Year ended December 31, 2012 | For the period from January 6, 2011 (date of inception) to December 31, 2011 |
|||||||
Per Share Data: |
||||||||
Net asset value at beginning of period | $ | 12.95 | $ | | ||||
Issuance of common shares | 1.91 | (3) | 14.67 | (4) | ||||
Underwriters discount | (0.72 | )(2) | (0.86 | )(2) | ||||
Offering costs | (0.04 | )(2) | (0.19 | )(2) | ||||
Net investment loss | (0.51 | )(1) | (0.37 | )(2) | ||||
Realized loss | (0.09 | )(1) | | |||||
Change in unrealized depreciation | (0.43 | )(5) | (0.30 | )(2) | ||||
Net asset value at end of period | $ | 13.07 | $ | 12.95 | ||||
Per share market value at end of period | $ | 8.43 | $ | 13.95 | ||||
Total return based on market value | (39.57 | )%(6) | (7.00 | )%(7) | ||||
Total return based on net asset value | 0.93 | %(6) | (13.67 | )%(7) | ||||
Shares outstanding at end of period | 19,320,100 | 5,520,100 |
F-29
Year ended December 31, 2012 | For the period from January 6, 2011 (date of inception) to December 31, 2011 |
|||||||
Ratio/Supplemental Data: |
||||||||
Net assets at end of period | $ | 252,582,801 | $ | 71,503,248 | ||||
Average net assets | $ | 208,050,344 | $ | 44,532,523 | ||||
Annualized ratio of gross operating expenses to average net assets(9) | 4.10 | % | 5.01 | % | ||||
Annualized ratio of net operating expenses to average net assets(9) | 4.10 | % | 5.01 | % | ||||
Annualized ratio of net investment income to average net assets(9) | (3.98 | )% | (4.64 | )% |
(1) | Based on weighted average number of shares outstanding for the period. |
(2) | Based on shares outstanding at end of period. |
(3) | Issuance of common shares for the year ended December 31, 2012 and the nine months ended September 30, 2012 is based on the change in net asset value from the secondary offerings on February 10, 2012 and May 11, 2012. |
(4) | Issuance of common shares for the period from January 6, 2011 (date of inception) to December 31, 2011 is based on the weighted average offering price for the shares issued during the period. |
(5) | Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date. |
(6) | Total return based on market value is based on the change in market price per share between the opening and ending market values per share in the period. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share and the issuance of common shares in the period. The percentage returns noted above are based on the increase in our net asset value attributable to issuances of our common stock at a premium to our net asset value per share, rather than investment returns. Such issuances of our common stock at a premium to net asset value per share are not typical, and may not occur in the future. The total returns are not annualized. |
(7) | Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $15.00 per share. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share and the issuance of common shares in the period. The total returns are not annualized. |
(8) | Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment loss to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. Because the ratios are calculated for the Companys common stock taken as a whole, an individual investors ratios may vary from these ratios. |
(9) | Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment loss to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. For the year-end December 31, 2012, and for the period from January 6, 2011 (date of inception) to December 31, 2011, the Company incurred $0, and $198,831 of organizational expenses, respectively, which were deemed to be non-recurring. For the period from January 6, 2011 (date of inception) to December 31, 2011, average net assets were calculated starting from the issuance of 100 shares on February 28, 2011. Because the ratios are calculated for the Companys common stock taken as a whole, an individual investors ratios may vary from these ratios. |
F-30
The Company was taxed as a C corporation and subject to federal and state corporation income taxes for its 2012 taxable year. The GSVC Holdings, which are taxed as C corporations, are not consolidated into the Company for income tax filing purposes. These subsidiaries hold certain pass-through companies in connection with the Companys proposed qualification as a RIC beginning with its 2013 taxable year. The Company recorded no current income tax expense or benefit during the year ended December 31, 2012 since it had net operating loss carry-forwards from prior years and a net operating loss for the 2012 tax year.
The Company recorded no deferred income tax expense or benefit for the year ended December 31, 2012 since it provided a full valuation allowance for deferred tax assets, which consisted primarily of net operating losses and temporary differences based on realized losses and unrealized depreciation of investments for financial statement purposes.
For federal and state purposes, a portion of the Companys net operating loss carryforwards and basis differences may be subject to limitations on annual utilization in case of a change in ownership, as defined by federal and state law. The amount of such limitations, if any, has not been determined. Accordingly, the amount of such tax attributes available to offset future profits may be significantly less than the actual amounts of the tax attributes.
The Company has provided a full valuation allowance for its deferred tax assets due to uncertainty of generating sufficient capital gains or taxable income in future periods to realize these assets. Beginning with its 2013 taxable year, the Company may elect to be treated as a RIC if it is in the best interests of the Company and the Company is able to satisfy the requirements under subchapter M of the Internal Revenue Code. As a RIC, the RIC generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that the Company distributes to its stockholders as dividends and claims dividends paid deductions to compute taxable income. Accordingly, the RIC would no longer provide deferred taxes nor associated valuation allowance. Included in the Companys consolidated financial statements, the GSVC Holdings are taxable subsidiaries of the RIC. These taxable subsidiaries are not consolidated for income tax purposes and may generate income tax expenses as a result of their ownership of the portfolio companies. Such income tax expenses and deferred taxes, if any, will be reflected in the Companys consolidated financial statements. A RIC will not be eligible to utilize net operating losses. However, the net operating losses may become available should the Company not elect to be taxed as a RIC for 2013 or subsequently fails to qualify as a RIC and become a C corporation in the future.
In addition to meeting other requirements, the Company must generally distribute at least 90% of its investment company taxable income to qualify for the special treatment accorded to a RIC and maintain its RIC status. As part of maintaining RIC status, undistributed taxable income (subject to a 4% excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared prior to the later of (1) the fifteenth day of the ninth month following the close of that fiscal year or (2) the extended due date for filing the federal income tax return for that fiscal year.
The Company did not have any material changes in unrecognized tax benefits as of the period presented herein. The Company identified its major tax jurisdictions as U.S. federal and California. The Company is not aware of any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will change significantly in the next 12 months.
F-31
On September 17, 2013, the Company issued $69,000,000 aggregate principal amount of the convertible senior notes (the Convertible Notes) (including $9,000,000 aggregate principal amount issued pursuant to the exercise of the initial purchasers option to purchase additional Convertible Notes). The Convertible Notes bear interest at a rate of 5.25% per year, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2014. The Convertible Notes are convertible into shares of our common stock based on an initial conversion rate of 61.5091 shares of our common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $16.26 per share of common stock. The Convertible Notes mature on September 15, 2018, unless previously purchased or converted in accordance with their terms. The Company does not have the right to redeem the Convertible Notes prior to maturity.
The terms of the offering require the Company to place a portion of the proceeds of the offering in an escrow account (the Interest Escrow) with U.S. Bank National Association, (the trustee) under the indenture pursuant to which the notes are issued. Funds in the escrow account will be invested in government securities and will be used to make the first six scheduled interest payments on the notes, unless the Company elects to make the interest payments from the Companys available funds. The interest payments on the Convertible Notes will be secured by a pledge of the companys interest in the escrow account. In accordance with the Interest Escrow, the Company deposited $10,867,500 in an escrow account with the Trustee. These funds were used to purchase $10,845,236 of government securities. These government securities are shown on the consolidated schedule of investments. The excess funds of $22,264 remaining from the purchase of government securities held in escrow will be used to secure the payment of the notes and is included on the Consolidated Statements of Assets and Liabilities. Proceeds from the issuance of the Convertible Notes were offset by offering costs of approximately $3,237,833 that are being amortized over the term of the notes in accordance with ASC 470 Debt. As of September 30, 2013, of the total offering costs of $3,237,833 incurred, $3,209,462 remains to be amortized and is included within deferred debt issuance costs on the Consolidated Statements of Assets and Liabilities.
As of September 30, 2013, the principal amount of the Convertible Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Companys common stock.
The Convertible Notes are the Companys senior, unsecured obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes, equal in right of payment to any future unsecured indebtedness that is not so subordinated to the Convertible Notes, junior (other than to the extent of the interest escrow) to any future secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all future indebtedness (including trade payables) incurred by our subsidiaries.
The Convertible Notes contain an interest make-whole payment provision pursuant to which holders who convert their notes prior to September 15, 2016 will receive, in addition to a number of shares of our common stock calculated at the applicable conversion rate for principal amount of notes being converted, the cash proceeds from sale by the escrow agent of the portion of the government securities in the escrow account that are remaining with respect to any of the first six interest payments that have not been made on the notes being converted. Under ASC 815-10-15-74(a), the interest make-whole payment is considered an embedded derivative and is separated from the host contract, the Convertible Notes, and carried at fair value.
The Company used a binomial lattice model to estimate the fair value of the embedded derivative in the Convertible Notes. A binomial lattice model generates potential outcomes at various points in time, starting from the date of valuation until the expiration date of the embedded derivative. The estimated fair value of the
F-32
embedded derivative as of September 30, 2013 is $1,121,000 as shown on the Consolidated Statement of Assets and Liabilities. The $421,000 increase in the estimated fair value of the embedded derivative between the initial measurement date and September 30, 2013 represents a loss on fair value adjustment for embedded derivative as shown on the Consolidated Statement of Operations.
On October 10, 2013, the Company formed a wholly-owned subsidiary, Coursera@GSV Fund, LP, a Delaware limited partnership, to hold portfolio investments.
Subsequent to September 30, 2013, the Company closed on investments of $9.7 million, plus transaction costs as follows:
An investment of $250,000, plus transaction costs, in S3 Digital Corp, a sports analytics company, on October 1, 2013.
Investments totaling $1,333,332 in Global Education Learning, an education technology company, comprising of an investment of $900,000, plus transaction costs, on October 2, 2013 and an investment of $433,332, plus transaction costs, on October 4, 2013.
An investment of $250,000, plus transaction costs, in Fullbridge Inc., a business education company, on October 10, 2013.
Investments totaling of $950,000, in Sugar CRM Inc., a customer relationship company, comprising of an investment of $855,000, plus transaction costs, on October 17, 2013 and an investment of $95,000, plus transaction costs, on October 28, 2013.
An investment of $2,430,016, plus transaction costs, in ePals Inc., an education technology company, on October 22, 2013.
An investment of $4,519,444, plus transaction costs, in Coursera Inc., an online education company, on October 31, 2013.
On November 7, 2013, Twitter Inc. priced its initial public offering, selling 70,000,000 shares at a price of $26 per share. To the extent that the underwriters sell more than 70,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 10,500,000 shares from Twitter Inc. at the public offering price less the underwriting discount. GSV Capital Corp.s shares in Twitter Inc. are subject to a lock-up agreement.
On November 8, 2013, Kno Inc., a digital textbook company, paid off the term loan for $225,000, plus interest of $7,425, issued by GSV on August 8, 2013. Also on November 8, 2013, Kno Inc. was acquired by Intel Corporation in order to further develop Intels new education business.
F-33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
GSV Capital Corp.
We have audited the accompanying consolidated statements of assets and liabilities of GSV Capital Corp. (formerly NeXt Innovation Corp.) and subsidiary (the Company), including the consolidated schedules of investments, as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in net assets, and cash flows for the year ended December 31, 2012 and for the period from January 6, 2011 (date of inception) to December 31, 2011. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of the investments owned as of December 31, 2012 and 2011 by correspondence with the custodian and broker. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GSV Capital Corp. and subsidiary as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the year ended December 31, 2012 and for the period from January 6, 2011 (date of inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of December 31, 2012, based on criteria established in the 1992 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2013 (not separately included herein), expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
San Jose, California
March 13, 2013
F-34
December 31, 2012 | December 31, 2011 | |||||||
ASSETS |
||||||||
Investments at fair value: |
||||||||
Investments in affiliated securities (cost of $38,210,753 and $0, respectively) | $ | 34,648,363 | $ | | ||||
Investments in non-control/non-affiliated securities (cost of $198,936,982 and $65,658,866, respectively) | 190,748,722 | 64,078,150 | ||||||
Investment in United States treasury bill (cost of $0 and $19,999,128, respectively) | | 20,000,044 | ||||||
Investments in money market funds (cost of $16,000,000 and $7,000,000, respectively) | 16,000,000 | 7,000,000 | ||||||
Total Investments (cost of $253,147,735 and $92,657,994, respectively) | 241,397,085 | 91,078,194 | ||||||
Cash | 11,318,525 | 385,995 | ||||||
Due from: |
||||||||
GSV Asset Management | 5,723 | 13,470 | ||||||
Portfolio companies | 316,377 | 9,249 | ||||||
Accrued interest | | 158,389 | ||||||
Prepaid expenses | 63,953 | 92,750 | ||||||
Deferred offering costs | | 56,436 | ||||||
Dividend receivable | 1,920 | 1,063 | ||||||
Other assets | 27,145 | 2,696 | ||||||
Total Assets | 253,130,728 | 91,798,242 | ||||||
LIABILITIES |
||||||||
Due to: |
||||||||
GSV Asset Management | 51,194 | 78,427 | ||||||
Other affiliates | | 10,782 | ||||||
Payable for unsettled securities transaction | | 19,999,128 | ||||||
Accounts payable | 204,093 | 206,357 | ||||||
Accrued expenses | 292,640 | 300 | ||||||
Total Liabilities | 547,927 | 20,294,994 | ||||||
Commitments and contingencies (Note 6) |
||||||||
Net Assets | $ | 252,582,801 | $ | 71,503,248 | ||||
NET ASSETS |
||||||||
Common stock, par value $0.01 per share (100,000,000 authorized; 19,320,100 and 5,520,100 issued and outstanding, respectively) | $ | 193,201 | $ | 55,201 | ||||
Paid-in capital in excess of par | 275,837,514 | 73,027,847 | ||||||
Accumulated net investment loss | (10,316,745 | ) | | |||||
Accumulated net realized loss on investments | (1,380,519 | ) | | |||||
Accumulated net unrealized depreciation on investments | (11,750,650 | ) | (1,579,800 | ) | ||||
Net Assets | $ | 252,582,801 | $ | 71,503,248 | ||||
Net Asset Value Per Share | $ | 13.07 | $ | 12.95 |
See Notes to the Consolidated Financial Statements.
F-35
Year ended December 31, 2012 | For the period from January 6, 2011 (date of inception) to December 31, 2011 |
|||||||
INVESTMENT INCOME |
||||||||
Interest income from affiliated securities | $ | 21,852 | $ | | ||||
Interest income from non-control/non-affiliated securities | 200,195 | 158,389 | ||||||
Dividend income | 26,030 | 3,939 | ||||||
Total Investment Income | 248,077 | 162,328 | ||||||
OPERATING EXPENSES |
||||||||
Investment management fees | 4,419,345 | 618,865 | ||||||
Costs incurred under administration agreement | 2,384,764 | 554,232 | ||||||
Directors fees | 237,500 | 127,500 | ||||||
Professional fees | 959,604 | 409,983 | ||||||
Insurance expense | 214,306 | 142,494 | ||||||
Investor relations expense | 182,193 | 89,250 | ||||||
Organization expenses | | 198,831 | ||||||
Other expenses | 133,246 | 55,037 | ||||||
Total Operating Expenses | 8,530,958 | 2,196,192 | ||||||
Net Investment Loss | (8,282,881 | ) | (2,033,864 | ) | ||||
Net Realized Loss on Investments | (1,380,519 | ) | | |||||
Net Change in Unrealized Depreciation on Investments | (10,170,850 | ) | (1,579,800 | ) | ||||
Net Decrease in Net Assets Resulting From Operations | $ | (19,834,250 | ) | $ | (3,613,664 | ) | ||
Net Decrease in Net Assets Resulting From Operations Per Common Share | $ | (1.23 | ) | $ | (1.07 | ) | ||
Weighted Average Common Shares Outstanding | 16,096,330 | 3,377,429 | (1) |
(1) | Weighted average common shares for the period from January 6, 2011 (date of inception) to December 31, 2011 was calculated from the issuance of 100 shares on February 28, 2011. |
See Notes to the Consolidated Financial Statements.
F-36
Year ended December 31, 2012 | For the period from January 6, 2011 (date of inception) to December 31, 2011 |
|||||||
Decrease in Net Assets Resulting From Operations |
||||||||
Net Investment Loss | $ | (8,282,881 | ) | $ | (2,033,864 | ) | ||
Net Realized Loss on Investments | (1,380,519 | ) | | |||||
Net Change in Unrealized Depreciation on Investments | (10,170,850 | ) | (1,579,800 | ) | ||||
Net Decrease in Net Assets Resulting From Operations | (19,834,250 | ) | (3,613,664 | ) | ||||
Capital Share Transactions |
||||||||
Net Proceeds from Common Shares Issued | 201,652,500 | 76,175,200 | ||||||
Offering Costs | (738,697 | ) | (1,058,288 | ) | ||||
Net Capital Share Transactions | 200,913,803 | 75,116,912 | ||||||
Total Increase in Net Assets | 181,079,553 | 71,503,248 | ||||||
Net Assets at Beginning of Period | 71,503,248 | | ||||||
Net Assets at End of Period | $ | 252,582,801 | $ | 71,503,248 | ||||
Capital Share Activity |
||||||||
Shares Issued | 13,800,000 | 5,520,100 | ||||||
Shares Outstanding at Beginning of Period | 5,520,100 | | ||||||
Shares Outstanding at End of Period | 19,320,100 | 5,520,100 |
See Notes to the Consolidated Financial Statements.
F-37
Year ended December 31, 2012 | For the period from January 6, 2011 (date of inception) to December, 2011 |
|||||||
Cash Flows from Operating Activities |
||||||||
Net decrease in net assets resulting from operations | $ | (19,834,250 | ) | $ | (3,613,664 | ) | ||
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: |
||||||||
Net realized loss on investments | 1,380,519 | | ||||||
Net change in unrealized depreciation on investments | 10,170,850 | 1,579,800 | ||||||
Purchases of investments in: |
||||||||
Portfolio investments | (172,869,132 | ) | (65,658,866 | ) | ||||
United States treasury bill | (19,999,128 | ) | | |||||
Money market funds | (10,000,000 | ) | (11,500,000 | ) | ||||
Proceeds from sales or redemption of investments in: |
||||||||
United States treasury bill | 19,998,872 | | ||||||
Money market funds | 1,000,000 | 4,500,000 | ||||||
Change in operating assets and liabilities: |
||||||||
Due from GSV Asset Management | 7,747 | (13,470 | ) | |||||
Due from portfolio companies | (307,128 | ) | (9,249 | ) | ||||
Accrued interest | 158,389 | (158,389 | ) | |||||
Prepaid expenses | 28,797 | (92,750 | ) | |||||
Dividend receivable | (857 | ) | (1,063 | ) | ||||
Other assets | (24,449 | ) | (2,696 | ) | ||||
Due to GSV Asset Management | (27,233 | ) | 78,427 | |||||
Due to other affiliates | (10,782 | ) | 10,782 | |||||
Accounts payable | 54,172 | 149,921 | ||||||
Accrued expenses | 292,340 | 300 | ||||||
Net Cash Used in Operating Activities | (189,981,273 | ) | (74,730,917 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Net proceeds from common shares issued | 201,652,500 | 76,175,200 | ||||||
Offering costs | (738,697 | ) | (1,058,288 | ) | ||||
Net Cash Provided by Financing Activities | 200,913,803 | 75,116,912 | ||||||
Total Increase in Cash Balance | 10,932,530 | 385,995 | ||||||
Cash Balance at Beginning of Period | 385,995 | | ||||||
Cash Balance at End of Period | $ | 11,318,525 | $ | 385,995 | ||||
Non-Cash Operating Items |
||||||||
Structured note exchanged for common shares | $ | 3,002,665 | $ | | ||||
Structured notes converted to preferred shares | $ | 924,651 | $ | | ||||
Warrants exercised for preferred shares | $ | 53,665 | $ | | ||||
Increase in accounts payable | $ | | $ | 56,436 | ||||
Non-Cash Financing Items |
||||||||
Increase in deferred offering costs | $ | | $ | (56,436 | ) |
See Notes to the Consolidated Financial Statements.
F-38
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets |
|||||||||||||||
Twitter, Inc. |
||||||||||||||||||||
Common shares | San Francisco, CA | 1,835,600 | $ | 31,755,821 | $ | 34,876,400 | 13.81 | % | ||||||||||||
Preferred shares, Series A | Social Communication | 65,000 | 1,235,290 | 1,235,000 | 0.49 | % | ||||||||||||||
Total | 32,991,111 | 36,111,400 | 14.30 | % | ||||||||||||||||
Palantir Technologies, Inc. |
||||||||||||||||||||
Common shares, Class A | Palo Alto, CA | 7,145,690 | 20,051,479 | 20,150,846 | 7.98 | % | ||||||||||||||
Preferred shares, Series G | Cyber Security | 326,797 | 1,008,968 | 921,568 | 0.36 | % | ||||||||||||||
Total | 21,060,447 | 21,072,414 | 8.34 | % | ||||||||||||||||
Violin Memory, Inc. |
||||||||||||||||||||
Preferred shares, Series B | Mountain View, CA | 800,000 | 4,800,798 | 4,800,000 | 1.90 | % | ||||||||||||||
Preferred shares, Series D | Flash Memory | 1,666,666 | 10,018,045 | 9,999,996 | 3.96 | % | ||||||||||||||
Total | 14,818,843 | 14,799,996 | 5.86 | % | ||||||||||||||||
Dropbox, Inc. |
||||||||||||||||||||
Common share | San Francisco, CA | 760,000 | 8,641,153 | 8,360,000 | 3.31 | % | ||||||||||||||
Preferred shares, Series A-1 | Online Storage | 552,486 | 5,015,333 | 6,077,346 | 2.41 | % | ||||||||||||||
Total | 13,656,486 | 14,437,346 | 5.72 | % | ||||||||||||||||
Chegg, Inc. |
||||||||||||||||||||
Common shares | Santa Clara, CA | 1,274,193 | 10,012,543 | 10,193,544 | 4.03 | % | ||||||||||||||
Preferred shares, Series F | Textbook Rental | 500,000 | 4,008,654 | 4,000,000 | 1.58 | % | ||||||||||||||
Total | 14,021,197 | 14,193,544 | 5.61 | % | ||||||||||||||||
Avenues World Holdings LLC(5) |
||||||||||||||||||||
Preferred shares, Class A-1 | New York, NY Globally-focused Private School |
5,000,000 | 10,025,123 | 10,000,000 | 3.96 | % | ||||||||||||||
Solexel, Inc. |
||||||||||||||||||||
Preferred shares, Series C | Milpitas, CA Solar Power |
4,576,659 | 10,016,559 | 10,000,000 | 3.96 | % | ||||||||||||||
2U, Inc. (f/k/a 2tor, Inc.) |
||||||||||||||||||||
Common shares | Landover, MD Online Education |
1,151,802 | 8,757,599 | 8,730,659 | 3.46 | % | ||||||||||||||
Preferred shares, Series A | 167,431 | 1,273,125 | 1,269,127 | 0.50 | % | |||||||||||||||
Total | 10,030,724 | 9,999,786 | 3.96 | % | ||||||||||||||||
Kno, Inc. |
||||||||||||||||||||
Preferred shares, Series C | Santa Clara, CA Digita |
440,313 | 2,262,006 | 2,249,999 | 0.89 | % | ||||||||||||||
Preferred shares, Series C-1 | Textbooks | 1 | 7,510,334 | 7,500,000 | 2.97 | % | ||||||||||||||
Common shares | 50,000 | 214,681 | 178,850 | 0.07 | % | |||||||||||||||
Total | 9,987,021 | 9,928,849 | 3.93 | % | ||||||||||||||||
Facebook, Inc.(3)(10) |
||||||||||||||||||||
Common shares, Class B | Menlo Park, CA Social Networking |
350,000 | 10,472,294 | 9,317,000 | 3.69 | % | ||||||||||||||
Control4 Corporation |
||||||||||||||||||||
Common shares | Salt Lake City, UT Home Automation |
4,070,667 | $ | 7,011,025 | $ | 7,123,667 | 2.82 | % | ||||||||||||
Totus Solutions, Inc.(2) |
||||||||||||||||||||
Common shares | Carrollton, TX LED Lighting |
20,000,000 | 5,023,748 | 5,000,000 | 1.98 | % |
See Notes to the Consolidated Financial Statements.
F-39
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets |
|||||||||||||||
Grockit, Inc.(2) |
||||||||||||||||||||
Preferred shares, Series D | San Francisco, CA Online Test |
2,728,252 | 2,005,945 | 2,373,579 | 0.94 | % | ||||||||||||||
Preferred shares, Series E | Preparation | 1,731,501 | 1,503,670 | 1,506,406 | 0.60 | % | ||||||||||||||
Total | 3,509,615 | 3,879,985 | 1.54 | % | ||||||||||||||||
SugarCRM, Inc. |
||||||||||||||||||||
Common shares | Cupertino, CA Customer Relationship Manager |
1,086,047 | 3,813,378 | 3,801,165 | 1.50 | % | ||||||||||||||
Gilt Groupe, Inc. |
||||||||||||||||||||
Common shares | New York, NY e-Commerce Flash Sales |
248,600 | 6,594,346 | 3,637,329 | 1.44 | % | ||||||||||||||
Spotify Technology S.A.(10) |
||||||||||||||||||||
Common shares | Stockholm, Sweden Music Streaming Service |
3,658 | 3,598,472 | 3,589,669 | 1.42 | % | ||||||||||||||
ZocDoc Inc. |
||||||||||||||||||||
Preferred shares, Series A | New York, NY Online Medical Scheduling |
200,000 | 3,563,178 | 3,500,000 | 1.38 | % | ||||||||||||||
Bloom Energy Corporation |
||||||||||||||||||||
Common shares | Sunnyvale, CA Fuel Cell Energy |
201,589 | 3,855,601 | 3,225,424 | 1.28 | % | ||||||||||||||
Global Education |
||||||||||||||||||||
Learning (Holdings) Ltd.(2)(10) |
||||||||||||||||||||
Preferred shares, Series A | Hong Kong Education Technology |
1,472,175 | 2,999,998 | 3,003,237 | 1.19 | % | ||||||||||||||
Parchment, Inc. |
||||||||||||||||||||
Preferred shares, Series D | Scottsdale, AZ E-Transcript Exchange |
2,400,384 | 3,000,000 | 3,000,480 | 1.19 | % | ||||||||||||||
Whittle Schools, LLC(2)(6) |
||||||||||||||||||||
Preferred shares, Series B | New York, NY Globally-focused Private School |
3,000,000 | 3,000,000 | 3,000,000 | 1.19 | % | ||||||||||||||
StormWind, LLC(2)(7) |
||||||||||||||||||||
Preferred shares, Series B | Scottsdale, AZ Interactive Learning Platform |
3,279,629 | 2,019,687 | 2,545,812 | 1.01 | % | ||||||||||||||
SharesPost, Inc. |
||||||||||||||||||||
Preferred shares, Series B | San Bruno, CA Online |
1,771,653 | $ | 2,257,984 | $ | 2,249,999 | 0.89 | % | ||||||||||||
Common warrants, $0.13 strike price, expire 6/15/2018 | Marketplace (Finance) | 770,934 | 23,128 | 123,349 | 0.05 | % | ||||||||||||||
Total | 2,281,112 | 2,373,348 | 0.94 | % | ||||||||||||||||
Maven Research, Inc.(2) |
||||||||||||||||||||
Preferred shares, Series B | San Francisco, CA Knowledge |
49,505 | 217,206 | 310,396 | 0.12 | % | ||||||||||||||
Preferred shares, Series C | Networks | 318,979 | 1,999,998 | 1,999,998 | 0.79 | % | ||||||||||||||
Total | 2,217,204 | 2,310,394 | 0.91 | % |
See Notes to the Consolidated Financial Statements.
F-40
Portfolio Investments* | Headquarters/Industry | Shares | Cost | Fair Value | % of Net Assets |
|||||||||||||||
Fullbridge, Inc.(2) |
||||||||||||||||||||
Preferred shares, Series C | Cambridge, MA Business Education |
1,196,809 | 2,250,001 | 2,250,001 | 0.89 | % | ||||||||||||||
Starfish Holdings, Inc. (d/b/a YourOffers)(2) |
||||||||||||||||||||
Preferred shares, Series A, and common warrants, $0.00001 strike price, expire 11/13/2019 | Beverly Hills, CA Marketing Platform |
43,878,894 | 2,012,103 | 2,193,945 | 0.87 | % | ||||||||||||||
TrueCar, Inc. |
||||||||||||||||||||
Common shares | Santa Monica, CA Online Marketplace (Cars) |
377,358 | 2,014,863 | 2,011,318 | 0.79 | % | ||||||||||||||
Dataminr, Inc. |
||||||||||||||||||||
Preferred shares, Series B | New York, NY Social Media Analytics |
904,977 | 2,060,602 | 1,999,999 | 0.79 | % | ||||||||||||||
CUX, Inc. (d/b/a CorpU)(2) |
||||||||||||||||||||
Preferred shares, Series C | San Francisco, CA Corporate Education |
246,305 | 2,006,077 | 1,999,997 | 0.79 | % | ||||||||||||||
Dailybreak, Inc.(2) |
||||||||||||||||||||
Preferred shares, Series A-1 | Boston, MA Social Advertising |
1,545,181 | 2,000,000 | 1,993,283 | 0.79 | % | ||||||||||||||
Silver Spring Networks, Inc. |
||||||||||||||||||||
Common shares(11) | Redwood City, CA Smart Grid |
510,143 | 5,145,271 | 1,976,804 | 0.78 | % | ||||||||||||||
The Echo System Corp.(1)(2) |
||||||||||||||||||||
Preferred shares, Series A | New York, NY Social Analytics |
512,365 | 1,436,404 | 1,639,568 | 0.65 | % | ||||||||||||||
Preferred warrants, $0.20 strike price, expire 11/14/2016 | 68,359 | 75,988 | 68,359 | 0.03 | % | |||||||||||||||
Total | 1,512,392 | 1,707,927 | 0.68 | % | ||||||||||||||||
AltEgo, LLC(2)(8) |
||||||||||||||||||||
Preferred shares, Series B-2 | Santa Monica, CA Social Media Customer Acquisition Platform |
1,400,000 | $ | 1,420,406 | $ | 1,400,000 | 0.55 | % | ||||||||||||
Zynga, Inc.(10) |
||||||||||||||||||||
Common shares | San Francisco, CA Social Gaming |
533,333 | 3,003,462 | 1,258,666 | 0.50 | % | ||||||||||||||
The rSmart Group, Inc. |
||||||||||||||||||||
Preferred shares, Series B | Scottsdale, AZ Higher Education Learning Platform |
1,201,923 | 1,266,940 | 1,250,000 | 0.49 | % | ||||||||||||||
S3 Digital Corp. (d/b/a S3i)(2) |
||||||||||||||||||||
Preferred shares, Class A1 | New York, NY Sports Analytics |
1,033,452 | 989,058 | 1,033,452 | 0.41 | % | ||||||||||||||
Preferred warrants, $1.00 strike price, expire 11/21/2017 | 500,000 | 31,354 | 31,354 | 0.01 | % | |||||||||||||||
Total | 1,020,412 | 1,064,806 | 0.42 | % |
See Notes to the Consolidated Financial Statements.
F-41
Portfolio Investments* | Headquarters/Industry | Shares/ Capital Contribution | Cost | Fair Value | % of Net Assets |
|||||||||||||||
NestGSV, Inc.(2) |
||||||||||||||||||||
Preferred shares, Series A | Redwood City, CA Incubator |
1,000,000 | 1,021,778 | 1,000,000 | 0.40 | % | ||||||||||||||
DreamBox Learning, Inc. |
||||||||||||||||||||
Preferred shares, Series A | Bellevue, WA Education Technology |
3,579,610 | 758,017 | 751,718 | 0.30 | % | ||||||||||||||
SinoLending Ltd.(2)(10) |
||||||||||||||||||||
Preferred shares, Class A | Shanghai, China Chinese P2P Lending |
6,414,368 | 501,998 | 500,321 | 0.20 | % | ||||||||||||||
Ozy Media, Inc. |
||||||||||||||||||||
Preferred shares, Series Seed | Mountain View, CA Social Media |
500,000 | 500,000 | 500,000 | 0.20 | % | ||||||||||||||
NestGSV Silicon Valley, LLC(2)(9) |
||||||||||||||||||||
Common membership interest | Redwood City, CA Incubator |
$ | 500,000 | 500,000 | 500,000 | 0.20 | % | |||||||||||||
Groupon, Inc.(4)(10) |
||||||||||||||||||||
Common shares | Chicago, IL Online Deals |
80,000 | 2,128,774 | 388,800 | 0.15 | % | ||||||||||||||
AlwaysOn, Inc.(1)(2) |
||||||||||||||||||||
Preferred shares, Series A | Woodside, CA Social Media |
1,066,626 | 1,027,391 | 298,655 | 0.12 | % | ||||||||||||||
NewZoom, Inc. (d/b/a ZoomSystems) |
||||||||||||||||||||
Preferred shares, Series A | San Francisco, CA Smart e-tail (Retail) |
1,250,000 | 260,476 | 250,000 | 0.10 | % | ||||||||||||||
Neuron Fuel, Inc. |
||||||||||||||||||||
Preferred shares, Series AAI | San Jose, CA Computer Software |
250,000 | $ | 262,530 | $ | 250,000 | 0.10 | % | ||||||||||||
Serious Energy, Inc.(10) |
||||||||||||||||||||
Common shares | Sunnyvale, CA Green Materials |
178,095 | 739,130 | | % | |||||||||||||||
Top Hat 430, Inc.(2)(10) |
||||||||||||||||||||
Preferred shares, Series A | Shakopee, MN Jewelry Retailing |
1,844,444 | 4,167,943 | | % | |||||||||||||||
Preferred warrants, $2.25 strike price, expire 11/2/2017 | Technology | 13,333 | | | % | |||||||||||||||
Total | 4,167,943 | | % | |||||||||||||||||
Total Portfolio Investments | 237,147,735 | 225,397,085 | 89.23 | % | ||||||||||||||||
Money Market Funds(1) |
||||||||||||||||||||
Fidelity Institutional Money Market Funds | ||||||||||||||||||||
Money Market Portfolio | 8,000,000 | 8,000,000 | 8,000,000 | 3.17 | % | |||||||||||||||
Prime Money Market Portfolio | 8,000,000 | 8,000,000 | 8,000,000 | 3.17 | % | |||||||||||||||
Total Money Market Funds | 16,000,000 | 16,000,000 | 6.34 | % | ||||||||||||||||
Total Investments | $ | 253,147,735 | $ | 241,397,085 | 95.57 | % |
* | All portfolio investments are non-control/non-affiliated and non-income producing, unless identified. Equity investments are subject to lock-up restrictions upon their initial public offering. |
(1) | Investment is income producing. |
See Notes to the Consolidated Financial Statements.
F-42
(2) | Denotes an Affiliate Investment. Affiliate Investments are investments in those companies that are Affiliated Companies of GSV Capital Corp., as defined in the Investment Company Act of 1940. A company is deemed to be an Affiliate of GSV Capital Corp. if GSV Capital Corp. owns 5% or more but less than 25% of the voting securities of such company. |
(3) | On May 17, 2012, Facebook, Inc. priced its initial public offering, selling 421,233,615 shares at a price of $38.00 per share. GSV Capital Corp.s shares in Facebook, Inc. are subject to a lock-up agreement that expired on November 14, 2012. At December 31, 2012, GSV Capital Corp. valued Facebook based on its December 31, 2012 closing price. |
(4) | On November 8, 2011, Groupon, Inc. priced its initial public offering, selling 35,000,000 shares at a price of $20.00 per share. GSV Capital Corp.s shares in Groupon, Inc. are subject to a lock-up agreement that expired on June 1, 2012. At December 31, 2012, GSV Capital Corp. valued Groupon, Inc. based on its December 31, 2012 closing price. |
(5) | GSV Capital Corp.s investment in Avenues World Holdings LLC is held through its wholly-owned subsidiary GSVC AV Holdings, Inc. |
(6) | GSV Capital Corp.s investment in Whittle Schools, LLC is held through its wholly-owned subsidiary GSVC WS Holdings, Inc. |
(7) | GSV Capital Corp.s investment in StormWind, LLC is held through its wholly-owned subsidiary GSVC SW Holdings, Inc. |
(8) | GSV Capital Corp.s investment in AltEgo, LLC is held through its wholly-owned subsidiary GSVC AE Holdings, Inc. |
(9) | GSV Capital Corp.s investment in NestGSV Silicon Valley, LLC is held through its wholly-owned subsidiary GSVC NG Holdings, Inc. |
(10) | Indicates assets that GSV Capital Corp. believes do not represent qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of GSV Capital Corp.s total assets at the time of acquisition of any additional non-qualifying assets. |
(11) | On February 11, 2013, Silver Spring Networks, Inc. conducted a five-for-one reverse stock split of its common stock, which has not been reflected above. |
See Notes to the Consolidated Financial Statements.
F-43
Portfolio Investments* | Headquarters/Industry | Shares/Par Amount | Cost | Fair Value | % of Net Assets | |||||||||||||||
Twitter, Inc. |
||||||||||||||||||||
Common shares | San Francisco, CA Social Communication |
735,600 | $ | 12,304,345 | $ | 12,113,493 | 16.94 | % | ||||||||||||
Facebook, Inc. |
||||||||||||||||||||
Common shares, Class B | Palo Alto, CA Social Networking |
350,000 | 10,465,981 | 10,462,500 | 14.63 | % | ||||||||||||||
Chegg, Inc. |
||||||||||||||||||||
Common shares | Santa Clara, CA Textbook Rental |
774,193 | 6,003,694 | 5,999,996 | 8.39 | % | ||||||||||||||
Gilt Groupe, Inc. |
||||||||||||||||||||
Common shares | New York, NY e-Commerce Flash Sales |
203,100 | 5,576,979 | 5,499,250 | 7.69 | % | ||||||||||||||
Dropbox, Inc. |
||||||||||||||||||||
Preferred shares, Series A | San Francisco, CA Online Storage |
552,486 | 5,015,333 | 4,999,998 | 6.99 | % | ||||||||||||||
PJB Fund LLC(1)(3) |
||||||||||||||||||||
Structured note, 10%, due 8/15/2012 | San Francisco, CA Social Gaming |
$ | 4,000,000 | 4,029,259 | 4,000,000 | 5.59 | % | |||||||||||||
ZocDoc Inc. |
||||||||||||||||||||
Preferred shares | New York, NY Online Medical Scheduling |
200,000 | 3,563,178 | 3,500,000 | 4.89 | % | ||||||||||||||
Kno, Inc. |
||||||||||||||||||||
Preferred shares, Series C | Santa Clara, CA Digital |
440,313 | 2,262,006 | 2,250,000 | 3.15 | % | ||||||||||||||
Common shares | Textbooks | 50,000 | 214,303 | 205,000 | 0.29 | % | ||||||||||||||
Total | 2,476,309 | 2,455,000 | 3.44 | % | ||||||||||||||||
SharesPost, Inc. |
||||||||||||||||||||
Preferred shares, Series B | San Bruno, CA Online |
1,776,970 | 2,257,984 | 2,256,752 | 3.16 | % | ||||||||||||||
Common warrants, $0.13 strike price, expire 6/15/2018 | Marketplace (Finance) | 770,934 | 23,128 | 17,731 | 0.02 | % | ||||||||||||||
Total | 2,281,112 | 2,274,483 | 3.18 | % | ||||||||||||||||
Grockit, Inc. |
||||||||||||||||||||
Preferred shares, Series B | San Francisco, CA Online Test Preparation |
2,728,252 | 2,005,945 | 2,000,000 | 2.80 | % | ||||||||||||||
TrueCar, Inc. |
||||||||||||||||||||
Common shares | Santa Monica, CA Online Marketplace (Cars) |
377,358 | 2,014,551 | 1,999,997 | 2.80 | % | ||||||||||||||
Bloom Energy Corporation |
||||||||||||||||||||
Common shares | Sunnyvale, CA Fuel Cell Energy |
96,389 | 1,815,818 | 1,771,335 | 2.48 | % | ||||||||||||||
Groupon, Inc.(2) |
||||||||||||||||||||
Common shares | Chicago, IL Online Deals |
80,000 | $ | 2,128,585 | $ | 1,188,288 | 1.66 | % |
See Notes to the Consolidated Financial Statements.
F-44
Portfolio Investments* | Headquarters/Industry | Shares/Par Amount | Cost | Fair Value | % of Net Assets | |||||||||||||||
Silver Spring Networks, Inc. |
||||||||||||||||||||
Common shares | Redwood City, CA Smart Grid |
110,143 | 1,153,381 | 1,101,430 | 1.54 | % | ||||||||||||||
Control4 Corporation |
||||||||||||||||||||
Common shares | Salt Lake City, UT Home Automation |
666,667 | 1,034,827 | 1,000,000 | 1.40 | % | ||||||||||||||
StormWind, LLC |
||||||||||||||||||||
Preferred shares, Series B | Scottsdale, AZ Electronic |
1,711,111 | 959,209 | 946,335 | 1.32 | % | ||||||||||||||
Preferred warrants, $0.64 strike price, expire 12/1/2012 | Marketing and Business Services | 1,568,518 | 53,665 | 53,665 | 0.08 | % | ||||||||||||||
Total | 1,012,874 | 1,000,000 | 1.40 | % | ||||||||||||||||
DreamBox Learning, Inc. |
||||||||||||||||||||
Preferred shares, Series A | Bellevue, WA Education Technology |
3,579,610 | 757,955 | 750,000 | 1.05 | % | ||||||||||||||
Serious Energy, Inc. |
||||||||||||||||||||
Common shares | Sunnyvale, CA Green Materials |
178,095 | 739,130 | 712,380 | 1.00 | % | ||||||||||||||
The Echo System Corp.(1) |
||||||||||||||||||||
Structured note, 6%, due 1/28/2013, and warrant, $0.20 strike price, expires 11/14/2016 | New York, NY Social Analytics |
$ | 500,000 | 505,823 | 500,000 | 0.70 | % | |||||||||||||
The rSmart Group, Inc. |
||||||||||||||||||||
Preferred shares, Series B | Scottsdale, AZ Higher Education Learning Platform |
480,769 | 513,311 | 500,000 | 0.70 | % | ||||||||||||||
NewZoom, Inc. (d/b/a ZoomSystems) |
||||||||||||||||||||
Preferred shares, Series A | San Francisco, CA Smart e-tail (Retail) |
1,250,000 | 260,476 | 250,000 | 0.35 | % | ||||||||||||||
Total Portfolio Investments | $ | 65,658,866 | $ | 64,078,150 | 89.62 | % |
See Notes to the Consolidated Financial Statements.
F-45
Non-Portfolio Investments | Shares/Par Amount | Cost | Fair Value | % of Net Assets | ||||||||||||
United States Treasury(1) |
||||||||||||||||
United States Treasury Bill, 0%, due 1/26/2012 | $ | 20,000,000 | $ | 19,999,128 | $ | 20,000,044 | 27.97 | % | ||||||||
Money Market Funds(1) |
||||||||||||||||
Fidelity Institutional Money Market Funds |
||||||||||||||||
Money Market Portfolio | 3,500,000 | 3,500,000 | 3,500,000 | 4.89 | % | |||||||||||
Prime Money Market Portfolio | 3,500,000 | 3,500,000 | 3,500,000 | 4.89 | % | |||||||||||
Total Money Market Funds | 7,000,000 | 7,000,000 | 9.78 | % | ||||||||||||
Total Investments | $ | 92,657,994 | $ | 91,078,194 | 127.37 | % |
* | All portfolio investments are non-control/non-affiliated and non-income producing, unless identified. Equity investments are subject to lock-up restrictions upon their initial public offering. |
(1) | Investment is income producing. |
(2) | On November 8, 2011, Groupon, Inc. priced its initial public offering, selling 35,000,000 shares at a price of $20.00 per share. GSV Capital Corp.s shares in Groupon are subject to a lock-up agreement that expires on June 1, 2012. |
(3) | Represents a $4 million unsecured promissory note with an interest rate of 10% and maturity date of August 15, 2012 that was issued by PJB Fund LLC that may be repaid, at PJB Fund LLCs election, either by transfer of a certain number of shares of common stock of Zynga, Inc. or with a cash amount of equivalent value. The amount payable under the note will be equal to the face amount, plus the greater of accrued interest (at a rate of 10%) or a return based on the relative value of Zynga, Inc. To the extent the borrower repays the note in cash, GSV Capital Corp. would have no further direct or indirect interest in Zynga, Inc. On December 15, 2011, Zynga, Inc. priced its initial public offering, selling 100,000,000 shares at a price of $10.00 per share. |
See Notes to the Consolidated Financial Statements.
F-46
GSV Capital Corp. (formerly NeXt Innovation Corp., the Company, we, our or GSV Capital) was formed in September 2010 as a Maryland corporation structured as an externally managed, non-diversified closed-end management investment company. The Company has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the 1940 Act). The Company is managed by GSV Asset Management, LLC (formerly NeXt Asset Management, GSV Asset Management).
The Companys date of inception is January 6, 2011, which is the date it commenced its development stage activities. On February 28, 2011, the Company, which had not yet begun investment operations, issued 100 shares which were owned by an officer of the Company who is also a principal of GSV Asset Management. On April 28, 2011, the Company priced its initial public offering, selling 3,335,000 shares at a price of $15.00 per share. The initial public offering closed on May 3, 2011, resulting in net proceeds to the Company of approximately $46.5 million. The Companys shares are currently listed on the NASDAQ Capital Market under the symbol GSVC. The Company began its investment operations during the second quarter.
On April 13, 2012, the Company formed a wholly-owned subsidiary, GSV Capital Lending, LLC (GCL), a Delaware limited liability company, which will originate portfolio loan investments within the state of California. An application for a California lender license was submitted by GCL to the California Department of Corporations and GCL is awaiting receipt of its license from the State.
On November 28, 2012, the Company formed wholly-owned subsidiaries, GSVC AE Holdings, Inc. (GAE), GSVC AV Holdings, Inc. (GAV), GSVC NG Holdings, Inc. (GNG), GSVC SW Holdings, Inc. (GSW) and GSVC WS Holdings, Inc. (GWS) (collectively the GSVC Holdings), all Delaware corporations, to hold portfolio investments.
The Companys investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. The Company invests principally in the equity securities of venture capital-backed and rapidly growing emerging companies. The Company may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet its investment criteria.
On March 28, 2011, the board of directors (the Board) of the Company approved Articles of Amendment and Restatement, reflecting a change in the Companys name from NeXt BDC Capital Corp. to NeXt Innovation Corp., which Articles of Amendment and Restatement became effective upon filing with the State Department of Assessment and Taxation of the State of Maryland on March 29, 2011. Then, on May 26, 2011, the board of directors of the Company approved Articles of Amendment, reflecting a change in the Companys name from NeXt Innovation Corp. to GSV Capital Corp., which Articles of Amendment became effective upon filing with the State Department of Assessment and Taxation of the State of Maryland on May 26, 2011.
On September 26, 2011, the Company priced a follow-on equity offering, selling 2,185,000 of common shares at a price of $14.15 per share, including an exercise in full by the underwriters of their option to purchase an additional 285,000 shares of common stock to cover overallotments. The follow-on equity offering resulted in net proceeds to the Company of approximately $29.6 million.
On February 10, 2012, the Company priced a subsequent follow-on equity offering, selling 6,900,000 of common shares at a price of $15.00 per share, including an exercise in full by the underwriters of their option to purchase an additional 900,000 shares of common stock to cover overallotments. The follow-on equity offering resulted in net proceeds to the Company of approximately $96.2 million.
F-47
On May 11, 2012, the Company priced an additional follow-on equity offering, selling 6,900,000 of common shares at a price of $16.25 per share, including an exercise in full by the underwriters of their option to purchase an additional 900,000 shares of common stock to cover overallotments. The follow-on equity offering resulted in net proceeds to the Company of approximately $105.4 million.
The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for financial information and pursuant to the requirements for reporting on Form 10-K and Regulation S-X. In the opinion of management, all adjustments, all of which were of a normal recurring nature, considered necessary for the fair presentation of financial statements for the period have been included.
In accordance with Regulation S-X under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, the Company does not consolidate portfolio company investments. The Company has not consolidated the GSVC Holdings which hold portfolio investments.
Under Article 6 of Regulation S-X and the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or a controlled operating company which provides substantially all of its services and benefits to us. Accordingly, our financial statements include our accounts and the accounts of GCL, our wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
The preparation of consolidated financial statements requires the Company to make a number of significant estimates. These include estimates of fair value of certain assets and liabilities and other estimates that affect the reported amounts of certain assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reported period. It is likely that changes in these estimates will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ from our estimates and the differences could be material.
The Company applies fair value accounting in accordance with GAAP. The Company generally values its assets on a quarterly basis, or more frequently if required under the 1940 Act. Securities for which market quotations are readily available on an exchange are valued at the closing price of such security on the valuation date; however, if they remain subject to lock-up restrictions they are discounted accordingly. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.
Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of GSV Asset Management, the Board or the Valuation Committee of the Board (the Valuation Committee), does not represent fair value, shall each be valued as follows:
1. | The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment; |
F-48
2. | Preliminary valuation conclusions are then documented and discussed with GSV Asset Management senior management; |
3. | An independent third-party valuation firm is engaged by, or on behalf of, the Valuation Committee to conduct independent appraisals and review managements preliminary valuations and make their own independent assessment, for all material investments; |
4. | The Valuation Committee discusses valuations and recommends the fair value of each investment in the portfolio in good faith based on the input of GSV Asset Management and the independent third-party valuation firm; and, |
5. | The Board then discusses the valuations and determines in good faith the fair value of each investment in the portfolio based upon input of GSV Asset Management, estimates from the independent valuation firm and the recommendations of the Valuation Committee. |
In making our good faith determination of the fair value of investments, we consider valuation methodologies consistent with industry practice. Valuation methods, among other measures and as applicable, may include comparisons to prices from secondary market transactions and recent venture capital financings, analysis of financial ratios and valuation metrics of the portfolio companies that issued such private equity securities to peer companies that are public, analysis of the portfolio companies most recent financial statements and forecasts, and the markets in which the portfolio company does business, and other relevant factors. The Company assigns a weighting based upon the relevance of each factor to determine the fair value of each investment.
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, and most U.S. Government and agency securities).
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
a) | Quoted prices for similar assets or liabilities in active markets; |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); |
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c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and, |
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect managements own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include certain of our private equity investments).
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 table set forth in Note 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur.
The carrying amounts of our financial instruments, consisting of cash, receivables, accounts payable, and accrued expenses, approximate fair value due to their short-term nature.
Securities transactions are accounted for on the date the transaction for the purchase or sale of the securities is entered into by the Company (i.e., trade date). Securities transactions outside conventional channels, such as private transactions, are recorded as of the date the Company obtains the right to demand the securities purchased or to collect the proceeds from a sale, and incurs an obligation to pay for securities purchased or to deliver securities sold, respectively.
We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual directly or indirectly owns beneficially more than 25% of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist when a company or individual directly or indirectly owns, controls or holds the power to vote 5% or more of the outstanding voting securities of another person.
The Company places its cash with U.S. Bank, N.A. and First Republic Bank, N.A., and at times, cash held in these accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash in money market funds, within limitations of the 1940 Act.
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The Companys revenue recognition policies are as follows:
Sales: Gains or losses on the sale of investments are determined using the specific identification method.
Interest: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis.
Dividends: Dividend income is recognized on the ex-dividend date.
Commissions and other costs associated with an investment transaction, including legal expenses not reimbursed by the issuer, are included in the cost basis of purchases and deducted from the proceeds of sales. The Company makes certain acquisitions on the secondary markets which may involve making deposits to escrow accounts until certain conditions are met including the underlying private companys right of first refusal. If the underlying private company does not exercise or assign its right of first refusal and all other conditions are met, then the funds in the escrow account are delivered to the seller and the account is closed. These transactions are reflected on the Statement of Assets and Liabilities as Escrow deposits. At December 31, 2012 and December 31, 2011, the Company had $0 in Escrow deposits.
Payable for unsettled securities transaction relates to the purchase of the United States Treasury Bill that was unsettled at December 31, 2011 and settled in January 2012.
Unrealized appreciation or depreciation is calculated as the difference between the fair value of the investment and the cost basis of such investment.
During the third quarter of 2012, the Company determined that it was more likely than not that it would not meet the criteria to be treated as a regulated investment company and therefore the Company was taxed as a regular corporation (a C corporation) under subchapter C of the Internal Revenue Code of 1986, as amended, for its 2011 taxable year and will continue to be taxed as such for its 2012 taxable year. The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded for tax loss carryforwards and temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. Certain tax attributes may be subject to limitations on timing and usage. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Beginning with its 2013 taxable year, the Company intends to elect to be treated as a regulated investment company (RIC) under subchapter M of the Internal Revenue Code of 1986, as amended, and intends to operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to distribute to its stockholders on a timely basis at least 90% of investment company taxable income, as defined by the Code, for each year. So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal and state income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned by the Company will represent obligations of the Companys investors and will not be reflected in the consolidated financial statements of the Company.
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The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are more-likely-than-not of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where the position has met the more-likely-than-not threshold. The Company classifies penalties and interest associated with income taxes, if any, as income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, ongoing analyses of tax laws, regulations and interpretations thereof.
Organization costs include costs relating to the formation and incorporation of the business. These costs were expensed as incurred. For the period from January 6, 2011 (date of inception) to December 31, 2011, the Company has incurred and expensed organization costs of $198,831. The Company did not incur organization costs for the year ended December 31, 2012.
Offering costs include legal fees and other costs pertaining to the public offerings. As of December 31, 2012, $738,697 of offering costs were offset against capital proceeds from the secondary offerings on May 11, 2012 and February 10, 2012. As of December 31, 2011, $1,058,288 of offering costs were offset against capital proceeds from the initial public offering on April 28, 2011 and the secondary offering on September 26, 2011. As of December 31, 2011, $56,436 of offering costs were deferred which were related to our offering on February 10, 2012.
Basic and diluted earnings (loss) per common share is calculated using the weighted average number of shares outstanding for the period presented.
Certain capital accounts including undistributed net investment income, accumulated net realized gain or loss, net unrealized appreciation or depreciation, and paid-in capital in excess of par, are adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP. GAAP requires that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on the net assets or net asset value per share and are intended to enable the Companys stockholders to determine the amount of accumulated and undistributed earnings they potentially could receive in the future and on which they could be taxed. For the period from January 6, 2011 (date of inception) to December 31, 2011, the net investment loss of $2,033,864 was determined to be a permanent difference and reduced paid-in capital in excess of par in the Statement of Assets and Liabilities. During the year ended December 31, 2012, the Company determined the net investment loss from 2011 was no longer a permanent difference because the Company is currently taxable as a C corporation and adjusted paid-in capital in excess of par and accumulated net investment loss by $2,033,864, which is included on the Statement of Assets and Liabilities as of December 31, 2012.
In May 2011, the Financial Accounting Standards Board (FASB) issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the highest and best use concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account
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when measuring fair value. The fair value disclosure requirements also were amended. The amended guidance is to be applied prospectively. For public entities, the guidance is effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a significant impact on our financial condition, results of operations or cash flows.
The Company entered into an investment advisory agreement with GSV Asset Management (the Advisory Agreement) in connection with its initial public offering. Pursuant to the Advisory Agreement, GSV Asset Management will be paid a base annual fee of 2% of gross assets, and an annual incentive fee equal to the lesser of (i) 20% of the Companys realized capital gains during each calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of the Companys realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For the period from the close of the initial public offering through and including December 31, 2011, the fee was payable monthly in arrears, and was calculated based on the initial value of the Companys assets upon the closing of the public offering. For the year ended December 31, 2012 and for the period from January 6, 2011 (date of inception) to December 31, 2011, GSV Asset Management earned $4,419,345 and $618,865, respectively, in base management fees and $0 in incentive fees, respectively.
As of December 31, 2012, the Company was due $5,723 from GSV Asset Management for reimbursement of expenses paid by the Company that were the responsibility of GSV Asset Management, and is included in the Statement of Assets and Liabilities.
As of December 31, 2012, the Company owed GSV Asset Management $51,194 for reimbursements of travel-related expenses. These are included in the Statement of Assets and Liabilities.
As of December 31, 2011, the Company was due $13,470 from GSV Asset Management for reimbursement of travel-related expenses paid for by the Company that were the responsibility of GSV Asset Management, and is included in the Statement of Assets and Liabilities.
As of December 31, 2011, the Company owed certain officers and directors $10,782 for reimbursements of travel-related and other expenses. The Company owed GSV Asset Management $78,427 for management fees and reimbursements of travel-related and other expenses. These are included in the Statement of Assets and Liabilities.
The Company entered into an administration agreement with GSV Capital Service Company (the Administration Agreement) to provide administrative services, including furnishing the Company with office facilities, equipment, clerical, bookkeeping, record keeping services and other administrative services, in connection with its initial public offering and ongoing operations. The Company reimburses GSV Capital Service Company an allocable portion of overhead and other expenses in performing its obligations under the Administration Agreement. There were $2,384,764 and $554,232 in such costs incurred under the Administration Agreement for the year ended December 31, 2012 and for the period from January 6, 2011 (date of inception) to December 31, 2011, respectively.
The Company entered into a license agreement with GSV Asset Management pursuant to which GSV Asset Management has agreed to grant the Company a non-exclusive, royalty-free license to use the name GSV. Under this agreement, the Company has the right to use the GSV name for so long as the Advisory
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Agreement with GSV Asset Management is in effect. Other than with respect to this limited license, the Company has no legal right to the GSV name.
At December 31, 2012, the Company had 61 positions in 47 portfolio companies. The total cost and fair value of the 61 positions were $237,147,735 and $225,397,085, respectively. At December 31, 2011, the Company had 24 positions in 21 portfolio companies. The total cost and fair value of the 24 positions were $65,658,866 and $64,078,150, respectively. The composition of our investments as of December 31, 2012 and December 31, 2011 are as follows:
December 31, 2012 | December 31, 2011 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Common Stock | $ | 132,833,640 | $ | 123,820,141 | $ | 43,451,594 | $ | 42,053,669 | ||||||||
Preferred Stock | 103,683,625 | 100,853,882 | 17,595,397 | 17,453,085 | ||||||||||||
Common Membership Interest | 500,000 | 500,000 | | | ||||||||||||
Structured Note | | | 4,535,082 | 4,500,000 | ||||||||||||
Warrants | 130,470 | 223,062 | 76,793 | 71,396 | ||||||||||||
Total Portfolio Investments | 237,147,735 | 225,397,085 | 65,658,866 | 64,078,150 | ||||||||||||
Non-Portfolio Investments | 16,000,000 | 16,000,000 | 26,999,128 | 27,000,044 | ||||||||||||
Total Investments | $ | 253,147,735 | $ | 241,397,085 | $ | 92,657,994 | $ | 91,078,194 |
The table below presents the valuation techniques and the nature of significant inputs used to determine the fair values of our Level 3 investments as of December 31, 2012.
Asset | Fair Value | Valuation Techniques | Unobservable inputs | Range (Average) | ||||||||||||
Common stock in private companies | $ | 112,855,675 | Market approach | Precedent transactions | N/A | |||||||||||
Income approach | Revenue multiples | 3.0x - 6.3x (4.6x) | ||||||||||||||
EBIT multiples | 13.0x - 78.9x (36.2x) | |||||||||||||||
Discount rate | 35% - 50% (42%) | |||||||||||||||
Preferred stock in private companies | 100,853,882 | Market approach | Precedent transactions | N/A | ||||||||||||
Income approach | Revenue multiples | 0.5x - 7.0x (3.3x) | ||||||||||||||
EBIT multiples | 8.3x - 78.9x (18.4x) | |||||||||||||||
Discount rate | 35% - 50% (44%) | |||||||||||||||
Common membership interest | 500,000 | Market approach | Precedent transactions | N/A | ||||||||||||
Income approach | Revenue multiples | 3.0x - 5.0x (4.0x) | ||||||||||||||
EBIT multiples | 10.0x | |||||||||||||||
Discount rate | 45% | |||||||||||||||
Warrants | 31,354 | Market approach | Precedent transactions | N/A | ||||||||||||
191,708 | Option pricing model |
Term to expiration* | See below | |||||||||||||
Stock price* | See below | |||||||||||||||
Volatility* | See below |
* | The Echo System Corp. warrants have an estimated term of 3.9 years, a stock price of $3.20 and a volatility of 40%, and the SharesPost, Inc. warrants have an estimated term of 3.0 years, a stock price of $0.28 and a volatility of 35%. |
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The significant unobservable inputs used in the fair value of the warrants are the term to expiration, stock price and volatility. Volatility is based on a combination of implied and historical volatility indications. A higher stock price and a longer time to expiration result in higher values, all else equal.
The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2012 and December 31, 2011 are as follows:
Quoted Prices in Active Markets for Identical Securities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Common Stock | $ | 10,964,466 | $ | | $ | 112,855,675 | $ | 123,820,141 | ||||||||
Preferred Stock | | | 100,853,882 | 100,853,882 | ||||||||||||
Money Market Funds | 16,000,000 | | | 16,000,000 | ||||||||||||
Common Membership Interest | | | 500,000 | 500,000 | ||||||||||||
Warrants | | | 223,062 | 223,062 | ||||||||||||
Total Investments | $ | 26,964,466 | $ | | $ | 214,432,619 | $ | 241,397,085 |
Quoted Prices in Active Markets for Identical Securities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
Common Stock | $ | | $ | 1,188,288 | $ | 40,865,381 | $ | 42,053,669 | ||||||||
U.S. Treasury Bill | 20,000,044 | | | 20,000,044 | ||||||||||||
Preferred Stock | | | 17,453,085 | 17,453,085 | ||||||||||||
Money Market Funds | 7,000,000 | | | 7,000,000 | ||||||||||||
Structured Note | | | 4,500,000 | 4,500,000 | ||||||||||||
Warrants | | | 71,396 | 71,396 | ||||||||||||
Total Investments | $ | 27,000,044 | $ | 1,188,288 | $ | 62,889,862 | $ | 91,078,194 |
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The aggregate values of Level 3 portfolio investments changed during the year ended December 31, 2012 and the period from January 6, 2011 (date of inception) to December 31, 2011 as follows:
Year ended December 31, 2012 | ||||||||||||||||||||||||
Common Stock |
Preferred Stock |
Structured Note |
Common Membership Interest | Warrants | Total | |||||||||||||||||||
Fair value as of December 31, 2011 | $ | 40,865,381 | $ | 17,453,085 | $ | 4,500,000 | $ | | $ | 71,396 | $ | 62,889,862 | ||||||||||||
Purchases of investments | 86,378,395 | 85,104,161 | 854,236 | 500,000 | 31,354 | 172,868,146 | ||||||||||||||||||
Exercises, conversions and assignments(1) | | 984,067 | (1,006,390 | ) | | 22,323 | | |||||||||||||||||
Sales and settlements | | | (3,002,665 | ) | | | (3,002,665 | ) | ||||||||||||||||
Realized loss included in earnings | | | (1,380,263 | ) | | | (1,380,263 | ) | ||||||||||||||||
Change in unrealized appreciation (depreciation) included in earnings | (5,027,001 | ) | (2,687,431 | ) | 35,082 | 97,989 | (7,581,361 | ) | ||||||||||||||||
Transfer to Level 2 | (9,361,100 | ) | | | | | (9,361,100 | ) | ||||||||||||||||
Fair Value as of December 31, 2012 | $ | 112,855,675 | $ | 100,853,882 | $ | | $ | 500,000 | $ | 223,062 | $ | 214,432,619 | ||||||||||||
Change in unrealized appreciation (depreciation) on Level 3 investments still held as of December 31, 2012 | $ | (3,919,288 | ) | $ | (2,687,431 | ) | $ | | $ | | $ | 97,989 | $ | (6,508,730 | ) |
(1) | During the year ended December 31, 2012, the Company converted its structured notes to preferred shares in AlwaysOn, Inc. and The Echo System Corp., and exercised its warrants for preferred shares in StormWind, LLC. A portion of The Echo System Corp. structured notes attributable to the warrants was reclassified during the same period. |
From January 6, 2011 (date of inception) to December 31, 2011 | ||||||||||||||||||||
Common Stock |
Preferred Stock |
Structured Note |
Warrants | Total | ||||||||||||||||
Fair value as of January 6, 2011 | $ | | $ | | $ | | $ | | $ | | ||||||||||
Purchases of investments | 43,451,594 | 17,595,397 | 4,535,082 | 76,793 | 65,658,866 | |||||||||||||||
Change in unrealized depreciation included in earnings | (1,397,925 | ) | (142,312 | ) | (35,082 | ) | (5,397 | ) | (1,580,716 | ) | ||||||||||
Transfer to Level 2 | (1,188,288 | ) | | | | (1,188,288 | ) | |||||||||||||
Fair value as of December 31, 2011 | $ | 40,865,381 | $ | 17,453,085 | $ | 4,500,000 | $ | 71,396 | $ | 62,889,862 | ||||||||||
Change in unrealized depreciation on Level 3 investments still held as of December 31, 2011 | $ | (457,628 | ) | $ | (142,312 | ) | $ | (35,082 | ) | $ | (5,397 | ) | $ | (640,419 | ) |
During the year ended December 31, 2012, there were three transfers between levels. Two of these transfers occurred as of June 30, 2012. Due to the expiration of the lock-up agreement on our shares in Groupon, Inc. on June 1, 2012, the closing price on a public exchange on June 29, 2012 was used for our
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valuation as of June 30, 2012. This resulted in a transfer of Groupon, Inc. from Level 2 to Level 1. At December 31, 2012, Groupon, Inc. was valued using the closing price on a public exchange on December 31, 2012. Due to the initial public offering of Facebook, Inc. on May 17, 2012, observable inputs became available for our valuation as of June 30, 2012. However, our shares in Facebook, Inc. were subject to a lock-up agreement that expired on November 14, 2012. As such, the fair value for Facebook, Inc. was estimated using the closing price on a public exchange as of June 29, 2012, adjusted for a discount due to a lack of marketability of 14% that was primarily based on the market price of publicly traded put options with a similar term as our lock-up as of June 30, 2012. This resulted in a transfer of Facebook, Inc. from Level 3 to Level 2. Due to the expiration of the lock-up agreement on our shares in Facebook, Inc. on November 14, 2012, the closing price on a public exchange on December 31, 2012 was used for our valuation as of December 31, 2012. This resulted in a transfer of Facebook, Inc. from Level 2 to Level 1.
During the year ended December 31, 2012, the Company recorded a realized loss on our investment in PJB Fund LLC. The note matured and was repaid by transfer of shares of common stock of Zynga, Inc.
During the period from January 6, 2011 (date of inception) to December 31, 2011, there was one transfer from Level 3 to Level 2 related to our investment in Groupon, Inc. Due to its public offering in November 2011, observable inputs became available for our valuation as of December 31, 2011. However, during that period, our shares in Groupon, Inc. were subject to a lock-up agreement that was scheduled to expire on June 1, 2012. As such, the fair value for Groupon, Inc. was estimated using the closing price on a public exchange as of the valuation date, adjusted for a discount due to a lack of marketability of 28% that was primarily based on the market price of publicly traded put options with a similar term as our lock-up as of December 31, 2011.
We issued 5,520,100 shares of our common stock during the period from January 6, 2011 (date of inception) to December 31, 2011. We issued 13,800,000 shares of our common stock during the year ended December 31, 2012. The proceeds raised, the related underwriting fees, the offering expenses and the prices at which these shares were issued are as follows:
Issuances of Common Stock | Number of Shares | Gross Proceeds Raised | Underwriting Fees | Offering Expenses | Offering Price |
|||||||||||||||
February 28, 2011 | 100 | $ | 1,500 | $ | | $ | | $ | 15.00 | |||||||||||
April 28, 2011 | 3,335,000 | 50,025,000 | 3,501,750 | 527,166 | (1) | 15.00 | ||||||||||||||
September 27, 2011 | 2,185,000 | 30,917,750 | 1,267,300 | 531,122 | (2) | 14.15 | ||||||||||||||
February 10, 2012 | 6,900,000 | 103,500,000 | 7,245,000 | 326,077 | 15.00 | |||||||||||||||
May 11, 2012 | 6,900,000 | 112,125,000 | 6,727,500 | 412,620 | (3) | 16.25 |
(1) | Includes $3,585 of offering expenses that were accrued as of September 30, 2011. |
(2) | Amount was reduced by $18,878 after actual expenses for the offering were determined as of December 31, 2011. |
(3) | Includes $960 of offering expenses that were accrued as of September 30, 2012. |
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The following information sets forth the computation of net decrease in net assets resulting from operations per common share for the year ended December 31, 2012 and for the period from January 6, 2011 (date of inception) to December 31, 2011.
Year ended December 31, 2012 | For the period from January 6, 2011 (date of inception) to December 31, 2011 |
|||||||
Net decrease in net assets resulting from operations | $ | (19,834,250 | ) | $ | (3,613,664 | ) | ||
Weighted average common shares(1) | 16,096,330 | 3,377,429 | (1) | |||||
Basic and diluted earnings per common share | $ | (1.23 | ) | $ | (1.07 | ) |
(1) | Weighted average common shares for the period from January 6, 2011 (date of inception) to December 31, 2011 was calculated starting from the issuance of 100 shares on February 28, 2011. |
The Company is currently not subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations.
Year ended December 31, 2012 |
For the period from January 6, 2011 (date of inception) to December 31, 2011 |
|||||||
Per Share Data: |
||||||||
Net asset value at beginning of period | $ | 12.95 | $ | | ||||
Issuance of common shares | 1.91 | (3) | 14.67 | (4) | ||||
Underwriters discount | (0.72 | )(2) | (0.86 | )(2) | ||||
Offering costs | (0.04 | )(2) | (0.19 | )(2) | ||||
Net investment loss | (0.51 | )(1) | (0.37 | )(2) | ||||
Realized loss | (0.09 | )(1) | | |||||
Change in unrealized depreciation | (0.43 | )(5) | (0.30 | )(2) | ||||
Net asset value at end of period | $ | 13.07 | $ | 12.95 | ||||
Per share market value at end of period | $ | 8.43 | $ | 13.95 | ||||
Total return based on market value | (39.57 | )%(6) | (7.00 | )%(7) | ||||
Total return based on net asset value | 0.93 | %(6) | (13.67 | )%(7) | ||||
Shares outstanding at end of period | 19,320,100 | 5,520,100 | ||||||
Ratio/Supplemental Data: |
||||||||
Net assets at end of period | $ | 252,582,801 | $ | 71,503,248 | ||||
Average net assets | $ | 208,050,344 | $ | 44,532,523 | ||||
Annualized ratio of gross operating expenses to average net assets(8) | 4.10 | % | 5.01 | % | ||||
Annualized ratio of net operating expenses to average net assets(8) | 4.10 | % | 5.01 | % | ||||
Annualized ratio of net investment income to average net assets(8) | (3.98 | )% | (4.64 | )% |
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(1) | Based on weighted average number of shares outstanding for the period. |
(2) | Based on shares outstanding at end of period. |
(3) | Issuance of common shares for the year ended December 31, 2012 is based on the change in net asset value from the secondary offerings on February 10, 2012 and May 11, 2012. |
(4) | Issuance of common shares for the period from January 6, 2011 (date of inception) to December 31, 2011 is based on the weighted average offering price for the shares issued during the period. |
(5) | Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date. |
(6) | Total return based on market value is based on the change in market price per share between the opening and ending market values per share in the period. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share and the issuance of common shares in the period. The percentage returns noted above are based on the increase in our net asset value attributable to issuances of our common stock at a premium to our net asset value per share, rather than investment returns. Such issuances of our common stock at a premium to net asset value per share are not typical, and may not occur in the future. The total returns are not annualized. |
(7) | Total return based on market value is based on the change in market price per share assuming an investment at the initial public offering price of $15.00 per share. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share and the issuance of common shares in the period. The total returns are not annualized. |
(8) | Financial Highlights for periods of less than one year are annualized and the ratios of operating expenses to average net assets and net investment loss to average net assets are adjusted accordingly. Non-recurring expenses were not annualized. For the year-end December 31, 2012, and for the period from January 6, 2011 (date of inception) to December 31, 2011, the Company incurred $0, and $198,831 of organizational expenses, respectively, which were deemed to be non-recurring. For the period from January 6, 2011 (date of inception) to December 31, 2011, average net assets were calculated starting from the issuance of 100 shares on February 28, 2011. Because the ratios are calculated for the Companys common stock taken as a whole, an individual investors ratios may vary from these ratios. |
During the third quarter of 2012, the Company determined that it was not more likely than not that it would not meet the criteria to be treated as a regulated investment company and therefore the Company is currently taxable as a C corporation and subject to federal and state corporation income taxes. The GSVC Holdings, which are taxed as C corporations, are not consolidated into the Company for financial reporting and income tax filing purposes. These subsidiaries hold certain pass-through companies to preserve the Companys ability to qualify the RIC income source test beginning with its 2013 taxable year. The Company recorded no current income tax expense or benefit during the year ended December 31, 2012 since it had net operating loss carry-forwards from prior years and a net operating loss for the 2012 tax year.
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The Company recorded no deferred income tax expense or benefit for the year ended December 31, 2012 since it provided a full valuation allowance for deferred tax assets, which consisted primarily of net operating losses and temporary differences based on realized losses and unrealized depreciation of investments for financial statement purposes. As of December 31, 2012, the total amount of gross deferred tax assets before valuation allowance was $9.3 million. The federal and state net operating losses will expire in 2031 through 2033. The valuation allowance for these deferred tax assets as of December 31, 2012 was ($9.3) million. The Company did not have any gross deferred tax liabilities as of December 31, 2012. The components of deferred tax assets and liabilities at December 31, 2012 were as follows:
Deferred tax assets: |
||||
Depreciation on investments | $ | 4,680,284 | ||
Net operating loss carryforwards | 4,109,160 | |||
Basis differences in investments | 549,861 | |||
Total gross deferred tax assets | 9,339,305 | |||
Less: valuation allowance | (9,339,305 | ) | ||
Total net deferred tax assets | | |||
Deferred tax liabilities: | | |||
Net deferred tax assets/(liabilities) | $ | |
For federal and state purposes, a portion of the Companys net operating loss carryforwards and basis differences may be subject to limitations on annual utilization in case of a change in ownership, as defined by federal and state law. The amount of such limitations, if any, has not been determined. Accordingly, the amount of such tax attributes available to offset future profits may be significantly less than the actual amounts of the tax attributes.
The difference between the tax provision (benefit) at the statutory federal income tax rate and the tax provision (benefit) was as follows:
U.S. tax at statutory rate | 34.00 | % | ||
State taxes, net of federal benefit | 5.83 | |||
Valuation allowance | (39.83 | ) | ||
Effective rate | | % |
The Company has provided a full valuation allowance for its deferred tax assets due to uncertainty of generating sufficient capital gains or taxable income in future periods to realize these assets. The Company will elect to be treated for federal income tax purposes as a RIC beginning next year and anticipates meeting all the requirements as a RIC. As a RIC, the Company generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that the Company distributes to its stockholders as dividends and claims dividends paid deductions to compute taxable income. A RIC will not be eligible to utilize net operating losses. However, the net operating losses may become available should the Company disqualify as a RIC and become a C corporation in the future
In addition to meeting other requirements, the Company must generally distribute at least 90% of its investment company taxable income to qualify for the special treatment accorded to a RIC and maintain its RIC status. As part of maintaining RIC status, undistributed taxable income (subject to a 4% excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared prior to the later of (1) the fifteenth day of the ninth month following the close of that fiscal year or (2) the extended due date for filing the federal income tax return for that fiscal year.
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The Company did not have any unrecognized tax benefits as of the period presented herein. The Company identified its major tax jurisdictions as U.S. federal and California. For the year ended December 31, 2012, no income tax expenses or related liabilities for uncertain tax positions were recognized for the Companys open tax years from inception through 2012. The Company is not aware of any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will change significantly in the next 12 months.
On January 17, 2013 and January 18, 2013, the Company sold its investment in Groupon, Inc. for $209,590 and $207,712, respectively.
On January 28, 2013, January 29, 2013, January 31, 2013, and February 1, 2013, the Company sold its investment in Zynga, Inc. for $120,654, $121,443, $121,962, and $1,003,983, respectively.
On March 8, 2013, the Board reapproved the Advisory Agreement and the Administration Agreement. These agreements will remain in effect for a period of one year from the date they were approved.
Subsequent to December 31, 2012, the Company closed on investments of $2.4 million, plus transaction costs as follows:
The Company closed on an investment of $1,499,999, plus transaction costs, in SugarCRM Inc., a customer relationship management company, on January 16, 2013.
The Company closed on an investment of $200,000, plus transaction costs, in AlwaysOn, Inc., a social media company, on February 4, 2013.
The Company closed on an investment of $517,244, plus transaction costs, in CUX, Inc. (d/b/a CorpU), a corporate education company, on February 25, 2013.
The Company closed on an investment of $200,000, plus transaction costs, in AlwaysOn, Inc., a social media company, on February 28, 2013.
The Company is presently in the final stages of negotiations with respect to a handful of private company investments that it anticipates entering into within the next 30 to 60 days, subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its stockholders and termination rights by the seller or the Company. Equity investments made through the secondary market may involve making deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such equity investments will be effectuated. Subsequent to December 31, 2012, the Company has not made any such escrow deposits.
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The following financial statements of GSV Capital Corp. (the Registrant or the Company) are included in Part A Information Required to be in the Prospectus of the Registration Statement.
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Exhibit Number |
Description | |
a.1 | Amended and Restated Articles of Incorporation(1) | |
a.2 | Articles of Amendment(2) | |
b. | Bylaws(1) | |
d.1 | Form of Common Stock Certificate(4) | |
d.2 | Form of Indenture | |
d.3 | Indenture, dated September 17, 2013, relating to the 5.25% Senior Convertible Notes due 2018, by and between the Registrant and the U.S. Bank National Association, as trustee(8) | |
d.4 | Statement of Eligibility of Trustee on Form T-1 | |
d.5 | Pledge and Escrow Agreement, dated September 17, 2013, by and between the Registrant and the U.S. Bank National Association, as trustee(8) | |
e. | Dividend Reinvestment Plan(1) | |
g. | Amended and Restated Investment Advisory Agreement by and between Registrant and GSV Asset Management, LLC(7) | |
h.1 | Form of Underwriting Agreement(6) | |
j. | Form of Custodian Agreement(3) | |
k.1 | Amended and Restated Administration Agreement by and between Registrant and GSV Capital Service Company, LLC(7) | |
k.2 | Form of Indemnification Agreement by and between Registrant and each of its directors(1) | |
k.3 | Form of Trademark License Agreement by and between the Registrant and GSV Asset Management, LLC(2) | |
k.4 | Loan and Security Agreement between GSV Capital Corp. and Silicon Valley Bank, dated as of December 31, 2013(9) | |
l. | Opinion of Sutherland Asbill & Brennan LLP | |
n.1 | Consent of Sutherland Asbill & Brennan LLP (Incorporated by reference to exhibit l hereto) | |
n.2 | Consent of Grant Thornton LLP | |
r. | Code of Ethics(1) | |
99.1 | Form of Prospectus Supplement for Common Stock Offerings | |
99.2 | Form of Prospectus Supplement For Preferred Stock Offerings | |
99.3 | Form of Prospectus Supplement For Rights Offerings | |
99.4 | Form of Prospectus Supplement For Debt Securities Offerings | |
99.5 | Form of Prospectus Supplement For Warrants Offerings |
(1) | Previously filed in connection with Pre-Effective Amendment No. 2 to the Registrants Registration Statement on Form N-2 (File No. 333-171578), filed on March 30, 2011, and incorporated by reference herein. |
(2) | Previously filed in connection with the Registrants Current Report on Form 8-K (File No. 814-00852), filed on June 1, 2011, and incorporated by reference herein. |
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(3) | Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-2 (File No. 333-171578), filed on April 15, 2011, and incorporated by reference herein. |
(4) | Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrants Registration Statement on Form N-2 (File No. 333-175655) filed on September 20, 2011, and incorporated by reference herein. |
(5) | Previously filed in connection with Pre-Effective Amendment No. 1 to the Registrants Registration Statement on Form N-2 (File No. 333-178932) filed on February 9, 2012, and incorporated by reference herein. |
(6) | Previously filed in connection with Pre-Effective Amendment No. 1 to the Registrants Registration Statement on Form N-2 (File No. 333-180416) filed on May 7, 2012, and incorporated by reference herein. |
(7) | Previously filed in connection with From 10-K (File No. 814-00852) filed on March 14, 2013 and incorporate by reference herein. |
(8) | Previously filed in connection with the Registrants Current Report on Form 8-K (File No. 814-00852), filed on September 18, 2013, and incorporated by reference herein. |
(9) | Previously filed in connection with the Registrants Current Report on Form 8-K (File No. 814-00852), filed on January 7, 2014, and incorporated by reference herein. |
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The information contained under the heading Underwriting on this Registration Statement is incorporated herein by reference.
SEC registration fee | $ | 12,150 | ||
FINRA filing fee | $ | 10,800 | ||
NASDAQ Capital Market | $ | 22,500 | ||
Printing and postage | $ | 30,000 | ||
Legal fees and expenses | $ | 550,000 | ||
Accounting fees and expenses | $ | 200,000 | ||
Sales and Marketing | $ | 200,000 | ||
Total | $ | 1,025,450 |
Note: All listed amounts are estimates.
See Management, Certain Relationships and Transactions and Control Persons and Principal Stockholders in the Prospectus contained herein.
The following table sets forth the number of record holders of the Registrants common stock at November 25, 2013:
Title of Class | Number of Record Holders | |||
Common Stock, par value $0.01 per share | 49 |
Reference is made to Section 2-418 of the Maryland General Corporation Law, Article VII of the Registrants charter and Article XI of the Registrants Amended and Restated Bylaws.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. The Registrants charter contains such a provision which eliminates directors and officers liability to the maximum extent permitted by Maryland law, subject to the requirements of the Investment Company Act of 1940, as amended (the 1940 Act).
The Registrants charter authorizes the Registrant, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as the Registrants director or officer and at the Registrants request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The Registrants bylaws obligate the Registrant, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as the Registrants director or officer and at the Registrants request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee
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benefit plan or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit the Registrant to indemnify and advance expenses to any person who served a predecessor of the Registrant in any of the capacities described above and any of the Registrants employees or agents or any employees or agents of the Registrants predecessor. In accordance with the 1940 Act, the Registrant will not indemnify any person for any liability to which such person would be subject by reason of such persons willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter provides otherwise, which the Registrants charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received unless, in either case, a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer in advance of final disposition of a proceeding upon the corporations receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GSV Asset Management, LLC (the investment adviser) and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of the investment advisers services under the Investment Advisory Agreement or otherwise as an investment adviser of the Registrant.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GSV Capital Service Company, LLC and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys fees and amounts reasonably paid in settlement) arising from the rendering of GSV Capital Service Company, LLCs services under the Administration Agreement or otherwise as administrator for the Registrant.
The law also provides for comparable indemnification for corporate officers and agents. Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the Securities Act) may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person
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in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant has entered into indemnification agreements with its directors. The indemnification agreements are intended to provide the Registrants directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Registrant shall indemnify the director who is a party to the agreement (an Indemnitee), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, other than a proceeding by or in the right of the Registrant.
A description of any other business, profession, vocation, or employment of a substantial nature in which the investment adviser, and each managing director, director or executive officer of the investment adviser, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the sections entitled Management Board of Directors, Investment Advisory Agreement and Portfolio Management Investment Personnel. Additional information regarding the investment adviser and its officers and directors will be set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-71749), under the Investment Advisers Act of 1940, as amended, and is incorporated herein by reference.
All accounts, books, and other documents required to be maintained by Section 31(a) of the 1940 Act, and the rules thereunder are maintained at the offices of:
(1) | the Registrant, GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062; |
(2) | the Transfer Agent, American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038; |
(3) | the Custodian, U.S. Bank National Association, One Federal Street, Boston, MA, 02110; and |
(4) | the investment adviser, GSV Asset Management, LLC, 2925 Woodside Road, Woodside, CA 94062. |
Not applicable.
(1) | Registrant undertakes to suspend the offering of the shares of common stock covered hereby until it amends its prospectus contained herein if (a) subsequent to the effective date of this Registration Statement, its net asset value per share of common stock declines more than 10% from its net asset value per share of common stock as of the effective date of this Registration Statement, or (b) its net asset value per share of common stock increases to an amount greater than its net proceeds as stated in the prospectus contained herein. |
(2) | Not applicable. |
(3) | Registrant undertakes in the event that the securities being registered are to be offered to existing stockholders pursuant to warrants or rights, and any securities not taken by shareholders are to be reoffered to the public, to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by underwriters, and the terms of any subsequent underwriting thereof. Registrant further undertakes that if any public offering by the underwriters of the securities being registered is to be made on terms differing from those set forth on the cover page of the prospectus, the Registrant shall file a post-effective amendment to set forth the terms of such offering. |
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(4) | Registrant undertakes: |
(a) | to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) | to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
(ii) | to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and |
(iii) | to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(b) | that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at the time shall be deemed to be the initial bona fide offering thereof; |
(c) | to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; |
(d) | that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Registrant is subject to Rule 430C [17 CFR 230.430C]: Each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the Securities Act of 1933 [17 CFR 230.497(b), (c), (d) or (e)] as part of a registration statement relating to an offering, other than prospectuses filed in reliance on Rule 430A under the Securities Act of 1933 [17 CFR 230.430A], shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use; and |
(e) | that for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser: |
(i) | any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the Securities Act of 1933 [17 CFR 230.497]; |
(ii) | the portion of any advertisement pursuant to Rule 482 under the Securities Act of 1933 [17 CFR 230.482] relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and |
(iii) | any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
(f) | To file a post-effective amendment to the registration statement, and to suspend any offers or sales pursuant the registration statement until such post-effective amendment has been declared |
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effective under the 1933 Act, in the event the shares of Registrant are trading below its net asset value and either (i) Registrant receives, or has been advised by its independent registered accounting firm that it will receive, an audit report reflecting substantial doubt regarding the Registrants ability to continue as a going concern or (ii) Registrant has concluded that a material adverse change has occurred in its financial position or results of operations that has caused the financial statements and other disclosures on the basis of which the offering would be made to be materially misleading. |
(5) | (a) For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of the Registration Statement as of the time it was declared effective. |
(b) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. |
(6) | The Registrants undertake to send by first class mail or other means designed to ensure equally prompt delivery within two business days of receipt of a written or oral request, any Statement of Additional Information. |
(7) | The Registrant undertakes to file a post-effective amendment to the registration statement pursuant to Section 8(c) of the Securities Act of 1933 in connection with any rights offering off of the registration statement. |
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Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused Amendment No. 2 to this Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Woodside, in the State of California, on the 17th day of January, 2014.
GSV CAPITAL CORP.
By: | /s/ Michael T. Moe Michael T. Moe President, Chief Executive Officer and Chairman of the Board of Directors |
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 2 to this Registration Statement on Form N-2 has been signed below by the following persons in the capacities indicated, January 17, 2014:
Signature | Title | |
/s/ Michael T. Moe Michael T. Moe |
President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) |
|
/s/ Stephen D. Bard Stephen D. Bard |
Chief Financial Officer, Chief Compliance Officer, Treasurer and Corporate Secretary (Principal Financial and Accounting Officer) |
|
* Mark D. Klein |
Director | |
* Leonard A. Potter |
Director | |
* Mark W. Flynn |
Director | |
* R. David Spreng |
Director | |
* William V. Campbell |
Director | |
* Catherine J. Friedman |
Director |
* | Signed by Michael T. Moe pursuant to a power of attorney signed by each individual and filed with this Registration Statement on October 31, 2013. |
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Exhibit d.2
[FORM OF INDENTURE]
GSV CAPITAL CORP.
Issuer
and
U.S. BANK NATIONAL ASSOCIATION
Trustee
Indenture
Dated as of [•], 2014
Providing for the Issuance
Of
Debt Securities
GSV CAPITAL CORP.
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of [•], 2014
Trust Indenture Act Section |
Indenture Section |
§ 310 | (a)(1) | 607 | |
(a)(2) | 607 | ||
(b) | 609 | ||
§ 312 | (c) | 701 | |
§ 314 | (a) | 704 | |
(a)(4) | 1005 | ||
(c)(1) | 102 | ||
(c)(2) | 102 | ||
(e) | 102 | ||
§ 315 | (b) | 601 | |
§ 316 | (a) (last sentence) | 101 (“Outstanding”) | |
(a)(1)(A) | 502,512 | ||
(a)(1)(B) | 513 | ||
(b) | 508 | ||
§ 317 | (a)(1) | 503 | |
(a)(2) | 504 | ||
§ 318 | (a) | 111 | |
(c) | 111 |
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture.
TABLE OF CONTENTS
Page | ||
Article One | ||
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION | ||
SECTION 101. | Definitions | 1 |
SECTION 102. | Compliance Certificates and Opinions | 10 |
SECTION 103. | Form of Documents Delivered to Trustee | 11 |
SECTION 104. | Acts of Holders | 11 |
SECTION 105. | Notices, Etc., to Trustee and Company | 12 |
SECTION 106. | Notice to Holders; Waiver | 13 |
SECTION 107. | Conflict with TIA | 13 |
SECTION 108. | Effect of Headings and Table of Contents | 14 |
SECTION 109. | Successors and Assigns | 14 |
SECTION 110. | Separability Clause | 14 |
SECTION 111. | Benefits of Indenture | 14 |
SECTION 112. | Governing Law | 14 |
SECTION 113. | Legal Holidays | 14 |
SECTION 114. | Submission to Jurisdiction | 15 |
Article Two | ||
SECURITIES FORMS | ||
SECTION 201. | Forms of Securities | 15 |
SECTION 202. | Form of Trustee’s Certificate of Authentication | 15 |
SECTION 203. | Securities Issuable in Global Form | 16 |
Article Three | ||
THE SECURITIES | ||
SECTION 301. | Amount Unlimited; Issuable in Series | 17 |
SECTION 302. | Denominations | 20 |
SECTION 303. | Execution, Authentication, Delivery and Dating | 20 |
SECTION 304. | Temporary Securities | 22 |
SECTION 305. | Registration, Registration of Transfer and Exchange | 23 |
SECTION 306. | Mutilated, Destroyed, Lost and Stolen Securities | 25 |
SECTION 307. | Payment of Interest; Interest Rights Preserved; Optional Interest Reset | 26 |
SECTION 308. | Optional Extension of Maturity | 28 |
SECTION 309. | Persons Deemed Owners | 29 |
SECTION 310. | Cancellation | 30 |
SECTION 311. | Computation of Interest. | 30 |
SECTION 312. | Currency and Manner of Payments in Respect of Securities | 30 |
SECTION 313. | Appointment and Resignation of Successor Exchange Rate Agent | 34 |
SECTION 314. | CUSIP Numbers | 34 |
i |
Article Four | ||
SATISFACTION AND DISCHARGE | ||
SECTION 401. | Satisfaction and Discharge of Indenture | 34 |
SECTION 402. | Application of Trust Funds | 36 |
Article Five | ||
REMEDIES | ||
SECTION 501. | Events of Default | 36 |
SECTION 502. | Acceleration of Maturity; Rescission and Annulment | 38 |
SECTION 503. | Collection of Indebtedness and Suits for Enforcement by Trustee | 39 |
SECTION 504. | Trustee May File Proofs of Claim | 40 |
SECTION 505. | Trustee May Enforce Claims Without Possession of Securities | 40 |
SECTION 506. | Application of Money Collected | 41 |
SECTION 507. | Limitation on Suits | 41 |
SECTION 508. | Unconditional Right of Holders to Receive Principal, Premium and Interest | 42 |
SECTION 509. | Restoration of Rights and Remedies | 42 |
SECTION 510. | Rights and Remedies Cumulative | 42 |
SECTION 511. | Delay or Omission Not Waiver | 42 |
SECTION 512. | Control by Holders of Securities | 42 |
SECTION 513. | Waiver of Past Defaults | 43 |
SECTION 514. | Waiver of Stay or Extension Laws | 43 |
Article Six | ||
THE TRUSTEE | ||
SECTION 601. | Notice of Defaults | 44 |
SECTION 602. | Certain Rights of Trustee | 44 |
SECTION 603. | Not Responsible for Recitals or Issuance of Securities | 47 |
SECTION 604. | May Hold Securities | 47 |
SECTION 605. | Money Held in Trust | 47 |
SECTION 606. | Compensation and Reimbursement and Indemnification of Trustee | 48 |
SECTION 607. | Corporate Trustee Required; Eligibility | 49 |
SECTION 608. | Disqualification; Conflicting Interests | 49 |
SECTION 609. | Resignation and Removal; Appointment of Successor | 49 |
SECTION 610. | Acceptance of Appointment by Successor | 51 |
SECTION 611. | Merger, Conversion, Consolidation or Succession to Business | 52 |
SECTION 612. | Appointment of Authenticating Agent | 52 |
Article Seven | ||
HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY | ||
SECTION 701. | Company to Furnish Trustee Names and Addresses of Holders | 54 |
SECTION 702. | Preservation of Information; Communications to Holders | 54 |
SECTION 703. | Reports by Trustee | 55 |
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SECTION 704. | Reports by Company | 55 |
SECTION 705. | Calculation of Original Issue Discount | 56 |
Article Eight | ||
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER | ||
SECTION 801. | Company May Consolidate, Etc., Only on Certain Terms | 56 |
SECTION 802. | Successor Person Substituted | 56 |
Article Nine | ||
SUPPLEMENTAL INDENTURES | ||
SECTION 901. | Supplemental Indentures Without Consent of Holders | 57 |
SECTION 902. | Supplemental Indentures with Consent of Holders | 58 |
SECTION 903. | Execution of Supplemental Indentures | 59 |
SECTION 904. | Effect of Supplemental Indentures | 59 |
SECTION 905. | Conformity with Trust Indenture Act | 60 |
SECTION 906. | Reference in Securities to Supplemental Indentures | 60 |
Article Ten | ||
COVENANTS | ||
SECTION 1001. | Payment of Principal, Premium, if any, and Interest | 60 |
SECTION 1002. | Maintenance of Office or Agency | 60 |
SECTION 1003. | Money for Securities Payments to Be Held in Trust | 61 |
SECTION 1004. | Additional Amounts | 62 |
SECTION 1005. | Statement as to Compliance | 63 |
SECTION 1006. | Waiver of Certain Covenants | 63 |
Article Eleven | ||
REDEMPTION OF SECURITIES | ||
SECTION 1101. | Applicability of Article | 63 |
SECTION 1102. | Election to Redeem; Notice to Trustee | 64 |
SECTION 1103. | Selection by Trustee of Securities to Be Redeemed | 64 |
SECTION 1104. | Notice of Redemption | 65 |
SECTION 1105. | Deposit of Redemption Price | 66 |
SECTION 1106. | Securities Payable on Redemption Date | 66 |
SECTION 1107. | Securities Redeemed in Part | 66 |
Article Twelve | ||
SINKING FUNDS | ||
SECTION 1201. | Applicability of Article | 67 |
SECTION 1202. | Satisfaction of Sinking Fund Payments with Securities | 67 |
SECTION 1203. | Redemption of Securities for Sinking Fund | 68 |
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Article Thirteen | ||
REPAYMENT AT THE OPTION OF HOLDERS | ||
SECTION 1301. | Applicability of Article | 68 |
SECTION 1302. | Repayment of Securities | 68 |
SECTION 1303. | Exercise of Option | 69 |
SECTION 1304. | When Securities Presented for Repayment Become Due and Payable | 69 |
SECTION 1305. | Securities Repaid in Part | 69 |
Article Fourteen | ||
DEFEASANCE AND COVENANT DEFEASANCE | ||
SECTION 1401. | Applicability of Article; Company’s Option to Effect Defeasance or Covenant Defeasance | 70 |
SECTION 1402. | Defeasance and Discharge | 70 |
SECTION 1403. | Covenant Defeasance | 71 |
SECTION 1404. | Conditions to Defeasance or Covenant Defeasance | 71 |
SECTION 1405. | Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions | 73 |
Article Fifteen | ||
MEETINGS OF HOLDERS OF SECURITIES | ||
SECTION 1501. | Purposes for Which Meetings May Be Called | 73 |
SECTION 1502. | Call, Notice and Place of Meetings | 74 |
SECTION 1503. | Persons Entitled to Vote at Meetings | 74 |
SECTION 1504. | Quorum; Action | 74 |
SECTION 1505. | Determination of Voting Rights; Conduct and Adjournment of Meetings | 75 |
SECTION 1506. | Counting Votes and Recording Action of Meetings | 76 |
Article Sixteen | ||
SUBORDINATION OF SECURITIES | ||
SECTION 1601. | Agreement to Subordinate | 77 |
SECTION 1602. | Distribution on Dissolution, Liquidation and Reorganization; Subrogation of Subordinated Securities | 77 |
SECTION 1603. | No Payment on Subordinated Securities in Event of Default on Senior Indebtedness | 79 |
SECTION 1604. | Payments on Subordinated Securities Permitted | 79 |
SECTION 1605. | Authorization of Holders to Trustee to Effect Subordination | 79 |
SECTION 1606. | Notices to Trustee | 80 |
SECTION 1607. | Trustee as Holder of Senior Indebtedness | 80 |
SECTION 1608. | Modifications of Terms of Senior Indebtedness | 80 |
SECTION 1609. | Reliance on Judicial Order or Certificate of Liquidating Agent | 81 |
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INDENTURE, dated as of [•], 2014, between GSV CAPITAL CORP., a Maryland corporation (hereinafter called the “Company”), having its principal office at 2925 Woodside Road, Woodside, CA 94062, and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as Trustee (hereinafter called the “Trustee”), having its office at One Federal Street, 3rd Floor, Boston, MA 02110.
RECITALS OF THE COMPANY
The Company deems it necessary to issue from time to time for its lawful purposes debt securities (hereinafter called the “Securities”) evidencing its secured or unsecured indebtedness, which may or may not be convertible into or exchangeable for any securities of any Person (as defined herein) (including the Company), and has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of the Securities, to be issued in one or more series, unlimited as to principal amount, to bear such rates of interest, to mature at such times and to have such other provisions as shall be fixed as hereinafter provided.
This Indenture (as defined herein) is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions.
All things necessary to make this Indenture a valid and legally binding agreement of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities by the Holders (as defined herein) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, or of a series thereof, as follows:
Article One
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. | Definitions. |
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular and, pursuant to Section 301, any such item may, with respect to any particular series of Securities, be amended or modified or specified as being inapplicable;
(2) all other terms used herein that are defined in the Trust Indenture Act (as defined herein), either directly or by reference therein, have the meanings assigned to them therein, and the terms “cash transaction” and “self-liquidating paper”, as used in Section 311 of the Trust Indenture Act, shall have the meanings assigned to them in the rules of the Commission (as defined herein) adopted under the Trust Indenture Act;
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(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America; and
(4) the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Certain terms, used in other Articles herein, are defined in those Articles.
“Act”, when used with respect to any Holder of a Security, has the meaning specified in Section 104.
“Additional Amounts” means any additional amounts that are required by a Security or by or pursuant to a Board Resolution, under circumstances specified therein, to be paid by the Company in respect of certain taxes imposed on certain Holders and that are owing to such Holders.
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Authenticating Agent” means any authenticating agent appointed by the Trustee pursuant to Section 612 to act on behalf of the Trustee to authenticate Securities of one or more series.
“Authorized Newspaper” means a newspaper, in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day.
“Board of Directors” means the board of directors of the Company, the executive committee or any committee of that board duly authorized to act hereunder.
“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
“Business Day”, when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means, unless otherwise specified with respect to any Securities pursuant to Section 301, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in that Place of Payment or particular location are authorized or obligated by law or executive order to close.
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“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date.
“Company” means the Person named as the “Company” in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person.
“Company Request” and “Company Order” mean, respectively, a written request or order signed in the name of the Company by the Chief Executive Officer, President or a Vice President of the Company, and by the Chief Financial Officer, Chief Operating Officer, Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.
“Conversion Date” has the meaning specified in Section 312(d).
“Conversion Event” means the cessation of use of (i) a Foreign Currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community, (ii) the Euro within the Economic and Monetary Union of the European Union or (iii) any currency unit (or composite currency) other than the Euro for the purposes for which it was established.
“Corporate Trust Office” means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof for purposes of Section 1002 only is located at 60 Livingston Avenue, St. Paul, MN 55107, Attention: GSV Capital Corp., and for all other purposes is located at 1 Federal Street, 3rd Floor, Boston, MA 02110, Attention: GSV Capital Corp., or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company).
“Corporation” includes corporations, associations, companies and business trusts.
“Currency” means any currency or currencies, composite currency or currency unit or currency units issued by the government of one or more countries or by any reorganized confederation or association of such governments.
“Default” means any event that is, or after notice or passage of time or both would be, an Event of Default.
“Defaulted Interest” has the meaning specified in Section 307.
“Depository” means the clearing agency registered under the Exchange Act that is designated to act as the Depository for global Securities. DTC shall be the initial Depository, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, “Depository” shall mean or include such successor.
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“Dollar” or “ $” means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts.
“DTC” means The Depository Trust Company.
“Euro” means the euro or other equivalent unit in such official coin or currency of the European Union.
“Election Date” has the meaning specified in Section 312(h).
“Event of Default” has the meaning specified in Article Five.
“Exchange Rate Agent”, with respect to Securities of or within any series, means, unless otherwise specified with respect to any Securities pursuant to Section 301, a bank that is a member of the New York Clearing House Association, designated pursuant to Section 301 or Section 313.
“Exchange Rate Officer’s Certificate” means a certificate setting forth (i) the applicable Market Exchange Rate or the applicable bid quotation and (ii) the Dollar or Foreign Currency amounts of principal (and premium, if any) and interest, if any (on an aggregate basis and on the basis of a Security having the lowest denomination principal amount determined in accordance with Section 302 in the relevant Currency), payable with respect to a Security of any series on the basis of such Market Exchange Rate or the applicable bid quotation signed by the Chief Financial Officer or any Vice President of the Company.
“Foreign Currency” means any Currency, including, without limitation, the Euro issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments.
“Government Obligations” means securities that are (i) direct obligations of the United States of America or the government that issued the Foreign Currency in which the Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government that issued the Foreign Currency in which the Securities of such series are payable, the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt.
“Holder” means the Person in whose name a Security is registered in the Security Register.
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“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include the terms of particular series of Securities established as contemplated by Section 301; provided, however, that, if at any time more than one Person is acting as Trustee under this instrument, “Indenture” shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of the or those particular series of Securities for which such Person is Trustee established as contemplated by Section 301, exclusive, however, of any provisions or terms that relate solely to other series of Securities for which such Person is not Trustee, regardless of when such terms or provisions were adopted, and exclusive of any provisions or terms adopted by means of one or more indentures supplemental hereto executed and delivered after such Person had become such Trustee but to which such Person, as such Trustee, was not a party.
“Indexed Security” means a Security as to which all or certain interest payments and/or the principal amount payable at Maturity are determined by reference to prices, changes in prices, or differences between prices, of securities, Currencies, intangibles, goods, articles or commodities or by such other objective price, economic or other measures as are specified in or pursuant to Section 301 hereof.
“Interest”, when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity, and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 1004, includes such Additional Amounts.
“Interest Payment Date”, when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
“Market Exchange Rate” means, unless otherwise specified with respect to any Securities pursuant to Section 301, (i) for any conversion involving a currency unit on the one hand and Dollars or any Foreign Currency on the other, the exchange rate between the relevant currency unit and Dollars or such Foreign Currency calculated by the method specified pursuant to Section 301 for the Securities of the relevant series, (ii) for any conversion of Dollars into any Foreign Currency, the noon buying rate for such Foreign Currency for cable transfers quoted in New York City as certified for customs purposes by the Federal Reserve Bank of New York and (iii) for any conversion of one Foreign Currency into Dollars or another Foreign Currency, the spot rate at noon local time in the relevant market at which, in accordance with normal banking procedures, the Dollars or Foreign Currency into which conversion is being made could be purchased with the Foreign Currency from which conversion is being made from major banks located in either New York City, London or any other principal market for Dollars or such purchased Foreign Currency, in each case determined by the Exchange Rate Agent. Unless otherwise specified with respect to any Securities pursuant to Section 301, in the event of the unavailability of any of the exchange rates provided for in the foregoing clauses (i), (ii) and (iii), the Exchange Rate Agent shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York as of the most recent available date, or quotations from one or more major banks in New York City, London or other principal market for such currency or currency unit in question, or such other quotations as the Exchange Rate Agent shall deem appropriate. Unless otherwise specified by the Exchange Rate Agent, if there is more than one market for dealing in any currency or currency unit by reason of foreign exchange regulations or otherwise, the market to be used in respect of such currency or currency unit shall be that upon which a nonresident issuer of securities designated in such currency or currency unit would purchase such currency or currency unit in order to make payments in respect of such securities as determined by the Exchange Rate Agent, in its sole discretion.
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“Maturity”, when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, notice of option to elect repayment, notice of exchange or conversion or otherwise.
“Notice of Default” has the meaning provided in Section 501.
“Officers’ Certificate” means a certificate signed by the Chief Executive Officer, President or a Vice President of the Company, and by the Chief Financial Officer, Chief Operating Officer, Secretary or an Assistant Secretary of the Company, and delivered to the Trustee.
“Opinion of Counsel” means a written opinion of counsel, who may be counsel for the Company or who may be an employee of or other counsel for the Company and who shall be reasonably satisfactory to the Trustee.
“Original Issue Discount Security” means any Security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502.
“Outstanding”, when used with respect to Securities or any series of Securities, means, as of the date of determination, all Securities or all Securities of such series, as the case may be, theretofore authenticated and delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption or repayment at the option of the Holder money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections 1402 and 1403, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Fourteen;
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(iv) Securities that have been changed into any other securities of the Company or any other Person in accordance with this Indenture if the terms of such Securities provide for convertibility or exchangeability pursuant to Section 301; and
(v) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a protected purchaser in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders for quorum purposes, and for the purpose of making the calculations required by TIA Section 313, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination or calculation and that shall be deemed to be Outstanding for such purpose shall be equal to the amount of principal thereof that would be (or shall have been declared to be) due and payable, at the time of such determination, upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, (ii) the principal amount of any Security denominated in a Foreign Currency that may be counted in making such determination or calculation and that shall be deemed Outstanding for such purpose shall be equal to the Dollar equivalent, determined as of the date such Security is originally issued by the Company as set forth in an Exchange Rate Officer’s Certificate delivered to the Trustee, of the principal amount (or, in the case of an Original Issue Discount Security or Indexed Security, the Dollar equivalent as of such date of original issuance of the amount determined as provided in clause (i) above or (iii) below, respectively) of such Security, (iii) the principal amount of any Indexed Security that may be counted in making such determination or calculation and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided with respect to such Security pursuant to Section 301, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver or upon any such determination as to the presence of a quorum, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
“Paying Agent” means any Person authorized by the Company to pay the principal of (or premium, if any) or interest, if any, on any Securities on behalf of the Company.
“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof, or any other entity.
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“Place of Payment”, when used with respect to the Securities of or within any series, means the place or places where the principal of (and premium, if any) and interest, if any, on such Securities are payable as specified and as contemplated by Sections 301 and 1002.
“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
“Redemption Date”, when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture.
“Redemption Price”, when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
“Registered Security” means any Security that is registered in the Security Register.
“Regular Record Date” for the interest payable on any Interest Payment Date on the Registered Securities of or within any series means the date specified for that purpose as contemplated by Section 301, whether or not a Business Day.
“Repayment Date”, when used with respect to any Security to be repaid at the option of the Holder, means the date fixed for such repayment by or pursuant to this Indenture.
“Repayment Price”, when used with respect to any Security to be repaid at the option of the Holder, means the price at which it is to be repaid by or pursuant to this Indenture.
“Responsible Officer”, when used with respect to the Trustee, means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters and who shall have direct responsibility for the administration of this Indenture.
“Security” or “Securities” has the meaning stated in the first recital of this Indenture and, more particularly, means any Security or Securities authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, “Securities” with respect to the Indenture as to which such Person is Trustee shall have the meaning stated in the first recital of this Indenture and shall more particularly mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee.
“Security Register” and “Security Registrar” have the respective meanings specified in Section 305.
“Senior Indebtedness” means the principal of (and premium, if any) and unpaid interest on (a) indebtedness of the Company (including indebtedness of others guaranteed by the Company), whether outstanding on the date hereof or thereafter created, incurred, assumed or guaranteed, for money borrowed, that has been designated by the Company as “Senior Indebtedness” for purposes of this Indenture by a Company Order delivered to the Trustee, (b) Senior Securities, and (c) renewals, extensions, modifications and refinancings of any such indebtedness.
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“Senior Security” or “Senior Securities” means any Security or Securities designated pursuant to Section 301 as a Senior Security.
“Special Record Date” for the payment of any Defaulted Interest on the Registered Securities of or within any series means a date fixed by the Trustee pursuant to Section 307.
“Stated Maturity”, when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable, as such date may be extended pursuant to the provisions of Section 308.
“Subordinated Indebtedness” means the principal of (and premium, if any) and unpaid interest on (a) indebtedness of the Company (including indebtedness of others guaranteed by the Company), whether outstanding on the date hereof or thereafter created, incurred, assumed or guaranteed, for money borrowed, which in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such indebtedness ranks junior in right of payment to the Company’s Senior Indebtedness, equally and pari passu in right of payment with all other Subordinated Indebtedness, (b) Subordinated Securities, and (c) renewals, extensions, modifications and refinancings of any such Subordinated Indebtedness.
“Subordinated Security” or “Subordinated Securities” means any Security or Securities designated pursuant to Section 301 as a Subordinated Security.
“Subsidiary” means (1) any corporation a majority of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company, (2) any other Person (other than a corporation) in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest, or (3) a partnership in which such Person or a Subsidiary of such Person is, at the time, a general partner and in which such Person, directly or indirectly, at the date of determination thereof has a majority ownership interest. For the purposes of this definition, “voting stock” means stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.
“Trust Indenture Act” or “TIA” means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed, except as provided in Section 905.
“Trustee” means the Person named as the “Trustee” in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, “Trustee” as used with respect to the Securities of any series shall mean only the Trustee with respect to Securities of that series.
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“United States” means, unless otherwise specified with respect to any Securities pursuant to Section 301, the United States of America (including the states and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction.
“United States person” means, unless otherwise specified with respect to any Securities pursuant to Section 301, any individual who is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States, any state thereof or the District of Columbia (other than a partnership that is not treated as a United States person under any applicable Treasury regulations), any estate the income of which is subject to United States federal income taxation regardless of its source, or any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. Notwithstanding the preceding sentence, to the extent provided in the Treasury regulations, certain trusts in existence on August 20, 1996, and treated as United States persons prior to such date that elect to continue to be treated as United States persons, will also be United States persons.
“Valuation Date” has the meaning specified in Section 312(c).
“Yield to Maturity” means the yield to maturity, computed at the time of issuance of a Security (or, if applicable, at the most recent redetermination of interest on such Security) and as set forth in such Security in accordance with generally accepted United States bond yield computation principles.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 1005) shall include:
(1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such condition or covenant has been complied with; and
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(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
SECTION 103. | Form of Documents Delivered to Trustee. |
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion as to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, or a certificate or representations by counsel, unless such officer knows, or in the exercise of reasonable care should know, that the opinion, certificate or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel or certificate or representations may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information as to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations as to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of the Outstanding Securities of all series or one or more series, as the case may be, may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Fifteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1506.
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(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing or the authority of the Person executing the same may also be proved in any other reasonable manner that the Trustee deems sufficient.
(c) The ownership of Registered Securities shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders of Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, in or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Such record date shall be the record date specified in or pursuant to such Board Resolution. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, any Security Registrar, any Paying Agent, any Authenticating Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
SECTION 105. | Notices, Etc., to Trustee and Company. |
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished, filed or mailed, first-class postage prepaid in writing to or with the Trustee at its Corporate Trust Office, Attention: GSV Capital Corp. (Karen R. Beard, Vice President), or at any other address previously furnished in writing to the Company by the Trustee, or
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(2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, to the attention of its Secretary or at any other address previously furnished in writing to the Trustee by the Company.
SECTION 106. | Notice to Holders; Waiver. |
Where this Indenture provides for notice of any event to Holders of Registered Securities by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Registered Securities. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice.
If by reason of the suspension of or irregularities in regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Registered Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder.
Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication.
Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
SECTION 107. | Conflict with TIA. |
If any provision of this Indenture limits, qualifies or conflicts with a provision of the TIA that is required under the TIA to be a part of and govern this Indenture, the provision of the TIA shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the provision of the TIA shall be deemed to apply to this Indenture as so modified or only to the extent not so excluded, as the case may be.
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SECTION 108. | Effect of Headings and Table of Contents. |
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. | Successors and Assigns. |
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
SECTION 110. | Separability Clause. |
In case any provision in this Indenture or in any Security shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. | Benefits of Indenture. |
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. | Governing Law. |
This Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York without regard to principles of conflicts of laws. This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions.
SECTION 113. | Legal Holidays. |
In any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or any Security other than a provision in the Securities of any series which specifically states that such provision shall apply in lieu of this Section), payment of principal (or premium, if any) or interest, if any, need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund payment date, or at the Stated Maturity or Maturity; provided that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be.
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SECTION 114. | Submission to Jurisdiction. |
The Company hereby irrevocably submits to the non-exclusive jurisdiction of any New York state or federal court sitting in The City of New York in any action or proceeding arising out of or relating to the Indenture and the Securities of any series, and the Company hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court. The Company hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding.
Article Two
SECURITIES FORMS
SECTION 201. | Forms of Securities. |
The Registered Securities of each series, the temporary global Securities of each series, if any, and the permanent global Securities of each series, if any, shall be in substantially the forms as shall be established in one or more indentures supplemental hereto or approved from time to time by or pursuant to a Board Resolution in accordance with Section 301, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements placed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Securities may be listed, or to conform to usage.
The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
SECTION 202. | Form of Trustee’s Certificate of Authentication. |
Subject to Section 611, the Trustee’s certificate of authentication shall be in substantially the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
U.S. Bank National Association, as Trustee | ||
By | ||
Authorized Officer |
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SECTION 203. | Securities Issuable in Global Form. |
If Securities of or within a series are issuable in global form, as specified as contemplated by Section 301, then, notwithstanding clause (8) of Section 301 and the provisions of Section 302, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities of such series from time to time endorsed thereon and that the aggregate amount of Outstanding Securities of such series represented thereby may from time to time be increased or decreased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee or the Security Registrar in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 303 or 304. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee or the Security Registrar shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement, delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee or the Security Registrar the Security in global form together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 303.
Notwithstanding the provisions of Section 307, unless otherwise specified as contemplated by Section 301, payment of principal of (and premium, if any) and interest, if any, on any Security in permanent global form shall be made to the Person or Persons specified therein.
Notwithstanding the provisions of Section 309 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security, the Holder of such permanent global Security.
Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, every global Security authenticated and delivered hereunder shall bear a legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITORY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
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Article Three
THE SECURITIES
SECTION 301. | Amount Unlimited; Issuable in Series. |
The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series as Registered Securities and shall be designated as Senior Securities or Subordinated Securities. Senior Securities are unsubordinated, shall rank equally and pari passu with all of the Company’s other Senior Indebtedness and senior to all of the Company’s Subordinated Indebtedness. Subordinated Securities shall rank junior to the Company’s Senior Indebtedness and equally and pari passu with all of the Company’s other Subordinated Indebtedness. There shall be established in one or more Board Resolutions or pursuant to authority granted by one or more Board Resolutions and, subject to Section 303, set forth, or determined in the manner provided, in an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, any or all of the following, as applicable (each of which (except for the matters set forth in clauses (1), (2) and (15) below), if so provided, may be determined from time to time by the Company with respect to unissued Securities of the series when issued from time to time):
(1) the title of the Securities of the series including CUSIP numbers (which shall distinguish the Securities of such series from all other series of Securities);
(2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906, 1107 or 1305, and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder);
(3) the date or dates, or the method by which such date or dates will be determined or extended, on which the principal of the Securities of the series shall be payable;
(4) the rate or rates at which the Securities of the series shall bear interest, if any, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest will be payable and the Regular Record Date, if any, for the interest payable on any Registered Security on any Interest Payment Date, or the method by which such date shall be determined, the basis upon which such interest shall be calculated if other than that of a 360-day year of twelve 30-day months;
(5) the place or places, if any, other than or in addition to the Borough of Manhattan, The City of New York, where the principal of (and premium, if any) and interest, if any, on Securities of the series shall be payable, any Registered Securities of the series may be surrendered for registration of transfer, Securities of the series may be surrendered for exchange, where Securities of that series that are convertible or exchangeable may be surrendered for conversion or exchange, as applicable, and where notices or demands to or upon the Company in respect of the Securities of the series and this Indenture may be served;
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(6) the period or periods within which, or the date or dates on which, the price or prices at which, the Currency or Currencies in which, and other terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, if the Company is to have the option;
(7) the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which or the date or dates on which, the price or prices at which, the Currency or Currencies in which, and other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral multiple thereof, the denomination or denominations in which any Registered Securities of the series shall be issuable;
(9) if other than the Trustee, the identity of each Security Registrar and/or Paying Agent;
(10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502, upon redemption of the Securities of the series which are redeemable before their Stated Maturity, upon surrender for repayment at the option of the Holder, or which the Trustee shall be entitled to claim pursuant to Section 504 or the method by which such portion shall be determined;
(11) if other than Dollars, the Currency or Currencies in which payment of the principal of (or premium, if any) or interest, if any, on the Securities of the series shall be made or in which the Securities of the series shall be denominated and the particular provisions applicable thereto in accordance with, in addition to or in lieu of any of the provisions of Section 312;
(12) whether the amount of payments of principal of (or premium, if any) or interest, if any, on the Securities of the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more Currencies, commodities, equity indices or other indices), and the manner in which such amounts shall be determined;
(13) whether the principal of (or premium, if any) or interest, if any, on the Securities of the series are to be payable, at the election of the Company or a Holder thereof, in one or more Currencies other than that in which such Securities are denominated or stated to be payable, the period or periods within which (including the Election Date), and the terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the Currency or Currencies in which such Securities are denominated or stated to be payable and the Currency or Currencies in which such Securities are to be paid, in each case in accordance with, in addition to or in lieu of any of the provisions of Section 312;
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(14) provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence of such events as may be specified;
(15) any deletions from, modifications of or additions to the Events of Default or covenants (including any deletions from, modifications of or additions to any of the provisions of Section 1006) of the Company with respect to Securities of the series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein;
(16) whether any Securities of the series are to be issuable initially in temporary global form and whether any Securities of the series are to be issuable in permanent global form and, if so, whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series in certificated form and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 305, and the circumstances under which and the place or places where such exchanges may be made and if Securities of the series are to be issuable as a global Security, the identity of the depository for such series;
(17) the date as of which any temporary global Security representing Outstanding Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued;
(18) the Person to whom any interest on any Registered Security of the series shall be payable, if other than the Person in whose name such Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, and the extent to which, or the manner in which, any interest payable on a temporary global Security on an Interest Payment Date will be paid; and the extent to which, or the manner in which, any interest payable on a permanent global Security on an Interest Payment Date will be paid if other than in the manner provided in Section 307;
(19) the applicability, if any, of Sections 1402 and/or 1403 to the Securities of the series and any provisions in modification of, in addition to or in lieu of any of the provisions of Article Fourteen;
(20) if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and/or terms of such certificates, documents or conditions;
(21) whether, under what circumstances and the Currency in which, the Company will pay Additional Amounts as contemplated by Section 1004 on the Securities of the series to any Holder who is not a United States person (including any modification to the definition of such term) in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Securities rather than pay such Additional Amounts (and the terms of any such option);
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(22) the designation of the initial Exchange Rate Agent, if any;
(23) if the Securities of the series are to be issued upon the exercise of warrants, the time, manner and place for such Securities to be authenticated and delivered;
(24) if the Securities of the series are to be convertible into or exchangeable for any securities of any Person (including the Company), the terms and conditions upon which such Securities will be so convertible or exchangeable;
(25) if the Securities of the series are to be secured, the terms and conditions upon which such Securities will be so secured;
(26) the appointment of any calculation agent, foreign currency exchange agent or other additional agents;
(27) if the Securities of the series are to be listed on a securities exchange, the name of such exchange may be indicated; and
(28) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture or the requirements of the Trust Indenture Act).
All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above (subject to Section 303) and set forth in the Officers’ Certificate referred to above or in any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuances of additional Securities of such series.
If any of the terms of the Securities of any series are established by action taken pursuant to one or more Board Resolutions, a copy of an appropriate record of such action(s) shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers’ Certificate setting forth the terms of the Securities of such series.
SECTION 302. | Denominations. |
The Securities of each series shall be issuable in such denominations as shall be specified as contemplated by Section 301. With respect to Securities of any series denominated in Dollars, in the absence of any such provisions with respect to the Securities of any series, the Registered Securities of such series, other than Registered Securities issued in global form (which may be of any denomination) shall be issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 303. | Execution, Authentication, Delivery and Dating. |
The Securities shall be executed on behalf of the Company by its Chief Executive Officer, its President, its Chief Operating Officer, its Chief Financial Officer or any of its Vice Presidents and attested by its Secretary or any of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Securities.
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Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company, to the Trustee for authentication, together with a Company Order and an Officers’ Certificate and Opinion of Counsel in accordance with Section 102 for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If all the Securities of any series are not to be issued at one time and if the Board Resolution or supplemental indenture establishing such series shall so permit, such Company Order may set forth procedures acceptable to the Trustee for the issuance of such Securities and determining the terms of particular Securities of such series, such as interest rate, maturity date, date of issuance and date from which interest shall accrue. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and shall be fully protected in relying upon,
(i) an Opinion of Counsel stating,
(a) that the form or forms of such Securities have been established in conformity with the provisions of this Indenture;
(b) that the terms of such Securities have been established in conformity with the provisions of this Indenture; and
(c) that such Securities, when completed by appropriate insertions and executed and delivered by the Company to the Trustee for authentication in accordance with this Indenture, authenticated and delivered by the Trustee in accordance with this Indenture and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization and other similar laws of general applicability relating to or affecting the enforcement of creditors’ rights, to general equitable principles and to such other qualifications as such counsel shall conclude do not materially affect the rights of Holders of such Securities; and
(ii) an Officers’ Certificate stating, to the best of the knowledge of the signers of such certificate, that no Event of Default with respect to any of the Securities shall have occurred and be continuing.
Notwithstanding the provisions of Section 301 and of this Section 303, if all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Officers’ Certificate otherwise required pursuant to Section 301 or the Company Order, Opinion of Counsel or Officers’ Certificate otherwise required pursuant to the preceding paragraph at the time of issuance of each Security of such series, but such order, opinion and certificates, with appropriate modifications to cover such future issuances, shall be delivered at or before the time of issuance of the first Security of such series.
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If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee’s own rights, duties, obligations or immunities under the Securities and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. Notwithstanding the generality of the foregoing, the Trustee will not be required to authenticate Securities denominated in a Foreign Currency if the Trustee reasonably believes that it would be unable to perform its duties with respect to such Securities.
Each Registered Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee or an Authenticating Agent by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 310 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 304. | Temporary Securities. |
Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities that are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form.
Except in the case of temporary Securities in global form (which shall be exchanged as provided in or pursuant to a Board Resolution), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount and like tenor of definitive Securities of the same series of authorized denominations. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
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SECTION 305. | Registration, Registration of Transfer and Exchange. |
The Company shall cause to be kept at the Corporate Trust Office of the Trustee or in any office or agency of the Company in a Place of Payment a register for each series of Securities (the registers maintained in such office or in any such office or agency of the Company in a Place of Payment being herein sometimes referred to collectively as the “Security Register”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Trustee, at its Corporate Trust Office, is hereby initially appointed “Security Registrar” for the purpose of registering Registered Securities and transfers of Registered Securities on such Security Register as herein provided, and for facilitating exchanges of temporary global Securities for permanent global Securities or definitive Securities, or both, or of permanent global Securities for definitive Securities, or both, as herein provided. In the event that the Trustee shall cease to be Security Registrar, it shall have the right to examine the Security Register at all reasonable times. In acting hereunder and in connection with the Securities, the Security Registrar shall act solely as an agent of the Company, and will not thereby assume any obligations towards or relationship of agency or trust for or with any Holder.
Upon surrender for registration of transfer of any Registered Security of any series at any office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series, of any authorized denominations and of a like aggregate principal amount, bearing a number not contemporaneously outstanding and containing identical terms and provisions.
At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series, of any authorized denomination or denominations and of a like aggregate principal amount, containing identical terms and provisions, upon surrender of the Registered Securities to be exchanged at any such office or agency. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities that the Holder making the exchange is entitled to receive.
Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities that the Holder making the exchange is entitled to receive.
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Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 301, any permanent global Security shall be exchangeable only as provided in this paragraph. If any beneficial owner of an interest in a permanent global Security is entitled to exchange such interest for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified as contemplated by Section 301 and provided that any applicable notice provided in the permanent global Security shall have been given, then without unnecessary delay but in any event not later than the earliest date on which such interest may be so exchanged, the Company shall deliver to the Trustee definitive Securities in aggregate principal amount equal to the principal amount of such beneficial owner’s interest in such permanent global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such permanent global Security shall be surrendered by the depository specified as contemplated by Section 3.01 or such other depository as shall be specified in the Company Order with respect thereto to the Trustee, as the Company’s agent for such purpose, or to the Security Registrar, to be exchanged, in whole or from time to time in part, for definitive Securities of the same series without charge and the Trustee shall authenticate and deliver, in exchange for each portion of such permanent global Security, an equal aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such permanent global Security to be exchanged; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities to be redeemed and ending on the relevant Redemption Date if the Security for which exchange is requested may be among those selected for redemption. If a Registered Security is issued in exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest or interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such permanent global Security is payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar or any transfer agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney or any transfer agent duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any transfer.
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The Company shall not be required (i) to issue, register the transfer of or exchange any Security if such Security may be among those selected for redemption during a period beginning at the opening of business 15 days before selection of the Securities to be redeemed under Section 1103 and ending at the close of business on the day of the mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except, in the case of any Registered Security to be redeemed in part, the portion thereof not to be redeemed or (iii) to issue, register the transfer of or exchange any Security that has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid.
The Trustee shall have no responsibility or obligation to any beneficial owner of a global Security, a member of, or a participant in, DTC or other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption or purchase) or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Securities shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of a global Security). The rights of beneficial owners in any global Security shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.
The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among DTC participants, members or beneficial owners in any global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Neither the Trustee nor any of its agents shall have any responsibility for any actions taken or not taken by DTC.
SECTION 306. | Mutilated, Destroyed, Lost and Stolen Securities. |
If any mutilated Security is surrendered to the Trustee or the Company, together with, in proper cases, such security or indemnity as may be required by the Company or the Trustee to save each of them or any agent of either of them harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a protected purchaser, the Company shall, subject to the following paragraph, execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and principal amount, containing identical terms and provisions and bearing a number not contemporaneously outstanding.
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Notwithstanding the provisions of the previous two paragraphs, in case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company, the Paying Agent, or the Security Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee, the Paying Agent, or the Security Registrar) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. | Payment of Interest; Interest Rights Preserved; Optional Interest Reset. |
(a) Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, interest, if any, on any Registered Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided, however, that each installment of interest, if any, on any Registered Security may at the Company’s option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 309, to the address of such Person as it appears on the Security Register or (ii) transfer to an account maintained by the payee located in the United States.
Except as otherwise specified with respect to a series of Securities in accordance with the provisions of Section 301, any interest on any Registered Security of any series that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest”) shall forthwith cease to be payable to the registered Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below:
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(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Registered Security of such series and the date of the proposed payment (which shall not be less than 20 days after such notice is received by the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Registered Securities of such series at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Registered Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on the Registered Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.
(b) The provisions of this Section 307(b) may be made applicable to any series of Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) on any Security of such series may be reset by the Company on the date or dates specified on the face of such Security (each an “Optional Reset Date”). The Company may exercise such option with respect to such Security by notifying the Trustee of such exercise at least 45 but not more than 60 days prior to an Optional Reset Date for such Security. Not later than 35 days prior to each Optional Reset Date, the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of any such Security a notice (the “Reset Notice”) indicating whether the Company has elected to reset the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable), and if so (i) such new interest rate (or such new spread or spread multiplier, if applicable) and (ii) the provisions, if any, for redemption during the period from such Optional Reset Date to the next Optional Reset Date or if there is no such next Optional Reset Date, to the Stated Maturity of such Security (each such period a “Subsequent Interest Period”), including the date or dates on which or the period or periods during which and the price or prices at which such redemption may occur during the Subsequent Interest Period.
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Notwithstanding the foregoing, not later than 20 days prior to the Optional Reset Date, the Company may, at its option, revoke the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) provided for in the Reset Notice and establish a higher interest rate (or a spread or spread multiplier providing for a higher interest rate, if applicable) for the Subsequent Interest Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or such higher spread or spread multiplier providing for a higher interest rate, if applicable) to the Holder of such Security. Such notice shall be irrevocable. All Securities with respect to which the interest rate (or the spread or spread multiplier used to calculate such interest rate, if applicable) is reset on an Optional Reset Date, and with respect to which the Holders of such Securities have not tendered such Securities for repayment (or have validly revoked any such tender) pursuant to the next succeeding paragraph, will bear such higher interest rate (or such higher spread or spread multiplier providing for a higher interest rate, if applicable).
The Holder of any such Security will have the option to elect repayment by the Company of the principal of such Security on each Optional Reset Date at a price equal to the principal amount thereof plus interest accrued to such Optional Reset Date. In order to obtain repayment on an Optional Reset Date, the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders except that the period for delivery or notification to the Trustee shall be at least 25 but not more than 35 days prior to such Optional Reset Date and except that, if the Holder has tendered any Security for repayment pursuant to the Reset Notice, the Holder may, by written notice to the Trustee, revoke such tender or repayment until the close of business on the tenth day before such Optional Reset Date.
Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Security.
SECTION 308. | Optional Extension of Maturity. |
The provisions of this Section 308 may be made applicable to any series of Securities pursuant to Section 301 (with such modifications, additions or substitutions as may be specified pursuant to such Section 301). The Stated Maturity of any Security of such series may be extended at the option of the Company for the period or periods specified on the face of such Security (each an “Extension Period”) up to but not beyond the date (the “Final Maturity”) set forth on the face of such Security. The Company may exercise such option with respect to any Security by notifying the Trustee of such exercise at least 45 but not more than 60 days prior to the Stated Maturity of such Security in effect prior to the exercise of such option (the “Original Stated Maturity”). If the Company exercises such option, the Trustee shall transmit, in the manner provided for in Section 106, to the Holder of such Security not later than 35 days prior to the Original Stated Maturity a notice (the “Extension Notice”), prepared by the Company, indicating (i) the election of the Company to extend the Stated Maturity, (ii) the new Stated Maturity, (iii) the interest rate (or spread, spread multiplier or other formula to calculate such interest rate, if applicable), if any, applicable to the Extension Period and (iv) the provisions, if any, for redemption during such Extension Period. Upon the Trustee’s transmittal of the Extension Notice, the Stated Maturity of such Security shall be extended automatically and, except as modified by the Extension Notice and as described in the next paragraph, such Security will have the same terms as prior to the transmittal of such Extension Notice.
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Notwithstanding the foregoing, not later than 20 days before the Original Stated Maturity of such Security, the Company may, at its option, revoke the interest rate (or spread, spread multiplier or other formula to calculate such interest rate, if applicable) provided for in the Extension Notice and establish a higher interest rate (or spread, spread multiplier or other formula to calculate such higher interest rate, if applicable) for the Extension Period by causing the Trustee to transmit, in the manner provided for in Section 106, notice of such higher interest rate (or spread, spread multiplier or other formula to calculate such interest rate, if applicable) to the Holder of such Security. Such notice shall be irrevocable. All Securities with respect to which the Stated Maturity is extended will bear such higher interest rate.
If the Company extends the Stated Maturity of any Security, the Holder will have the option to elect repayment of such Security by the Company on the Original Stated Maturity at a price equal to the principal amount thereof, plus interest accrued to such date. In order to obtain repayment on the Original Stated Maturity once the Company has extended the Stated Maturity thereof, the Holder must follow the procedures set forth in Article Thirteen for repayment at the option of Holders, except that the period for delivery or notification to the Trustee shall be at least 25 but not more than 35 days prior to the Original Stated Maturity and except that, if the Holder has tendered any Security for repayment pursuant to an Extension Notice, the Holder may by written notice to the Trustee revoke such tender for repayment until the close of business on the tenth day before the Original Stated Maturity.
SECTION 309. | Persons Deemed Owners. |
Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee shall treat the Person in whose name such Registered Security is registered as the owner of such Registered Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest, if any, on such Registered Security and for all other purposes whatsoever, whether or not such Registered Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global temporary or permanent Security, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any depository, as a Holder, with respect to such global Security or impair, as between such depository and owners of beneficial interests in such global Security, the operation of customary practices governing the exercise of the rights of such depository (or its nominee) as Holder of such global Security.
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SECTION 310. | Cancellation. |
All Securities surrendered for payment, redemption, repayment at the option of the Holder, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities surrendered directly to the Trustee for any such purpose shall be promptly cancelled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. Cancelled Securities held by the Trustee shall be destroyed by the Trustee in accordance with its customary procedures, unless by a Company Order the Company directs the Trustee to deliver a certificate of such destruction to the Company or to return them to the Company.
SECTION 311. | Computation of Interest. |
Except as otherwise specified as contemplated by Section 301 with respect to Securities of any series, interest, if any, on the Securities of each series shall be computed on the basis of a 360-day year consisting of twelve 30-day months.
SECTION 312. | Currency and Manner of Payments in Respect of Securities. |
(a) Unless otherwise specified with respect to any Securities pursuant to Section 301, with respect to Registered Securities of any series not permitting the election provided for in paragraph (b) below or the Holders of which have not made the election provided for in paragraph (b) below, payment of the principal of (and premium, if any, on) and interest, if any, on any Registered Security of such series will be made in the Currency in which such Registered Security is payable. The provisions of this Section 312 may be modified or superseded with respect to any Securities pursuant to Section 301.
(b) It may be provided pursuant to Section 301 with respect to Registered Securities of any series that Holders shall have the option, subject to paragraphs (d) and (e) below, to receive payments of principal of (or premium, if any, on) or interest, if any, on such Registered Securities in any of the Currencies which may be designated for such election by delivering to the Trustee for such series of Registered Securities a written election with signature guarantees and in the applicable form established pursuant to Section 301, not later than the close of business on the Election Date immediately preceding the applicable payment date. If a Holder so elects to receive such payments in any such Currency, such election will remain in effect for such Holder or any transferee of such Holder until changed by such Holder or such transferee by written notice to the Trustee for such series of Registered Securities (but any such change must be made not later than the close of business on the Election Date immediately preceding the next payment date to be effective for the payment to be made on such payment date and no such change of election may be made with respect to payments to be made on any Registered Security of such series with respect to which an Event of Default has occurred or with respect to which the Company has deposited funds pursuant to Article Four or Fourteen or with respect to which a notice of redemption has been given by the Company or a notice of option to elect repayment has been sent by such Holder or such transferee). Any Holder of any such Registered Security who shall not have delivered any such election to the Trustee of such series of Registered Securities not later than the close of business on the applicable Election Date will be paid the amount due on the applicable payment date in the relevant Currency as provided in Section 312(a). The Trustee for each such series of Registered Securities shall notify the Exchange Rate Agent as soon as practicable after the Election Date of the aggregate principal amount of Registered Securities for which Holders have made such written election.
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(c) Unless otherwise specified pursuant to Section 301, if the election referred to in paragraph (b) above has been provided for pursuant to Section 301, then, not later than the fourth Business Day after the Election Date for each payment date for Registered Securities of any series, the Exchange Rate Agent will deliver to the Company a written notice specifying the Currency in which Registered Securities of such series are payable, the respective aggregate amounts of principal of (and premium, if any, on) and interest, if any, on the Registered Securities to be paid on such payment date, specifying the amounts in such Currency so payable in respect of the Registered Securities as to which the Holders of Registered Securities denominated in any Currency shall have elected to be paid in another Currency as provided in paragraph (b) above. Unless the Trustee is acting as the Exchange Rate Agent, the Trustee shall have no obligation to complete the actual exchange of distribution amounts from one Currency to another Currency. If the election referred to in paragraph (b) above has been provided for pursuant to Section 301 and if at least one Holder has made such election, then, unless otherwise specified pursuant to Section 301, on the second Business Day preceding such payment date the Company will deliver to the Trustee for such series of Registered Securities an Exchange Rate Officer’s Certificate in respect of the Dollar or Foreign Currency or Currencies payments to be made on such payment date. Unless otherwise specified pursuant to Section 301, the Dollar or Foreign Currency or Currencies amount receivable by Holders of Registered Securities who have elected payment in a Currency as provided in paragraph (b) above shall be determined by the Company on the basis of the applicable Market Exchange Rate in effect on the second Business Day (the “Valuation Date”) immediately preceding each payment date, and such determination shall be conclusive and binding for all purposes, absent manifest error.
(d) If a Conversion Event occurs with respect to a Foreign Currency in which any of the Securities are denominated or payable other than pursuant to an election provided for pursuant to paragraph (b) above, then with respect to each date for the payment of principal of (and premium, if any) and interest, if any, on the applicable Securities denominated or payable in such Foreign Currency occurring after the last date on which such Foreign Currency was used (the “Conversion Date”), the Dollar shall be the currency of payment for use on each such payment date. Unless otherwise specified pursuant to Section 301, the Dollar amount to be paid by the Company to the Trustee of each such series of Securities and by such Trustee or any Paying Agent to the Holders of such Securities with respect to such payment date shall be, in the case of a Foreign Currency other than a currency unit, the Dollar Equivalent of the Foreign Currency or, in the case of a currency unit, the Dollar Equivalent of the Currency Unit, in each case as determined by the Exchange Rate Agent in the manner provided in paragraph (f) or (g) below.
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(e) Unless otherwise specified pursuant to Section 301, if the Holder of a Registered Security denominated in any Currency shall have elected to be paid in another Currency as provided in paragraph (b) above, and a Conversion Event occurs with respect to such elected Currency, such Holder shall receive payment in the Currency in which payment would have been made in the absence of such election; and if a Conversion Event occurs with respect to the Currency in which payment would have been made in the absence of such election, such Holder shall receive payment in Dollars as provided in paragraph (d) of this Section 312.
(f) The “Dollar Equivalent of the Foreign Currency” shall be determined by the Exchange Rate Agent and shall be obtained for each subsequent payment date by converting the specified Foreign Currency into Dollars at the Market Exchange Rate on the Conversion Date.
(g) The “Dollar Equivalent of the Currency Unit” shall be determined by the Exchange Rate Agent and subject to the provisions of paragraph (h) below shall be the sum of each amount obtained by converting the Specified Amount of each Component Currency into Dollars at the Market Exchange Rate for such Component Currency on the Valuation Date with respect to each payment.
(h) For purposes of this Section 312, the following terms shall have the following meanings:
A “Component Currency” shall mean any currency which, on the Conversion Date, was a component currency of the relevant currency unit.
A “Specified Amount” of a Component Currency shall mean the number of units of such Component Currency or fractions thereof which were represented in the relevant currency unit on the Conversion Date. If after the Conversion Date the official unit of any Component Currency is altered by way of combination or subdivision, the Specified Amount of such Component Currency shall be divided or multiplied in the same proportion. If after the Conversion Date two or more Component Currencies are consolidated into a single currency, the respective Specified Amounts of such Component Currencies shall be replaced by an amount in such single currency equal to the sum of the respective Specified Amounts of such consolidated Component Currencies expressed in such single currency, and such amount shall thereafter be a Specified Amount and such single currency shall thereafter be a Component Currency. If after the Conversion Date any Component Currency shall be divided into two or more currencies, the Specified Amount of such Component Currency shall be replaced by amounts of such two or more currencies, having an aggregate Dollar Equivalent value at the Market Exchange Rate on the date of such replacement equal to the Dollar Equivalent of the Specified Amount of such former Component Currency at the Market Exchange Rate immediately before such division, and such amounts shall thereafter be Specified Amounts and such currencies shall thereafter be Component Currencies. If, after the Conversion Date of the relevant currency unit, a Conversion Event (other than any event referred to above in this definition of “Specified Amount”) occurs with respect to any Component Currency of such currency unit and is continuing on the applicable Valuation Date, the Specified Amount of such Component Currency shall, for purposes of calculating the Dollar Equivalent of the Currency Unit, be converted into Dollars at the Market Exchange Rate in effect on the Conversion Date of such Component Currency.
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An “Election Date” shall mean the Regular Record Date for the applicable series of Registered Securities or at least 16 days prior to Maturity, as the case may be, or such other prior date for any series of Registered Securities as specified pursuant to clause 13 of Section 301 by which the written election referred to in Section 312(b) may be made.
All decisions and determinations of the Exchange Rate Agent regarding the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent of the Currency Unit, the Market Exchange Rate and changes in the Specified Amounts as specified above shall be in its sole discretion and shall, in the absence of manifest error, be conclusive for all purposes and irrevocably binding upon the Company, the Trustee for the appropriate series of Securities and all Holders of such Securities denominated or payable in the relevant Currency. The Exchange Rate Agent shall promptly give written notice to the Company and the Trustee for the appropriate series of Securities of any such decision or determination.
In the event that the Company determines in good faith that a Conversion Event has occurred with respect to a Foreign Currency, the Company will immediately give written notice thereof to the Trustee of the appropriate series of Securities and to the Exchange Rate Agent (and such Trustee will promptly thereafter give notice in the manner provided in Section 106 to the affected Holders) specifying the Conversion Date. In the event the Company so determines that a Conversion Event has occurred with respect to any other currency unit in which Securities are denominated or payable, the Company will immediately give written notice thereof to the Trustee of the appropriate series of Securities and to the Exchange Rate Agent (and such Trustee will promptly thereafter give notice in the manner provided in Section 106 to the affected Holders) specifying the Conversion Date and the Specified Amount of each Component Currency on the Conversion Date. In the event the Company determines in good faith that any subsequent change in any Component Currency as set forth in the definition of Specified Amount above has occurred, the Company will similarly give written notice to the Trustee of the appropriate series of Securities and to the Exchange Rate Agent.
The Trustee of the appropriate series of Securities shall be fully justified and protected in relying and acting upon information received by it from the Company and the Exchange Rate Agent and shall not otherwise have any duty or obligation to determine the accuracy or validity of such information independent of the Company or the Exchange Rate Agent.
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SECTION 313. | Appointment and Resignation of Successor Exchange Rate Agent. |
(a) Unless otherwise specified pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of this Indenture, then the Company will engage and maintain with respect to each such series of Securities, or as so required, at least one Exchange Rate Agent. The Company will cause the Exchange Rate Agent to make the necessary foreign exchange determinations at the time and in the manner specified pursuant to Section 301 for the purpose of determining the applicable rate of exchange and, if applicable, for the purpose of converting the issued Foreign Currency into the applicable payment Currency for the payment of principal (and premium, if any) and interest, if any, pursuant to Section 312.
(b) No resignation of the Exchange Rate Agent and no appointment of a successor Exchange Rate Agent pursuant to this Section shall become effective until the acceptance of appointment by the successor Exchange Rate Agent as evidenced by a written instrument delivered to the Company and the Trustee of the appropriate series of Securities accepting such appointment executed by the successor Exchange Rate Agent.
(c) If the Exchange Rate Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Exchange Rate Agent for any cause, with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Exchange Rate Agent or Exchange Rate Agents with respect to the Securities of that or those series (it being understood that any such successor Exchange Rate Agent may be appointed with respect to the Securities of one or more or all of such series and that, unless otherwise specified pursuant to Section 301, at any time there shall only be one Exchange Rate Agent with respect to the Securities of any particular series that are originally issued by the Company on the same date and that are initially denominated and/or payable in the same Currency).
SECTION 314. | CUSIP Numbers. |
The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall indicate the respective “CUSIP” numbers of the Securities in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall advise the Trustee as promptly as practicable in writing of any change in the CUSIP numbers.
Article Four
SATISFACTION AND DISCHARGE
SECTION 401. | Satisfaction and Discharge of Indenture. |
Except as set forth below, this Indenture shall upon Company Request cease to be of further effect with respect to any series of Securities specified in such Company Request (except as to any surviving rights of registration of transfer or exchange of Securities of such series expressly provided for herein or pursuant hereto, any surviving rights of tender for repayment at the option of the Holders and any right to receive Additional Amounts, as provided in Section 1004), and the Trustee, upon receipt of a Company Order, and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series when
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(1) either
(A) all Securities of such series theretofore authenticated and delivered (other than (i) Securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities of such series for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or
(B) all Securities of such series
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, solely for the benefit of the Holders, an amount in the Currency in which the Securities of such series are payable, sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, if any, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has irrevocably paid or caused to be irrevocably paid all other sums payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee and any predecessor Trustee under Section 606, the obligations of the Company to any Authenticating Agent under Section 612 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive any termination of this Indenture.
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SECTION 402. | Application of Trust Funds. |
Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest, if any, for whose payment such money has been deposited with or received by the Trustee, but such money need not be segregated from other funds except to the extent required by law. In acting under this Indenture and in connection with the Securities, the Paying Agent shall act solely as an agent of the Company, and will not thereby assume any obligations towards or relationship of agency or trust for or with any Holder.
Article Five
REMEDIES
SECTION 501. | Events of Default. |
“Event of Default”, wherever used herein with respect to any particular series of Securities, means any one of the following events (whatever the reason for such Event of Default and whether or not it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless it is either inapplicable to a particular series or is specifically deleted or modified in or pursuant to the supplemental indenture or a Board Resolution establishing such series of Securities or is in the form of Security for such series:
(1) default in the payment of any interest upon any Security of that series when such interest becomes due and payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on) any Security of that series when it becomes due and payable at its Maturity, and continuance of such default for a period of 5 days; or
(3) default in the deposit of any sinking fund payment, when and as due by the terms of any Security of that series, and continuance of such default for a period of 5 days; or
(4) default in the performance, or breach, of any covenant or agreement of the Company in this Indenture with respect to any Security of that series (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder;
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(5) the Company, pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding under any Bankruptcy Law,
(B) consents to the commencement of any bankruptcy or insolvency case or proceeding against it, or files a petition or answer or consent seeking reorganization or relief against it,
(C) consents to the entry of a decree or order for relief against it in an involuntary case or proceeding,
(D) consents to the filing of such petition or to the appointment of or taking possession by a Custodian of the Company or for all or substantially all of its property, or
(E) makes an assignment for the benefit of creditors, or admits in writing of its inability to pay its debts generally as they become due or takes any corporate action in furtherance of any such action; or
(6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case or proceeding, or
(B) adjudges the Company bankrupt or insolvent, or approves as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, or
(C) appoints a Custodian of the Company or for all or substantially all of its property, or
(D) orders the winding up or liquidation of the Company,
and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or
(7) if, pursuant to Sections 18(a)(1)(c)(ii) and 61 of the Investment Company Act of 1940, as amended, on the last business day of each of twenty-four consecutive calendar months Securities of that series shall have an asset coverage (as such term is used in the Investment Company Act of 1940) of less than 100 per centum, giving effect to any exemptive relief granted to the Company by the Commission;
(8) any other Event of Default provided with respect to Securities of that series.
The term “Bankruptcy Law” means title 11, U.S. Code or any applicable federal or state bankruptcy, insolvency, reorganization or other similar law. The term “Custodian” means any custodian, receiver, trustee, assignee, liquidator, sequestrator or other similar official under any Bankruptcy Law.
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SECTION 502. | Acceleration of Maturity; Rescission and Annulment. |
If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may (and the Trustee shall at the request of such Holders) declare the principal (or, if any Securities are Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be specified in the terms thereof) of all the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or specified portion thereof shall become immediately due and payable.
Any application by the Trustee for written instructions from the requisite amount of Holders (as determined pursuant to this Indenture) may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions from the requisite amount of Holders (as determined pursuant to this Indenture) in response to such application specifying the action to be taken or omitted.
At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)):
(A) all overdue installments of interest, if any, on all Outstanding Securities of that series,
(B) the principal of (and premium, if any, on) all Outstanding Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Securities,
(C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the rate or rates borne by or provided for in such Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and
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(2) all Events of Default with respect to Securities of that series, other than the nonpayment of the principal of (or premium, if any) or interest on Securities of that series that have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 503. | Collection of Indebtedness and Suits for Enforcement by Trustee. |
The Company covenants that if:
(1) default is made in the payment of any installment of interest on any Security of any series when such interest becomes due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at its Maturity,
then the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of Securities of such series, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, if any, with interest upon any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest, if any, at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, the Paying Agent, and the Security Registrar.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon Securities of such series and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities of such series, wherever situated.
If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 504. | Trustee May File Proofs of Claim. |
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities of any series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any overdue principal, premium or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of principal (or in the case of Original Issue Discount Securities or Indexed Securities, such portion of the principal as may be provided for in the terms thereof) (and premium, if any) and interest, if any, owing and unpaid in respect of the Securities and to file such other papers or documents, and take such other actions, including serving on a committee of creditors, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder of Securities of such series to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and any predecessor Trustee, their agents and counsel, and any other amounts due the Trustee or any predecessor Trustee under Section 606.
Subject to Article Eight and Section 902 and unless otherwise provided as contemplated by Section 301, nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding.
SECTION 505. | Trustee May Enforce Claims Without Possession of Securities. |
All rights of action and claims under this Indenture or any of the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
The Trustee shall be entitled to participate, in its capacity as Trustee, on behalf of (and at the request of) the Holders, as a member of any official committee of creditors in the matters it deems advisable.
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SECTION 506. | Application of Money Collected. |
Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, if any, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 606 and any other agent hereunder;
SECOND: To the payment of the amounts then due and unpaid upon the Securities for principal (and premium, if any) and interest, if any, in respect of which or for the benefit of which such money has been collected, giving effect to Article XVI, if applicable, but otherwise ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities for principal (and premium, if any) and interest, if any, respectively; and
THIRD: To the payment of the remainder, if any, to the Company or any other Person or Persons entitled thereto.
SECTION 507. | Limitation on Suits. |
No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity, security, or both, reasonably satisfactory to the Trustee, against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity and/or security has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.
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SECTION 508. | Unconditional Right of Holders to Receive Principal, Premium and Interest. |
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and (subject to Sections 305 and 307) interest, if any, on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date or, in the case of repayment at the option of the Holders on the Repayment Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
SECTION 509. | Restoration of Rights and Remedies. |
If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders of Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. | Rights and Remedies Cumulative. |
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. | Delay or Omission Not Waiver. |
No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities, as the case may be.
SECTION 512. | Control by Holders of Securities. |
Subject to Section 602, the Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that
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(1) such direction shall not be in conflict with any rule of law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction
(3) the Trustee need not take any action that might involve it in personal liability or be unjustly prejudicial to the Holders of Securities of such series not consenting, and
(4) prior to taking any such action hereunder, the Trustee may demand security or indemnity reasonably satisfactory to it in accordance with Section 602.
SECTION 513. | Waiver of Past Defaults. |
Subject to Section 502, the Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to Securities of such series and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or interest, if any, on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
SECTION 514. | Waiver of Stay or Extension Laws. |
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
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Article Six
THE TRUSTEE
SECTION 601. | Notice of Defaults. |
Within 90 days after the occurrence of any Default hereunder with respect to the Securities of any series, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder known to a Responsible Officer of the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest, if any, on any Security of such series, or in the payment of any sinking or purchase fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of the Securities of such series; and provided further that in the case of any Default or breach of the character specified in Section 501 (4) with respect to the Securities of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof.
SECTION 602. | Certain Rights and Duties of Trustee. |
(1) Prior to the time when the occurrence of an Event of Default becomes known to a Responsible Officer of the Trustee and after the curing or waiving of all such Events of Default with respect to a series of Securities that may have occurred:
(a) the duties and obligations of the Trustee hereunder and with respect to the Securities of any series shall be determined solely by the express provisions of this Indenture, including without limitation Section 107 of this Indenture, and the Trustee shall not be liable with respect to the Securities except for the performance of such duties and obligations as are specifically set forth in this Indenture, including without limitation Section 107 of this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(b) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform on their face to the requirements of this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated herein).
(2) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent Person would exercise or use under the circumstances in the conduct of such person’s own affairs.
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(3) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.
(4) The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.
(5) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order (other than delivery of any Security, to the Trustee for authentication and delivery pursuant to Section 303 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution.
(6) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may require and, in the absence of bad faith on its part, rely upon a Board Resolution, an Opinion of Counsel or an Officers’ Certificate.
(7) The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(8) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities of any series pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities (including the reasonable fees and expenses of its agents and counsel) which might be incurred by it in compliance with such request or direction.
(9) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled upon reasonable notice and at reasonable times during normal business hours to examine the books, records and premises of the Company, personally or by agent or attorney.
(10) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.
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(11) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture.
(12) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person retained to act hereunder.
(13) The permissive rights of the Trustee enumerated herein shall not be construed as duties and the Trustee shall not be answerable for other than its own negligent action, its own negligent failure to act or its own willful misconduct with respect to such permissive rights.
(14) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Outstanding Securities of a series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to such Securities.
(15) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.
(16) The Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.
(17) Anything in this Indenture notwithstanding, in no event shall the Trustee be liable for special, indirect, punitive or consequential loss or damage of any kind (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(18) The Trustee shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fire; flood; terrorism; wars and other military disturbances; sabotage; epidemics; riots; interruptions; loss or malfunctions of utilities, computer (hardware or software) or communications services; accidents; labor disputes; acts of civil or military authorities and governmental action.
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Every provision of this Indenture relating to the conduct of, or affecting the liability of, or affording protection to, the Trustee shall be subject to the relevant provisions of this Section 602 and the TIA.
The Trustee shall not be required to expend or risk its own funds, give any bond or surety in respect of the performance of its powers and duties hereunder, or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
The parties hereto acknowledge that in order to help the United States government fight the funding of terrorism and money laundering activities, pursuant to Federal regulations that became effective on October 1, 2003 (Section 326 of the USA PATRIOT Act) all financial institutions are required to obtain, verify, record and update information that identifies each person establishing a relationship or opening an account. The parties to this Indenture agree that they will provide to the Trustee such information as it may request, from time to time, in order for the Trustee to satisfy the requirements of the USA PATRIOT Act, including but not limited to the name, address, tax identification number and other information that will allow it to identify the individual or entity who is establishing the relationship or opening the account and may also ask for formation documents such as articles of incorporation or other identifying documents to be provided.
SECTION 603. | Not Responsible for Recitals or Issuance of Securities. |
The recitals contained herein and in the Securities, except the Trustee’s certificate of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof.
SECTION 604. | May Hold Securities. |
The Trustee, any Paying Agent, Security Registrar, Authenticating Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such other agent.
SECTION 605. | Money Held in Trust. |
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
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SECTION 606. | Compensation and Reimbursement and Indemnification of Trustee. |
The Company agrees:
(1) To pay to the Trustee or any predecessor Trustee from time to time such compensation for all services rendered by it hereunder as has been agreed upon from time to time in writing (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust).
(2) Except as otherwise expressly provided herein, to reimburse each of the Trustee and any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee or any predecessor Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents, counsel, accountants and experts), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct.
(3) To indemnify each of the Trustee or any predecessor Trustee and their respective officers, directors, employees, representatives and agents, for, and to hold it harmless against, any loss, liability or expense incurred without negligence or willful misconduct on its own part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable fees and expenses of its agents and counsel) of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (whether asserted by any Holder, the Company or otherwise). The Trustee shall notify the Company promptly of any third-party claim for which it may seek indemnity of which it has received written notice. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder unless, and solely to the extent that, such failure materially prejudices the Company’s defense of such claim. The Company shall defend the claim, with counsel reasonably satisfactory to the Trustee, and the Trustee shall provide reasonable cooperation at the Company’s expense in the defense; provided that if the defendants in any such claim include both the Company and the Trustee and the Trustee shall have concluded that there may be legal defenses available to it which are different from or additional to those available to the Company, or the Trustee has concluded that there may be any other actual or potential conflicting interests between the Company and the Trustee, the Trustee shall have the right to select separate counsel and the Company shall be required to pay the reasonable fees and expenses of such separate counsel. Any settlement which affects the Trustee may not be entered into without the written consent of the Trustee, unless the Trustee is given a full and unconditional release from liability with respect to the claims covered thereby and such settlement does not include a statement or admission of fault, culpability or failure to act by or on behalf of the Trustee. Any settlement by the Trustee which affects the Company may not be entered into without the written consent of the Company, unless such settlement does not include a statement or admission of fault, culpability or failure to act by or on behalf of the Company.
As security for the performance of the obligations of the Company under this Section, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium, if any) or interest, if any, on particular Securities.
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When the Trustee incurs expenses or renders services after an Event of Default specified in Section 501 occurs, the expenses and compensation for such services are intended to constitute expenses of administration under Title 11, U.S. Code, or any similar Federal, State or analogous foreign law for the relief of debtors.
The provisions of this Section 606 shall survive the resignation or removal of the Trustee and the satisfaction, termination or discharge of this Indenture.
SECTION 607. | Corporate Trustee Required; Eligibility. |
There shall at all times be a Trustee hereunder that shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of Federal, State, Territorial or the District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
SECTION 608. | Disqualification; Conflicting Interests. |
If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. | Resignation and Removal; Appointment of Successor. |
(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 610. All outstanding fees, expenses and indemnities of the Trustee shall be satisfied by the Company upon resignation or removal.
(b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company.
(c) The Trustee may be removed at any time with respect to the Securities of any series by (i) the Company, by an Officers’ Certificate delivered to the Trustee, provided that contemporaneously therewith (x) the Company immediately appoints a successor Trustee with respect to the Securities of such series meeting the requirements of Section 607 hereof and (y) the terms of Section 610 hereof are complied with in respect of such appointment (the Trustee being removed hereby agreeing to execute the instrument contemplated by Section 610(b) hereof, if applicable, under such circumstances) and provided further that no Default with respect to such Securities shall have occurred and then be continuing at such time, or (ii) Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Trustee and to the Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or
(3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by or pursuant to a Board Resolution may remove the Trustee and appoint a successor Trustee with respect to all Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.
(e) If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of a notice of resignation or the delivery of an Act of removal, the Trustee resigning or being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series). If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner hereinafter provided, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to Securities of such series.
(g) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series in the manner provided for notices to the Holders of Securities in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.
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SECTION 610. | Acceptance of Appointment by Successor. |
(a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 606.
(b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and that (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. Whenever there is a successor Trustee with respect to one or more (but less than all) series of securities issued pursuant to this Indenture, the terms “Indenture” and “Securities” shall have the meanings specified in the provisos to the respective definition of those terms in Section 101 which contemplate such situation.
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(c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
SECTION 611. | Merger, Conversion, Consolidation or Succession to Business. |
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. In case any Securities shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Securities, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Securities in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation.
SECTION 612. | Appointment of Authenticating Agent. |
At any time when any of the Securities remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents (which may be an Affiliate or Affiliates of the Company) with respect to one or more series of Securities that shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue or upon exchange, registration of transfer or partial redemption thereof, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Any such appointment shall be evidenced by an instrument in writing signed by a Responsible Officer of the Trustee, a copy of which instrument shall be promptly furnished to the Company. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and, except as may otherwise be provided pursuant to Section 301, shall at all times be a bank or trust company or corporation organized and doing business and in good standing under the laws of the United States of America or of any State or the District of Columbia, authorized under such laws to act as Authenticating Agent, eligible to serve as trustee hereunder pursuant to Section 607. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
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Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time resign by giving written notice of resignation to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the agency of an Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee for such series may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall promptly give written notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve in the manner set forth in Section 106. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation including reimbursement of its reasonable expenses for its services under this Section.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee’s certificate of authentication, an alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
U.S. Bank National Association, as Trustee | ||
By: | ||
as Authenticating Agent |
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By: | ||
Authorized Officer |
If all of the Securities of a series may not be originally issued at one time, and the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested by the Company in writing (which writing need not comply with Section 102 and need not be accompanied by an Opinion of Counsel), shall appoint in accordance with this Section an Authenticating Agent (which, if so requested by the Company, shall be an Affiliate of the Company) having an office in a Place of Payment designated by the Company with respect to such series of Securities, provided that the terms and conditions of such appointment are acceptable to the Trustee.
Article Seven
HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. | Company to Furnish Trustee Names and Addresses of Holders. |
The Company will furnish or cause to be furnished to the Trustee:
(a) Semi-annually, not later than March 15 and September 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of the preceding March 1 or September 1, as the case may be; and
(b) At such other times as the Trustee may request in writing, within thirty (30) calendar days after receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) calendar days prior to the time such list is furnished;
Excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.
SECTION 702. | Preservation of Information; Communications to Holders. |
(a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any Authenticating Agent nor any Paying Agent nor any Security Registrar nor any agent of any of them shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders of Securities in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b).
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SECTION 703. | Reports by Trustee. |
Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of Securities pursuant to this Indenture, the Trustee shall transmit by mail (at the expense of the Company) to all Holders of Securities in the manner and to the extent provided in TIA Section 313(c) a brief report dated as of such May 15 which meets the requirements of TIA Section 313(a).
A copy of each such report shall, at the time of such transmission to such Holders, be filed by the Trustee with each stock exchange, if any, upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee of the listing of the Securities on any stock exchange. In the event that, on any such reporting date, no events have occurred under the applicable sections of the TIA within the 12 months preceding such reporting date, the Trustee shall be under no duty or obligation to provide such reports.
SECTION 704. | Reports by Company. |
The Company will:
(1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; and
(2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations.
Delivery of such reports, information, and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely exclusively on Officers’ Certificates). Notwithstanding anything to the contrary set forth herein, for the purposes of this Section, any information, documents or reports filed electronically with the Commission and made publicly available shall be deemed filed with and delivered to the Trustee at the same time as filed with the Commission.
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The Trustee shall transmit by mail to the Holders of Securities (at the expense of the Company), within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in TIA Section 313(c), such summaries of any information, documents and reports required to be filed by the Company pursuant to subparagraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. In no event shall the Trustee be obligated to determine whether or not any report, information or document shall have been filed with the Commission.
SECTION 705. | Calculation of Original Issue Discount. |
The Company shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount (including daily rates and accrual periods), if any, accrued on Outstanding Securities as of the end of such year.
Article Eight
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 801. | Company May Consolidate, Etc., Only on Certain Terms. |
The Company shall not consolidate with or merge with or into any other entity or convey or transfer all or substantially all of its properties and assets to any Person, unless:
(1) either the Company shall be the continuing entity, or the entity (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer the properties and assets of the Company substantially as an entirety shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest, if any, on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Default or Event of Default shall have happened and be continuing; and
(3) the Company and the successor Person have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
SECTION 802. | Successor Person Substituted. |
Upon any consolidation or merger, or any conveyance or transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor entity formed by such consolidation or into which the Company is merged or the successor Person to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company herein; and in the event of any such conveyance or transfer, the Company shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved and liquidated.
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Article Nine
SUPPLEMENTAL INDENTURES
SECTION 901. | Supplemental Indentures Without Consent of Holders. |
Without the consent of any Holders of Securities, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities contained; or
(2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); provided, however, that in respect of any such additional Events of Default such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the Holders of a majority in aggregate principal amount of that or those series of Securities to which such additional Events of Default apply to waive such default; or
(4) to change or eliminate any of the provisions of this Indenture; provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture that is entitled to the benefit of such provision; or
(5) to secure the Securities; or
(6) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301, including the provisions and procedures relating to Securities convertible into or exchangeable for any securities of any Person (including the Company); or
(7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or
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(8) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or
(9) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Sections 401, 1402 and 1403; provided that any such action shall not adversely affect the interests of the Holders of Securities of such series or any other series of Securities in any material respect.
SECTION 902. | Supplemental Indentures with Consent of Holders. |
With the consent of the Holders of not less than a majority in aggregate principal amount of all Outstanding Securities affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture that affects such series of Securities or of modifying in any manner the rights of the Holders of such series of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of (or premium, if any) or any installment of principal of or interest on, any Security, subject to the provisions of Section 308; or the terms of any sinking fund with respect to any Security; or reduce the principal amount thereof or the rate of interest (or change the manner of calculating the rate of interest, thereon, or any premium payable upon the redemption thereof, or change any obligation of the Company to pay Additional Amounts pursuant to Section 1004 (except as contemplated by Section 801(1) and permitted by Section 901(1)), or reduce the portion of the principal of an Original Issue Discount Security or Indexed Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or upon the redemption thereof or the amount thereof provable in bankruptcy pursuant to Section 504, or adversely affect any right of repayment at the option of the Holder of any Security, or change any Place of Payment where, or the Currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or the Repayment Date, as the case may be), or adversely affect any right to convert or exchange any Security as may be provided pursuant to Section 301 herein, or modify the subordination provisions set forth in Article Sixteen in a manner that is adverse to the Holder of any Outstanding Security, or
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(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver with respect to such series (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 1504 for quorum or voting, or
(3) modify any of the provisions of this Section, Section 513 or Section 1006, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder of a Security with respect to changes in the references to “the Trustee” and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 610(b) and 901(8).
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or that modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date that is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be cancelled and of no further effect.
SECTION 903. | Execution of Supplemental Indentures. |
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modification thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, in addition to the documents required by Section 102 of this Indenture, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. | Effect of Supplemental Indentures. |
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
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SECTION 905. | Conformity with Trust Indenture Act. |
Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. | Reference in Securities to Supplemental Indentures. |
Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
Article Ten
COVENANTS
SECTION 1001. | Payment of Principal, Premium, if any, and Interest. |
The Company covenants and agrees for the benefit of the Holders of each series of Securities that it will duly and punctually pay the principal of (and premium, if any, on) and interest, if any, on the Securities of that series in accordance with the terms of such series of Securities and this Indenture. Unless otherwise specified with respect to Securities of any series pursuant to Section 301, at the option of the Company, all payments of principal may be paid by check to the registered Holder of the Registered Security or other person entitled thereto against surrender of such Security.
SECTION 1002. | Maintenance of Office or Agency. |
The Company shall maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange, where Securities of that series that are convertible or exchangeable may be surrendered for conversion or exchange, as applicable, and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of each such office or agency. If at any time the Company shall fail to maintain any such required office or agency in respect of any series of Securities or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee at its Corporate Trust Office as its agent to receive such respective presentations, surrenders, notices and demands.
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The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in accordance with the requirements set forth above for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Unless otherwise specified with respect to any Securities pursuant to Section 301 with respect to a series of Securities, the Company hereby designates as a Place of Payment for each series of Securities the office or agency of the Company in the Borough of Manhattan, The City of New York, and initially appoints the Trustee at its Corporate Trust Office in the Borough of Manhattan, The City of New York as its agent to receive all such presentations, surrenders, notices and demands.
Unless otherwise specified with respect to any Securities pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a currency other than Dollars or (ii) may be payable in a currency other than Dollars, or so long as it is required under any other provision of the Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one Exchange Rate Agent.
SECTION 1003. | Money for Securities Payments to Be Held in Trust. |
If the Company shall at any time act as its own Paying Agent with respect to any series of any Securities, it will, on or before each due date of the principal of (or premium, if any) or interest, if any, on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)), sufficient to pay the principal (and premium, if any) and interest, if any, on Securities of such series so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or before each due date of the principal of (or premium, if any) or interest, if any, on any Securities of that series, deposit with a Paying Agent a sum (in the Currency or Currencies described in the preceding paragraph) sufficient to pay the principal (or premium, if any) or interest, if any, so becoming due, such sum of money to be held in trust for the benefit of the Persons entitled to such principal, premium or interest and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums of money held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums.
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Except as otherwise provided in the Securities of any series, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest, if any, on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company upon Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such money held in trust, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. | Additional Amounts. |
If the Securities of a series provide for the payment of Additional Amounts, the Company will pay to the Holder of any Security of such series such Additional Amounts as may be specified as contemplated by Section 301. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of (or premium, if any) or interest, if any, on any Security of any series or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided for by the terms of such series established pursuant to Section 301 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made.
Except as otherwise specified as contemplated by Section 301, if the Securities of a series provide for the payment of Additional Amounts, at least 10 days prior to the first Interest Payment Date with respect to that series of Securities (or if the Securities of that series will not bear interest prior to Maturity, the first day on which a payment of principal premium is made), and at least 10 days prior to each date of payment of principal, premium or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers’ Certificate, the Company will furnish the Trustee and the Company’s principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers’ Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal, premium or interest on the Securities of that series shall be made to Holders of Securities of that series who are not United States persons without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of that series. If any such withholding shall be required, then such Officers’ Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities of that series and the Company will pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. In the event that the Trustee or any Paying Agent, as the case may be, shall not so receive the above-mentioned certificate, then the Trustee or such Paying Agent shall be entitled (i) to assume that no such withholding or deduction is required with respect to any payment of principal or interest with respect to any Securities of a series until it shall have received a certificate advising otherwise and (ii) to make all payments of principal and interest with respect to the Securities of a series without withholding or deductions until otherwise advised. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers’ Certificate furnished pursuant to this Section or in reliance on the Company’s not furnishing such an Officers’ Certificate.
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SECTION 1005. | Statement as to Compliance. |
(1) The Company will deliver to the Trustee, within 120 days after the end of each fiscal year ending after the date hereof (which fiscal year ends on December 31), so long as any Security is Outstanding hereunder, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer of the Company as to his or her knowledge of the Company’s compliance with all conditions and covenants under this Indenture. For purposes of this Section 1005, such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture.
(2) The Company will, so long as any series of Securities are Outstanding, deliver to the Trustee, within 5 Business Days of any officer listed in (1) above becoming aware of any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture, an Officers’ Certificate specifying such Default, Event of Default, default or event of default and what action the Company is taking or proposes to take with respect thereto and the status thereof.
SECTION 1006. | Waiver of Certain Covenants. |
As specified pursuant to Section 301(15), for Securities of any series, the Company may omit in any particular instance to comply with any covenant or condition set forth in any covenants of the Company added to Article Ten pursuant to Section 301(14) or Section 301 (15) in connection with the Securities of a series, if before or after the time for such compliance the Holders of at least a majority in aggregate principal amount of all Outstanding Securities of such series, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect.
Article Eleven
REDEMPTION OF SECURITIES
SECTION 1101. | Applicability of Article. |
Securities of any series that are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.
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SECTION 1102. | Election to Redeem; Notice to Trustee. |
The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), an Officers’ Certificate notifying the Trustee in writing of such Redemption Date and of the principal amount of Securities of such series to be redeemed, and, if applicable, of the tenor of the Securities to be redeemed, and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 1103. In the case of any redemption of Securities of any series prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers’ Certificate evidencing compliance with such restriction.
SECTION 1103. | Selection by Trustee of Securities to Be Redeemed. |
If less than all the Securities of any series issued on the same day with the same terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee in compliance with the requirements of DTC, from the Outstanding Securities of such series issued on such date with the same terms not previously called for redemption, in compliance with the requirements of the principal national securities exchange on which the Securities are listed (if the Securities are listed on any national securities exchange), or if the Securities are not held through DTC or listed on any national securities exchange, or DTC prescribed no method of selection, on a pro rata basis, or by such method as the Trustee shall deem fair and appropriate and subject to and otherwise in accordance with the procedures of the applicable Depository; provided that such method complies with the rules of any national securities exchange or quotation system on which the Securities are listed, and may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than the minimum authorized denomination for Securities of such series.
The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed.
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SECTION 1104. | Notice of Redemption. |
Notice of redemption shall be given in the manner provided in Section 106, not less than 30 days nor more than 60 days prior to the Redemption Date, unless a shorter period is specified by the terms of such series established pursuant to Section 301, to each Holder of Securities to be redeemed, but failure to give such notice in the manner herein provided to the Holder of any Security designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other such Security or portion thereof.
Any notice that is mailed to the Holders of Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and accrued interest, if any, to the Redemption Date payable as provided in Section 1106,
(3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice that relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder will receive, without a charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date, the Redemption Price and accrued interest, if any, to the Redemption Date payable as provided in Section 1106 will become due and payable upon each such Security, or the portion thereof, to be redeemed and, if applicable, that interest thereon shall cease to accrue on and after said date,
(6) the Place or Places of Payment where such Securities, are to be surrendered for payment of the Redemption Price and accrued interest, if any,
(7) that the redemption is for a sinking fund, if such is the case, and
(8) the CUSIP number of such Security, if any.
A notice of redemption published as contemplated by Section 106 need not identify particular Registered Securities to be redeemed. Notice of redemption of Securities to be redeemed shall be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company.
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SECTION 1105. | Deposit of Redemption Price. |
On or prior to 10:00 am, New York City time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, which it may not do in the case of a sinking fund payment under Article Twelve, segregate and hold in trust as provided in Section 1003) an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) sufficient to pay on the Redemption Date the Redemption Price of, and (unless otherwise specified pursuant to Section 301) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date; provided, however, that to the extent any such funds are received by the Trustee or a Paying Agent from the Company after 10:00 am, New York City time, on the due date, such funds will be deemed deposited within one Business Day of receipt thereof.
SECTION 1106. | Securities Payable on Redemption Date. |
Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest, if any) such Securities shall if the same were interest-bearing cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that unless otherwise specified as contemplated by Section 301, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the Redemption Price shall, until paid, bear interest from the Redemption Date at the rate of interest set forth in such Security or, in the case of an Original Issue Discount Security, at the Yield to Maturity of such Security.
SECTION 1107. | Securities Redeemed in Part. |
Any Registered Security that is to be redeemed only in part (pursuant to the provisions of this Article or of Article Twelve) shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security at the expense of the Company and without service charge a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a temporary global Security or permanent global Security is so surrendered, such new Security so issued shall be a new temporary global Security or permanent global Security, respectively. However, if less than all the Securities of any series with differing issue dates, interest rates and stated maturities are to be redeemed, the Company in its sole discretion shall select the particular Securities to be redeemed and shall notify the Trustee in writing thereof at least 45 days prior to the relevant redemption date.
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Article Twelve
SINKING FUNDS
SECTION 1201. | Applicability of Article. |
The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “mandatory sinking fund payment”, and any payment in excess of such minimum amount provided for by the terms of such Securities of any series is herein referred to as an “optional sinking fund payment”. If provided for by the terms of any Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.
SECTION 1202. | Satisfaction of Sinking Fund Payments with Securities. |
The Company may, in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of a series, (1) deliver Outstanding Securities of such series (other than any previously called for redemption) and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, as provided for by the terms of such Securities; provided that such Securities so delivered or applied as a credit have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the applicable Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly.
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SECTION 1203. | Redemption of Securities for Sinking Fund. |
Not less than 60 days prior to each sinking fund payment date for Securities of any series, the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so delivered and credited. If such Officers’ Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107.
Article Thirteen
REPAYMENT AT THE OPTION OF HOLDERS
SECTION 1301. | Applicability of Article. |
Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities and (except as otherwise specified by the terms of such series established pursuant to Section 301) in accordance with this Article.
SECTION 1302. | Repayment of Securities. |
Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at the Repayment Price thereof, together with interest, if any, thereon accrued to the Repayment Date specified in or pursuant to the terms of such Securities. The Company covenants that on or before 10:00 am, New York City time, on the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series and except, if applicable, as provided in Sections 312(b), 312(d) and 312(e)) sufficient to pay the Repayment Price of, and (unless otherwise specified pursuant to Section 301) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date; provided, however, that to the extent any such funds are received by the Trustee or a Paying Agent from the Company after 10:00 a.m., New York City time, on the due date, such funds will be distributed to the Holders within one Business Day of receipt thereof.
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SECTION 1303. | Exercise of Option. |
Securities of any series subject to repayment at the option of the Holders thereof will contain an “Option to Elect Repayment” form on the reverse of such Securities. To be repaid at the option of the Holder, any Security so providing for such repayment, with the “Option to Elect Repayment” form on the reverse of such Security duly completed by the Holder (or by the Holder’s attorney duly authorized in writing), must be received by the Company at the Place of Payment therefor specified in the terms of such Security (or at such other place or places of which the Company shall from time to time notify the Holders of such Securities) not earlier than 45 days nor later than 30 days prior to the Repayment Date. If less than the entire Repayment Price of such Security is to be repaid in accordance with the terms of such Security, the portion of the Repayment Price of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of such Security surrendered that is not to be repaid, must be specified. Any Security providing for repayment at the option of the Holder thereof may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security providing for repayment at the option of the Holder thereof, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company.
SECTION 1304. | When Securities Presented for Repayment Become Due and Payable. |
If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest. Upon surrender of any such Security for repayment in accordance with such provisions, the Repayment Price of such Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, however, that installments of interest on Registered Securities, whose Stated Maturity is prior to (or, if specified pursuant to Section 301, on) the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.
If any Security surrendered for repayment shall not be so repaid upon surrender thereof, the Repayment Price shall, until paid, bear interest from the Repayment Date at the rate of interest set forth in such Security or, in the case of an Original Issue Discount Security, at the Yield to Maturity of such Security.
SECTION 1305. | Securities Repaid in Part. |
Upon surrender of any Registered Security that is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company, a new Registered Security or Securities of the same series, and of like tenor, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered that is not to be repaid. If a temporary global Security or permanent global Security is so surrendered, such new Security so issued shall be a new temporary global Security or a new permanent global Security, respectively.
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Article Fourteen
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. | Applicability of Article; Company’s Option to Effect Defeasance or Covenant Defeasance. |
If pursuant to Section 301 provision is made for either or both of (a) defeasance of the Securities of or within a series under Section 1402 or (b) covenant defeasance of the Securities of or within a series under Section 1403, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article (with such modifications thereto as may be specified pursuant to Section 301 with respect to any Securities), shall be applicable to such Securities, and the Company may at its option by Board Resolution, at any time, with respect to such Securities, elect to have either Section 1402 (if applicable) or Section 1403 (if applicable) be applied to such Outstanding Securities upon compliance with the conditions set forth below in this Article.
SECTION 1402. | Defeasance and Discharge. |
Upon the Company’s exercise of the above option applicable to this Section with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter, “defeasance”). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Outstanding Securities, which shall thereafter be deemed to be “Outstanding” only for the purposes of Section 1405 and the other Sections of this Indenture referred to in clauses (A) and (B) of this Section, and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Outstanding Securities to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any, on) and interest, if any, on such Securities when such payments are due, (B) the Company’s obligations with respect to such Securities under Sections 305, 306, 1002 and 1003 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 1004, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article. Subject to compliance with this Article Fourteen, the Company may exercise its option under this Section notwithstanding the prior exercise of its option under Section 1403 with respect to such Securities. Following a defeasance, payment of such Securities may not be accelerated because of an Event of Default.
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SECTION 1403. | Covenant Defeasance. |
Upon the Company’s exercise of the above option applicable to this Section with respect to any Securities of or within a series, if specified pursuant to Section 301, the Company shall be released from its obligations under any covenant, with respect to such Outstanding Securities on and after the date the conditions set forth in Section 1404 are satisfied (hereinafter, “covenant defeasance”), and such Securities shall thereafter be deemed to be not “Outstanding” for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenant, but shall continue to be deemed “Outstanding” for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 501(4) or 501(8) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. Following a covenant defeasance, payment of such Securities may not be accelerated because of an Event of Default solely by reference to such Sections specified above in this Section 1403.
SECTION 1404. | Conditions to Defeasance or Covenant Defeasance. |
The following shall be the conditions to application of either Section 1402 or Section 1403 to any Outstanding Securities of or within a series:
(a) The Company shall have irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Fourteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for the benefit of, and dedicated solely to, the Holders of such Securities, (1) an amount (in such Currency in which such Securities are then specified as payable at Stated Maturity), or (2) Government Obligations applicable to such Securities (determined on the basis of the Currency in which such Securities are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any, on) and interest, if any, on such Securities, money in an amount, or (3) a combination thereof in an amount, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any, on) and interest, if any, on such Outstanding Securities on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities.
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(b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound.
(c) No Default or Event of Default with respect to such Securities shall have occurred and be continuing on the date of such deposit or, insofar as Sections 501(5) and 501(6) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period).
(d) In the case of an election under Section 1402, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred.
(e) In the case of an election under Section 1403, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred.
(f) The Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to either the defeasance under Section 1402 or the covenant defeasance under Section 1403 (as the case may be) have been complied with and an Opinion of Counsel to the effect that as a result of a deposit pursuant to subsection (a) above and the related exercise of the Company’s option under Section 1402 or Section 1403 (as the case may be), registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the trustee for such trust funds.
(g) Notwithstanding any other provisions of this Section, such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301.
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SECTION 1405. | Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. |
Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1405, the “Trustee”) pursuant to Section 1404 in respect of any Outstanding Securities of any series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, if any, but such money need not be segregated from other funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to Section 301, if, after a deposit referred to in Section 1404(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 312(b) or the terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 1404(a) has been made in respect of such Security, or (b) a Conversion Event occurs as contemplated in Section 312(d) or 312(e) or by the terms of any Security in respect of which the deposit pursuant to Section 1404(a) has been made, the indebtedness represented by such Security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any, on) and interest, if any, on such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on the applicable Market Exchange Rate for such Currency in effect on the second Business Day prior to each payment date, except, with respect to a Conversion Event, such conversion shall be based on the applicable Market Exchange Rate for such Currency in effect (as nearly as feasible) at the time of the Conversion Event.
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or Government Obligations deposited pursuant to Section 1404 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 1404 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Article.
Article Fifteen
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. | Purposes for Which Meetings May Be Called. |
A meeting of Holders of any series of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series.
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SECTION 1502. | Call, Notice and Place of Meetings. |
(a) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 1501, to be held at such time and at such place in the Borough of Manhattan, The City of New York as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106.
(b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1501, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication or mailing of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section.
SECTION 1503. | Persons Entitled to Vote at Meetings. |
To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
SECTION 1504. | Quorum; Action. |
The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; provided, however, that if any action is to be taken at such meeting with respect to a consent, waiver, request, demand, notice, authorization, direction or other action that this Indenture expressly provides may be made, given or taken by the Holders of not less than a specified percentage in principal amount of the Outstanding Securities of a series, the Persons entitled to vote such specified percentage in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1502(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of any adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum.
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Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 902, any resolution with respect to any consent, waiver, request, demand, notice, authorization, direction or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of that series.
Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series, whether or not present or represented at the meeting.
Notwithstanding the foregoing provisions of this Section 1504, if any action is to be taken at a meeting of Holders of Securities of any series with respect to any consent, waiver, request, demand, notice, authorization, direction or other action that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all Outstanding Securities affected thereby, or of the Holders of such series and one or more additional series:
(i) there shall be no minimum quorum requirement for such meeting; and
(ii) the principal amount of the Outstanding Securities of such series that vote in favor of such consent, waiver, request, demand, notice, authorization, direction or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Indenture.
SECTION 1505. | Determination of Voting Rights; Conduct and Adjournment of Meetings. |
(a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of a series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof.
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(b) The Trustee shall, by an instrument in writing appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1502(b), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting.
(c) At any meeting of Holders, each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of the Outstanding Securities of such series held or represented by such Holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy.
(d) Any meeting of Holders of Securities of any series duly called pursuant to Section 1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting, and the meeting may be held as so adjourned without further notice.
SECTION 1506. | Counting Votes and Recording Action of Meetings. |
The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities of any Series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the fact, setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.
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Article Sixteen
SUBORDINATION OF SECURITIES
SECTION 1601. | Agreement to Subordinate. |
The Company, for itself, its successors and assigns, covenants and agrees, and each Holder of Subordinated Securities by his acceptance thereof, likewise covenants and agrees, that the payment of the principal of (and premium, if any) and interest, if any, on each and all of the Subordinated Securities is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all Senior Indebtedness.
SECTION 1602. | Distribution on Dissolution, Liquidation and Reorganization; Subrogation of Subordinated Securities. |
Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise (subject to the power of a court of competent jurisdiction to make other equitable provision reflecting the rights conferred in this Indenture upon the
Senior Indebtedness and the holders thereof with respect to the Securities and the holders thereof by a lawful plan of reorganization under applicable bankruptcy law):
(a) the holders of all Senior Indebtedness shall be entitled to receive payment in full of the principal thereof (and premium, if any) and interest due thereon (including post-petition interest) before the Holders of the Subordinated Securities are entitled to receive any payment upon the principal (or premium, if any) or interest, if any, on indebtedness evidenced by the Subordinated Securities; and
(b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article Sixteen shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the principal of (and premium, if any) and interest on the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and
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(c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or the Holders of the Subordinated Securities before all Senior Indebtedness is paid in full, such payment or distribution shall be paid over, upon written notice to the Trustee, to the holder of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instrument evidencing any of such Senior Indebtedness may have been issued, ratably as aforesaid, for application to payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the Holders of the Subordinated Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to Senior Indebtedness until the principal of (and premium, if any, on) and interest, if any, on the Subordinated Securities shall be paid in full and no such payments or distributions to the Holders of the Subordinated Securities of cash, property or securities otherwise distributable to the holders of Senior Indebtedness shall, as between the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Subordinated Securities be deemed to be a payment by the Company to or on account of the Subordinated Securities. It is understood that the provisions of this Article Sixteen are and are intended solely for the purpose of defining the relative rights of the Holders of the Subordinated Securities, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article Sixteen or elsewhere in this Indenture or in the Subordinated Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Subordinated Securities, the obligation of the Company, which is unconditional and absolute, to pay to the Holders of the Subordinated Securities the principal of (and premium, if any) and interest, if any, on the Subordinated Securities as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the Holders of the Subordinated Securities and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein or in the Subordinated Securities prevent the Trustee or the Holder of any Subordinated Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Sixteen of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Sixteen, the Trustee, subject to the provisions of Section 601, shall be entitled to rely upon a certificate of the liquidating trustee or agent or other person making any distribution to the Trustee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Sixteen.
If the Trustee or any Holder of Subordinated Securities does not file a proper claim or proof of debt in the form required in any proceeding referred to above prior to 30 days before the expiration of the time to file such claim in such proceeding, then the holder of any Senior Indebtedness is hereby authorized, and has the right, to file an appropriate claim or claims for or on behalf of such Holder of Subordinated Securities.
With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee does not owe any fiduciary duties to the holders of Senior Indebtedness other than Securities issued under this Indenture.
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SECTION 1603. | No Payment on Subordinated Securities in Event of Default on Senior Indebtedness. |
No payment by the Company on account of principal (or premium, if any), sinking funds or interest, if any, on the Subordinated Securities shall be made unless full payment of amounts then due for principal (premium, if any), sinking funds and interest on Senior Indebtedness has been made or duly provided for in money or money’s worth.
SECTION 1604. | Payments on Subordinated Securities Permitted. |
Nothing contained in this Indenture or in any of the Subordinated Securities shall (a) affect the obligation of the Company to make, or prevent the Company from making, at any time except as provided in Sections 1602 and 1603, payments of principal of (or premium, if any) or interest, if any, on the Subordinated Securities, (b) without limiting clause (c) of this sentence, prevent the application by the Trustee of any moneys deposited with it hereunder to the payment of or on account of the principal of (or premium, if any) or interest, if any, on the Subordinated Securities, unless the Trustee shall have received at its Corporate Trust Office written notice of any event prohibiting the making of such payment more than three Business Days prior to the date fixed for such payment or (c) prevent the application by the Trustee of any moneys or the proceeds of Government Obligations deposited with it pursuant to Section 1404(a) to the payment of or on account of the principal of (or premium, if any, on) or interest, if any, on the Subordinated Securities if all the conditions specified in Section 1404 to the application of Section 1402 or Section 1403, as applicable, have been satisfied prior to the date the Trustee shall have received at its Corporate Trust Office written notice of any event prohibiting the making of such payment.
SECTION 1605. | Authorization of Holders to Trustee to Effect Subordination. |
Each Holder of Subordinated Securities by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article Sixteen and appoints the Trustee his attorney-in-fact for any and all such purposes.
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SECTION 1606. | Notices to Trustee. |
Notwithstanding the provisions of this Article or any other provisions of this Indenture, neither the Trustee nor any Paying Agent (other than the Company) shall be charged with knowledge of the existence of any Senior Indebtedness or of any event that would prohibit the making of any payment of moneys to or by the Trustee or such Paying Agent, unless and until the Trustee or such Paying Agent shall have received (in the case of the Trustee, at its Corporate Trust Office) written notice thereof from the Company or from the holder of any Senior Indebtedness or from the trustee for any such holder, together with proof satisfactory to the Trustee of such holding of Senior Indebtedness or of the authority of such trustee; provided, however, that if at least three Business Days prior to the date upon which by the terms hereof any such moneys may become payable for any purpose (including, without limitation, the payment of either the principal (or premium, if any) or interest, if any, on any Subordinated Security) the Trustee shall not have received with respect to such moneys the notice provided for in this Section 1606, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary, which may be received by it within three Business Days prior to such date. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such a notice has been given by a holder of Senior Indebtedness or a trustee on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Sixteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Sixteen and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.
SECTION 1607. | Trustee as Holder of Senior Indebtedness. |
The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Sixteen in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder.
Nothing in this Article Sixteen shall apply to claims of, or payments to, the Trustee under or pursuant to Section 606.
SECTION 1608. | Modifications of Terms of Senior Indebtedness. |
Any renewal or extension of the time of payment of any Senior Indebtedness or the exercise by the holders of Senior Indebtedness of any of their rights under any instrument creating or evidencing Senior Indebtedness, including, without limitation, the waiver of default thereunder, may be made or done all without notice to or assent from the Holders of the Subordinated Securities or the Trustee.
No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness is outstanding or of such Senior Indebtedness, whether or not any of the foregoing are in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Article Sixteen or of the Subordinated Securities relating to the subordination thereof.
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SECTION 1609. | Reliance on Judicial Order or Certificate of Liquidating Agent. |
Upon any payment or distribution of assets of the Company referred to in this Article Sixteen, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of Subordinated Securities, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Sixteen.
* * * * *
This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. The exchange of copies of this Indenture and delivery of signature pages by facsimile, .pdf transmission, e-mail or other electronic means shall constitute effective execution and delivery of this Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile, .pdf transmission, e-mail or other electronic means shall be deemed to be their original signatures for all purposes.
81 |
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written.
GSV CAPITAL CORP. | ||
By: | ||
Name: Michael T. Moe | ||
Title: Chief Executive Officer | ||
U.S. BANK NATIONAL ASSOCIATION, | ||
as Trustee | ||
By: | ||
Name: Karen R. Beard | ||
Title: Vice President |
[Signature Page to Indenture]
Exhibit d.4
securities and exchange commission
Washington, D.C. 20549
__________________________
FORM T-1
Statement of Eligibility Under
The Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility of
a Trustee Pursuant to Section 305(b)(2)
_______________________________________________________
U.S. BANK NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
31-0841368
I.R.S. Employer Identification No.
800 Nicollet Mall Minneapolis, Minnesota |
55402 | |
(Address of principal executive offices) | (Zip Code) |
Karen R. Beard
U.S. Bank National Association
One Federal Street – 3rd Floor
Boston, MA 02110
(617) 603-6565
(Name, address and telephone number of agent for service)
GSV Capital Corp.
(Issuer with respect to the Securities)
Maryland | 27-4443543 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2925 Woodside Road Woodside, California |
94062 | |
(Address of Principal Executive Offices) | (Zip Code) |
Debt Securities
(Title of the Indenture Securities)
FORM T-1
Item 1. | GENERAL INFORMATION. Furnish the following information as to the Trustee. |
a) | Name and address of each examining or supervising authority to which it is subject. |
Comptroller of the Currency
Washington, D.C.
b) | Whether it is authorized to exercise corporate trust powers. |
Yes
Item 2. | AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. |
None |
Items 3-15 | Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee. |
Item 16. | LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification. |
1. | A copy of the Articles of Association of the Trustee.* |
2. | A copy of the certificate of authority of the Trustee to commence business, attached as Exhibit 2. |
3. | A copy of the certificate of authority of the Trustee to exercise corporate trust powers, attached as Exhibit 3. |
4. | A copy of the existing bylaws of the Trustee.** |
5. | A copy of each Indenture referred to in Item 4. Not applicable. |
6. | The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6. |
7. | Report of Condition of the Trustee as of September 30, 2013 published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7. |
* Incorporated by reference to Exhibit 25.1 to Amendment No. 2 to registration statement on S-4, Registration Number 333-128217 filed on November 15, 2005.
** Incorporated by reference to Exhibit 25.1 to registration statement on S-4, Registration Number 333-166527 filed on May 5, 2010.
2 |
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston, Commonwealth of Massachusetts on the 14th of January, 2014.
By: | /s/ Karen R. Beard | ||
Karen R. Beard | |||
Vice President |
3 |
Exhibit 2
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219
CERTIFICATE OF CORPORATE EXISTENCE
I, Thomas J. Curry, Comptroller of the Currency, do hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq, as amended, and 12 USC 1, et seq, as amended, has possession, custody, and control of all records pertaining to the chartering, regulation, and supervision of all national banking associations.
2. “U.S. Bank National Association,” Cincinnati, Ohio (Charter No. 24), is a national banking association formed under the laws of the United States and is authorized thereunder to transact the business of banking on the date of this certificate.
IN TESTIMONY WHEREOF, today, February 27, 2013, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the U.S. Department of the Treasury, in the City of Washington, District of Columbia. | |
Comptroller of the Currency |
4 |
Exhibit 3
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219
CERTIFICATION OF FIDUCIARY POWERS
I, Thomas J. Curry, Comptroller of the Currency, do hereby certify that:
1. The Office of the Comptroller of the Currency, pursuant to Revised Statutes 324, et seq, as amended, and 12 USC 1, et seq, as amended, has possession, custody, and control of all records pertaining to the chartering, regulation, and supervision of all national banking associations.
2. “U.S. Bank National Association,” Cincinnati, Ohio (Charter No. 24), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of the Act of Congress approved September 28, 1962, 76 Stat. 668, 12 USC 92a, and that the authority so granted remains in full force and effect on the date of this certificate.
IN TESTIMONY WHEREOF, today, February 27, 2013, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the U.S. Department of the Treasury, in the City of Washington, District of Columbia. | |
Comptroller of the Currency |
5 |
Exhibit 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor.
Dated: January 14, 2014
By: | /s/ Karen R. Beard | ||
Karen R. Beard | |||
Vice President |
6 |
Exhibit 7
U.S. Bank National Association
Statement of Financial Condition
As of 9/30/2013
($000’s)
9/30/2013 | ||||
Assets | ||||
Cash and Balances Due From | $ | 11,611,724 | ||
Depository Institutions | ||||
Securities | 75,731,096 | |||
Federal Funds | 109,251 | |||
Loans & Lease Financing Receivables | 229,278,111 | |||
Fixed Assets | 4,752,165 | |||
Intangible Assets | 13,284,803 | |||
Other Assets | 21,823,306 | |||
Total Assets | $ | 356,590,456 | ||
Liabilities | ||||
Deposits | $ | 269,648,386 | ||
Fed Funds | 2,649,382 | |||
Treasury Demand Notes | 0 | |||
Trading Liabilities | 377,760 | |||
Other Borrowed Money | 27,410,355 | |||
Acceptances | 0 | |||
Subordinated Notes and Debentures | 4,836,320 | |||
Other Liabilities | 11,663,931 | |||
Total Liabilities | $ | 316,586,134 | ||
Equity | ||||
Common and Preferred Stock | 18,200 | |||
Surplus | 14,231,285 | |||
Undivided Profits | 24,168,331 | |||
Minority Interest in Subsidiaries | $ | 1,586,506 | ||
Total Equity Capital | $ | 40,004,322 | ||
Total Liabilities and Equity Capital | $ | 356,590,456 |
7 |
Exhibit (l)
[Letterhead of Sutherland Asbill & Brennan LLP]
January 17, 2014
GSV Capital Corp.
2925 Woodside Road
Woodside, CA 94062
Re: |
GSV Capital Corp. Registration Statement on Form N-2 |
Ladies and Gentlemen:
We have acted as counsel to GSV Capital Corp., a Maryland corporation (the “Company”), in connection with the preparation and filing by the Company with the Securities and Exchange Commission (the “Commission”) of a registration statement on Form N-2 on September 23, 2013 (as amended from time to time, the “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the offer, issuance and sale from time to time pursuant to Rule 415 under the Securities Act of up to $400,000,000 in aggregate offering amount of (i) shares (“Common Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”), (ii) shares of preferred stock of the Company (“Preferred Shares”), (iii) subscription rights to purchase Common Shares (“Rights”), (iv) debt securities (“Debt Securities”), and (v) warrants representing rights to purchase Common Shares, Preferred Shares or Debt Securities (“Warrants” and together with the Common Shares, the Preferred Shares, the Rights and the Debt Securities, the “Securities”). The Registration Statement provides that the Securities may be issued from time to time in amounts, at prices, and on terms to be set forth in one or more supplements (each, a “Prospectus Supplement” ) to the final prospectus included in the Registration Statement at the time it becomes effective (the “Prospectus”).
As counsel to the Company, we have participated in the preparation of the Registration Statement and have examined the originals or copies, certified or otherwise identified to our satisfaction as being true copies, of such records, documents or other instruments as we in our judgment have deemed to be necessary or appropriate to enable us to render the opinions hereinafter expressed including, without limitation, the following:
(i) | The Articles of Incorporation of the Company, as amended by the Articles of Amendment thereto, certified as of a recent date by the State Department of Assessments and Taxation of the State of Maryland (the “Charter”); | |
(ii) | The Amended and Restated Bylaws of the Company, certified as of the date hereof by an officer of the Company (the “Bylaws”); | |
(iii) | A form of indenture pertaining to the Debt Securities, to be entered into by and between the Company and the trustee named therein (the “Trustee”), in the form filed as an exhibit to the Registration Statement (the “Indenture”); |
(iv) | A Certificate of Good Standing with respect to the Company issued by the State Department of Assessments and Taxation of the State of Maryland as of a recent date (the “Certificate of Good Standing”); and |
(v) | The resolutions of the board of directors of the Company (the “Board”) relating to, among other things, (a) the authorization and approval of the preparation and filing of the Registration Statement, and (b) the authorization of the issuance, offer and sale of the Securities pursuant to the Registration Statement, certified as of the date hereof by an officer of the Company (collectively, the “Resolutions”). |
With respect to such examination and our opinion expressed herein, we have assumed, without any independent investigation or verification, (i) the genuineness of all signatures on all documents submitted to us for
examination, (ii) the legal capacity of all natural persons, (iii) the authenticity of all documents submitted to us as originals, (iv) the conformity to original documents of all documents submitted to us as conformed or reproduced copies and the authenticity of the originals of such copied documents, and (v) that all certificates issued by public officials have been properly issued. We also have assumed without independent investigation or verification the accuracy and completeness of all corporate records made available to us by the Company.
As to certain matters of fact relevant to the opinions in this opinion letter, we have relied upon certificates of public officials (which we have assumed remain accurate as of the date of this opinion), upon certificates and/or representations of officers and employees of the Company, upon such other certificates as we deemed appropriate, and upon such other data as we have deemed to be appropriate under the circumstances. We have not independently established the facts, or in the case of certificates of public officials, the other statements, so relied upon.
The opinions set forth below are limited to the effect of the Maryland General Corporation Law (the “MGCL”) and the laws of the State of New York that are applicable to the Securities, in each case as in effect on the date hereof, and we express no opinion as to the applicability or effect of any other laws of such jurisdictions or the laws of any other jurisdictions. Without limiting the preceding sentence, we express no opinion as to (i) any federal or state securities or broker-dealer laws or regulations thereunder relating to the offer, issuance and sale of the Securities pursuant to the Registration Statement, (ii) enforceability to the extent it may be limited by (a) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance and other similar laws affecting the rights and remedies of creditors generally and (b) general principles of equity (including without limitation the availability of specific performance or injunctive relief and the application of concepts of materiality, reasonableness, good faith and fair dealing), regardless of whether considered in a proceeding at law or in equity, and (iii) enforcement of rights to indemnity and contribution to the extent it may be limited by federal or state securities laws or principles of public policy.
On the basis of and subject to the foregoing, and in reliance thereon, and subject to the limitations and qualifications set forth in this opinion letter, and assuming that (i) Articles Supplementary classifying and designating the number of shares and the terms of any class or series of Preferred Shares to be issued by the Company (the “Articles Supplementary”) have been duly authorized and determined or otherwise established by proper action of the Board or a duly authorized committee thereof in accordance with the Company’s Charter and Bylaws and have been filed with and accepted for record by the State Department of Assessments and Taxation of the State of Maryland prior to the issuance of any such Preferred Shares, and such Articles Supplementary comply with the applicable requirements with respect thereto under the MGCL and the Company’s Charter and Bylaws, (ii) each of the Indenture and a supplemental indenture containing the specific terms and conditions of the Debt Securities to be issued (a “Supplemental Indenture”) have been duly authorized, executed and delivered by each of the Company and the Trustee in accordance with the terms of the Indenture, (iii) such Supplemental Indenture constitutes a valid and legally binding obligation of each of the Company and the Trustee, (iv) a Warrant Agreement (the “Warrant Agreement”) pertaining to the Warrants, including any amendments or supplements thereto, has been duly authorized, executed and delivered by each of the Company and the warrant agent named therein (the “Warrant Agent”) in accordance with the terms of the Warrant Agreement, (v) the Warrant Agreement constitutes a valid and legally binding obligation of each of the Company and the Warrant Agent, (vi) the issuance, offer and sale of the Securities from time to time and the final terms of such issuance, offer and sale, including those relating to price and amount of the Securities to be issued, offered and sold, have been duly authorized and determined or otherwise established by proper action of the Board or a duly authorized committee thereof in accordance with the Company’s Charter, Articles Supplementary, if applicable, the Indenture, if applicable, the Warrant Agreement, if applicable, and the Company’s Bylaws, and are consistent with the terms and conditions for such issuance, offer and sale set forth in the Resolutions and the descriptions thereof in the Registration Statement, the Prospectus and the applicable Prospectus Supplement (such authorization or action being hereinafter referred to as the “Corporate Proceedings”), (vii) the terms of the Debt Securities and the Warrants as established and the issuance thereof comply with the requirements of the Investment Company Act of 1940, as amended, (viii) the Debt Securities have been duly executed by the Company and authenticated by the Trustee in accordance with the Indenture, as modified by such Supplemental Indenture, and delivered to, and the agreed consideration has been fully paid at the time of such delivery by, the purchasers thereof, (ix) any Common Shares, Preferred Shares or Warrants issued and sold pursuant to the Registration Statement, including upon the exercise of any Securities convertible into or exercisable for Common Shares or Preferred Shares, have been delivered to, and the agreed consideration has been fully paid at the time of such delivery by, the purchasers thereof, (x) upon the issuance of any Common Shares or Preferred
Shares pursuant to the Registration Statement, including upon the exercise of any Securities convertible into or exercisable for Common Shares or Preferred Shares, the total number of Common Shares or Preferred Shares, as applicable, issued and outstanding does not exceed the total number of Common Shares or Preferred Shares, as applicable, that the Company is then authorized to issue under the Charter; and (xi) the Certificate of Good Standing remains accurate, the Resolutions and the applicable Corporate Proceedings remain in effect, without amendment, and the Registration Statement has become effective under the Securities Act and remains effective at the time of the issuance, offer and/or sale of the Securities, we are of the opinion that:
1. | Upon completion of all Corporate Proceedings relating thereto, the issuance of the Common Shares will be duly authorized and, when issued and paid for in accordance with the Registration Statement, the Prospectus, the applicable Prospectus Supplement, the Resolutions and all Corporate Proceedings relating thereto, the Common Shares will be validly issued, fully paid and nonassessable. |
2. | Upon completion of all Corporate Proceedings relating thereto, the issuance of the Preferred Shares will be duly authorized and, when issued and paid for in accordance with the Registration Statement, the Prospectus, the applicable Prospectus Supplement, the Resolutions and all Corporate Proceedings relating thereto, the Preferred Shares will be validly issued, fully paid and nonassessable. |
3. | Upon completion of all Corporate Proceedings relating thereto, the issuance of the Rights will be duly authorized. |
4. | Upon completion of all Corporate Proceedings relating thereto, the issuance of the Debt Securities will be duly authorized and, when issued and paid for in accordance with the Registration Statement, the Prospectus, the applicable Prospectus Supplement, the Resolutions and all Corporate Proceedings relating thereto, the Debt Securities will constitute valid and legally binding obligations of the Company. |
5. | Upon completion of all Corporate Proceedings relating thereto, the issuance of the Warrants will be duly authorized and, when issued and paid for in accordance with the Registration Statement, the Prospectus, the applicable Prospectus Supplement, the Resolutions and all Corporate Proceedings relating thereto, the Warrants will constitute valid and legally binding obligations of the Company. |
The opinions expressed in this opinion letter (i) are strictly limited to the matters stated in this opinion letter, and without limiting the foregoing, no other opinions are to be implied and (ii) are only as of the date of this opinion letter, and we are under no obligation, and do not undertake, to advise the addressee of this opinion letter or any other person or entity either of any change of law or fact that occurs, or of any fact that comes to our attention, after the date of this opinion letter, even though such change or such fact may affect the legal analysis or a legal conclusion in this opinion letter.
We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to our firm in the “Legal Matters” section in the Registration Statement. We do not admit by giving this consent that we are in the category of persons whose consent is required under Section 7 of the Securities Act.
Respectfully submitted,
/s/ SUTHERLAND ASBILL & BRENNAN LLP
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 13, 2013 with respect to the consolidated financial statements of GSV Capital Corp. (formerly NeXt Innovation Corp.), which is contained in this Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the captions “Selected Financial and Other Data” and “Independent Registered Public Accounting Firm.”
/s/ Grant Thornton LLP
San Jose, California
January 17, 2013
The information in this preliminary prospectus supplement and the accompanying prospectus relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments.
We are offering for sale [] shares of our common stock. We have granted the underwriters a [] day option, which we refer to as the overallotment option, to purchase up to an additional [] shares of our common stock at the public offering price, less underwriting discounts and commissions (sales load).
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. On [], 2014, the last reported sales price on the NASDAQ Capital Market for our common stock was $[] per share. We are required to determine the net asset value per share of our common stock on a quarterly basis. The net asset value per share of our common stock as of [] was $[].
An investment in our common stock is subject to risks and involves a heightened risk of total loss of investment. As of [], 2014, our shares traded at a significant premium to our net asset value per share, which premium may be reduced or eliminated if and when certain of our portfolio companies complete initial public offerings. In particular, shares of closed-end investment companies, including business development companies, such as our company, frequently trade at a discount to their net asset value. If our shares trade at a discount to our net asset value, it may increase the risk of loss for purchasers in this offering. As of [], 2013, our net asset value was $[] per share. Assuming a public offering price of $[] per share, the last reported sales price for our common stock on the NASDAQ Capital Market on [], 2014, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon our net asset value per share as of [], 2014. See Dilution for more information. In addition, the companies in which we invest are subject to special risks.
An investment in our common stock is subject to risks and involves a heightened risk of total loss of investment. In particular, shares of closed-end investment companies, including business development companies, such as our company, frequently trade at a discount to their net asset value. In addition, the companies in which we invest are subject to special risks. See Risk Factors beginning on page S-9 of the prospectus supplement and page [] of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our common stock.
Please read this prospectus supplement and the accompanying prospectus before investing in our common stock and keep each for future reference. This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our common stock. We are required to file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission. This information will be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The Securities and Exchange Commission also maintains a website at http://www.sec.gov that contains information about us.
Per Share | Total | |||||||
Public Offering Price | $ | [] | $ | [] | ||||
Sales Load (Underwriting Discounts and Commissions) | $ | [] | $ | [] | ||||
Proceeds to GSV Capital Corp. (before expenses) | $ | [] | $ | [] |
The underwriters expect to deliver the shares on or about [], 2014.
Prospectus Supplement dated [], 2014.
1 | In addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear is any such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities. |
Page | ||||
Summary | ||||
Fees and Expenses | ||||
Selected Financial and Other Data | ||||
Selected Quarterly Financial Data | ||||
Risk Factors | ||||
Forward-Looking Statements and Projections | ||||
Use of Proceeds | ||||
Price Range of Common Stock and Distributions | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||||
Business | ||||
Portfolio Companies | ||||
Management | ||||
Portfolio Management | ||||
Investment Advisory Agreement | ||||
Administration Agreement | ||||
License Agreement | ||||
Related Party Transactions and Certain Relationships | ||||
Control Persons and Principal Stockholders | ||||
Regulation as a Business Development Company | ||||
Determination of Net Asset Value | ||||
Dividend Reinvestment Plan | ||||
Material U.S. Federal Income Tax Considerations | ||||
Description of Our Securities | ||||
Description of Our Capital Stock | ||||
Description of Our Preferred Stock | ||||
Description of Our Subscription Rights | ||||
Description of Our Debt Securities | ||||
Description of Our Warrants | ||||
Plan of Distribution | ||||
Custodian, Transfer and Distribution Paying Agent and Registrar |
i
Page | ||||
Brokerage Allocation and Other Practices | ||||
Legal Matters | ||||
Independent Registered Public Accounting Firm | ||||
Available Information | ||||
Privacy Notice | ||||
Index to Financial Statements |
ii
This document contains two parts. The first part is the prospectus supplement, which describes the terms of this offering of common stock and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. In particular, this prospectus supplement includes updated risk factors, financial data, portfolio holdings and their respective valuations, the per share dollar amount of dilution that investors in this offering will incur, and other disclosure that is tailored to address the pertinent market and other conditions that are currently prevalent. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings Additional Information and Risk Factors included in this prospectus supplement and the accompanying prospectus, respectively, before investing in our common stock.
You should rely on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the respective front cover of this prospectus supplement and the accompanying prospectus. We will amend or supplement this prospectus supplement and the accompanying prospectus in the event of any material change to the information contained herein during the distribution period.
S-1
The following summary contains basic information about the offering of shares of our common stock pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of the offering of shares of our common stock pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the shares we are offering. You should carefully read the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included in the accompanying prospectus and any updates or additions to those sections included in this prospectus supplement.
Except where the context suggests otherwise, the terms we, us, our and GSV Capital refer to GSV Capital Corp. In addition, the terms GSV Asset Management or investment adviser refer to GSV Asset Management, LLC, and GSV Capital Service Company or the administrator refer to GSV Capital Service Company, LLC.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. Our investment activities are managed by GSV Asset Management, LLC. GSV Capital Service Company, LLC provides the administrative services necessary for us to operate. Although we may elect to be taxed as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) for the 2013 taxable year, we are currently taxed as a regular corporation (a C Corporation) under the Code.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
Assuming a public offering price of $[] per share, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon our net asset value per share as of [], 2013[, or $[] per share based upon the low point of our unaudited estimated net asset value per share as of [], 2013].(2) See Dilution in this prospectus supplement for more information.
S-2
The current premium at which our shares trade relative to our net asset value per share may be attributable to a number of factors, including a positive outlook by investors on existing portfolio companies and positive trading on companies in our portfolio which have gone public. Such a significant premium may not be sustainable in the future if and when companies in our portfolio, particularly if the public perception of the prospects of such companies are adversely affected, and if overall market conditions or investor sentiment declines. This will enhance the risk that the price of your shares in our company will decline.
Our [], 2013 unaudited net asset value per share is estimated to be between $[] and $[]. On [], 2013, our valuation committee reviewed and made a determination with respect to the recommended fair value of our portfolio assets as of [], 2013 in accordance with our valuation policy. Our [], 2013 net asset value estimate is based on our valuation committees recommendation of the fair value of our portfolio investments as well as other factors, including expected operating expenses. We have provided an estimate of our [], 2013 net asset value per share because our board of directors has not yet determined our actual net asset value as of [], 2013. The estimated [decrease/increase] in net asset value per share from [], 2013 to [], 2013 is primarily due to [ ]. Our actual net asset value for [], 2013 will be subject to the final determination by our board of directors. See Determination of Net Asset Value and Risk Factors Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments.](2)
We have limited information about the financial performance and profitability of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit. In addition, our current portfolio company investments are also concentrated in a limited number of companies. As of [], 2013, over half of our portfolio company investments were comprised of investments in ten companies.
As of [], 2013, we have completed investments in the companies identified below. For those investments held as of [], 2013, amounts include transaction fees and costs. For those investments acquired subsequent to [], 2013, amounts are exclusive of transaction fees and costs as those have not yet been finally determined. Fair value was determined in good faith by our board of directors as of [], 2013 for those investments held as of [], 2013. For those investments acquired subsequent to [], 2013, our board of directors has not yet determined their fair value and such investments are included at purchase cost on the acquisition date exclusive of transaction fees and costs.
2 | This disclosure may be included to the extent that an offering is conducted following the end of a fiscal quarter, for which we have not made a final determination of net asset value, if and to the extent we have sufficient information available to reliably estimate net asset value for such quarter. |
S-3
Investment(1) | Cost(2) | Fair Value(3) | Source(s) | Description | ||||||||||||
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
The value of our assets, as well as the market price of our common stock, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in our common stock involves other risks, including those discussed under the caption Risk Factors beginning on page S-9 of this prospectus supplement and page [] of the accompanying prospectus. In addition, the other information included in this prospectus supplement and the accompanying prospectus contains a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. Some of these risks include:
| Our investments in the rapidly growing venture capital backed emerging companies that we are targeting may be extremely risky and we could lose all or part of our investments; |
| Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments; |
| We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investment in the event of a bankruptcy or liquidation of any of our portfolio companies; |
| Most of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit; |
| The lack of liquidity in, and potentially extended duration of, many of our investments may adversely affect our business and will delay any distributions of gains, if any; |
| Our portfolio may be concentrated in a limited number of portfolio companies or market sectors, which will subject us to a risk of significant loss if the business or market position of these companies deteriorates or market sectors experience a market downturn; |
| Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences and periodic downturns; |
| We may be limited in our ability to make follow-on investments, for a number of reasons, including financial or regulatory restrictions, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio; |
| We have only a limited operating history; |
| Our inability to maintain our status as a business development company; |
S-4
| We are dependent upon GSV Asset Managements senior investment personnel for our future success; |
| We may experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods; |
| Risk associated with transacting on secondary marketplaces, including the limited availability and reliability of information relating to prospective investments and legal and regulatory risks; |
| We operate in a highly competitive market for direct equity investment opportunities; |
| We will generally make non-controlling investments and are subject to the risks that other significant shareholders may have interests that differ from those of the portfolio company or minority investors; |
| There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies; |
| Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to risks; |
| We were taxable as a C corporation during the 2012 taxable year. We will be subject to corporate-level income tax if we are profitable and we are unable to qualify as a RIC, which we have been unable to do for the 2013 taxable year. Unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations, we will not qualify as a RIC for the 2013 taxable year, which could have a material adverse effect on our financial performance. There can be no assurance that we will qualify as a RIC in the 2013 taxable year or in any subsequent taxable year; |
| Our common stock price may be volatile and may decrease substantially; |
| Our common stock has recently traded, and may in the future trade, at premiums that may prove to be unsustainable or at discounts from net asset value; and |
| There is a risk that you may not receive dividends or that our dividends may not grow over time, particularly since we invest primarily in securities that do not produce current income. As of the date of this filing, all sales of the Companys investments have, in the aggregate, generated a net realized loss. |
Our offices are located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
S-5
Common Stock Offered by Us |
[] shares |
Common Stock Outstanding Prior to this Offering |
[] shares |
Common Stock to be Outstanding After this Offering (assuming no exercise of the underwriters over-allotment option) |
[] shares |
Over-Allotment Option |
[] shares |
Use of Proceeds |
Our net proceeds from this offering will be approximately $[], assuming a public offering price of $[] per share. We plan to invest the net proceeds from the sale of our securities pursuant to this prospectus and any accompanying prospectus supplement in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of any such net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of any such offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of such offering. Each supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering. See Use of Proceeds in the accompanying prospectus. |
Distribution |
The timing and amount of our dividends, if any, will be determined by our Board of Directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. As we focus on making primarily capital gains-based investments in equity securities, we do not anticipate that we will pay dividends on a quarterly basis or become a predictable distributor of dividends, and we expect that our dividends, if any, will be less consistent than the dividends of other business development companies that primarily make debt investments. See Price Range of Common Stock and Distributions in the accompanying prospectus. |
Taxation |
The Company was taxed as a C corporation for its 2012 taxable year. Beginning with its 2013 taxable year, the Company may elect to be treated as a RIC under subchapter the Code, if management determines that it is in the best interests of the Company to do so and the Company is able to satisfy the requirements under subchapter M of the Code. As a RIC, we generally will not be required to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To obtain and maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and |
S-6
distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. There can be no assurances that we will be able to satisfy the requirements to qualify as a RIC under Subchapter M of the Code. See Price Range of Common Stock and Distributions and Material U.S. Federal Income Tax Considerations in the accompanying prospectus. |
NASDAQ Capital Market symbol |
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. |
Investment Advisory Fees |
We pay GSV Asset Management a fee for its services under the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% of our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities). The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. See Investment Advisory Agreement. The terms for calculating the management fee create an incentive for our investment adviser to utilize leverage because our management fee is based on our gross assets, including borrowings for investment purposes, rather than our net assets. We will be required, however, to obtain the approval of our Board of Directors before we incur any additional indebtedness. |
Administration Agreement |
We reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services. In addition, we reimburse GSV Capital Service Company for the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our chief financial officer, chief compliance officer and other staff providing administrative services. Additionally, GSV Capital Service Company may outsource some of its duties. While there is no limit on the total amount of expenses we may be required to reimburse to GSV Capital Service Company, our administrator will only charge us for the actual expenses it incurs on our behalf, or our allocable portion thereof, without any profit to GSV Capital Service Company. See Administration Agreement. |
S-7
Risk Factors |
Investing in our common stock involves a high degree of risk. You should consider carefully the information found in the section entitled Risk Factors beginning on page S-9 of this prospectus supplement and page [] of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our common stock. We have only a limited operating history as a business development company and as a regulated investment company. If we fail to qualify as a regulated investment company, we could become subject to federal income tax on all of our income, which would have a material adverse effect on our financial performance. We invest in rapidly growing venture capital-backed emerging companies. These activities may involve a high degree of business and financial risk. We are also subject to risks associated with access to additional capital, fluctuating quarterly results and variation in our portfolio value. |
Available Information |
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus supplement and the accompanying prospectus. |
We are required to file periodic reports, current reports, proxy statements and other information with the SEC. This information is available at the SECs public reference room at 100 F Street, NE, Washington, D.C. 20549 and on the SECs website at http://www.sec.gov. The public may obtain information on the operation of the SECs public reference room by calling the SEC at (202) 551-8090. This information is also available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com |
S-8
Before you invest in our common stock, you should be aware of various risks, including those described below and under the section entitled Risk Factors beginning on page [] of the accompanying prospectus. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in our common stock. The risks set out below and in the accompanying prospectus are not the only risks we face. If any of the adverse events or conditions described below or in the accompanying prospectus occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value could decline, and you may lose all or part of your investment.
The trading price of our common stock may fluctuate substantially. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:
| price and volume fluctuations in the overall stock market from time to time; |
| investor demand for our shares; |
| significant volatility in the market price and trading volume of securities of regulated investment companies, business development companies or other financial services companies; |
| changes in regulatory policies or tax guidelines with respect to regulated investment companies or business development companies; |
| failure to qualify as a RIC for a particular taxable year, or the loss of RIC status; |
| actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts; |
| general economic conditions and trends; |
| fluctuations in the valuation of our portfolio investments; |
| operating performance of companies comparable to us; |
| market sentiment against technology-related companies; and |
| departures of any of the senior investment professionals or Advisory Board members of GSV Asset Management. |
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
We will have significant flexibility in applying the proceeds of this offering and may use the net proceeds from this offering in ways with which you may not agree, or for purposes other than those contemplated at the time of this offering. We cannot assure you that we will be able to successfully utilize the proceeds within the timeframe contemplated. We will also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new investments, from net proceeds. Our ability to achieve our investment objective may be limited to the extent that the net proceeds of the offering, pending full investment, are used to pay operating expenses. In addition, we can provide you no assurance that the current offering will be successful, or that by increasing the size of our available equity capital our aggregate expenses, and correspondingly, our expense ratio, will be lowered.
S-9
Commissions and discounts payable to the underwriters, together with our organizational expense and other expenses of this offering, will reduce the net proceeds of the offering available for us to invest. As of [] our net asset value was $[], or $[] per share. After giving effect to the sale of [] shares of our common stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at the public offering price of $[] per share, and after deducting the underwriting discounts and commissions of approximately $[] and estimated offering expenses of approximately $[] payable by us, our adjusted net asset value is expected to be approximately $[], or $[] per share, representing an immediate and substantial dilution of approximately $[] per share to investors in this offering.
S-10
The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. The percentages included in the table reflect our net assets as of [], 2013, as adjusted to reflect completion of this offering. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement and the accompanying prospectus contains a reference to fees or expenses paid by us or GSV Capital, or that we will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in GSV Capital Corp.
Stockholder transaction expenses: |
||||
Sales load (as a percentage of offering price) | %(1) | |||
Offering expenses borne by common stockholders (as a percentage of offering price) | %(2) | |||
Dividend reinvestment plan expenses | None | |||
Total stockholder transaction expenses (as a percentage of offering price) | % | |||
Annual expenses (as a percentage of net assets attributable to common stock)(8): |
||||
Base management fee | %(3) | |||
Incentive fees payable under our investment advisory agreement (20%) | %(4) | |||
Interest payments on borrowed funds | %(5) | |||
Other expenses (estimated) | %(6) | |||
Acquired fund fees and expenses | %(7) | |||
Total annual expenses (estimated) | % |
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. See Note 5 below for additional information regarding certain assumptions regarding our level of leverage subsequent to this offering.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return | $ | [] | $ | [] | $ | [] | $ | [] |
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. As the incentive fee under the Investment Advisory Agreement is payable only on realized capital gains, this illustration assumes that the entire 5.0% annual return is in the form of realized capital gains (computed net of all realized capital losses and unrealized capital depreciation) in each of the indicated time periods, and that we will be required to pay an incentive fee on the full amount of the annual return. If we achieve a greater realization of realized capital gains than the assumed 5.0% annual return, our expenses and returns to our investors would be higher. In addition, the example assumes inclusion of the sales load of []%. Also, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See Dividend Reinvestment Plan in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
(1) | Represents the underwriting discount with respect to the shares of our common stock, sold by us in this offering. |
(2) | Amount reflects estimated offering expenses of approximately $[]. |
S-11
(3) | Reflects our base management fee as a percentage of our net assets. Our base management fee under the Investment Advisory Agreement is based on our gross assets, which is defined as all the assets of GSV Capital, including those acquired using borrowings for investment purposes. See Investment Advisory Agreement. As a result, although we do not currently have any specific plans to use leverage, to the extent we elect to utilize leverage in the future, our base management fee as a percentage of our net assets would increase. |
(4) | Based on our current business plan, we do not expect to invest fully the net proceeds from this offering for up to six to 12 months and, based on the current unrealized appreciation versus unrealized depreciation on our portfolio investments, we expect that we will likely not have sufficient realized capital gains, taken together with any net unrealized capital appreciation, during our first year of operations after completion of this offering in order to pay or accrue any incentive fees in the first year after completion of this offering. The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For a more detailed discussion of the calculation of this fee, see Investment Advisory Agreement. For accounting purposes, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. |
(5) | We are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to our investment adviser, GSV Asset Management, are borne by our common stockholders. For purposes of this section, we have assumed that we have $69 million of outstanding borrowings at an annual interest rate of 5.25%, which reflects our oustanding convertible senior notes as of September 30, 2013, and we assume that we issue $25 million of debt with an interest rate equal to 8.0% per annum. |
(6) | Other expenses ($[] million) are based upon estimates for the 12 months following completion of this offering. Due to the volatility of loss on fair value adjustment for the embedded derivative, we excluded it from the other expenses calculation as it does not accurately reflect the operating expenses of the Company. |
(7) | Amount reflects our estimated expenses for the 12 months following completion of this offering relating to the temporary investment of proceeds from this offering in money market funds pending our investment of such proceeds in portfolio companies in accordance with our investment objective and strategies described in this prospectus. |
(8) | Net assets attributable to common stock, (as used to calculate the annual expense ratios) reflect our September 30, 2013 net asset value adjusted for the impact of the Senior Convertible Notes issuance and assumed future common stock offerings. Assumed common stock offerings, for purposes of this calculation, are $50 million each, occurring, respectively, on November 30, 2013; February 28, 2014; May 31, 2014; August 31, 2014. |
S-12
The potential dilution to investors in this offering is represented by the amount by which the offering price per share exceeds our net asset value per share after the completion of this offering. Net asset value per share is determined by dividing our net asset value, which is our total assets less total liabilities, by the number of outstanding shares.
As of [], 2013 our net asset value was $[], or $[] per share. After giving effect to the sale of [] shares of our common stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at an assumed public offering price of $[] per share, and after deducting estimated underwriting discounts and commissions of approximately $[] and estimated offering expenses of approximately $[] payable by us, our adjusted net asset value is expected to be approximately $[], or $[] per share, representing an immediate and substantial dilution of approximately $[] per share to investors in this offering.
The following table illustrates the dilution on a per share basis, taking into account the assumptions set forth above:
Offering price per share | $ | [] | ||
[], 2013 net asset value per share before this offering | $ | [] | ||
Increase per share attributable to investors in this offering | $ | [] | ||
As adjusted net asset value per share immediately after this offering | $ | [] | ||
Dilution per share attributable to investors in this offering | $ | [] |
[In addition, at an assumed public offering price of $[] per share, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon the low point of our unaudited estimated net asset value per share range as of [], 2013.]
S-13
This prospectus supplement and the accompanying prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets, projects, and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies, |
| an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio, |
| an inability to access the equity markets could impair our investment activities, |
| interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and |
| the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this prospectus supplement and the accompanying prospectus. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Risk Factors beginning on page [] of the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the dates of this prospectus supplement and the accompanying prospectus, respectively. The forward-looking statements and projections contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act. In addition, the forward-looking statements and projections contained in any reports we may file subsequent to completion of this offering under the Exchange Act will be excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
S-14
The following table sets forth:
| our actual cash and capitalization as of [], 2013; and |
| our cash and capitalization as adjusted to reflect the sale of our [] shares of common stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at the assumed public offering price of $[] per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable out of the proceeds of this offering. |
As of [], 2013 | ||||||||
Actual | As Adjusted(1) | |||||||
Assets(1): |
||||||||
Cash and cash equivalents | $ | $ | ||||||
Total assets | $ | $ | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share; 100,000,000 shares authorized, [] shares issued and outstanding, [] shares issued and outstanding, as adjusted, respectively |
$ | $ | ||||||
Additional paid-in-capital | ||||||||
Accumulated net investment loss | ||||||||
Unrealized depreciation on investments | ||||||||
Total stockholders equity |
(1) | Since [], 2013, we have used approximately $[] million of our available cash to acquire additional portfolio investments. This is not reflected in the table above. |
S-15
We estimate that the net proceeds we will receive from the sale of [] shares of our common stock in this offering will be approximately $[] million, or approximately $[] million if the underwriters fully exercise their over-allotment option, in each case assuming a public offering price of $[] per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $[] payable out of the proceeds of this offering.
We plan to invest the net proceeds from this offering in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of the net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of this offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of this offering. We cannot assure you we will achieve our targeted investment pace. Pending such investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment. The management fee payable by us will not be reduced while our assets are invested in such securities. See Regulation as a Business Development Company Temporary Investments in the accompanying prospectus for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
S-16
[] is acting as sole book-running manager of the offering and as representative of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriters name.
Underwriters | Number of Shares | |||
Total |
The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.
Shares sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus supplement. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $[] per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.
If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for [] days from the date of this prospectus supplement, to purchase up to [] additional shares at the public offering price less the underwriting discount. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriters initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.
We and each of our directors and officers has agreed that, for a period of [] days from the date of this prospectus supplement, such party will not, without the prior written consent of [], offer, pledge, sell, contract to sell or otherwise dispose of or agree to sell or otherwise dispose of, directly or indirectly, or hedge any shares or any securities convertible into or exchangeable for shares, provided, however, that we may issue shares pursuant to our dividend reinvestment plan. [] in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice. Notwithstanding the foregoing, if (i) during the last [] days of the [] day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (ii) prior to the expiration of the [] day restricted period, we announce that we will release earnings results during the [] day period beginning on the last day of the [] day restricted period, the restrictions described above shall continue to apply until the expiration of the [] day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
The shares are listed on the NASDAQ Capital Market under the symbol GSVC.
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters over-allotment option.
Paid by us | No Exercise | Full Exercise | ||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
| Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering. |
º | Covered short sales are sales of shares in an amount up to the number of shares represented by the underwriters over-allotment option. |
S-17
º | Naked short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters over-allotment option. |
| Covering transactions involve purchases of shares either pursuant to the over-allotment option or in the open market after the distribution has been completed in order to cover short positions. |
º | To close a naked short position, the underwriters must purchase shares in the open market after the distribution has been completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
º | To close a covered short position, the underwriters must purchase shares in the open market after the distribution has been completed or must exercise the over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. |
| Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum. |
The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the underwriters, in covering short positions or making stabilizing purchases, repurchase shares originally sold by that syndicate member.
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the NASDAQ Capital Market, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
In addition, in connection with this offering, some of the underwriters (and selling group members) may engage in passive market making transactions in the shares on the NASDAQ Capital Market, prior to the pricing and completion of the offering. Passive market making consists of displaying bids on the NASDAQ Capital Market at no higher than the bid prices of independent market makers and making purchases at prices no higher than those independent bids and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market makers average daily trading volume in the shares during a specified period and must be discontinued when that limit is reached. Passive market making may cause the price of the shares to be higher than the price that otherwise would exist in the open market in the absence of those transactions. If the underwriters commence passive market making transactions, they may discontinue them at any time.
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
[Additional Underwriter Compensation] If Applicable
S-18
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus supplement or the accompanying prospectus may not be made to the public in that relevant member state other than:
| to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
| to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus supplement and the accompanying prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.
This prospectus supplement and the accompanying prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a relevant person). This prospectus supplement and the accompanying prospectus and their respective contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the shares described in this prospectus supplement and the accompanying prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the shares has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the shares to the public in France. |
S-19
Such offers, sales and distributions will be made in France only:
| to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint dinvestisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; |
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à lépargne). |
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
The shares offered in this prospectus supplement and the accompanying prospectus have not been registered under the Securities and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Neither this prospectus supplement nor the accompanying prospectus have been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
S-20
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
| to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
| where no consideration is or will be given for the transfer; or |
| where the transfer is by operation of law. |
[INCLUDE OTHER JURISDICTIONS AS APPROPRIATE]
S-21
Certain legal matters in connection with the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, DC. Certain legal matters in connection with the offering will be passed upon for the underwriters by [].
The audited financial statements included in the accompanying prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants located at 150 Almaden Blvd, Suite 600, San Jose, CA 95113, upon the authority of said firm as experts in giving said report.
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus supplement and the accompanying prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com.
S-22
The information in this preliminary prospectus supplement and the accompanying prospectus relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments.
All of the shares of Series [ ] preferred stock, or the preferred stock, offered by this prospectus supplement are being sold by us. Each share of preferred stock has a liquidation preference of $ per share, and the share of preferred stock are subject to redemption at the option of the holder as described in this prospectus supplement. [We have applied to list the Series [ ] Preferred Stock on [so that trading on the exchange will begin within days after the date of this prospectus supplement, subject to notice of issuance. Prior to the expected commencement of trading on , the underwriters do not intend to make a market in our preferred stock. Consequently, it is anticipated that, prior to the commencement of trading on , an investment in our preferred stock will be illiquid and holders thereof may not be able to sell such shares as it is unlikely that a secondary market for our preferred stock will develop. If a secondary market does develop prior to the commencement of trading on , holders of our preferred stock may be able to sell such shares only at substantial discounts from their liquidation preference.] The trading symbol for our preferred stock will be [ ].
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. On [], 2014, the last reported sales price on the NASDAQ Capital Market for our common stock was $[] per share. We are required to determine the net asset value per share of our common stock on a quarterly basis. The net asset value per share of our common stock as of [] was $[].
An investment in our preferred stock is subject to risks and involves a heightened risk of total loss of investment. See Risk Factors beginning on page S-11 of the prospectus supplement and page [] of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our preferred stock.
This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our preferred stock. Please read this prospectus supplement and the accompanying prospectus before investing in our preferred stock and keep each for future reference. We are required to file annual, quartlerly, and current reports, proxy statements and other information with the Securities and Exchange Commission. This information will be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The Securities and Exchange Commission also maintains a website at http://www.sec.gov that contains information about us.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Public Offering Price | $ | [] | $ | [] | ||||
Sales Load (Underwriting Discounts and Commissions) | $ | [] | $ | [] | ||||
Proceeds to GSV Capital Corp. (before expenses) | $ | [] | $ | [] |
[In addition, the underwriters may purchase up to an additional shares of preferred stock from us at the public offering price, less the underwriting discount, within days of the date of this prospectus supplement to cover overallotments. If the underwriters exercise this option in full, the total public offering price will be $ , the total underwriting discount (sales load) paid by us will be $ , and total proceeds, before expenses, will be $ .]
The underwriters expect to deliver the shares on or about [], 2014.
Prospectus Supplement dated [], 2014.
1 | In addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear is any such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities. |
Page | ||||
Summary | ||||
Fees and Expenses | ||||
Selected Financial and Other Data | ||||
Selected Quarterly Financial Data | ||||
Risk Factors | ||||
Forward-Looking Statements and Projections | ||||
Use of Proceeds | ||||
Price Range of Common Stock and Distributions | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||||
Business | ||||
Portfolio Companies | ||||
Management | ||||
Portfolio Management | ||||
Investment Advisory Agreement | ||||
Administration Agreement | ||||
License Agreement | ||||
Related Party Transactions and Certain Relationships | ||||
Control Persons and Principal Stockholders | ||||
Regulation as a Business Development Company | ||||
Determination of Net Asset Value | ||||
Dividend Reinvestment Plan | ||||
Material U.S. Federal Income Tax Considerations | ||||
Description of Our Securities | ||||
Description of Our Capital Stock | ||||
Description of Our Preferred Stock | ||||
Description of Our Subscription Rights | ||||
Description of Our Debt Securities | ||||
Description of Our Warrants | ||||
Plan of Distribution |
i
Page | ||||
Custodian, Transfer and Distribution Paying Agent and Registrar | ||||
Brokerage Allocation and Other Practices | ||||
Legal Matters | ||||
Independent Registered Public Accounting Firm | ||||
Available Information | ||||
Privacy Notice | ||||
Index to Financial Statements |
ii
This document contains two parts. The first part is the prospectus supplement, which describes the terms of this offering of preferred stock and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. In particular, this prospectus supplement includes updated risk factors, financial data, portfolio holdings and their respective valuations, and other disclosure that is tailored to address the pertinent market and other conditions that are currently prevalent. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings Additional Information and Risk Factors included in this prospectus supplement and the accompanying prospectus, respectively, before investing in our preferred stock.
You should rely on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the respective front cover of this prospectus supplement and the accompanying prospectus. We will amend or supplement this prospectus supplement and the accompanying prospectus in the event of any material change to the information contained herein during the distribution period.
S-1
The following summary contains basic information about the offering of shares of our preferred stock pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of the offering of shares of our preferred stock pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the shares we are offering. You should carefully read the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included in the accompanying prospectus and any updates or additions to those sections included in this prospectus supplement.
Except where the context suggests otherwise, the terms we, us, our and GSV Capital refer to GSV Capital Corp. In addition, the terms GSV Asset Management or investment adviser refer to GSV Asset Management, LLC, and GSV Capital Service Company or the administrator refer to GSV Capital Service Company, LLC.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. Our investment activities are managed by GSV Asset Management, LLC. GSV Capital Service Company, LLC provides the administrative services necessary for us to operate. Although we may elect to be taxed as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) for the 2013 taxable year, we are currently taxed as a regular corporation (a C Corporation) under the Code.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
Our [], 2013 unaudited net asset value per share is estimated to be between $[] and $[]. On [], 2013, our valuation committee reviewed and made a determination with respect to the recommended fair value of our portfolio assets as of [], 2013 in accordance with our valuation policy. Our [], 2013 net asset value estimate is based on our valuation committees recommendation of the fair value of our portfolio investments as well as other factors, including expected operating expenses. We have provided an estimate of our [], 2013 net asset value per share because our board of directors has not yet determined our actual net asset value as of
S-2
[], 2013. The estimated [decrease/increase] in net asset value per share from [], 2013 to [], 2013 is primarily due to [ ]. Our actual net asset value for [], 2013 will be subject to the final determination by our board of directors. See Determination of Net Asset Value and Risk Factors Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments.]2
We have limited information about the financial performance and profitability of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit. In addition, our current portfolio company investments are also concentrated in a limited number of companies. As of [], 2013, over half of our portfolio company investments were comprised of investments in ten companies.
As of [], 2013, we have completed investments in the companies identified below. For those investments held as of [], 2013, amounts include transaction fees and costs. For those investments acquired subsequent to [], 2013, amounts are exclusive of transaction fees and costs as those have not yet been finally determined. Fair value was determined in good faith by our board of directors as of [], 2013 for those investments held as of [], 2013. For those investments acquired subsequent to [], 2013, our board of directors has not yet determined their fair value and such investments are included at purchase cost on the acquisition date exclusive of transaction fees and costs.
2 | This disclosure may be included to the extent that an offering is conducted following the end of a fiscal quarter, for which we have not made a final determination of net asset value, if and to the extent we have sufficient information available to reliably estimate net asset value for such quarter. |
S-3
Investment(1) | Cost(2) | Fair Value(3) | Source(s) | Description | ||||||||||||
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
The value of our assets, as well as the market price of our stock, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in our stock involves other risks, including those discussed under the caption Risk Factors beginning on page S-11 of this prospectus supplement and page [] of the accompanying prospectus. In addition, the other information included in this prospectus supplement and the accompanying prospectus contains a discussion of factors you should carefully consider before deciding to invest in shares of our stock. Some of these risks include:
| Our investments in the rapidly growing venture capital backed emerging companies that we are targeting may be extremely risky and we could lose all or part of our investments; |
| Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments; |
| We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investment in the event of a bankruptcy or liquidation of any of our portfolio companies; |
| Most of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit; |
| The lack of liquidity in, and potentially extended duration of, many of our investments may adversely affect our business and will delay any distributions of gains, if any; |
| Our portfolio may be concentrated in a limited number of portfolio companies or market sectors, which will subject us to a risk of significant loss if the business or market position of these companies deteriorates or market sectors experience a market downturn; |
| Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences and periodic downturns; |
| We may be limited in our ability to make follow-on investments, for a number of reasons, including financial or regulatory restrictions, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio; |
| We have only a limited operating history; |
| Our inability to maintain our status as a business development company; |
S-4
| We are dependent upon GSV Asset Managements senior investment personnel for our future success; |
| We may experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods; |
| Risk associated with transacting on secondary marketplaces, including the limited availability and reliability of information relating to prospective investments and legal and regulatory risks; |
| We operate in a highly competitive market for direct equity investment opportunities; |
| We will generally make non-controlling investments and are subject to the risks that other significant shareholders may have interests that differ from those of the portfolio company or minority investors; |
| There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies; |
| Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to risks; |
| We were taxable as a C corporation during the 2012 taxable year. We will be subject to corporate-level income tax if we are profitable and we are unable to qualify as a RIC, which we have been unable to do for the 2013 taxable year. Unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations, we will not qualify as a RIC for the 2013 taxable year, which could have a material adverse effect on our financial performance. There can be no assurance that we will qualify as a RIC in the 2013 taxable year or in any subsequent taxable year; and |
| We will have broad discretion over the use of proceeds of this offering, to the extent it is successful, and will use proceeds in part to satisfy operating expenses. |
| Market yields may increase, which would result in a decline in the price of our preferred stock; |
| Prior to this offering, there has been no public market for our preferred stock, and we cannot assure you that the market price of our preferred stock will not decline following the offering; |
| The preferred stock are unrated securities; |
| The preferred stock will be subordinate to the rights of holders of senior indebtedness; |
| An investment in term preferred stock with a fixed interest rate bears interest rate risk; |
| There will be no initial secondary trading market due to delayed listing, and even after listing a liquid secondary trading market may not develop; |
| The Series [ ] Term Preferred Shares will not be rated; |
| The Series [ ] Term Preferred Shares will bear a risk of early redemption by us; |
| Claims of holders of the Series [ ] Term Preferred Shares will be subject to a risk of subordination relative to holders of our debt instruments; |
| There will be no initial secondary trading market due to delayed listing, and even after listing a liquid secondary trading market may not develop; |
| The Series [ ] Term Preferred Shares will not be rated; |
| The Series [ ] Term Preferred Shares will bear a risk of early redemption by us; |
| We are subject to risks related to the general credit crisis and related liquidity risks; |
S-5
| Holders of the Series [ ] Term Preferred Shares will bear reinvestment risk; |
| Holders of Series [ ] Term Preferred Shares will bear dividend risk; and |
| There is a risk of delay in our redemption of the Series [ ] Term Preferred Shares, and we may fail to redeem such securities as required by their terms. |
Our offices are located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
S-6
Shares of Series [] Preferred Stock Offered by Us |
[] shares |
Shares of Series [] Preferred Stock Outstanding Prior to this Offering |
[] shares |
Shares of Series [] Preferred Stock to be Outstanding After this Offering (assuming no exercise of the underwriters over-allotment option) |
[] shares |
Over-Allotment Option |
[] shares |
Use of Proceeds |
Our net proceeds from this offering will be approximately $[], assuming a public offering price of $[] per share. We plan to invest the net proceeds from the sale of our securities pursuant to this prospectus and any accompanying prospectus supplement in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of any such net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of any such offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of such offering. Each supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering. See Use of Proceeds in the accompanying prospectus. |
Dividend Rate |
[]% per annum |
Dividend Payment Dates |
[], [], and [] or each year, commencing on []. |
Record Dates |
[], [], and []. |
[] symbol |
Our preferred stock is listed on the [] under the symbol []. |
Liquidation Preference |
The liquidation preference of our preferred stock is $[] per share. |
Restrictions on Dividend, Redemption and Other Payments |
No full dividends and distributions will be declared or paid on the preferred stock for any dividend period, or a part of a dividend period, unless the full cumulative dividends and distributions due through the most recent dividend payment dates for all outstanding shares of preferred stock have been, or contemporaneously are, declared and paid through the most recent dividend payment dates for each series of preferred stock. If full cumulative dividends and distributions due have not been paid on all outstanding preferred stock of any series, any dividends and distributions being declared and paid on preferred stock will be declared and paid as nearly pro rata as possible in proportion to the respective amounts of dividends and distributions accumulated but unpaid on the shares of each |
S-7
such series of preferred stock on the relevant dividend payment date. No holders of preferred stock will be entitled to any dividends and distributions in excess of full cumulative dividends and distributions as provided in the Certificate of Designations. |
Optional Redemption |
The preferred stock may be redeemed, in whole or in part, at any time after [], at a redemption price per share equal to the applicable percentage set forth below multiplied by the sum of the liquidation preference per share plus accrued but unpaid dividends not previously added to the liquidation preference on such share. |
Year Applicable Percentage [] % |
Redemption at the Option of the Holder |
On and after [ ] each holder of our preferred stock will have the right to require us to repurchase all or any part of such holders preferred stock at a purchase price per share equal to % of the sum of the liquidation preference per share plus accrued but unpaid dividends. In addition, each holder of our preferred stock will have the right to require us to repurchase all or any part of such holders preferred stock at a purchase price per share equal to % of the sum of the liquidation preference per share plus accrued but unpaid dividends upon the occurrence of certain fundamental changes. |
Voting Rights |
Voting rights associated with the preferred stock are []. |
Rating |
The preferred stock is not rated. |
Conversion |
[Describe any applicable conversion provisions set forth in the Certificate of Designations.] |
Exchange |
[Describe any applicable exchange provisions set forth in the Certificate of Designations.] |
Material U.S. Federal Income Tax Consequences |
The Company was taxed as a C corporation for its 2012 taxable year. Beginning with its 2013 taxable year, the Company may elect to be treated as a RIC under subchapter the Code, if management determines that it is in the best interests of the Company to do so and the Company is able to satisfy the requirements under subchapter M of the Code. As a RIC, we generally will not be required to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To obtain and maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. There can be no assurances that we will be able to satisfy the requirements to qualify as a RIC under Subchapter M of the Code. See Price Range of Common Stock and Distributions and Material U.S. Federal Income Tax Considerations in the accompanying prospectus. |
S-8
Investment Advisory Fees |
We pay GSV Asset Management a fee for its services under the Investment Advisory Agreement consisting of two components a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% of our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities). The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. See Investment Advisory Agreement. The terms for calculating the management fee create an incentive for our investment adviser to utilize leverage because our management fee is based on our gross assets, including borrowings for investment purposes, rather than our net assets. We will be required, however, to obtain the approval of our Board of Directors before we incur any additional indebtedness. |
Administration Agreement |
We reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services. In addition, we reimburse GSV Capital Service Company for the fees and expenses associated with performing compliance functions, and our allocable portion of the compensation of our chief financial officer, chief compliance officer and other staff providing administrative services. Additionally, GSV Capital Service Company may outsource some of its duties. While there is no limit on the total amount of expenses we may be required to reimburse to GSV Capital Service Company, our administrator will only charge us for the actual expenses it incurs on our behalf, or our allocable portion thereof, without any profit to GSV Capital Service Company. See Administration Agreement. |
Risk Factors |
Investing in our preferred stock involves a high degree of risk. You should consider carefully the information found in the section entitled Risk Factors beginning on page S-11 of this prospectus supplement and page [] of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our preferred stock. We have only a limited operating history as a business development company and as a regulated investment company. If we fail to qualify as a regulated investment company, we could become subject to federal income tax on all of our income, which |
S-9
would have a material adverse effect on our financial performance. We invest in rapidly growing venture capital-backed emerging companies. These activities may involve a high degree of business and financial risk. We are also subject to risks associated with access to additional capital, fluctuating quarterly results and variation in our portfolio value. |
Available Information |
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus supplement and the accompanying prospectus. |
We are required to file periodic reports, current reports, proxy statements and other information with the SEC. This information is available at the SECs public reference room at 100 F Street, NE, Washington, D.C. 20549 and on the SECs website at http://www.sec.gov. The public may obtain information on the operation of the SECs public reference room by calling the SEC at (202) 551-8090. This information is also available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com |
S-10
Before you invest in our common stock, you should be aware of various risks, including those described below and under the section entitled Risk Factors beginning on page [] of the accompanying prospectus. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in our common stock. The risks set out below and in the accompanying prospectus are not the only risks we face. If any of the adverse events or conditions described below or in the accompanying prospectus occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value could decline, and you may lose all or part of your investment.
We will have significant flexibility in applying the proceeds of this offering and may use the net proceeds from this offering in ways with which you may not agree, or for purposes other than those contemplated at the time of this offering. We cannot assure you that we will be able to successfully utilize the proceeds within the timeframe contemplated. We will also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new investments, from net proceeds. Our ability to achieve our investment objective may be limited to the extent that the net proceeds of the offering, pending full investment, are used to pay operating expenses. In addition, we can provide you no assurance that the current offering will be successful, or that by increasing the size of our available equity capital our aggregate expenses, and correspondingly, our expense ratio, will be lowered.
The prices of fixed income investments, such as our preferred stock, vary inversely with changes in market yields. The market yields on securities comparable to our preferred stock may increase, which could result in a decline in the secondary market price of our preferred stock prior to the term redemption date. See Description of Preferred Stock Dividends and Dividend Periods.]
We cannot assure you that a trading market will develop for our preferred stock after this offering or, if one develops, that such trading market can be sustained. [During a period of up to days from the date of this prospectus supplement, the preferred stock will not be listed on any securities exchange. During this period, the underwriters do not intend to make a market in our preferred stock. Consequently, an investment in our preferred stock during this period will likely be illiquid and holders thereof may not be able to sell such shares as it is unlikely that a secondary market for our preferred stock will develop during this period. If a secondary market does develop during this period, holders of our preferred stock may be able to sell such shares only at substantial discounts from liquidation preference.] [Application has been made to list our preferred stock on [so that trading on the exchange will begin within days from the date of this prospectus supplement, subject to notice of issuance]. If we are unable to list the preferred stock on a national securities exchange, holders thereof may be unable to sell such shares at all, or if they are able to, only at substantial discounts from liquidation preference. Even after the preferred stock is listed on as anticipated, there is a risk that the market for such shares may be thinly traded and relatively illiquid compared to the market for other types of securities, with the spread between the bid and asked prices considerably greater than the spreads of other securities with comparable terms and features.]]
We do not intend to have the preferred stock rated by any rating agency. Unrated securities typically trade at a discount to similar, rated securities, depending on the rating of the rated securities. As a result, there is a risk that the preferred stock may trade at a price that is lower than what they might otherwise trade at if rated by a rating agency.]
S-11
While holders of our preferred stock will have equal liquidation and distribution rights to any other preferred stock that might be issued by us, they will be subordinated to the rights of holders of senior indebtedness, if any. Therefore, dividends, distributions and other payments to holders of our preferred stock in liquidation or otherwise may be subject to prior payments due to the holders of senior indebtedness. In addition, the 1940 Act may provide debt holders with voting rights that are superior to the voting rights of the preferred stock.]
Term preferred stock pays dividends at a fixed dividend rate. Prices of fixed income investments vary inversely with changes in market yields. The market yields on securities comparable to the Series [ ] Term Preferred Shares may increase, which would likely result in a decline in the secondary market price of the Series [ ] Term Preferred Shares prior to the term redemption date. For additional information concerning dividends on the Series [ ] Term Preferred Shares, see Description of the Series [ ] Term Preferred Stock Dividends and Dividend Periods.
Because we have no prior trading history for exchange-listed Preferred Stock, we cannot predict the trading patterns of the Series [ ] Term Preferred Shares, including the effective costs of trading the stock. During a period of up to days from the date of this prospectus supplement, the Series [ ] Term Preferred Shares will not be listed on any securities exchange. During this period, the underwriters do not intend to make a market in the Series [ ] Term Preferred Shares. Consequently, an investment in the Series [ ] Term Preferred Shares during this period will be illiquid, and holders of such shares may not be able to sell them during that period as it is unlikely that a secondary market for the Series [ ] Term Preferred Shares will develop. If a secondary market does develop during this period, holders of the Series [ ] Term Preferred Shares may be able to sell such shares only at substantial discounts from the Liquidation Preference. We have applied to list the Series [ ] Term Preferred Shares on the [ ]. If we are unable to list the Series [ ] Term Preferred Shares on the [ ] or another national securities exchange, holders of such shares may be unable to sell them at all or, if they are able to, only at substantial discounts from the Liquidation Preference. Even if the Series [ ] Term Preferred Shares are listed on the [ ] as anticipated, there is a risk that such shares may be thinly traded, and the market for such shares may be relatively illiquid compared to the market for other types of securities, with the spread between the bid and asked prices considerably greater than the spreads of other securities with comparable terms and features.
We do not intend to have the Series [ ] Term Preferred Shares rated by any rating agency. Unrated securities usually trade at a discount to similar, rated securities. As a result, there is a risk that the Series [ ] Term Preferred Shares may trade at a price that is lower than they might otherwise trade if rated by a rating agency.
We may voluntarily redeem some or all of the Series [ ] Term Preferred Shares on or after [ ] and we may be forced to redeem some or all of the Series [ ] Term Preferred Shares to meet regulatory requirements and the asset coverage requirements of such shares. Any such redemptions may occur at a time that is unfavorable to holders of the Series [ ] Term Preferred Shares. We may have an incentive to redeem the Series[ ] Term Preferred Shares voluntarily before the Term Redemption Date if market conditions allow us to issue other Preferred Stock or debt securities at a rate that is lower than the Fixed Dividend Rate on the Series [ ] Term Preferred Shares. For further information regarding our ability to redeem the Term Preferred Stock, see Description of the Series [ ] Term Preferred Stock Redemption and Asset Coverage.
S-12
Rights of holders of the Series [ ] Term Preferred Shares will be subordinated to the rights of holders of our indebtedness. Therefore, dividends, distributions and other payments to holders of Term Preferred Shares in liquidation or otherwise may be subject to prior payments due to the holders of our indebtedness. In addition, under some circumstances the 1940 Act may provide debt holders with voting rights that are superior to the voting rights of holders of the Series [ ] Term Preferred Shares.
General market uncertainty and extraordinary conditions in the credit markets may impact the liquidity of our investment portfolio. In turn, during extraordinary circumstances, this uncertainty could impact our distributions and/or ability to redeem the Series [ ] Term Preferred Shares in accordance with their terms. Further, there may be market imbalances of sellers and buyers of Series [ ] Term Preferred Shares during periods of extreme illiquidity and volatility in the credit markets. Such market conditions may lead to periods of thin trading in any secondary market for the Series [ ] Term Preferred Shares and may make valuation of the Series [ ] Term Preferred Shares uncertain. As a result, the spread between bid and ask prices is likely to increase significantly such that an investor in the Series [ ] Term Preferred Shares may have difficulty selling his or her shares. Less liquid and more volatile trading environments could also result in sudden and significant valuation declines in the Series [ ] Term Preferred Shares.
Given the [ ]-year term and potential for early redemption of the Series [ ] Term Preferred Shares, holders of such shares may face an increased reinvestment risk, which is the risk that the return on an investment purchased with proceeds from the sale or redemption of the Series [ ] Term Preferred Shares may be lower than the return previously obtained from the investment in such shares.
We may be unable to pay dividends on the Series [ ] Term Preferred Shares under some circumstances. The terms of any future indebtedness we may incur could preclude the payment of dividends in respect of equity securities, including the Series [ ] Term Preferred Shares, under certain conditions.
Substantially all of the investments we presently hold and the investments we expect to acquire in the future are, and will be, subject to legal and other restrictions on resale and will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to obtain cash equal to the value at which we record our investments quickly if a need arises. If we are unable to obtain sufficient liquidity prior to the Term Redemption Date, we may be forced to engage in a partial redemption or to delay a required redemption. If such a partial redemption or delay were to occur, the market price of the Series [ ] Term Preferred Shares might be adversely affected.
[Insert any additional relevant risk factors not included in the base prospectus.]
S-13
The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. The percentages included in the table reflect our net assets as of [], 2013, as adjusted to reflect completion of this offering. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement and the accompanying prospectus contains a reference to fees or expenses paid by us or GSV Capital, or that we will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in GSV Capital Corp.
Stockholder transaction expenses: |
||||
Sales load (as a percentage of offering price) | %(1) | |||
Offering expenses borne by common stockholders (as a percentage of offering price) | %(2) | |||
Dividend reinvestment plan expenses | None | |||
Total stockholder transaction expenses (as a percentage of offering price) | % | |||
Annual expenses (as a percentage of net assets attributable to common stock)(8): |
||||
Base management fee | %(3) | |||
Incentive fees payable under our investment advisory agreement (20%) | %(4) | |||
Interest payments on borrowed funds | %(5) | |||
Other expenses (estimated) | %(6) | |||
Acquired fund fees and expenses | %(7) | |||
Total annual expenses (estimated) | % |
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. See Note 5 below for additional information regarding certain assumptions regarding our level of leverage subsequent to this offering.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return | $ | [] | $ | [] | $ | [] | $ | [] |
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. As the incentive fee under the Investment Advisory Agreement is payable only on realized capital gains, this illustration assumes that the entire 5.0% annual return is in the form of realized capital gains (computed net of all realized capital losses and unrealized capital depreciation) in each of the indicated time periods, and that we will be required to pay an incentive fee on the full amount of the annual return. If we achieve a greater realization of realized capital gains than the assumed 5.0% annual return, our expenses and returns to our investors would be higher. In addition, the example assumes inclusion of the sales load of []%. Also, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See Dividend Reinvestment Plan in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
(1) | Represents the underwriting discount with resepct to the shares of our common stock, sold by us in this offering. |
(2) | Amount reflects estimated offering expenses of approximately $[]. |
S-14
(3) | Reflects our base management fee as a percentage of our net assets. Our base management fee under the Investment Advisory Agreement is based on our gross assets, which is defined as all the assets of GSV Capital, including those acquired using borrowings for investment purposes. See Investment Advisory Agreement. As a result, although we do not currently have any specific plans to use leverage, to the extent we elect to utilize leverage in the future, our base management fee as a percentage of our net assets would increase. |
(4) | Based on our current business plan, we do not expect to invest fully the net proceeds from this offering for up to six to 12 months and, based on the current unrealized appreciation versus unrealized depreciation on our portfolio investments, we expect that we will likely not have sufficient realized capital gains, taken together with any net unrealized capital appreciation, during our first year of operations after completion of this offering in order to pay or accrue any incentive fees in the first year after completion of this offering. The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For a more detailed discussion of the calculation of this fee, see Investment Advisory Agreement. For accounting purposes, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. |
(5) | We are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to our investment adviser, GSV Asset Management, are borne by our common stockholders. For purposes of this section, we have assumed that we have $69 million of outstanding borrowings at an annual interest rate of 5.25%, which reflects our oustanding convertible senior notes as of September 30, 2013, and we assume that we issue $25 million of debt with an interest rate equal to 8.0% per annum. |
(6) | Other expenses ($[] million) are based upon estimates for the 12 months following completion of this offering. Due to the volatility of loss on fair value adjustment for the embedded derivative, we excluded it from the other expenses calculation as it does not accurately reflect the operating expenses of the Company. |
(7) | Amount reflects our estimated expenses for the 12 months following completion of this offering relating to the temporary investment of proceeds from this offering in money market funds pending our investment of such proceeds in portfolio companies in accordance with our investment objective and strategies described in this prospectus. |
(8) | Net assets attributable to common stock, (as used to calculate the annual expense ratios) reflect our September 30, 2013 net asset value adjusted for the impact of the Senior Convertible Notes issuance and assumed future common stock offerings. Assumed common stock offerings, for purposes of this calculation, are $50 million each, occurring, respectively, on November 30, 2013; February 28, 2014; May 31, 2014; August 31, 2014. |
S-15
This prospectus supplement and the accompanying prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets, projects, and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies, |
| an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio, |
| an inability to access the equity markets could impair our investment activities, |
| interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and |
| the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this prospectus supplement and the accompanying prospectus. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Risk Factors beginning on page [] of the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the dates of this prospectus supplement and the accompanying prospectus, respectively. The forward-looking statements and projections contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act. In addition, the forward-looking statements and projections contained in any reports we may file subsequent to completion of this offering under the Exchange Act will be excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
S-16
The following table sets forth:
| our actual cash and capitalization as of [], 2013; and |
| our cash and capitalization as adjusted to reflect the sale of our [] shares of preferred stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at the assumed public offering price of $[] per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable out of the proceeds of this offering. |
As of [], 2013 | ||||||||
Actual | As Adjusted(1) | |||||||
Assets(1): |
||||||||
Cash and cash equivalents | $ | $ | ||||||
Total assets | $ | $ | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share; 100,000,000 shares authorized, [] shares issued and outstanding, [] shares issued and outstanding, as adjusted, respectively |
$ | $ | ||||||
Additional paid-in-capital | ||||||||
Preferred Stock, par value $0.01 per share; 100,000,000 shares authorized, [] shares issued and outstanding, [] shares issued and outstanding, as adjusted, respectively |
$ | $ | ||||||
Accumulated net investment loss | ||||||||
Unrealized depreciation on investments | ||||||||
Total stockholders equity |
(1) | Since [], 2013, we have used approximately $[] million of our available cash to acquire additional portfolio investments. This is not reflected in the table above. |
S-17
We estimate that the net proceeds we will receive from the sale of [] shares of our preferred stock in this offering will be approximately $[] million, or approximately $[] million if the underwriters fully exercise their over-allotment option, in each case assuming a public offering price of $[] per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $[] payable out of the proceeds of this offering.
We plan to invest the net proceeds from this offering in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of the net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of this offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of this offering. We cannot assure you we will achieve our targeted investment pace. Pending such investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment. The management fee payable by us will not be reduced while our assets are invested in such securities. See Regulation as a Business Development Company Temporary Investments in the accompanying prospectus for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
S-18
[Insert information required by Item 503(d) of Regulation S-K at time of offering.]
S-19
The following is a brief description of the terms of our preferred stock. This is not a complete description and is subject to and entirely qualified by reference to our articles of incorporation, as amended, and the certificate of designation setting forth the terms of the preferred stock. These documents are filed with the SEC as exhibits to our registration statement of which this prospectus supplement is a part, and the Certificate of Designation is attached as Appendix A to this prospectus supplement.
In addition to shares of common stock, our charter authorizes the issuance of preferred stock. If we offer preferred stock under this prospectus, we will issue an appropriate prospectus supplement. We may issue preferred stock from time to time in one or more classes or series, without stockholder approval. Prior to issuance of shares of each class or series, our Board of Directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Any such an issuance must adhere to the requirements of the 1940 Act, Maryland law and any other limitations imposed by law.
The 1940 Act currently requires, among other things, that (a) immediately after issuance and before any distribution is made with respect to common stock, the liquidation preference of the preferred stock, together with all other senior securities, must not exceed an amount equal to 50% of our total assets (taking into account such distribution), (b) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on the preferred stock are in arrears by two years or more and (c) such class of stock have complete priority over any other class of stock as to distribution of assets and payment of dividends, which dividends shall be cumulative.
For any series of preferred stock that we may issue, our Board of Directors will determine and the articles supplementary and the prospectus supplement relating to such series will describe:
| the designation and number of shares of such series; |
| the rate and time at which, and the preferences and conditions under which, any dividends will be paid on shares of such series, as well as whether such dividends are participating or non-participating; |
| any provisions relating to convertibility or exchangeability of the shares of such series, including adjustments to the conversion price of such series; |
| the rights and preferences, if any, of holders of shares of such series upon our liquidation, dissolution or winding up of our affairs; |
| the voting powers, if any, of the holders of shares of such series; |
| any provisions relating to the redemption of the shares of such series; |
| any limitations on our ability to pay dividends or make distributions on, or acquire or redeem, other securities while shares of such series are outstanding; |
| any conditions or restrictions on our ability to issue additional shares of such series or other securities; |
| if applicable, a discussion of certain U.S. federal income tax considerations; and |
| any other relative powers, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof. |
All shares of preferred stock that we may issue will be identical and of equal rank except as to the particular terms thereof that may be fixed by our Board of Directors, and all shares of each series of preferred stock will be identical and of equal rank except as to the dates from which dividends, if any, thereon will be cumulative.
S-20
[] is acting as sole book-running manager of the offering and as representative of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriters name.
Underwriters | Number of Shares | |||
Total |
The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.
Shares sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus supplement. Any shares sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $[] per share. If all the shares are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.
If the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for [] days from the date of this prospectus supplement, to purchase up to [] additional shares at the public offering price less the underwriting discount. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriters initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the subject of this offering.
We and each of our directors and officers has agreed that, for a period of [] days from the date of this prospectus supplement, such party will not, without the prior written consent of [], offer, pledge, sell, contract to sell or otherwise dispose of or agree to sell or otherwise dispose of, directly or indirectly, or hedge any shares or any securities convertible into or exchangeable for shares. [] in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice. Notwithstanding the foregoing, if (i) during the last [] days of the [] day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (ii) prior to the expiration of the [] day restricted period, we announce that we will release earnings results during the [] day period beginning on the last day of the [] day restricted period, the restrictions described above shall continue to apply until the expiration of the [] day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
The shares of preferred stock are listed on the [ ] under the symbol [ ].
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters over-allotment option.
Paid by us | No Exercise | Full Exercise | ||||||
Per Share | $ | $ | ||||||
Total | $ | $ |
In connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
| Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to purchase in the offering. |
º | Covered short sales are sales of shares in an amount up to the number of shares represented by the underwriters over-allotment option. |
S-21
º | Naked short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters over-allotment option. |
| Covering transactions involve purchases of shares either pursuant to the over-allotment option or in the open market after the distribution has been completed in order to cover short positions. |
º | To close a naked short position, the underwriters must purchase shares in the open market after the distribution has been completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
º | To close a covered short position, the underwriters must purchase shares in the open market after the distribution has been completed or must exercise the over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. |
| Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum. |
The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the underwriters, in covering short positions or making stabilizing purchases, repurchase shares originally sold by that syndicate member.
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the [ ], in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
In addition, in connection with this offering, some of the underwriters (and selling group members) may engage in passive market making transactions in the shares on the [ ], prior to the pricing and completion of the offering. Passive market making consists of displaying bids on the [ ] at no higher than the bid prices of independent market makers and making purchases at prices no higher than those independent bids and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market makers average daily trading volume in the shares during a specified period and must be discontinued when that limit is reached. Passive market making may cause the price of the shares to be higher than the price that otherwise would exist in the open market in the absence of those transactions. If the underwriters commence passive market making transactions, they may discontinue them at any time.
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
[Additional Underwriter Compensation] If Applicable.
S-22
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus supplement or the accompanying prospectus may not be made to the public in that relevant member state other than:
| to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
| to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe for the shares, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus supplement and the accompanying prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.
This prospectus supplement and the accompanying prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a relevant person). This prospectus supplement and the accompanying prospectus and their respective contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the shares described in this prospectus supplement and the accompanying prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the shares has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the shares to the public in France. |
S-23
Such offers, sales and distributions will be made in France only:
| to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint dinvestisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; |
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à lépargne). |
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
The shares offered in this prospectus supplement and the accompanying prospectus have not been registered under the Securities and Exchange Law of Japan. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Neither this prospectus supplement nor the accompanying prospectus have been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
S-24
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
| to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
| where no consideration is or will be given for the transfer; or |
| where the transfer is by operation of law. |
[INCLUDE OTHER JURISDICTIONS AS APPROPRIATE]
S-25
Certain legal matters in connection with the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, DC. Certain legal matters in connection with the offering will be passed upon for the underwriters by [].
The audited financial statements included in the accompanying prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants located at 150 Almaden Blvd, Suite 600, San Jose, CA 95113, upon the authority of said firm as experts in giving said report.
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus supplement and the accompanying prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com.
S-26
The information in this preliminary prospectus supplement and the accompanying prospectus relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments.
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. On [], 2014, the last reported sales price on the NASDAQ Capital Market for our common stock was $[] per share. We are required to determine the net asset value per share of our common stock on a quarterly basis. The net asset value per share of our common stock as of [] was $[].
We are issuing [transferable/non-transferable] rights to our stockholders of record, or record date stockholders, as of [ ] p.m., [ ] time, on [ ], or the record date. The rights entitle holders of rights, or rights holders, to subscribe for an aggregate of up to shares of our common stock. Record date stockholders will receive one right for each share of common stock owned on the record date. The rights entitle the holder to purchase one new share of common stock for every [ ] rights held, which we refer to as the basic subscription right[, and record date stockholders who fully exercise their rights will be entitled to subscribe, subject to certain limitations and pro-rata allocation, for additional shares that remain unsubscribed as a result of any unexercised rights.] [In addition, any non-record date stockholder who exercises rights will be entitled to subscribe, subject to certain limitations and pro-rata allocation, for any remaining shares that are not otherwise subscribed for by record date stockholders.]
The subscription price per share will be [describe means of computing subscription price]. Because the subscription price will be determined on the expiration date, stockholders who elect to exercise their rights will not know the subscription price per share at the time they exercise such rights. The rights will expire if they are not exercised by [ ] p.m., [ ] time, on [ ], the expiration date of this offering, unless extended. We, in our sole discretion, may extend the period for exercising the rights. You will have no right to rescind your subscription after receipt of your payment of the estimated subscription price or a notice of guaranteed delivery except as described in this prospectus supplement or accompanying prospectus.
This offering will dilute the ownership interest and voting power of the common stock owned by stockholders who do not fully exercise their subscription rights. Stockholders who do not fully exercise their subscription rights should expect, upon completion of the offering, to own a smaller proportional interest in us than before the offering. Further, if the net proceeds per share from the offering are at a discount to our net asset value per share, this offering will reduce our net asset value per share.
An investment in our common stock is subject to risks and involves a heightened risk of total loss of investment. As of [], 2013, our shares traded at a significant premium to our net asset value per share, which premium may be reduced or eliminated if and when certain of our portfolio companies complete initial public offerings. In particular, shares of closed-end investment companies, including business development companies, such as our company, frequently trade at a discount to their net asset value. If our shares trade at a discount to our net asset value, it may increase the risk of loss for purchasers in this offering. As of [], 2013, our net asset value was $[] per share. Assuming a public offering price of $[] per share, the last reported sales price for our common stock on the NASDAQ Capital Market on [], 2014, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon our net asset value per share as of [], 2013. See Dilution for more information. In addition, the companies in which we invest are subject to special risks.
An investment in our common stock is subject to risks and involves a heightened risk of total loss of investment. In particular, shares of closed-end investment companies, including business development companies, such as our company, frequently trade at a discount to their net asset value. In addition, the companies in which we invest are subject to special risks. See Risk Factors beginning on page S-0 of the prospectus supplement and page [] of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our common stock.
This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our common stock. Please read this prospectus supplement and the accompanying prospectus before investing in our common stock and keep each for future reference. We are required to file annual, quartlerly, and current reports, proxy statements and other information with
1 | In addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear is any such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities. |
the Securities and Exchange Commission. This information will be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The Securities and Exchange Commission also maintains a website at http://www.sec.gov that contains information about us. |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share | Total(4) | |||||||
Estimated Subscription Price(1) | $ | [] | $ | [] | ||||
Estimated Sales Load [(2)] (Underwriting Discounts and Commissions) | $ | [] | $ | [] | ||||
Proceeds to GSV Capital Corp. (before expenses) | $ | [] | $ | [] |
(1) | Estimated on the basis of [describe means of computing subscription price]. See The OfferSubscription Price. |
[(2) | In connection with this offering,, the dealer manager for this offering, will receive a fee for its financial advisory, marketing and soliciting services equal to [ ] % of the subscription price per share for each share issued pursuant to the exercise of rights [ , including pursuant to the over-subscription privilege].] |
(3) | We estimate that we will incur offering expenses of approximately $[ ] in connection with this offering. We estimate that net proceeds to us after expenses will be $[ ] assuming all of the rights are exercised at the estimated subscription price. |
(4) | Assumes all rights are exercised at the estimated subscription price. |
Prospectus Supplement dated [], 2013.
Page | ||||
Summary | ||||
Fees and Expenses | ||||
Selected Financial and Other Data | ||||
Selected Quarterly Financial Data | ||||
Risk Factors | ||||
Forward-Looking Statements and Projections | ||||
Use of Proceeds | ||||
Price Range of Common Stock and Distributions | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||||
Business | ||||
Portfolio Companies | ||||
Management | ||||
Portfolio Management | ||||
Investment Advisory Agreement | ||||
Administration Agreement | ||||
License Agreement | ||||
Related Party Transactions and Certain Relationships | ||||
Control Persons and Principal Stockholders | ||||
Regulation as a Business Development Company | ||||
Determination of Net Asset Value | ||||
Dividend Reinvestment Plan | ||||
Material U.S. Federal Income Tax Considerations | ||||
Description of Our Securities | ||||
Description of Our Capital Stock | ||||
Description of Our Preferred Stock | ||||
Description of Our Subscription Rights | ||||
Description of Our Debt Securities | ||||
Description of Our Warrants | ||||
Plan of Distribution | ||||
Custodian, Transfer and Distribution Paying Agent and Registrar |
i
Page | ||||
Brokerage Allocation and Other Practices | ||||
Legal Matters | ||||
Independent Registered Public Accounting Firm | ||||
Available Information | ||||
Privacy Notice | ||||
Index to Financial Statements |
ii
This document contains two parts. The first part is the prospectus supplement, which describes the terms of this offering of [transferable/non-transferable] rights to our stockholders of record and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. In particular, this prospectus supplement includes updated risk factors, financial data, portfolio holdings and their respective valuations, the per share dollar amount of dilution that investors in this offering will incur, and other disclosure that is tailored to address the pertinent market and other conditions that are currently prevalent. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings Additional Information and Risk Factors included in this prospectus supplement and the accompanying prospectus, respectively, before investing in our common stock.
You should rely on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the respective front cover of this prospectus supplement and the accompanying prospectus. We will amend or supplement this prospectus supplement and the accompanying prospectus in the event of any material change to the information contained herein during the distribution period.
S-1
The following summary contains basic information about the offering pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of the offering pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the securities we are offering. You should carefully read the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included in the accompanying prospectus and any updates or additions to those sections included in this prospectus supplement.
Except where the context suggests otherwise, the terms we, us, our and GSV Capital refer to GSV Capital Corp. In addition, the terms GSV Asset Management or investment adviser refer to GSV Asset Management, LLC, and GSV Capital Service Company or the administrator refer to GSV Capital Service Company, LLC.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. Our investment activities are managed by GSV Asset Management, LLC. GSV Capital Service Company, LLC provides the administrative services necessary for us to operate. Although we may elect to be taxed as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) for the 2013 taxable year, we are currently taxed as a regular corporation (a C Corporation) under the Code.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
S-2
Assuming a public offering price of $[] per share, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon our net asset value per share as of [], 2013 [ , or $[] per share based upon the low point of our unaudited estimated net asset value per share as of [], 2013].(2) See Dilution in this prospectus supplement for more information.
The current significant premium at which our shares trade relative to our net asset value per share may be attributable to a number of factors, including Twitter Incs initial public offering, a positive outlook by investors on other existing portfolio companies and positive trading on companies in our portfolio which have gone public. Such a significant premium may not be sustainable in the future if and when companies in our portfolio, particularly if the public perception of the prospects of such companies are adversely affected, and if overall market conditions or investor sentiment declines. This will enhance the risk that the price of your shares in our company will decline.]
Our [], 2013 unaudited net asset value per share is estimated to be between $[] and $[]. On [], 2013, our valuation committee reviewed and made a determination with respect to the recommended fair value of our portfolio assets as of [], 2013 in accordance with our valuation policy. Our [], 2013 net asset value estimate is based on our valuation committees recommendation of the fair value of our portfolio investments as well as other factors, including expected operating expenses. We have provided an estimate of our [], 2013 net asset value per share because our board of directors has not yet determined our actual net asset value as of [], 2013. The estimated [decrease/increase] in net asset value per share from [], 2013 to [], 2013 is primarily due to [ ]. Our actual net asset value for [], 2013 will be subject to the final determination by our board of directors. See Determination of Net Asset Value and Risk Factors Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments.]2
We have limited information about the financial performance and profitability of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit. In addition, our current portfolio company investments are also concentrated in a limited number of companies. As of [], 2013, over half of our portfolio company investments were comprised of investments in ten companies.
As of [], 2013, we have completed investments in the companies identified below. For those investments held as of [], 2013, amounts include transaction fees and costs. For those investments acquired subsequent to [], 2013, amounts are exclusive of transaction fees and costs as those have not yet been finally determined. Fair value was determined in good faith by our board of directors as of [], 2013 for those investments held as of [], 2013. For those investments acquired subsequent to [], 2013, our board of directors has not yet determined their fair value and such investments are included at purchase cost on the acquisition date exclusive of transaction fees and costs.
[ ]
2 | This disclosure may be included to the extent that an offering is conducted following the end of a fiscal quarter, for which we have not made a final determination of net asset value, if and to the extent we have sufficient information available to reliably estimate net asset value for such quarter. |
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Investment(1) | Cost(2) | Fair Value(3) | Source(s) | Description | ||||||||||||
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
The value of our assets, as well as the market price of our common stock, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in our common stock involves other risks, including those discussed under the caption Risk Factors beginning on page 10 of this prospectus supplement and page [] of the accompanying prospectus. In addition, the other information included in this prospectus supplement and the accompanying prospectus contains a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. Some of these risks include:
| Our investments in the rapidly growing venture capital backed emerging companies that we are targeting may be extremely risky and we could lose all or part of our investments; |
| Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments; |
| We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investment in the event of a bankruptcy or liquidation of any of our portfolio companies; |
| Most of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit; |
| The lack of liquidity in, and potentially extended duration of, many of our investments may adversely affect our business and will delay any distributions of gains, if any; |
| Our portfolio may be concentrated in a limited number of portfolio companies or market sectors, which will subject us to a risk of significant loss if the business or market position of these companies deteriorates or market sectors experience a market downturn; |
| Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences and periodic downturns; |
| We may be limited in our ability to make follow-on investments, for a number of reasons, including financial or regulatory restrictions, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio; |
| We have only a limited operating history; |
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| Our inability to maintain our status as a business development company; |
| We are dependent upon GSV Asset Managements senior investment personnel for our future success; |
| We may experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods; |
| Risk associated with transacting on secondary marketplaces, including the limited availability and reliability of information relating to prospective investments and legal and regulatory risks; |
| We operate in a highly competitive market for direct equity investment opportunities; |
| We will generally make non-controlling investments and are subject to the risks that other significant shareholders may have interests that differ from those of the portfolio company or minority investors; |
| There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies; |
| Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to risks; |
| We were taxable as a C corporation during the 2012 taxable year. We will be subject to corporate-level income tax if we are profitable and we are unable to qualify as a RIC, which we have been unable to do for the 2013 taxable year. Unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations, we will not qualify as a RIC for the 2013 taxable year, which could have a material adverse effect on our financial performance. There can be no assurance that we will qualify as a RIC in the 2013 taxable year or in any subsequent taxable year; |
| Our common stock price may be volatile and may decrease substantially; |
| Our common stock has recently traded, and may in the future trade, at premiums that may prove to be unsustainable or at discounts from net asset value; |
| There is a risk that you may not receive dividends or that our dividends may not grow over time, particularly since we invest primarily in securities that do not produce current income. As of the date of this filing, all sales of the Companys investments have, in the aggregate, generated a net realized loss; and |
| Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. |
| Your economic and voting interest in us, as well as your proportionate interest in our net asset value, may be diluted as a result of this rights offering; |
| The market price of our common stock may decline following this offering and our shares of common stock may trade at discounts from net asset value; |
| There is no established trading market for the rights, which could make it more difficult for you to sell rights and could adversely affect their price; |
| We may terminate the rights offering at any time prior to delivery of the shares of our common stock offered hereby, and neither we nor the subscription agent will have any obligation to you except to return your subscription payments, without interest; and |
| Your economic and voting interest in us, as well as your proportionate interest in our net asset value, may be diluted as a result of this rights offering. |
Our offices are located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
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We are issuing to stockholders of record, or record date stockholders, on [ ], or the record date, one [transferable/non-transferable] right for each share of our common stock held on the record date. Each holder of the rights, or rights holder, is entitled to subscribe for one share of our common stock for every rights held [ , which we refer to as the primary subscription right]. [We will not issue fractional shares of our common stock upon the exercise of rights; accordingly, rights may be exercised only in multiples of [ ].
[The rights are transferable and will be listed for trading on [The NASDAQ Capital Market] under the symbol [ ] during the course of this offer. See The Offer.]
The subscription price per share will be [describe means of computing subscription price]. [Because the subscription price will be determined on the expiration date, rights holders who decide to acquire shares pursuant to the primary subscription right or pursuant to the over-subscription privilege will not know the actual purchase price of those shares when they make that decision.] See The Offer Subscription Price.
Record date stockholders who fully exercise all rights issued to them (other than those rights which cannot be exercised because they represent the right to acquire less than one share) are entitled to subscribe for additional shares of our common stock which were not subscribed for by other stockholders, which we refer to as the remaining shares. If sufficient remaining shares of our common stock are available, all record date stockholders over-subscription requests will be honored in full. In addition, any non-record date stockholder who exercises rights is entitled to subscribe for remaining shares that are not otherwise subscribed for by record date stockholders. Shares acquired pursuant to the over-subscription privilege are subject to certain limitations and pro-rata allocations. See The Offer Over-Subscription Privilege.]
Our Board of Directors has determined that it would be in the best interest of GSV Capital and its stockholders to increase the capital available for making additional investments, as well as to pay operating expenses, temporarily repay debt and generally enhance our liquidity. We believe that we must have sufficient liquidity available to remain a credible source of capital. This offering will increase the capital available for us to make additional investments. This offering gives existing stockholders the right to purchase additional shares at a price that is expected to be below market without incurring any commission or charge, while providing us access to additional capital resources. In connection with the approval of this rights offering, our board of directors considered, among other things, the following factors:
| the subscription price relative to the market price and to our net asset value per share, including the likelihood that the subscription price will be below our net asset value per share; |
| the increased capital to be available upon completion of this rights offering for us to make additional investments consistent with our investment objective; |
| the dilution to be experienced by non-exercising stockholders; |
| the dilutive effect the offering will have on the dividends per share we distribute subsequent to completion of the offering; |
| [the terms and expenses in connection with the offering relative to other alternatives for raising capital, including fees payable to the dealer manager;] |
| the size of the offering in relation to the number of shares outstanding; |
| [the fact that the rights will be listed on [The NASDAQ Capital Market] during the subscription period;] |
| the market price of our common stock, both before and after the announcement of the rights offering; |
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| the general condition of the securities markets; and |
| any impact on operating expenses associated with an increase in capital, including an increase in fees payable to GSV Asset Management. |
There can be no assurance of the amount of dilution that a stockholder will experience or that the rights offering will be successful.
[The purpose of setting the determination of the subscription price upon the expiration of the offer is to attract the maximum participation of stockholders in the offer, with minimum dilution to non-participating stockholders.]
[The transferable rights will allow non-participating stockholders the potential of receiving cash payment upon the sale of the rights, receipt of which may be viewed as partial compensation for the dilution of their interests.]
We cannot assure you that this offering will be successful, or that by increasing the amount of our available capital, our aggregate expenses and, correspondingly, our expense ratio will be lowered. In addition, the management fee we pay to GSV Asset Management is based upon our gross assets, which include any cash or cash equivalents that we have not yet invested in the securities of portfolio companies.
[In determining that this offer is in our best interest and in the best interests of our stockholders, we have retained, the dealer manager for this offer, to provide us with financial advisory, marketing and soliciting services relating to this offer, including advice with respect to the structure, timing and terms of the offer. In this regard, our board of directors considered, among other things, using a fixed pricing versus variable pricing mechanism, the benefits and drawbacks of conducting a non-transferable versus a transferable rights offering, the effect on us if this offer is not fully subscribed and the experience of the dealer manager in conducting rights offerings.]
[Although we have no present intention to do so, we may, in the future and in our discretion, choose to make additional rights offerings from time to time for a number of shares and on terms which may or may not be similar to this offer, provided that our Board of Directors must determine that each subsequent rights offering is in the best interest of our stockholders. Any such future rights offering will be made in accordance with the 1940 Act.]
The rights are evidenced by a subscription certificate and are transferable until [ ], (or if the offer is extended, until the extended expiration date). The rights will be listed for trading on [The NASDAQ Capital Market] under the symbol [ ]. We and the dealer manager will use our best efforts to ensure that an adequate trading market for the rights will exist. However, no assurance can be given that a market for the rights will develop. Trading in the rights on [The NASDAQ Capital Market] may be conducted until close of trading on [ ] on [ ], (or, if the offer is extended, until the extended expiration date). See The Offer Sale of Rights.]
We intend to use the net proceeds from this offering for the origination of new investments in accordance with our investment objective, working capital and general corporate purposes. See Use of Proceeds.
We reserve the right to amend the terms and conditions of this offering, whether the amended terms are more or less favorable to you. We will comply with all applicable laws, including the federal securities laws, in connection with any such amendment. In addition, we may, in our sole discretion, terminate the rights offering at any time prior to delivery of the shares of our common stock offered hereby, if the subscription price is less than [ ]% of the net asset value attributable to a share of common stock disclosed in the most recent periodic report we filed with the SEC. If this rights offering is terminated, all rights will expire without value and the subscription agent will return as soon as practicable all exercise payments, without interest. [No amounts paid to acquire rights on [insert name of any applicable exchange on which rights are listed] or otherwise will be returned.]
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Any stockholder who chooses not to participate in the offering should expect to own a smaller interest in us upon completion of the offering. The offering will dilute the ownership interest and voting power of stockholders who do not fully exercise their basic subscription rights. Further, because the net proceeds per share from the offering may be lower than our net asset value per share, the offering may reduce our net asset value per share. The amount of dilution that a stockholder will experience could be substantial.
| Contact your broker-dealer, trust company, bank or other nominee where your rights are held, or |
| Contact the information agent, [ ], at [ ]. Broker-dealers and nominees may call [ ]. |
| Deliver a completed subscription certificate and payment to the subscription agent by the expiration date of the rights offering, or |
| If your shares are held in an account with your broker-dealer, trust company, bank or other nominee, which qualifies as an Eligible Guarantor Institution under Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended (Exchange Act), have your Eligible Guarantor Institution deliver a notice of guaranteed delivery to the subscription agent by the expiration date of the rights offering. |
[ ] will act as the subscription agent in connection with this offer.
[ ] will act as the information agent in connection with this offer. You may contact toll-free with questions at. Broker-dealers and nominees may call [ ].
will act as dealer manager for the offer. Under the terms and subject to the conditions contained in the dealer manager agreement, the dealer manager will provide financial advisory services and marketing assistance in connection with the offer and will solicit the exercise of rights and participation in the over-subscription privilege by our stockholders. The offer is not contingent upon any number of rights being exercised. We have agreed to pay the dealer manager a fee for its financial advisory, marketing and soliciting services equal to [] % of the subscription price per share for shares issued pursuant to the exercise of rights, including pursuant to the over-subscription privilege. The dealer manager may reallow a portion of its fees to other broker-dealers that have assisted in soliciting the exercise of rights.]
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Record Date | ||||
Subscription Period | (1) | |||
Measurement Period for Subscription Price(2) | (1) | |||
Expiration Date | (1) | |||
Deadline for Delivery of Subscription Certificates and Payment for Shares(3) | (1) | |||
Deadline for Delivery of Notice of Guaranteed Delivery(3) | (1) | |||
Deadline for Delivery of Subscription Certificates and Payment for Shares pursuant to Notice of Guaranteed Delivery | (1) | |||
Confirmations Mailed to Participants | (1) | |||
Final Payment for Shares | (1) |
(1) | Unless the offer is extended. |
(2) | The subscription price will be [describe means of computing subscription price]. |
(3) | Participating rights holders must, by the expiration date of the offer (unless the offer is extended), either (a) deliver a subscription certificate and payment for shares or (b) cause to be delivered on their behalf a notice of guaranteed delivery. |
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Investing in our common stock involves a number of significant risks. Before you invest in our common stock, you should be aware of various risks, including those described below and those set forth in the accompanying prospectus. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in our common stock. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment. The risk factors described below, together with those set forth in the accompanying prospectus, are the principal risk factors associated with an investment in us as well as those factors generally associated with an investment company with investment objectives, investment policies, capital structure or trading markets similar to ours.
The trading price of our common stock may fluctuate substantially. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:
| price and volume fluctuations in the overall stock market from time to time; |
| investor demand for our shares; |
| significant volatility in the market price and trading volume of securities of regulated investment companies, business development companies or other financial services companies; |
| changes in regulatory policies or tax guidelines with respect to regulated investment companies or business development companies; |
| failure to qualify as a RIC for a particular taxable year, or the loss of RIC status; |
| actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts; |
| general economic conditions and trends; |
| fluctuations in the valuation of our portfolio investments; |
| operating performance of companies comparable to us; |
| market sentiment against technology-related companies; and |
| departures of any of the senior investment professionals or Advisory Board members of GSV Asset Management. |
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
We will have significant flexibility in applying the proceeds of this offering and may use the net proceeds from this offering in ways with which you may not agree, or for purposes other than those contemplated at the time of this offering. We cannot assure you that we will be able to successfully utilize the proceeds within the timeframe contemplated. We will also pay operating expenses, and may pay other expenses such as due
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diligence expenses of potential new investments, from net proceeds. Our ability to achieve our investment objective may be limited to the extent that the net proceeds of the offering, pending full investment, are used to pay operating expenses. In addition, we can provide you no assurance that the current offering will be successful, or that by increasing the size of our available equity capital our aggregate expenses, and correspondingly, our expense ratio, will be lowered.
Commissions and discounts payable to the underwriters, together with our organizational expense and other expenses of this offering, will reduce the net proceeds of the offering available for us to invest. As of [] our net asset value was $[], or $[] per share. After giving effect to the sale of [] shares of our common stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at the public offering price of $[] per share, and after deducting the underwriting discounts and commissions of approximately $[] and estimated offering expenses of approximately $[] payable by us, our adjusted net asset value is expected to be approximately $[], or $[] per share, representing an immediate and substantial dilution of approximately $[] per share to investors in this offering.
Shares of closed-end investment companies frequently trade at a market price that is less than the net asset value that is attributable to those shares. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share may decline. It is not possible to predict whether any shares of common stock or rights will trade at, above, or below net asset value. The risk of loss associated with this characteristic of closed-end investment companies may be greater for investors expecting to sell shares of common stock purchased in the offering soon after this offering.
There can be no assurances that an active public market for the rights will develop as a result of the offering of the rights by any selling holder or that, if such a market develops, it will be maintained. [The rights will be listed on under the symbol .] Future trading prices of the rights will depend on many factors, including our operating results, the market for similar securities, the performance of our common stock (including the requirement that we suspend the offering under certain circumstances) and our ability to terminate the offering of the rights if the subscription price is less than [ ]% of the net asset value attributable to a share of common stock disclosed in the most recent periodic report we filed with the SEC.
We may, in our sole discretion, terminate the rights offering at any time prior to delivery of the shares of our common stock offered hereby, if the subscription price is less than [ ]% of the net asset value attributable to a share of common stock disclosed in the most recent periodic report we filed with the SEC. If the rights offering is terminated, all rights will expire without value and the subscription agent will return as soon as practicable all exercise payments, without interest. [No amounts paid to acquire rights on [insert name of any applicable exchange on which rights are listed] or otherwise will be returned.]
Stockholders who do not fully exercise their rights should expect that they will, at the completion of the offer, own a smaller proportional interest in us, including with respect to voting rights, than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of the offer.
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In addition, if the subscription price is less than our net asset value per share, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offer. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of the rights offering or what proportion of the shares will be purchased as a result of the offer. Such dilution could be substantial.
This offering will also cause dilution in the dividends per share we are able to distribute subsequent to completion of the offering. In addition, our reported earnings per share will be retroactively adjusted to reflect the dilutive effects of this offering. See Dilution.
[Insert any additional relevant risk factors not included in the base prospectus.]
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The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. The percentages included in the table reflect our net assets as of [], 2013, as adjusted to reflect completion of this offering. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement and the accompanying prospectus contains a reference to fees or expenses paid by us or GSV Capital, or that we will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in GSV Capital Corp.
Stockholder transaction expenses: |
||||
Sales load (as a percentage of offering price) | %(1) | |||
Offering expenses borne by us (as a percentage of offering price) | %(2) | |||
Dividend reinvestment plan expenses | None | |||
Total stockholder transaction expenses (as a percentage of offering price) | % | |||
Annual expenses (as a percentage of net assets attributable to common stock) (8): |
||||
Base management fee | %(3) | |||
Incentive fees payable under our investment advisory agreement (20%) | %(4) | |||
Interest payments on borrowed funds | %(5) | |||
Other expenses (estimated) | %(6) | |||
Acquired fund fees and expenses | %(7) | |||
Total annual expenses (estimated) | % |
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in us. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. See Note 5 below for additional information regarding certain assumptions regarding our level of leverage subsequent to this offering.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return | $ | [] | $ | [] | $ | [] | $ | [] |
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. As the incentive fee under the Investment Advisory Agreement is payable only on realized capital gains, this illustration assumes that the entire 5.0% annual return is in the form of realized capital gains (computed net of all realized capital losses and unrealized capital depreciation) in each of the indicated time periods, and that we will be required to pay an incentive fee on the full amount of the annual return. If we achieve a greater realization of realized capital gains than the assumed 5.0% annual return, our expenses and returns to our investors would be higher. In addition, the example assumes inclusion of the sales load of [] %. Also, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See Dividend Reinvestment Plan in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
(1) | The underwriting discounts and commissions with respect to shares sold in this offering, which is a one-time fee, is the only sales load paid in connection with this offering. |
(2) | Amount reflects estimated offering expenses of approximately $[]. |
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(3) | Reflects our base management fee as a percentage of our net assets. Our base management fee under the Investment Advisory Agreement is based on our gross assets, which is defined as all the assets of GSV Capital, including those acquired using borrowings for investment purposes. See Investment Advisory Agreement. As a result, although we do not currently have any specific plans to use leverage, to the extent we elect to utilize leverage in the future, our base management fee as a percentage of our net assets would increase. |
(4) | Based on our current business plan, we do not expect to invest fully the net proceeds from this offering for up to six to 12 months and, based on the current unrealized appreciation versus unrealized depreciation on our portfolio investments, we expect that we will likely not have sufficient realized capital gains, taken together with any net unrealized capital appreciation, during our first year of operations after completion of this offering in order to pay or accrue any incentive fees in the first year after completion of this offering. The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For a more detailed discussion of the calculation of this fee, see Investment Advisory Agreement. For accounting purposes, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. |
(5) | We are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to our investment adviser, GSV Asset Management, are borne by our common stockholders. For purposes of this section, we have assumed that we have $69 million of outstanding borrowings at an annual interest rate of 5.25%, which reflects our oustanding convertible senior notes as of September 30, 2013, and we assume that we issue $25 million of debt with an interest rate equal to 8.0% per annum. |
(6) | Other expenses ($[] million) are based upon estimates for the 12 months following completion of this offering. Due to the volatility of loss on fair value adjustment for the embedded derivative, we excluded it from the other expenses calculation as it does not accurately reflect the operating expenses of the Company. |
(7) | Amount reflects our estimated expenses for the 12 months following completion of this offering relating to the temporary investment of proceeds from this offering in money market funds pending our investment of such proceeds in portfolio companies in accordance with our investment objective and strategies described in this prospectus. |
(8) | Net assets attributable to common stock, (as used to calculate the annual expense ratios) reflect our September 30, 2013 net asset value adjusted for the impact of the Senior Convertible Notes issuance and assumed future common stock offerings. Assumed common stock offerings, for purposes of this calculation, are $50 million each, occurring, respectively, on November 30, 2013; February 28, 2014; May 31, 2014; August 31, 2014. |
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As of [ ], our net assets were $[] million, or approximately $[] per share. After giving effect to the sale of shares of our common stock in this offering, assuming all rights are exercised at the estimated subscription price of $[] per share, and our receipt of the estimated net proceeds from that sale, our pro forma net asset value would have been approximately $[] million, or approximately $[] per share, representing an immediate dilution of approximately $[] per share to our existing stockholders.
The following table illustrates the dilutive effects of this offering on a per share basis, assuming all rights are exercised at the estimated subscription price of $[] per share:
As of [] | ||||||||
Actual | As Adjusted | |||||||
Net asset value per common share | $ | $ |
Months Ended [ ] | ||||||||
Actual | As Adjusted | |||||||
Net increase in net assets resulting from net investment income per common share | $ | (1) | $ | (2) | ||||
Net decrease in net assets resulting from operations per common share | $ | (1) | $ | (2) | ||||
Distributions per common share | $ | $ | (3) |
(1) | Basic and diluted, weighted average number of shares outstanding is. |
(2) | Assumes that on [ ], the beginning of the indicated period, (a) all rights were exercised at the estimated subscription price of $[ ] per share and (b) shares of our common stock were issued upon exercise of such rights. |
(3) | Assumes actual cash distributions divided by adjusted shares, including shares issued upon exercise of rights. |
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This prospectus supplement and the accompanying prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets, projects, and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this prospectus supplement and the accompanying prospectus involve risks and uncertainties, including statements as to:
| our future operating results; |
| our business prospects and the prospects of our portfolio companies; |
| the impact of investments that we expect to make; |
| our contractual arrangements and relationships with third parties; |
| the dependence of our future success on the general economy and its impact on the industries in [ ] which we invest; |
| the ability of our portfolio companies to achieve their objectives; |
| our expected financings and investments; |
| the adequacy of our cash resources and working capital; and |
| the timing of cash flows, if any, from the operations of our portfolio companies. |
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies, |
| an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio, |
| an inability to access the equity markets could impair our investment activities, |
| interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and |
| the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this prospectus supplement and the accompanying prospectus. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Risk Factors beginning on page 10 of the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the dates of this prospectus supplement and the accompanying prospectus, respectively. The forward-looking statements and projections contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act. In addition, the forward-looking statements and projections contained in any reports we may file subsequent to completion of this offering under the Exchange Act will be excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
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The following table sets forth:
| our actual cash and capitalization as of [], 2013; and |
| our cash and capitalization as adjusted to reflect the sale of our [] shares of common stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at the assumed public offering price of $[] per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable out of the proceeds of this offering. |
As of [], 2013 | ||||||||
Actual | As Adjusted(1) |
|||||||
Assets(1): |
||||||||
Cash and cash equivalents | $ | $ | ||||||
Total assets | $ | $ | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share; 100,000,000 shares authorized, [] shares issued and outstanding, [] shares issued and outstanding, as adjusted, respectively |
$ | $ | ||||||
Additional paid-in-capital | ||||||||
Accumulated net investment loss | ||||||||
Unrealized depreciation on investments | ||||||||
Total stockholders equity |
(1) | Since [], 2013, we have used approximately $[] million of our available cash to acquire additional portfolio investments. This is not reflected in the table above. |
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We estimate that the net proceeds we will receive from the sale of [] shares of our common stock sold at the subscription price of [] in this offering will be approximately $[] million, or approximately $[] million if the underwriters fully exercise their over-allotment option, in each case after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $[] payable out of the proceeds of this offering.
We plan to invest the net proceeds from this offering in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of the net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of this offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of this offering. We cannot assure you we will achieve our targeted investment pace. Pending such investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment. The management fee payable by us will not be reduced while our assets are invested in such securities. See Regulation as a Business Development Company Temporary Investments in the accompanying prospectus for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
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Our Board of Directors has determined that it would be in the best interests of the Company and its stockholders to increase the capital available for making additional investments, as well as to pay operating expenses and generally enhance our liquidity. We believe that we must have sufficient liquidity available to remain a credible source of capital. The offering will increase the capital available for us to make additional investments. The current offering gives existing stockholders the right to purchase additional shares at a price that is expected to be below market without incurring any commission or charge, while providing us access to such additional capital resources. In connection with the approval of this rights offering, our Board of Directors considered, among other things, the following factors:
| the subscription price relative to the market price and to our net asset value per share, including the likelihood that the subscription price will be below our net asset value per share; |
| the increased capital to be available upon completion of the rights offering for us to make additional investments consistent with our investment objective; |
| the dilution to be experienced by non-exercising stockholders; |
| the dilutive effect the offering will have on the dividends per share we distribute subsequent to completion of the offering; |
| [the terms and expenses in connection with the offering relative to other alternatives for raising capital, including fees payable to the dealer manager;] |
| the size of the offering in relation to the number of shares outstanding; |
| [the fact that the rights will be listed on [The NASDAQ Capital Market] during the subscription period;] |
| the market price of our common stock, both before and after the announcement of the rights offering; |
| the general condition of the securities markets; and |
| any impact on operating expenses associated with an increase in capital, including an increase in fees payable to GSV Asset Management. |
There can be no assurance of the amount of dilution that a stockholder will experience or that the rights offering will be successful.
The purpose of setting the determination of the subscription price upon the expiration of the offer is to attract the maximum participation of stockholders in the offer, with minimum dilution to non-participating stockholders.
[The transferable rights will allow non-participating stockholders the potential of receiving cash payment upon the sale of the rights, receipt of which may be viewed as partial compensation for the dilution of their interests.]
We cannot assure you that the current offering will be successful, or that by increasing the size of our available equity capital, our aggregate expenses and, correspondingly, our expense ratio will be lowered. In addition, the management fee we pay to GSV Asset Management is based upon our gross assets, which include any cash or cash equivalents that we have not yet invested in the securities of portfolio companies.
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[In determining that this offer was in our best interest and in the best interests of our stockholders, we have retained , the dealer manager for this offering, to provide us with financial advisory, marketing and soliciting services relating to this offer, including advice with respect to the structure, timing and terms of the offer. In this regard, our Board of Directors considered, among other things, using a fixed pricing versus variable pricing mechanism, the benefits and drawbacks of conducting a non-transferable versus a transferable rights offering, the effect on us if this offer is not fully subscribed and the experience of the dealer manager in conducting rights offerings.]
[Although we have no present intention to do so, we may, in the future and in our discretion, choose to make additional rights offerings from time to time for a number of shares and on terms which may or may not be similar to this offer, provided that our board of directors must determine that each subsequent rights offering is in the best interest of our stockholders. Any such future rights offering will be made in accordance with the 1940 Act.]
We are issuing to record date stockholders [transferable/non-transferable] rights to subscribe for up to approximately shares. Each record date stockholder is being issued one [transferable/non-transferable] right for each whole share owned on the record date. The rights entitle each holder, or rights holder, to acquire at the subscription price one share for every rights held [, which we refer to as the primary subscription right]. Rights may be exercised at any time during the subscription period, which commences on , , the record date, and ends at 5:00 p.m., New York City Time, on , , the expiration date, unless extended by us.
The rights are [transferable and will be listed for trading on [The NASDAQ Capital Market] under the symbol during the course of the offer/non-transferable]. The shares of our common stock issued pursuant to an exercise of rights will be listed on The NASDAQ Capital Market under the symbol FULL. The rights will be evidenced by subscription certificates which will be mailed to stockholders, except as discussed below under Foreign Stockholders.
We will not issue fractional shares upon the exercise of rights; accordingly, rights may be exercised only in multiples of .
The rights are [transferable/non-transferable]. [Rights holders who are not record date stockholders may purchase shares as described above, which we refer to as the primary subscription, and may be entitled to subscribe for shares pursuant to the over-subscription privilege (as described below).]
[Shares for which there is no subscription during the primary subscription will be offered, by means of the over-subscription privilege, first to record date stockholders who fully exercise the rights issued to them pursuant to this offering (other than those rights that cannot be exercised because they represent in the aggregate the right to acquire less than one share) and who wish to acquire more than the number of shares they are entitled to purchase pursuant to the exercise of their rights. In addition, any non-record date rights holder who exercises rights is entitled to subscribe for remaining shares that are not otherwise subscribed for by record date stockholders. Shares acquired pursuant to the over-subscription privilege are subject to certain limitations and pro-rata allocations. See Over-Subscription Privilege below.]
For purposes of determining the number of shares a record date stockholder may acquire pursuant to the offer, broker-dealers, trust companies, banks or others whose shares are held of record by Cede & Co. (Cede) or by any other depository or nominee will be deemed to be the holders of the rights that are issued to Cede or the other depository or nominee on their behalf.
There is no minimum number of rights which must be exercised in order for the offer to close.
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Shares not subscribed for by rights holders, which we refer to as remaining shares, will be offered, by means of the over-subscription privilege, first to record date stockholders who have fully exercised the rights issued to them and who wish to acquire more than the number of shares they are entitled to purchase pursuant to the basic subscription. Rights holders should indicate on the subscription certificate that they submit with respect to the exercise of the rights issued to them how many additional shares they are willing to acquire pursuant to the over-subscription privilege. If there are sufficient remaining shares, all record date stockholders over-subscription requests will be honored in full. If record date stockholder requests for shares pursuant to the over-subscription privilege exceed the remaining shares available, the available remaining shares will be allocated pro-rata among record date stockholders who over-subscribe based on the number of shares held on the record date. The percentage of remaining shares each over-subscribing stockholder may acquire will be rounded down to result in delivery of whole shares. The allocation process may involve a series of allocations to assure that the total number of remaining shares available for over-subscriptions is distributed on a pro-rata basis. The formula to be used in allocating the remaining shares is as follows:
Total Record Date Position of All Over-Subscribers
Any rights holder, other than a record date stockholder, who exercises rights is entitled to subscribe for remaining shares that are not otherwise over-subscribed for by record date stockholders. These non-record date rights holders should indicate in the subscription certificate submitted with respect to the exercise of any rights how many shares they are willing to acquire pursuant to the over-subscription privilege. We cannot assure non-record date rights holders that they will receive shares pursuant to the over-subscription privilege.
If sufficient remaining shares are available after the over-subscription privileges for the record date stockholders have been allotted, then all over-subscriptions by non-record date rights holders will be honored in full. If the remaining shares are insufficient to permit such allocation, the remaining shares will be allocated pro-rata among the non-record date rights holders who wish to exercise their over-subscription privilege, based on the number of rights held by such rights holders on the expiration date. However, if this pro-rata allocation results in any holder being allocated a greater number of shares than the holder subscribed for pursuant to the exercise of the over-subscription privilege, then such holder will be allocated only such number of shares pursuant to the over-subscription privilege as such holder subscribed for. The formula to be used in allocating the shares available to non-record date rights holders exercising their over-subscription privilege is as follows:
Non-Record Date Rights Holders Rights Total Rights Ownership as of the Expiration Date of Non-Record Date Rights Holders Exercising Their Over-Subscription Privilege |
× |
Shares Available for Non-Record Date Rights Holders Exercising Their Over-Subscription Privilege |
Banks, brokers, trustees and other nominee holders of rights will be required to certify to the subscription agent, before any over-subscription privilege may be exercised with respect to any particular beneficial owner, as to the aggregate number of rights exercised pursuant to the primary subscription and the number of shares subscribed for pursuant to the over-subscription privilege by such beneficial owner and that such beneficial owners primary subscription was exercised in full. We will not offer or sell in connection with this offer any shares that are not subscribed for pursuant to the primary subscription or the over-subscription privilege.]
The subscription price for the shares to be issued pursuant to the offer will be [describe means of computing subscription price]. [Since the expiration date will be , (unless we extend the subscription period), rights holders will not know the subscription price at the time of exercise and will be required initially to pay for both the shares subscribed for pursuant to the primary subscription right and, if eligible, any additional shares subscribed for pursuant to the over-subscription privilege at the estimated subscription price of $ per share.] See Payment for Shares below. Rights holders who exercise their rights will have no right to rescind a purchase after receipt of their completed subscription certificates together with payment for shares by the subscription agent. We do not have the right to withdraw the rights or cancel this offer after the rights have been distributed.
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The offer will expire at 5:00 p.m., New York City time, on , 20 , the expiration date, unless extended by us. The rights will expire on the expiration date of the rights offering and may not be exercised thereafter.
Our Board of Directors may determine to extend the subscription period, and thereby postpone the expiration date, to the extent our board of directors determines that doing so is in the best interest of our stockholders. For example, our Board of Directors may elect to extend the subscription period in the event there is substantial instability or volatility in the trading price of our common stock or the rights on [The NASDAQ Capital Market] at or near the expiration date, or if any event occurs which causes trading to cease or be suspended on [The NASDAQ Capital Market] or the financial markets generally. The foregoing are not the only circumstances under which this offer may be extended, and our Board of Directors is free to extend the subscription period at its discretion, provided it determines that doing so is in the best interests of our stockholders.
Any extension of the offer will be followed as promptly as practicable by announcement thereof, and in no event later than 9:00 a.m., New York City time, on the next business day following the previously scheduled expiration date. Without limiting the manner in which we may choose to make such announcement, we will not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate any such announcement other than by issuing a press release or such other means of announcement as we deem appropriate.
We reserve the right to amend the terms and conditions of the offering, whether the amended terms are more or less favorable to you. We will comply with all applicable laws, including the federal securities laws, in connection with any such amendment.
We will decide all questions as to the validity, form and eligibility (including times of receipt, beneficial ownership and compliance with other procedural matters) in our sole discretion, and our determination shall be final and binding. The acceptance of subscription certificates and the subscription price also will be determined by us. Alternative, conditional or contingent subscriptions will not be accepted. We reserve the right to reject any exercise if such exercise is not in accordance with the terms of the offering or not in proper form or if the acceptance thereof or the issuance of shares of our common stock thereto could be deemed unlawful. We, in our sole discretion, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as we may determine, or reject the purported exercise of any right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole discretion. We will not be under any duty to give notification of any defect or irregularity in connection with the submission of subscription certificates or incur any liability for failure to give such notification.
We may, in our sole discretion, terminate the rights offering at any time prior to delivery of the shares of our common stock offered hereby if the subscription price is less than [ ]% of the net asset value attributable to a share of common stock disclosed in the most recent periodic report we filed with the SEC by giving oral or written notice thereof to the subscription agent and making a public announcement thereof. If the offering is terminated, all rights will expire without value and we will promptly arrange for the refund, without interest, of all funds received from holders of rights. All monies received by the subscription agent in connection with the offering will be held by the subscription agent, on our behalf, in a segregated interest-bearing account at a negotiated rate. All such interest shall be payable to us even if we determine to terminate the offering and return your subscription payment. [In addition, no amounts paid to acquire rights on [insert name of any applicable exchange on which rights are listed] or otherwise will be returned.]
Any stockholder who chooses not to participate in the offering should expect to own a smaller interest in us upon completion of the offering. The offering will dilute the ownership interest and voting power of stockholders who do not fully exercise their basic subscription rights. Further, because the net proceeds per
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share from the offering may be lower than our net asset value per share, the offering may reduce our net asset value per share. The amount of dilution that a stockholder will experience could be substantial.
Shares of closed-end investment companies have in the past frequently traded at discounts to their net asset values. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our shares will trade above, at or below our net asset value.
[The transferable feature of the rights will afford non-participating stockholders the potential of receiving cash payment upon the sale of rights, receipt of which may be viewed as partial compensation for the dilution of their interests.]
will act as the information agent in connection with the offering. The information agent will receive for its services a fee estimated to be approximately $ plus reimbursement of all out-of-pocket expenses related to the offering. can be contacted at the below address:
will act as the subscription agent in connection with this offer. The subscription agent will receive for its administrative, processing, invoicing and other services a fee estimated to be approximately $ , plus reimbursement for all out-of-pocket expenses related to the offer.
Completed subscription certificates must be sent together with full payment of the subscription price for all shares subscribed for in the primary subscription and pursuant to over-subscription privilege to the subscription agent by one of the methods described below. Alternatively, an Eligible Guarantor Institution may send notices of guaranteed delivery by facsimile to which must be received by the subscription agent at or prior to 5:00 p.m., New York City time, on the expiration date of the rights offering. Facsimiles should be confirmed by telephone at. We will accept only properly completed and duly executed subscription certificates actually received at any of the addresses listed below, at or prior to 5:00 p.m., New York City time, on the expiration date of the rights offering or by the close of business on the third business day after the expiration date of the rights offering following timely receipt of a notice of guaranteed delivery. See Payment for Shares below. In this prospectus, close of business means 5:00 p.m., New York City time, on the relevant date.
Delivery Method | Address/Number | |
By Notice of Guaranteed Delivery: | Contact an Eligible Guarantor Institution, which may include a commercial bank or trust company, a member firm of a domestic stock exchange or a savings bank or credit union, to notify us of your intent to exercise the rights. | |
By First Class Mail Only (Not Overnight/Express Mail): |
||
By Overnight Delivery: |
Delivery to an address other than one of the addresses listed above will not constitute valid delivery.
Any questions or requests for assistance concerning the method of subscribing for shares or for additional copies of this prospectus or subscription certificates or notices of guaranteed delivery may be directed to the information agent at its telephone number and address listed below:
Stockholders may also contact their broker-dealers or nominees for information with respect to the offer.
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The rights will be listed for trading on [The NASDAQ Capital Market] under the symbol subject to notice of issuance. We and the dealer manager will use our best efforts to ensure that an adequate trading market for the rights will exist, although no assurance can be given that a market for the rights will develop. Trading in the rights on [The NASDAQ Capital Market] is expected to be conducted beginning on or about , , and continuing until, (or if the offer is extended, until the extended expiration date). Rights holders are encouraged to contact their broker-dealer, bank, trustee or other nominees for more information about trading of the rights.
Stockholders who do not wish to exercise any or all of their rights may instruct the subscription agent to sell any rights they do not intend to exercise themselves through or to the dealer manager. Subscription certificates representing the rights to be sold through or to the dealer manager must be received by the subscription agent on or before , (or if the offer is extended, on or before two business days prior to the extended expiration date). Upon the timely receipt by the subscription agent of appropriate instructions to sell rights, the subscription agent will ask the dealer manager either to purchase or to use its best efforts to complete the sale and the subscription agent will remit the proceeds of the sale to the selling stockholders. If the rights can be sold, sales of such rights will be deemed to have been effected at the weighted-average price received by the dealer manager on the day such rights are sold. The sale price of any rights sold to the dealer manager will be based upon the then current market price for the rights. The dealer manager will also attempt to sell all rights which remain unclaimed as a result of subscription certificates being returned by the postal authorities to the subscription agent as undeliverable as of the fourth business day prior to the expiration date of the rights offering. The subscription agent will hold the proceeds from those sales for the benefit of such non-claiming stockholders until such proceeds are either claimed or revert to the state pursuant to applicable state law. There can be no assurance that the dealer manager will purchase or be able to complete the sale of any such rights, and neither we nor the dealer manager has guaranteed any minimum sales price for the rights. If a stockholder does not utilize the services of the subscription agent and chooses to use another broker-dealer or other financial institution to sell rights, then the other broker-dealer or financial institution may charge a fee to sell the rights.
The rights evidenced by a subscription certificate may be transferred in whole by endorsing the subscription certificate for transfer in accordance with the accompanying instructions. A portion of the rights evidenced by a single subscription certificate (but not fractional rights) may be transferred by delivering to the subscription agent a subscription certificate properly endorsed for transfer, with instructions to register such portion of the rights evidenced thereby in the name of the transferee and to issue a new subscription certificate to the transferee evidencing such transferred rights. In such event, a new subscription certificate evidencing the balance of the rights, if any, will be issued to the stockholder or, if the stockholder so instructs, to an additional transferee. The signature on the subscription certificate must correspond to the name as written upon the face of the subscription certificate in every particular, without alteration or enlargement, or any change. A signature guarantee must be provided by an Eligible Guarantor Institution as that term is defined in Rule 17Ad-15 under the Exchange Act, subject to the standards and procedures adopted by us.
Stockholders wishing to transfer all or a portion of their rights should allow at least five business days prior to the expiration date of the rights offering for (1) the transfer instructions to be received and processed by the subscription agent, (2) a new subscription certificate to be issued and transmitted to the transferee or transferees with respect to transferred rights, and to the transferor with respect to retained rights, if any, and (3) the rights evidenced by such new subscription certificate to be exercised or sold by the recipients thereof. Neither we nor the subscription agent nor the dealer manager shall have any liability to a transferee or transferor of rights if subscription certificates are not received in time for exercise or sale prior to the expiration date (or if the offer is extended, on or before two business days prior to the extended expiration date) of the rights offering.
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Except for the fees charged by the subscription agent [and dealer manager], which will be paid by us, all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred or charged in connection with the purchase, sale or exercise of rights will be for the account of the transferor of the rights, and none of those commissions, fees or expenses will be paid by us, the subscription agent or the dealer manager.
We anticipate that the rights will be eligible for transfer through, and that the exercise of the primary subscription and the over-subscription privilege may be effected through, the facilities of the Depository Trust Company (DTC). Holders of DTC exercised rights may exercise the over-subscription privilege in respect of such DTC exercised rights by properly completing and duly executing and delivering to the subscription agent, at or prior to 5:00 p.m., New York City time, on the day prior to the expiration date of the rights offering, a nominee holder over-subscription certificate or a substantially similar form satisfactory to the subscription agent, together with payment of the subscription price for the number of shares for which the over-subscription privilege is to be exercised.]
Rights are evidenced by subscription certificates that, except as described below under Foreign Stockholders, will be mailed to record date stockholders or, if a record date stockholders shares are held by Cede or any other depository or nominee on their behalf, to Cede or such depository or nominee. Rights may be exercised by completing and signing the subscription certificate that accompanies this prospectus and mailing it in the envelope provided, or otherwise delivering the completed and duly executed subscription certificate to the subscription agent, together with payment in full for the shares at the estimated subscription price by the expiration date of the rights offering. Rights may also be exercised by contacting your broker, trustee or other nominee, who can arrange, on your behalf, to guarantee delivery of payment and delivery of a properly completed and duly executed subscription certificate pursuant to a notice of guaranteed delivery by the close of business on the third business day after the expiration date. A fee may be charged for this service. Completed subscription certificates and related payments must be received by the subscription agent prior to 5:00 p.m., New York City time, on or before the expiration date (unless payment is effected by means of a notice of guaranteed delivery as described below under Payment for Shares) at the offices of the subscription agent at the address set forth above. Fractional shares will not be issued upon the exercise of rights.
Record date stockholders who fully exercise all rights issued to them and rights holders other than record date stockholders, may both participate in the over-subscription privilege by indicating on their subscription certificate the number of shares they are willing to acquire. If sufficient remaining shares are available after the primary subscription, all over-subscriptions will be honored in full; otherwise remaining shares will be allocated first to record date stockholders and then (if any remaining shares are still available) to non-record date rights holders, and the number of remaining shares issued to some or all rights holders participating in the over-subscription privilege may be reduced as described under Over-Subscription Privilege above.]
Record date stockholders whose shares are held by a nominee, such as a bank, broker-dealer or trustee, must contact that nominee to exercise their rights. In that case, the nominee will complete the subscription certificate on behalf of the record date stockholder and arrange for proper payment by one of the methods set forth under Payment for Shares below.
Nominees, such as brokers, trustees or depositories for securities, who hold shares for the account of others, should notify the respective beneficial owners of the shares as soon as possible to ascertain the beneficial owners intentions and to obtain instructions with respect to the rights. If the beneficial owner so instructs, the nominee should complete the subscription certificate and submit it to the subscription agent with the proper payment as described under Payment for Shares below.
All questions as to the validity, form, eligibility (including times of receipt and matters pertaining to beneficial ownership) and the acceptance of subscription forms and the subscription price will be determined
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by us, which determinations will be final and binding. No alternative, conditional or contingent subscriptions will be accepted. We reserve the right to reject any or all subscriptions not properly submitted or the acceptance of which would, in the opinion of our counsel, be unlawful.
We reserve the right to reject any exercise if such exercise is not in accordance with the terms of this rights offering or not in proper form or if the acceptance thereof or the issuance of shares of our common stock thereto could be deemed unlawful. We reserve the right to waive any deficiency or irregularity with respect to any subscription certificate. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole discretion. We will not be under any duty to give notification of any defect or irregularity in connection with the submission of subscription certificates or incur any liability for failure to give such notification.
Subscription certificates will not be mailed to foreign stockholders. Foreign stockholders will receive written notice of this offer. The subscription agent will hold the rights to which those subscription certificates relate for these stockholders accounts until instructions are received to exercise the rights, subject to applicable law. If no instructions have been received by the expiration date, such rights will expire.
Participating rights holders may choose between the following methods of payment:
(1) | A participating rights holder may send the subscription certificate together with payment for the shares acquired in the primary subscription and any additional shares subscribed for pursuant to the over-subscription privilege to the subscription agent based on the estimated subscription price of $ per share [( % of $ , the last reported sale price of a share on [The NASDAQ Capital Market] on, )]. To be accepted, the payment, together with a properly completed and executed subscription certificate, must be received by the subscription agent at one of the subscription agents offices set forth above, at or prior to 5:00 p.m., New York City time, on the expiration date. |
(2) | A participating rights holder may request an Eligible Guarantor Institution as that term is defined in Rule 17Ad-15 under the Exchange Act to send a notice of guaranteed delivery by facsimile or otherwise guaranteeing delivery of (a) payment of the full subscription price for the shares subscribed for in the primary subscription and any additional shares subscribed for pursuant to the over-subscription privilege and (b) a properly completed and duly executed subscription certificate. The subscription agent will not honor a notice of guaranteed delivery unless a properly completed and duly executed subscription certificate and full payment for the shares is received by the subscription agent at or prior to 5:00 p.m., New York City time, on , (or, if the offer is extended, by the close of business on the third business day after the extended expiration date). |
All payments by a participating rights holder must be in U.S. dollars by money order or check or bank draft drawn on a bank or branch located in the U.S. and payable to GSV Capital. The subscription agent will deposit all funds received by it prior to the final payment date into a segregated account pending pro-ration and distribution of the shares.
The method of delivery of subscription certificates and payment of the subscription price to us will be at the election and risk of the participating rights holders, but if sent by mail it is recommended that such certificates and payments be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the subscription agent and clearance of payment prior to 5:00 p.m., New York City time, on the expiration date or the date guaranteed payments are due under a notice of guaranteed delivery (as applicable). Because uncertified personal checks may take at least five business days to clear, you are strongly urged to pay, or arrange for payment, by means of certified or cashiers check or money order.
On a date within business days following the expiration date, the subscription agent will send to each participating rights holder (or, if rights are held by Cede or any other depository or nominee, to Cede or such other depository or nominee) a confirmation showing (1) the number of shares purchased pursuant to the
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primary subscription, (2) the number of shares, if any, acquired pursuant to the over-subscription privilege, (3) the per share and total purchase price for the shares, and (4) any additional amount payable to us by the participating rights holder or any excess to be refunded by us to the participating rights holder, in each case based on the subscription price as determined on the expiration date. Any additional payment required from a participating rights holder must be received by the subscription agent within ten business days after the confirmation date. Any excess payment to be refunded by us to a participating rights holder will be mailed by the subscription agent to the rights holder as promptly as practicable. No interest will be paid on any amounts refunded.
Whichever of the two methods described above is used, issuance of the shares purchased is subject to collection of checks and actual payment. If a participating rights holder who subscribes for shares pursuant to the primary subscription or over-subscription privilege does not make payment of any amounts due by the expiration date, the date guaranteed payments are due under a notice of guaranteed delivery or within ten business days of the confirmation date, as applicable, the subscription agent reserves the right to take any or all of the following actions: (1) reallocate the shares to other participating rights holders in accordance with the over-subscription privilege; (2) apply any payment actually received by it from the participating rights holder toward the purchase of the greatest whole number of shares which could be acquired by such participating rights holder upon exercise of the primary subscription and/or the over-subscription privilege; and/or (3) exercise any and all other rights or remedies to which it may be entitled, including the right to set off against payments actually received by it with respect to such subscribed for shares.
All questions concerning the timeliness, validity, form and eligibility of any exercise of rights will be determined by us, whose determinations will be final and binding. We in our sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as we may determine, or reject the purported exercise of any right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole discretion. The subscription agent will not be under any duty to give notification of any defect or irregularity in connection with the submission of subscription certificates or incur any liability for failure to give such notification.
Participating rights holders will have no right to rescind their subscription after receipt of their payment for shares by the subscription agent, except as provided below under Notice of Net Asset Value Decline.
We will suspend the offer until we amend this prospectus if, subsequent to the effective date of this prospectus, our net asset value declines more than 10% from our net asset value as of that date. Accordingly, the expiration date would be extended and we would notify record date stockholders of the decline and permit participating rights holders to cancel their exercise of rights.
Participants in our dividend reinvestment plan will have any shares that they acquire pursuant to the offer credited to their stockholder dividend reinvestment accounts in the plan. Stockholders whose shares are held of record by Cede or by any other depository or nominee on their behalf or their broker-dealers behalf will have any shares that they acquire credited to the account of Cede or the other depository or nominee. With respect to all other stockholders, stock certificates for all shares acquired will be mailed after payment for all the shares subscribed for has cleared, which may take up to 15 days from the date of receipt of the payment.
For federal income tax purposes, neither the receipt nor the exercise of the rights by record date stockholders will result in taxable income to such stockholders, and no loss will be realized if the rights expire without exercise.
A record date stockholders basis in a right will be zero unless either (1) the fair market value of the right on the date of distribution is 15% or more of the fair market value of the shares with respect to which
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the right was distributed or (2) the record date stockholder elects, in his or her federal income tax return for the taxable year in which the right is received, to allocate part of the basis of the shares to the right. If either of clauses (1) or (2) is applicable, then if the right is exercised, the record date stockholder will allocate his or her basis in the shares with respect to which the right was distributed between the shares and the right in proportion to the fair market values of each on the date of distribution.
The holding period of a right received by a record date stockholder includes the holding period of the shares with regard to which the right is issued. If the right is exercised, the holding period of the shares acquired begins on the date the right is exercised.
[If a right is sold, a gain or loss will be realized by the rights holder in an amount equal to the difference between the basis of the right sold and the amount realized on its disposition.]
A record date stockholders basis for determining gain or loss upon the sale of a share acquired upon the exercise of a right will be equal to the sum of the record date stockholders basis in the right, if any, and the subscription price per share. A record date stockholders gain or loss recognized upon a sale of a share acquired upon the exercise of a right will be capital gain or loss (assuming the share was held as a capital asset at the time of sale) and will be long-term capital gain or loss if the share is held for more than one year.
The foregoing is a general summary of the material U.S. federal income tax consequences of the offer under the provisions of the Code and Treasury regulations in effect as of the date of the prospectus that are generally applicable to record date stockholders who are U.S. persons within the meaning of the Code, and does not address any foreign, state or local tax consequences. The Code and Treasury regulations are subject to change or differing interpretations by legislative or administrative action, which may be retroactive. Participating rights holders should consult their tax advisors regarding specific questions as to foreign, federal, state or local taxes.
Stockholders who are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, or ERISA (including corporate savings and 401(k) plans), Keogh or H.R. 10 plans of self-employed individuals and individual retirement accounts should be aware that additional contributions of cash to a retirement plan (other than rollover contributions or trustee-to-trustee transfers from other retirement plans) in order to exercise rights would be treated as contributions to the retirement plan and, when taken together with contributions previously made, may result in, among other things, excise taxes for excess or nondeductible contributions. In the case of retirement plans qualified under Section 401(a) of the Code and certain other retirement plans, additional cash contributions could cause the maximum contribution limitations of Section 415 of the Code or other qualification rules to be violated. It may also be a reportable distribution and there may be other adverse tax and ERISA consequences if rights are sold or transferred by a retirement plan.
Retirement plans and other tax exempt entities, including governmental plans, should also be aware that if they borrow in order to finance their exercise of rights, they may become subject to the tax on unrelated business taxable income under Section 511 of the Code. If any portion of an individual retirement account is used as security for a loan, the portion so used is also treated as distributed to the IRA depositor. ERISA contains fiduciary responsibility requirements, and ERISA and the Code contain prohibited transaction rules that may impact the exercise of rights. Due to the complexity of these rules and the penalties for noncompliance, retirement plans should consult with their counsel and other advisers regarding the consequences of their exercise of rights under ERISA and the Code.
, which is a broker-dealer and member of the Financial Industry Regulatory Authority, will act as dealer manager for this offer. Under the terms and subject to the conditions contained in the dealer management agreement, the dealer manager will provide financial advisory and marketing services in connection with this offer and will solicit the exercise of rights and participation in the over-subscription privilege. This offer is not contingent upon any number of rights being exercised. We have agreed to pay the dealer manager a fee for its financial advisory, marketing and soliciting services equal to % of the aggregate subscription price for shares issued pursuant to this offer. In addition, we have agreed to reimburse the dealer manager an aggregate amount up to $ for its expenses incurred in connection with this offer.
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The dealer manager will reallow to other broker-dealers that have executed and delivered a soliciting dealer agreement and have solicited the exercise of rights, solicitation fees equal to % of the subscription price per share for each share issued pursuant to the exercise of rights as a result of their soliciting efforts, subject to a maximum fee based on the number of shares held by each broker-dealer through DTC on the record date. Fees will be paid by us to the broker-dealer designated on the applicable portion of the subscription certificates or, in the absence of such designation, to the dealer manager.
We have agreed to indemnify the dealer manager for, or contribute to losses arising out of, certain liabilities, including liabilities under the Securities Act. The dealer manager agreement also provides that the dealer manager will not be subject to any liability to us in rendering the services contemplated by the dealer manager agreement except for any act of bad faith, willful misfeasance, or gross negligence of the dealer manager or reckless disregard by the dealer manager of its obligations and duties under the dealer manager agreement. We have also agreed not to directly or indirectly sell, offer to sell, enter into any agreement to sell, or otherwise dispose of, any of our equity or equity related securities or securities convertible into such securities, other than the rights, the shares and the common stock issued in connection with the reinvestment of dividends or distributions, for a period of days from the date hereof without the prior consent of the dealer manager.
The principal business address of the dealer manager is .
Prior to the expiration of this offer, the dealer manager may independently offer for sale shares, including shares acquired through purchasing and exercising the rights, at prices it sets. The dealer manager may realize profits or losses independent of any fees described in this prospectus.
This offering is being conducted in compliance with Rule 5110 of the Conduct Rules of the Financial Industry Regulatory Authority.]
The dealer manager and/or its affiliates have from time to time performed and may in the future perform various commercial banking, financial advisory and investment banking services for us and our affiliates for which they have received or will receive customary compensation. [Describe any specific transactions and compensation related thereto required to be disclosed by applicable law or regulation.]
As a result of the terms of this offer, stockholders who do not fully exercise their rights will own, upon completion of this offer, a smaller proportional interest in us than they owned prior to the offer, including with respect to voting rights. [In addition, because the subscription price per share will likely be less than the net asset value per share, based on our current market price, the offer will likely result in an immediate dilution of net asset value per share for all of our stockholders. If the subscription price per share is substantially less than the current net asset value per share, such dilution could be substantial. Any such dilution will disproportionately affect non-exercising stockholders. If the subscription price is less than our net asset value per share, then all stockholders will experience a decrease in the net asset value per share held by them, irrespective of whether they exercise all or any portion of their rights. This offering will also cause dilution in the dividends per share we are able to distribute subsequent to completion of the offering. See Dilution.]
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Certain legal matters in connection with the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, DC. Certain legal matters in connection with the offering will be passed upon for the underwriters by [].
The audited financial statements included in the accompanying prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants located at 150 Almaden Blvd, Suite 600, San Jose, CA 95113, upon the authority of said firm as experts in giving said report.
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus supplement and the accompanying prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com.
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The information in this preliminary prospectus supplement and the accompanying prospectus relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments.
We are offering $[] in aggregate principal amount of []% [Insert ranking/conversion information] notes due, which we refer to as the Notes. [Insert relevant information regarding interest payments, redemption, etc.]
An investment in our Notes is subject to risks and involves a heightened risk of total loss of investment. In addition, the companies in which we invest are subject to special risks. For example, we invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as high yield or junk, have predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. See Risk Factors beginning on page [] of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our Notes.
This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our Notes. Please read this prospectus supplement and the accompanying prospectus before investing in our Notes and keep each for future reference. We are required to file annual, quartlerly, and current reports, proxy statements and other information with the Securities and Exchange Commission. This information will be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The Securities and Exchange Commission also maintains a website at http://www.sec.gov that contains information about us.
1Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Public Offering Price | $ | [] | $ | [] | ||||
Sales Load (Underwriting Discounts and Commissions) | $ | [] | $ | [] | ||||
Proceeds to GSV Capital Corp. (before expenses) | $ | [] | $ | [] |
[The underwriters may also purchase up to an additional $[] total aggregate principal amount of Notes offered hereby, to cover overallotments, if any, within [] days of the date of this prospectus supplement. If the underwriters exercise this option in full, the total public offering price will be $[], the total underwriting discount (sales load) paid by us will be $[], and total proceeds, before expenses, will be $[].
THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Delivery of the Notes in book-entry form only through The Depository Trust Company will be made on or about [].
Prospectus Supplement dated [], 2014.
1 | In addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear is any such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities. |
Page | ||||
Summary | ||||
Fees and Expenses | ||||
Selected Financial and Other Data | ||||
Selected Quarterly Financial Data | ||||
Risk Factors | ||||
Forward-Looking Statements and Projections | ||||
Use of Proceeds | ||||
Price Range of Common Stock and Distributions | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||||
Business | ||||
Portfolio Companies | ||||
Management | ||||
Portfolio Management | ||||
Investment Advisory Agreement | ||||
Administration Agreement | ||||
License Agreement | ||||
Related Party Transactions and Certain Relationships | ||||
Control Persons and Principal Stockholders | ||||
Regulation as a Business Development Company | ||||
Determination of Net Asset Value | ||||
Dividend Reinvestment Plan | ||||
Material U.S. Federal Income Tax Considerations | ||||
Description of Our Securities | ||||
Description of Our Capital Stock | ||||
Description of Our Preferred Stock | ||||
Description of Our Subscription Rights | ||||
Description of Our Debt Securities | ||||
Description of Our Warrants | ||||
Plan of Distribution | ||||
Custodian, Transfer and Distribution Paying Agent and Registrar |
i
Page | ||||
Brokerage Allocation and Other Practices | ||||
Legal Matters | ||||
Independent Registered Public Accounting Firm | ||||
Available Information | ||||
Privacy Notice | ||||
Index to Financial Statements |
ii
This document contains two parts. The first part is the prospectus supplement, which describes the terms of this offering of Notes and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. In particular, this prospectus supplement includes updated risk factors, financial data, portfolio holdings and their respective valuations, and other disclosure that is tailored to address the pertinent market and other conditions that are currently prevalent. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings Additional Information and Risk Factors included in this prospectus supplement and the accompanying prospectus, respectively, before investing in our Notes.
You should rely on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the respective front cover of this prospectus supplement and the accompanying prospectus. We will amend or supplement this prospectus supplement and the accompanying prospectus in the event of any material change to the information contained herein during the distribution period.
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The following summary contains basic information about the offering of shares of our Notes pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of the offering of shares of our Notes pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the shares we are offering. You should carefully read the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included in the accompanying prospectus and any updates or additions to those sections included in this prospectus supplement.
Except where the context suggests otherwise, the terms we, us, our and GSV Capital refer to GSV Capital Corp. In addition, the terms GSV Asset Management or investment adviser refer to GSV Asset Management, LLC, and GSV Capital Service Company or the administrator refer to GSV Capital Service Company, LLC.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. Our investment activities are managed by GSV Asset Management, LLC. GSV Capital Service Company, LLC provides the administrative services necessary for us to operate. Although we may elect to be taxed as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) for the 2013 taxable year, we are currently taxed as a regular corporation (a C Corporation) under the Code.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
Our [], 2013 unaudited net asset value per share is estimated to be between $[] and $[]. On [], 2013, our valuation committee reviewed and made a determination with respect to the recommended fair value of our portfolio assets as of [], 2013 in accordance with our valuation policy. Our [], 2013 net asset value estimate is based on our valuation committees recommendation of the fair value of our portfolio investments as well as other factors, including expected operating expenses. We have provided an estimate of our [], 2013 net asset value per share because our board of directors has not yet determined our actual net asset value as of
S-2
[], 2013. The estimated [decrease/increase] in net asset value per share from [], 2013 to [], 2013 is primarily due to [ ]. Our actual net asset value for [], 2013 will be subject to the final determination by our board of directors. See Determination of Net Asset Value and Risk Factors Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments.]2
We have limited information about the financial performance and profitability of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit. In addition, our current portfolio company investments are also concentrated in a limited number of companies. As of [], 2013, over half of our portfolio company investments were comprised of investments in ten companies.
As of [], 2013, we have completed investments in the companies identified below. For those investments held as of [], 2013, amounts include transaction fees and costs. For those investments acquired subsequent to [], 2013, amounts are exclusive of transaction fees and costs as those have not yet been finally determined. Fair value was determined in good faith by our board of directors as of [], 2013 for those investments held as of [], 2013. For those investments acquired subsequent to [], 2013, our board of directors has not yet determined their fair value and such investments are included at purchase cost on the acquisition date exclusive of transaction fees and costs.
2 | This disclosure may be included to the extent that an offering is conducted following the end of a fiscal quarter, for which we have not made a final determination of net asset value, if and to the extent we have sufficient information available to reliably estimate net asset value for such quarter. |
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Investment(1) | Cost(2) | Fair Value(3) | Source(s) | Description | ||||||||||||
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
The value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in our Notes involves other risks, including those discussed under the caption Risk Factors beginning on page 9 of this prospectus supplement and page [] of the accompanying prospectus. In addition, the other information included in this prospectus supplement and the accompanying prospectus contains a discussion of factors you should carefully consider before deciding to invest in shares of our securities. Some of these risks include:
| Our investments in the rapidly growing venture capital backed emerging companies that we are targeting may be extremely risky and we could lose all or part of our investments; |
| Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments; |
| We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investment in the event of a bankruptcy or liquidation of any of our portfolio companies; |
| Most of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit; |
| The lack of liquidity in, and potentially extended duration of, many of our investments may adversely affect our business and will delay any distributions of gains, if any; |
| Our portfolio may be concentrated in a limited number of portfolio companies or market sectors, which will subject us to a risk of significant loss if the business or market position of these companies deteriorates or market sectors experience a market downturn; |
| Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences and periodic downturns; |
| We may be limited in our ability to make follow-on investments, for a number of reasons, including financial or regulatory restrictions, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio; |
| We have only a limited operating history; |
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| Our inability to maintain our status as a business development company; |
| We are dependent upon GSV Asset Managements senior investment personnel for our future success; |
| We may experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods; |
| Risk associated with transacting on secondary marketplaces, including the limited availability and reliability of information relating to prospective investments and legal and regulatory risks; |
| We operate in a highly competitive market for direct equity investment opportunities; |
| We will generally make non-controlling investments and are subject to the risks that other significant shareholders may have interests that differ from those of the portfolio company or minority investors; |
| There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies; |
| Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to risks; |
| We were taxable as a C corporation during the 2012 taxable year. We will be subject to corporate-level income tax if we are profitable and we are unable to qualify as a RIC, which we have been unable to do for the 2013 taxable year. Unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations, we will not qualify as a RIC for the 2013 taxable year, which could have a material adverse effect on our financial performance. There can be no assurance that we will qualify as a RIC in the 2013 taxable year or in any subsequent taxable year; |
| Our stockholders may experience dilution upon the conversion of our convertible notes; |
| We may not have, or have the ability to raise, the funds necessary to repurchase our convertible notes upon a fundamental change, and our debt may contain limitations on our ability to deliver shares of our common stock upon conversion or pay cash upon repurchase of our convertible notes; |
| Provisions of our convertible notes could discourage an acquisition of us by a third party; |
| Certain adverse consequences could result if our convertible notes are treated as equity interests in us for purposes of regulations under the Employee Retirement Income Security Act of 1974; and |
| The accounting for convertible debt securities is complex and subject to uncertainty. |
| The Notes will be unsecured and therefore will be effectively subordinated to any secured indebtedness we may incur; |
| The Notes will be subordinated structurally to the indebtedness and other liabilities of our subsidiaries; |
| The indenture governing the Notes will contain limited protection for holders of the Notes; |
| An active trading market for the Notes may not develop, which could limit the market price of the Notes or your ability to sell them; |
| The optional redemption provision may materially adversely affect your return on the Notes; and |
Our offices are located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
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This prospectus supplement sets forth certain terms of the Notes that we are offering pursuant to this prospectus supplement and supplements the accompanying prospectus that is attached to the back of this prospectus supplement. This section outlines the specific legal and financial terms of the Notes. You should read this section together with the more general description of the Notes in the accompanying prospectus under the heading Description of Our Debt Securities before investing in the Notes. Capitalized terms used in this prospectus supplement and not otherwise defined shall have the meanings ascribed to them in the accompanying prospectus or in the indenture governing the Notes.
Issuer |
GSV Capital Corporation. |
Title of the securities |
[]% [Insert ranking/conversion information] Notes due |
Initial aggregate principal amount being offered |
$[] |
Overallotment option |
The underwriters may also purchase from us up to an additional $ aggregate principal amount of Notes to cover overallotments, if any, within [] days of the date of this prospectus supplement. |
Initial public offering price |
[]% of the aggregate principal amount. |
Principal payable at maturity |
[]% of the aggregate principal amount; the principal amount of each Note will be payable on its stated maturity date at the office of the Paying Agent, Registrar and Transfer Agent for the Notes or at such other office in [ ] as we may designate. |
Type of Note |
[Fixed/Floating] rate note. |
Interest rate |
[]% per year. |
Day count basis |
360-day year of twelve 30-day months. |
Original issue date |
[] |
Stated maturity date |
[] |
Date interest starts accruing |
Interest payment dates |
Each [], [], [] and [], commencing []. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment. |
Interest periods |
The initial interest period will be the period from and including [] to [] but excluding, the initial interest payment date, and the subsequent interest periods will be the periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be. |
Record dates for interest |
Each [], [], and [], commencing []. |
[Additional Amounts Payable |
List any additional amounts payable in respect of any tax, assessment or governmental charge.] |
[Conversion/Exchange |
List any provisions for convertibility or exchangeability of the debt securities into or for any other securities.] |
Specified currency |
U.S. Dollars |
[Place of payment |
] |
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Ranking of Notes |
The Notes will be our direct [un]secured obligations and will rank: |
pari passu with our other outstanding and future senior [un]secured indebtedness, including [ ]; |
senior to any of our future indebtedness that expressly provides it is subordinated to the Notes; structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles or similar facilities [ , including ]. |
[Collateral |
Our obligations with respect to the Notes and the performance of all of our other obligations under the indenture governing the Notes will be secured equally and ratably with our obligations under any other pari passu debt by a [first/second] priority security interest over [describe assets over which security is being granted].] |
Denominations |
We will issue the Notes in denominations of $ and integral multiples of $ in excess thereof. |
Business day |
[Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City are authorized or required by law or executive order to close.] |
Optional redemption |
The Notes may be redeemed in whole or in part at any time or from time to time at our option on or after [ ], upon not less than days nor more than days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of $[] per Note plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. |
You may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be redeemed in part only, the redemption notice will provide that, upon surrender of such Note, you will receive, without a charge, a new Note or Notes of authorized denominations representing the principal amount of your remaining unredeemed Notes. |
Any exercise of our option to redeem the Notes will be done in compliance with the 1940 Act, to the extent applicable. |
If we redeem only some of the Notes, the Trustee will determine the method for selection of the particular Notes to be redeemed, in accordance with the 1940 Act, to the extent applicable. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes called for redemption. |
Sinking fund |
The Notes will not be subject to any sinking fund. |
Repayment at option of Holders |
Holders will not have the option to have the Notes repaid prior to the stated maturity date. |
Defeasance |
The Notes are subject to defeasance by us. |
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Covenant defeasance |
The Notes are subject to covenant defeasance by us. |
Form of Notes |
The Notes will be represented by global securities that will be deposited and registered in the name of [The Depository Trust Company, or DTC], or its nominee. Except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests in the Notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in [DTC]. Investors may elect to hold interests in the Notes through either [DTC], if they are a participant, or indirectly through organizations which are participants in [DTC]. |
Trustee, Paying Agent, Registrar and Transfer Agent |
[ ] |
[Other covenants |
In addition to the covenants described in the prospectus attached to this prospectus supplement, the following covenants shall apply to the Notes:] |
[Listing |
We intend to list the Notes on [ ] within [] days of the original issue date.] |
Use of Proceeds |
We intend to use the net proceeds from this offering for general corporate purposes, which may include investing in new portfolio companies in accordance with our investment objective and strategies described in this prospectus, the repayment of outstanding indebtedness, acquisitions and for other general working capital purposes. Pending these uses, we will invest such net proceeds primarily in cash, cash equivalents, and U.S. government securities or other high-quality debt investments that mature in one year or less consistent with our business development company election and our election to be taxed as a RIC, at yields significantly below those we expect to earn on our other portfolio investments. The management fee payable by us to our investment adviser will not be reduced while our assets are invested in these temporary investments. See Use of Proceeds. |
Global Clearance and Settlement Procedures |
Interests in the Notes will trade in [DTC]s Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by [DTC] to be settled in immediately available funds. None of the issuer, the Trustee or the paying agent will have any responsibility for the performance by [DTC] or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. |
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Before you invest in our Notes, you should be aware of various risks, including those described below and under the section entitled Risk Factors beginning on page [] of the accompanying prospectus. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in our Notes. The risks set out below and in the accompanying prospectus are not the only risks we face. If any of the adverse events or conditions described below or in the accompanying prospectus occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our securities could decline, and you may lose all or part of your investment. The risk factors described below, together with those set forth in the accompanying prospectus, are the principal risk factors associated with an investment in us as well as those factors generally associated with an investment company with investment objectives, investment policies, capital structure or trading markets similar to ours.
Our convertible notes are convertible into shares of our common stock beginning January 1, 2016 or, under certain circumstances, earlier. Upon conversion, we must deliver shares of our common stock. The conversion rate of our convertible notes was initially, and currently is, 61.5091 shares of our common stock per $1,000 principal amount of our convertible notes (equivalent to a conversion price of approximately $16.26 per share of common stock), subject to adjustment in certain circumstances. Based on the current conversion rate, the maximum number of shares of common stock that would be issued upon conversion of the $69.0 million convertible debt currently outstanding is 4,244,128. If we deliver shares of common stock upon a conversion at the time our net asset value per share exceeds the conversion price in effect at such time, our stockholders may incur dilution. In addition, our stockholders will experience dilution in their ownership percentage of our common stock upon our issuance of common stock in connection with the conversion of our convertible notes and any dividends paid on our common stock will also be paid on shares issued in connection with such conversion after such issuance.
Holders of our convertible notes will have the right to require us to repurchase their notes upon the occurrence of certain significant corporate events involving us, including if our common stock ceases to trade on any national securities exchange or we consolidate or merge into another entity in certain circumstances, at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. We refer to such a corporate event as a fundamental change. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of convertible notes surrendered therefor. In addition, our ability to repurchase our convertible notes or deliver shares of our common stock upon conversions of the convertible notes may be limited by law, by regulatory authority or by agreements governing our indebtedness. Our failure to repurchase the notes at a time when the repurchase is required by the indenture relating to the convertible notes or to deliver any shares of our commonstock deliverable on future conversions of the convertible notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the occurrence of a fundamental change itself could also lead to a default under agreements governing our indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase our convertible notes.
Certain provisions of our convertible notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of a fundamental change, the holders of our convertible notes will have the right, at their option, to require us to repurchase all or a portion of their convertible notes, plus
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accrued and unpaid interest. We may also be required to increase the conversion rate of the convertible notes in certain other circumstances, including in the event of certain fundamental changes. These provisions could discourage an acquisition of us by a third party.
Pursuant to regulations under the Employee Retirement Income Security Act of 1974 (ERISA), it is possible that, due to their convertibility feature, our convertible notes could be treated as equity interests in us. In that event, if employee benefit plans subject to Title I of ERISA, plans that are not subject to ERISA but that are subject to Section 4975 of the Internal Revenue Code (the Code), such as individual retirement accounts, and entities that are deemed to hold the assets of such plans or accounts (such plans, accounts, and entities, Benefit Plan Investors) were to acquire 25% or more of the aggregate value of our convertible notes, among other consequences, we and our management would be subject to ERISA fiduciary duties, and certain transactions we might enter into, or may have entered into, in the ordinary course of our business might constitute non-exempt prohibited transactions under Section 406 of ERISA or Section 4975 of the Code and might have to be rescinded at significant cost to us. Moreover, if our underlying assets were deemed to be assets constituting plan assets, (i) our assets could be subject to ERISAs reporting and disclosure requirements, (ii) a fiduciary causing a Benefit Plan Investor to make an investment in our equity interests could be deemed to have delegated its responsibility to manage the assets of the Benefit Plan Investor, and (iii) various providers of fiduciary or other services to us, and any other parties with authority or control with respect to our assets, could be deemed to be plan fiduciaries or otherwise parties in interest or disqualified persons by virtue of their provision of such services.
We do not believe that our convertible notes should be treated as equity interests in us for purposes of ERISA in light of the relevant regulations. No assurance can be given, however, that our convertible notes will not be so treated.
The accounting for convertible debt securities is complex and subject to frequent scrutiny by the accounting regulatory bodies and is subject to change. The issuance of our convertible notes may have an accounting effect on our earnings per share on a fully diluted basis. Further, we cannot predict if or when changes in the accounting for convertible debt securities could be made and whether any such change could have an adverse impact on our reported or future financial results. Any such impacts could adversely affect the market price or value of our common stock.
The Notes will not be secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have outstanding as of the date of this prospectus supplement or that they may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. As of [ ], we had $[ ] million in outstanding indebtedness that is senior to the Notes. Certain amounts of this indebtedness are secured by certain of our assets and the indebtedness thereunder is therefore effectively senior to the Notes to the extent of the value of such assets.]
The Notes are obligations exclusively of Full Circle Capital. and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors, including trade creditors, and holders of preferred stock, if
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any, of our subsidiaries will have priority over our claims (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we were recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be subordinated structurally to all indebtedness and other liabilities, including trade payables, of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. All of the existing indebtedness of our subsidiaries would be structurally senior to the Notes. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the Notes.
The indenture governing the Notes offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes will not place any restrictions on our or our subsidiaries ability to:
| [issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and [therefore] rank [effectively] senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and [which therefore] is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries; |
| pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes; |
| sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
| enter into transactions with affiliates; |
| create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
| make investments; or |
| create restrictions on the payment of dividends or other amounts to us from our subsidiaries.] |
In addition, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity except as required by the 1940 Act.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Certain of our current debt instruments include more protections for their holders than the indenture and the Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.
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The Notes are a new issue of debt securities for which there currently is no trading market. [Although we expect the Notes to be listed on [ ],] we cannot provide any assurances that an active trading market will develop for the Notes or that you will be able to sell your Notes. If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. The underwriters have advised us that they intend to make a market in the Notes, but they are not obligated to do so. The underwriters may discontinue any market-making in the Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time.
[Insert any additional relevant risk factors not included in base prospectus.]
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This prospectus supplement and the accompanying prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets, projects, and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies, |
| an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio, |
| an inability to access the equity markets could impair our investment activities, |
| interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and |
| the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this prospectus supplement and the accompanying prospectus. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Risk Factors beginning on page [] of the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the dates of this prospectus supplement and the accompanying prospectus, respectively. The forward-looking statements and projections contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act. In addition, the forward-looking statements and projections contained in any reports we may file subsequent to completion of this offering under the Exchange Act will be excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
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The following table sets forth:
| our actual cash and capitalization as of [], 2013; and |
| our cash and capitalization as adjusted to reflect the sale of $[] aggregate principal amount of Notes in this offering at the assumed public offering price of 100% of par, after deducting the estimated underwriting discounts and commissions of approximately [] payable by us. |
As of [], 2013 | ||||||||
Actual | As Adjusted(1) | |||||||
Assets(1): |
||||||||
Cash and cash equivalents | $ | $ | ||||||
Total assets | $ | $ | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share; 100,000,000 shares authorized, [] shares issued and outstanding, [] shares issued and outstanding, as adjusted, respectively |
$ | $ | ||||||
Additional paid-in-capital | $ | $ | ||||||
Accumulated net investment loss | $ | $ | ||||||
Unrealized depreciation on investments | $ | $ | ||||||
Capital in Excess of Par Value | $ | $ | ||||||
Total stockholders equity | $ | $ |
(1) | Since [], 2013, we have used approximately $[] million of our available cash to acquire additional portfolio investments. This is not reflected in the table above. |
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We estimate that the net proceeds we will receive from the sale of $ million aggregate principal amount of Notes in this offering will be approximately $[] million (or approximately $[] million if the underwriters fully exercise their overallotment option), in each case assuming a public offering price of 100% of par, after deducting the underwriting discounts and commissions of $[] million (or approximately $[] million if the underwriters fully exercise their overallotment option) payable by us and estimated offering expenses of approximately $ [] million payable by us.
We plan to invest the net proceeds from this offering in portfolio companies in accordance with our investment objective and strategies described in this prospectus. We will also use a portion of the net proceeds to pay operating expenses, and other expenses such as due diligence expenses relating to potential new investments. We anticipate that substantially all of the net proceeds of this offering will be used for the above purposes within six to 12 months, depending on the availability of investment opportunities that are consistent with our investment objectives and market conditions, except for such amounts as may be retained for purposes of funding our ongoing operations subsequent to the completion of this offering. We cannot assure you we will achieve our targeted investment pace. Pending such investments, we will invest the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment. The management fee payable by us will not be reduced while our assets are invested in such securities. See Regulation as a Business Development Company Temporary Investments in the accompanying prospectus for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
[Describe use of proceeds and include any other relevant information to the extent required to be disclosed by applicable law or regulation.]
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[Insert information required by Item 503(d) of Regulation S-K at time of offering.]
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[Insert disclosure regarding material federal income tax consequences of an investment in the Notes to the extent required to be disclosed by applicable law or regulation.]
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[ ] is acting as sole book-running manager of the offering and as representative of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has agreed to purchase, and we have agreed to sell to that underwriter, the aggregate principal amount of Notes set forth opposite the underwriters name.
Underwriters | Notes | |||
Total |
The underwriting agreement provides that the obligations of the underwriters to purchase the Notes included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the Notes (other than those covered by the over-allotment option described below) if they purchase any of the Notes.
The underwriters propose to offer some of the Notes directly to the public at the public offering price set forth on the cover page of this prospectus supplement and some of the Notes to dealers at the public offering price less a concession not to exceed $ per Note. The underwriting discount of $[] per Note is equal to []% of the initial offering price. If all of the Notes are not sold at the initial offering price, the representative may change the public offering price and other selling terms.
The underwriters hold an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an additional $[] aggregate principal amount of the Notes offered hereby at the public offering price. The underwriters may exercise the option solely for the purpose of covering overallotments, if any, in connection with this offering. To the extent such option is exercised, each underwriter must purchase a number of additional Notes approximately proportionate to that underwriters initial purchase commitment.
The following table shows the underwriting discounts to be paid to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional Notes. This offering will conform with the requirements set forth in Financial Industry Regulatory Authority Rule 2310. The sum of all compensation to the underwriters in connection with this offering of Notes, including the underwriting discount, will not exceed 10% of the total public offering price of the Notes sold in this offering.
Per Note | [Without Option | With Option] | ||||||||||
Public offering price | ||||||||||||
Underwriting discount | ||||||||||||
Proceeds, before expenses, to us |
The underwriters are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities. The Notes are a new issue of securities with no established trading market. We intend to list the Notes on []. We expect trading in the Notes on to begin within [] days after the original issue date. Currently there is no public market for the Notes.
Certain underwriters may make a market in the Notes. No underwriter is, however, obligated to conduct market-making activities and any such activities may be discontinued at any time without notice, at the sole
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discretion of the underwriter. No assurance can be given as to the liquidity of, or the trading market for, the Notes as a result of any market-making activities undertaken by any underwriter. This prospectus supplement is to be used by any underwriter in connection with the offering and, during the period in which a prospectus supplement must be delivered, with offers and sales of the Notes in market-making transactions in the over-the-counter market at negotiated prices related to prevailing market prices at the time of the sale.
In connection with the offering, [ ], on behalf of the underwriters, may purchase and sell Notes in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of Notes in excess of the number of Notes to be purchased by the underwriters in the offering, which creates a syndicate short position. Covered short sales are sales of Notes made in an amount up to the number of Notes represented by the underwriters overallotment option. In determining the source of Notes to close out the covered syndicate short position, the underwriters will consider, among other things, the price of Notes available for purchase in the open market as compared to the price at which they may purchase Notes through the overallotment option. Transactions to close out the covered syndicate short position involve either purchases of Notes in the open market after the distribution has been completed or the exercise of the overallotment option. The underwriters may also make naked short sales of Notes in excess of the overallotment option. The underwriters must close out any naked short position by purchasing Notes in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of Notes in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of Notes in the open market while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when [ ] repurchases Notes originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a decline in the market price of Notes. They may also cause the price of Notes to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the [ ], or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
We estimate that our portion of the total expenses of this offering, excluding the underwriting discounts, will be approximately $[]. .
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters. The representative may agree to allocate a number of Notes to underwriters for sale to their online brokerage account holders. The representative will allocate Notes to underwriters that may make Internet distributions on the same basis as other allocations. In addition, Notes may be sold by the underwriters to securities dealers who resell Notes to online brokerage account holders.
Certain underwriters may perform investment banking and advisory services for us, our investment adviser and our affiliates from time to time, for which they receive customary fees and expenses. Certain underwriters may, from time to time, engage in transactions with or perform services for us, our investment adviser and our affiliates in the ordinary course of business.
[Additional Underwriter Compensation
[to be provided as applicable]]
The principal business address of [ ] is [ ]. .
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In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of Notes described in this prospectus supplement or the accompanying prospectus may not be made to the public in that relevant member state other than:
| to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
| to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of Notes shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellers of the Notes have not authorized and do not authorize the making of any offer of Notes through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the Notes as contemplated in this prospectus supplement and the accompanying prospectus. Accordingly, no purchaser of the Notes, other than the underwriters, is authorized to make any further offer of the Notes on behalf of the sellers or the underwriters.
This prospectus supplement and the accompanying prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a relevant person). This prospectus supplement and the accompanying prospectus and their respective contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the Notes described in this prospectus supplement and the accompanying prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The Notes have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the Notes has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the Notes to the public in France. |
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Such offers, sales and distributions will be made in France only:
| to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint dinvestisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; |
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à lépargne). |
The Notes may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
The Notes may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the Notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
The Notes offered in this prospectus supplement and the accompanying prospectus have not been registered under the Securities and Exchange Law of Japan. The Notes have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Neither this prospectus supplement nor the accompanying prospectus have been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
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Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
Notes, debentures and units of Notes and debentures of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:
| to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such Notes, debentures and units of Notes and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
| where no consideration is or will be given for the transfer; or |
| where the transfer is by operation of law. |
[INCLUDE OTHER JURISDICTIONS AS APPROPRIATE]
S-22
Certain legal matters in connection with the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, DC. Certain legal matters in connection with the offering will be passed upon for the underwriters by [].
The audited financial statements included in the accompanying prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants located at 150 Almaden Blvd, Suite 600, San Jose, CA 95113, upon the authority of said firm as experts in giving said report.
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our securities offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of securities being offered by this prospectus supplement and the accompanying prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com.
S-23
The information in this preliminary prospectus supplement and the accompanying prospectus relates to an effective registration statement under the Securities Act of 1933, as amended, but the information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement and accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments.
We are offering for sale warrants to purchase up to [type of security]. Each warrant entitles the holder to purchase [type of security].
The exercise price will be $[] per warrant. The warrants will be exercisable beginning on [], and will expire on [], or earlier upon redemption.
Our common stock is listed on the NASDAQ Capital Market under the symbol GSVC. On [], 2013, the last reported sales price on the NASDAQ Capital Market for our common stock was $[]per share. We are required to determine the net asset value per share of our common stock on a quarterly basis. The net asset value per share of our common stock as of securities was $[].
An investment in our warrants is subject to risks and involves a heightened risk of total loss of investment. As of [], 2013, our shares traded at a significant premium to our net asset value per share, which premium may be reduced or eliminated if and when certain of our portfolio companies complete initial public offerings. In particular, shares of closed-end investment companies, including business development companies, such as our company, frequently trade at a discount to their net asset value. If our shares trade at a discount to our net asset value, it may increase the risk of loss for purchasers in this offering. As of [], 2013, our net asset value was $[] per share. Assuming a public offering price of $[] per share, the last reported sales price for our common stock on the NASDAQ Capital Market on [], 2013, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon our net asset value per share as of [], 2013. See Dilution for more information. In addition, the companies in which we invest are subject to special risks.
This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our warrants. Please read this prospectus supplement and the accompanying prospectus before investing in our warrants and keep each for future reference. We are required to file annual, quartlerly, and current reports, proxy statements and other information with the Securities and Exchange Commission. This information will be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The Securities and Exchange Commission also maintains a website at http://www.sec.gov that contains information about us.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Warrant | Total | |||||||
Public Offering Price | $ | [] | $ | [] | ||||
Sales Load (Underwriting Discounts and Commissions) | $ | [] | $ | [] | ||||
Proceeds to GSV Capital Corp. (before expenses) | $ | [] | $ | [] |
[In addition, the underwriters may purchase up to an additional warrants from us at the public offering price, less the underwriting discount, within days of the date of this prospectus supplement to cover overallotments. If the underwriters exercise this option in full, the total public offering price will be $[], the total underwriting discount (sales load) paid by us will be $[], and total proceeds, before expenses, will be $[].]
The underwriters expect to deliver the warrants on or about [].
Prospectus Supplement dated [], 2013.
1 | In addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear is any such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities. |
Page | ||||
Summary | ||||
Fees and Expenses | ||||
Selected Financial and Other Data | ||||
Selected Quarterly Financial Data | ||||
Risk Factors | ||||
Forward-Looking Statements and Projections | ||||
Use of Proceeds | ||||
Price Range of Common Stock and Distributions | ||||
Managements Discussion and Analysis of Financial Condition and Results of Operations | ||||
Business | ||||
Portfolio Companies | ||||
Management | ||||
Portfolio Management | ||||
Investment Advisory Agreement | ||||
Administration Agreement | ||||
License Agreement | ||||
Related Party Transactions and Certain Relationships | ||||
Control Persons and Principal Stockholders | ||||
Regulation as a Business Development Company | ||||
Determination of Net Asset Value | ||||
Dividend Reinvestment Plan | ||||
Material U.S. Federal Income Tax Considerations | ||||
Description of Our Securities | ||||
Description of Our Capital Stock | ||||
Description of Our Preferred Stock | ||||
Description of Our Subscription Rights | ||||
Description of Our Debt Securities | ||||
Description of Our Warrants | ||||
Plan of Distribution | ||||
Custodian, Transfer and Distribution Paying Agent and Registrar |
i
Page | ||||
Brokerage Allocation and Other Practices | ||||
Legal Matters | ||||
Independent Registered Public Accounting Firm | ||||
Available Information | ||||
Privacy Notice | ||||
Index to Financial Statements |
ii
This document is in two parts. The first part is the prospectus supplement, which describes the terms of this offering of warrants and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings Where You Can Find Additional Information and Risk Factors included in this prospectus supplement and in the accompanying prospectus, respectively, before investing in our warrants.
You should rely on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the respective front cover of this prospectus supplement and the accompanying prospectus. We will amend or supplement this prospectus supplement and the accompanying prospectus in the event of any material change to the information contained herein during the distribution period.
S-1
The following summary contains basic information about the offering of our warrants pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of our warrants pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the warrants we are offering. You should carefully read the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included in the accompanying prospectus and any updates or additions to those sections included in this prospectus supplement.
Except where the context suggests otherwise, the terms we, us, our and GSV Capital refer to GSV Capital Corp. In addition, the terms GSV Asset Management or investment adviser refer to GSV Asset Management, LLC, and GSV Capital Service Company or the administrator refer to GSV Capital Service Company, LLC.
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. Our investment objective is to maximize our portfolios total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through secondary marketplaces for private companies, negotiations with selling stockholders and direct investments with prospective portfolio companies. Our investment activities are managed by GSV Asset Management, LLC. GSV Capital Service Company, LLC provides the administrative services necessary for us to operate. Although we may elect to be taxed as a Regulated Investment Company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) for the 2013 taxable year, we are currently taxed as a regular corporation (a C Corporation) under the Code.
Our investment philosophy is premised on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. Our investment advisers investment decisions are based on a disciplined analysis of available information regarding each potential portfolio companys business operations, focusing on the companys growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that our investment adviser evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio companys common equity, and convertible debt securities with a significant equity component.
The current significant premium at which our shares trade relative to our net asset value per share may be attributable to a number of factors, including Twitter Incs initial public offering, a positive outlook by investors on other existing portfolio companies and positive trading on companies in our portfolio which have gone public. Such a significant premium may not be sustainable in the future if and when companies in our portfolio, particularly if the public perception of the prospects of such companies are adversely affected, and if overall market conditions or investor sentiment declines. This will enhance the risk that the price of your shares in our company will decline.
S-2
Our [], 2013 unaudited net asset value per share is estimated to be between $[]and $[]. On [], 2013, our valuation committee reviewed and made a determination with respect to the recommended fair value of our portfolio assets as of [], 2013 in accordance with our valuation policy. Our [], 2013 net asset value estimate is based on our valuation committees recommendation of the fair value of our portfolio investments as well as other factors, including expected operating expenses. We have provided an estimate of our [], 2013 net asset value per share because our board of directors has not yet determined our actual net asset value as of [], 2013. The estimated [decrease/increase] in net asset value per share from [], 2013 to [], 2013 is primarily due to [ ]. Our actual net asset value for [], 2013 will be subject to the final determination by our board of directors. See Determination of Net Asset Value and Risk Factors Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments.]2
We have limited information about the financial performance and profitability of our portfolio companies. While according to public filings with the SEC, certain of our portfolio companies have earned net income in recent periods, we believe that many of our portfolio companies are currently experiencing operating losses. There can be no assurance when or if such companies will operate at a profit. In addition, our current portfolio company investments are also concentrated in a limited number of companies. As of [], 2013, over half of our portfolio company investments were comprised of investments in ten companies.
As of [], 2013, we have completed investments in the companies identified below. For those investments held as of [], 2013, amounts include transaction fees and costs. For those investments acquired subsequent to [], 2013, amounts are exclusive of transaction fees and costs as those have not yet been finally determined. Fair value was determined in good faith by our board of directors as of [], 2013 for those investments held as of [], 2013. For those investments acquired subsequent to [], 2013, our board of directors has not yet determined their fair value and such investments are included at purchase cost on the acquisition date exclusive of transaction fees and costs.
2 | This disclosure may be included to the extent that an offering is conducted following the end of a fiscal quarter, for which we have not made a final determination of net asset value, if and to the extent we have sufficient information available to reliably estimate net asset value for such quarter. |
S-3
Investment(1) | Cost(2) | Fair Value(3) | Source(s) | Description | ||||||||||||
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
The value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. Investing in our securities involves other risks, including those discussed under the caption Risk Factors beginning on page [] of this prospectus supplement and page [] of the accompanying prospectus. In addition, the other information included in this prospectus supplement and the accompanying prospectus contains a discussion of factors you should carefully consider before deciding to invest in our securities. Some of these risks include:
| Our investments in the rapidly growing venture capital backed emerging companies that we are targeting may be extremely risky and we could lose all or part of our investments; |
| Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our portfolio investments; |
| We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investment in the event of a bankruptcy or liquidation of any of our portfolio companies; |
| Most of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit; |
| The lack of liquidity in, and potentially extended duration of, many of our investments may adversely affect our business and will delay any distributions of gains, if any; |
| Our portfolio may be concentrated in a limited number of portfolio companies or market sectors, which will subject us to a risk of significant loss if the business or market position of these companies deteriorates or market sectors experience a market downturn; |
| Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences and periodic downturns; |
| We may be limited in our ability to make follow-on investments, for a number of reasons, including financial or regulatory restrictions, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio; |
| We have only a limited operating history; |
| Our inability to maintain our status as a business development company; |
S-4
| We are dependent upon GSV Asset Managements senior investment personnel for our future success; |
| We may experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods; |
| Risk associated with transacting on secondary marketplaces, including the limited availability and reliability of information relating to prospective investments and legal and regulatory risks; |
| We operate in a highly competitive market for direct equity investment opportunities; |
| We will generally make non-controlling investments and are subject to the risks that other significant shareholders may have interests that differ from those of the portfolio company or minority investors; |
| There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies; |
| Regulations governing our operation as a business development company affect our ability to and the way in which we raise additional capital, which may expose us to risks; |
| We were taxable as a C corporation during the 2012 taxable year. We will be subject to corporate-level income tax if we are profitable and we are unable to qualify as a RIC, which we have been unable to do for the 2013 taxable year. Unless the SEC certifies us as being principally engaged in the furnishing of capital to certain types of developmental corporations, we will not qualify as a RIC for the 2013 taxable year, which could have a material adverse effect on our financial performance. There can be no assurance that we will qualify as a RIC in the 2013 taxable year or in any subsequent taxable year; |
| Our common stock price may be volatile and may decrease substantially; |
| Our common stock has recently traded, and may in the future trade, at premiums that may prove to be unsustainable or at discounts from net asset value; and |
| There is a risk that you may not receive dividends or that our dividends may not grow over time, particularly since we invest primarily in securities that do not produce current income. As of the date of this filing, all sales of the Companys investments have, in the aggregate, generated a net realized loss. |
| If you exercise your warrants, you may be unable to sell any [type of security] you purchase at a profit; and |
| The exercise price is not necessarily an indication of our value. |
[Insert other risk factors applicable to the warrants.]
Our offices are located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
S-5
This prospectus supplement sets forth certain terms of our warrants that we are offering pursuant to this prospectus supplement and supplements the accompanying prospectus that is attached to the back of this prospectus supplement. This section outlines the specific legal and financial terms of our warrants. You should read this section together with the more general description of our warrants in this prospectus supplement under the heading Description of Our Warrants and in the accompanying prospectus under the heading Description of Our Warrants before investing in our warrants. Capitalized terms used in this prospectus supplement and not otherwise defined shall have the meanings ascribed to them in the accompanying prospectus.
Warrants Offered by Us |
[ ], excluding warrants issuable pursuant to the over-allotment option granted to the underwriters. |
Warrants Outstanding After this Offering |
[ ], excluding warrants issuable pursuant to the over-allotment option granted to the underwriters. |
Exercisability |
Each warrant is exercisable for [number] [type of security]. |
Exercise Price |
$[ ] |
Exercise Period |
The warrants will be exercisable beginning on [ ] and will expire on [ ], or earlier upon redemption. However, the warrants will only be exercisable if a registration statement relating to the [type of security] issuable upon exercise of the warrants is effective and current. We have agreed to use our best efforts to have an effective registration statement cover the [type of security] issuable upon exercise of the warrants from the date the warrants become exercisable and to maintain a current prospectus relating to such [type of security] until the warrants expire or are redeemed. |
Redemption |
At any time while the warrants are exercisable, we may redeem the outstanding warrants: |
in whole and not in part; |
at a price of $[] per warrant; |
upon a minimum of [] days prior written notice of redemption; and |
if, and only if, the last sales price of our common stock equals or exceeds $[] per share for any trading days within a trading day period ending business days before we send the notice of redemption; provided that we have an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, covering the [type of security] issuable upon exercise of the warrants and a current prospectus relating to them is available on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants. |
S-6
Use of Proceeds |
We intend to use the net proceeds from this offering for general corporate purposes, which may include investing in new portfolio companies in accordance with our investment objective and strategies described in this prospectus, the repayment of outstanding indebtedness, acquisitions and for other general working capital purposes. Pending these uses, we will invest such net proceeds primarily in cash, cash equivalents, and U.S. government securities or other high-quality debt investments that mature in one year or less consistent with our business development company election and our election to be taxed as a RIC, at yields significantly below those we expect to earn on our other portfolio investments. The management fee payable by us to our investment adviser will not be reduced while our assets are invested in these temporary investments. See Use of Proceeds. |
S-7
Before you invest in our warrants, you should be aware of various risks, including those described below and under the section entitled Risk Factors beginning on page [] of the accompanying prospectus. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in our warrants. The risks set out below and in the accompanying prospectus are not the only risks we face. If any of the adverse events or conditions described below or in the accompanying prospectus occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value could decline, and you may lose all or part of your investment.
The trading price of our common stock may fluctuate substantially. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:
| price and volume fluctuations in the overall stock market from time to time; |
| investor demand for our shares; |
| significant volatility in the market price and trading volume of securities of regulated investment companies, business development companies or other financial services companies; |
| changes in regulatory policies or tax guidelines with respect to regulated investment companies or business development companies; |
| failure to qualify as a RIC for a particular taxable year, or the loss of RIC status; |
| actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts; |
| general economic conditions and trends; |
| fluctuations in the valuation of our portfolio investments; |
| operating performance of companies comparable to us; |
| market sentiment against technology-related companies; and |
| departures of any of the senior investment professionals or Advisory Board members of GSV Asset Management. |
In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert managements attention and resources from our business.
The public trading market price of our [type of security] may decline after you elect to exercise your warrants. If that occurs, you will have committed to buy [type of security] at a price above the prevailing market price and you will have an immediate unrealized loss. Moreover, we cannot assure you that following the exercise of warrants you will be able to sell your [type of security] at a price equal to or greater than the exercise price.
S-8
The exercise price of the warrants does not necessarily bear any relationship to any established criteria for valuation of business development companies. You should not consider the exercise price an indication of our value or any assurance of future value. After the date of this prospectus supplement, our [type of security] may trade at prices above or below the subscription price.]
[Insert any additional relevant risk factors not included in the base prospectus to the extent required to be disclosed by applicable law or regulation.]
S-9
The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. The percentages included in the table reflect our net assets as of [], 2013, as adjusted to reflect completion of this offering. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement and the accompanying prospectus contains a reference to fees or expenses paid by us or GSV Capital, or that we will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in GSV Capital Corp.
Stockholder transaction expenses: |
||||
Sales load (as a percentage of offering price) | % (1) | |||
Offering expenses borne by common stockholders (as a percentage of offering price) | %(2) | |||
Dividend reinvestment plan expenses | None | |||
Total stockholder transaction expenses (as a percentage of offering price) | % | |||
Annual expenses (as a percentage of net assets attributable to common stock)(8): |
||||
Base management fee | % (3) | |||
Incentive fees payable under our investment advisory agreement (20%) | % (4) | |||
Interest payments on borrowed funds | % (5) | |||
Other expenses (estimated) | % (6) | |||
Acquired fund fees and expenses | % (7) | |||
Total annual expenses (estimated) | % |
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. See Note 5 below for additional information regarding certain assumptions regarding our level of leverage subsequent to this offering.
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return | $ | [] | $ | [] | $ | [] | $ | [] |
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. As the incentive fee under the Investment Advisory Agreement is payable only on realized capital gains, this illustration assumes that the entire 5.0% annual return is in the form of realized capital gains (computed net of all realized capital losses and unrealized capital depreciation) in each of the indicated time periods, and that we will be required to pay an incentive fee on the full amount of the annual return. If we achieve a greater realization of realized capital gains than the assumed 5.0% annual return, our expenses and returns to our investors would be higher. In addition, the example assumes inclusion of the sales load of []%. Also, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See Dividend Reinvestment Plan in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
(1) | The underwriting discounts and commissions with respect to shares sold in this offering, which is a one-time fee, is the only sales load paid in connection with this offering. |
(2) | Amount reflects estimated offering expenses of approximately $[]. |
S-10
(3) | Reflects our base management fee as a percentage of our net assets. Our base management fee under the Investment Advisory Agreement is based on our gross assets, which is defined as all the assets of GSV Capital, including those acquired using borrowings for investment purposes. See Investment Advisory Agreement. As a result, although we do not currently have any specific plans to use leverage, to the extent we elect to utilize leverage in the future, our base management fee as a percentage of our net assets would increase. |
(4) | Based on our current business plan, we do not expect to invest fully the net proceeds from this offering for up to six to 12 months and, based on the current unrealized appreciation versus unrealized depreciation on our portfolio investments, we expect that we will likely not have sufficient realized capital gains, taken together with any net unrealized capital appreciation, during our first year of operations after completion of this offering in order to pay or accrue any incentive fees in the first year after completion of this offering. The incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2011, and will equal the lesser of (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or hurdle, and a catch-up feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For a more detailed discussion of the calculation of this fee, see Investment Advisory Agreement. For accounting purposes, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. |
(5) | We are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and therefore increases the risks associated with investing in our securities. In addition, the costs associated with our borrowings, including any increase in the management fee payable to our investment adviser, GSV Asset Management, are borne by our common stockholders. For purposes of this section, we have assumed that we have $69 million of outstanding borrowings at an annual interest rate of 5.25%, which reflects our oustanding convertible senior notes as of September 30, 2013, and we assume that we issue $25 million of debt with an interest rate equal to 8.0% per annum. |
(6) | Other expenses ($[] million) are based upon estimates for the 12 months following completion of this offering. Due to the volatility of loss on fair value adjustment for the embedded derivative, we excluded it from the other expenses calculation as it does not accurately reflect the operating expenses of the Company. |
(7) | Amount reflects our estimated expenses for the 12 months following completion of this offering relating to the temporary investment of proceeds from this offering in money market funds pending our investment of such proceeds in portfolio companies in accordance with our investment objective and strategies described in this prospectus. |
(8) | Net assets attributable to common stock, (as used to calculate the annual expense ratios) reflect our September 30, 2013 net asset value adjusted for the impact of the Senior Convertible Notes issuance and assumed future common stock offerings. Assumed common stock offerings, for purposes of this calculation, are $50 million each, occurring, respectively, on November 30, 2013; February 28, 2014; May 31, 2014; August 31, 2014. |
S-11
The potential dilution to investors in this offering is represented by the amount by which the offering price per share exceeds our net asset value per share after the completion of this offering. Net asset value per share is determined by dividing our net asset value, which is our total assets less total liabilities, by the number of outstanding shares.
As of [], 2013 our net asset value was $[], or $[] per share. After giving effect to the sale of [] shares of our common stock in this offering (assuming no exercise by the underwriters of their over-allotment option) at an assumed public offering price of $[] per share, and after deducting estimated underwriting discounts and commissions of approximately $[] and estimated offering expenses of approximately $[] payable by us, our adjusted net asset value is expected to be approximately $[], or $[] per share, representing an immediate and substantial dilution of approximately $[] per share to investors in this offering.
The following table illustrates the dilution on a per share basis, taking into account the assumptions set forth above:
Offering price per share | $ | [] | ||
[], 2013 net asset value per share before this offering | $ | [] | ||
Increase per share attributable to investors in this offering | $ | [] | ||
As adjusted net asset value per share immediately after this offering | $ | [] | ||
Dilution per share attributable to investors in this offering | $ | [] |
[In addition, at an assumed public offering price of $[] per share, purchasers in this offering will experience immediate and substantial dilution in net asset value of approximately $[] per share based upon the low point of our unaudited estimated net asset value per share range as of [], 2013.]
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This prospectus supplement and the accompanying prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as anticipates, expects, intends, plans, will, may, continue, believes, seeks, estimates, would, could, should, targets, projects, and variations of these words and similar expressions are intended to identify forward-looking statements.
The forward-looking statements contained in this prospectus supplement and the accompanying prospectus involve risks and uncertainties, including statements as to:
| our future operating results; |
| our business prospects and the prospects of our portfolio companies; |
| the impact of investments that we expect to make; |
| our contractual arrangements and relationships with third parties; |
| the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| the ability of our portfolio companies to achieve their objectives; |
| our expected financings and investments; |
| the adequacy of our cash resources and working capital; and |
| the timing of cash flows, if any, from the operations of our portfolio companies. |
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| an economic downturn could impair our portfolio companies ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies, |
| an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio, |
| an inability to access the equity markets could impair our investment activities, |
| interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and |
| the risks, uncertainties and other factors we identify in Risk Factors and elsewhere in this prospectus supplement and the accompanying prospectus. |
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Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Risk Factors beginning on page [] of the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the dates of this prospectus supplement and the accompanying prospectus, respectively. The forward-looking statements and projections contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act. In addition, the forward-looking statements and projections contained in any reports we may file subsequent to completion of this offering under the Exchange Act will be excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
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[No] warrants are currently outstanding. Once issued, each warrant will entitle the registered holder to purchase [one] share of [type of security] at a price of $[] per [security], subject to adjustment as discussed below, at any time commencing [ ].
The warrants will be exercisable beginning on , and will expire on , or earlier upon redemption. However, the warrants will be exercisable only if a registration statement relating to the [type of security] issuable upon exercise of the warrants is effective and current. We have agreed to use our best efforts to have an effective registration statement covering [type of security] issuable upon exercise of the warrants from the date the warrants become exercisable and to maintain a current prospectus relating to such [type of security] until the warrants expire or are redeemed.
At any time while the warrants are exercisable, we may redeem the outstanding warrants:
| in whole and not in part; |
| at a price of $[] per warrant; |
| upon not less than days prior written notice of redemption to each warrant holder; and |
| if, and only if, the reported last sale price of the [type of security] equals or exceeds $[] per [type of security], for any trading days within a trading day period ending on the business day prior to the notice of redemption to warrant holders, |
provided that we have an effective registration statement under the Securities Act covering the [type of security] issuable upon exercise of the warrants and a current prospectus relating to them is available on the date we give notice of redemption and during the entire period thereafter until the time we redeem the warrants.
We have established the above conditions to our exercise of redemption rights with the intent of:
| providing warrant holders with adequate notice of redemption, and allowing them to exercise their warrants prior to redemption at a time when there is a reasonable premium to the warrant exercise price; and |
| providing a sufficient differential between the then prevailing [type of security] price and the warrant exercise price so there is a buffer to absorb any negative market reaction to our redemption of the warrants. |
The right to exercise will be forfeited unless they are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a warrant will have no further rights except to receive the redemption price for such holders warrant upon surrender of such warrant.
The warrants will be issued in registered form under a warrant agreement between , as warrant agent, and us.
[You should review a copy of the warrant agreement for a complete description of the terms and conditions applicable to the warrants.]
The exercise price and number of [type of security] issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. [However, the exercise price and number of [type of security] issuable upon exercise of the warrants will not be adjusted for issuances of [type of security] at a price below the warrant exercise price.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of [type of security] or any voting rights until they exercise their
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warrants and receive [type of security]. After the issuance of [type of security] upon exercise of the warrants, each holder will be entitled to one vote for each [type of security] held of record on all matters to be voted on by [security holder].
No warrants will be exercisable and we will not be obligated to issue [type of security] unless at the time a holder seeks to exercise such warrant, a registration statement relating to the [type of security] issuable upon exercise of the warrants is effective and current and the [type of security] has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to maintain a current prospectus relating to the [type of security] issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so and, if we do not maintain a current prospectus relating to the common stock issuable upon exercise of the warrants, holders will be unable to exercise their warrants and we will not be required to settle any such warrant exercise. If the prospectus relating to the [type of security] issuable upon the exercise of the warrants is not current or if the [type of security] is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, we will not be required to net cash settle or cash settle the warrant exercise, the warrants may have no value, the market for the warrants may be limited and the warrants may expire worthless.
No fractional [type of security] will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a [type of security], we will, upon exercise, round up or down to the nearest whole number the number of [type of security] to be issued to the warrant holder.
We are not generally able to issue and sell our common stock, or warrants to purchase common stock, at a price below our net asset value per share unless we have stockholder approval.
S-16
The net proceeds from our sale of our warrants in this offering are estimated to be approximately $[], or $[] if the underwriters option to purchase additional warrants is exercised in full, after deducting underwriting discounts and/or commissions and estimated offering expenses payable by us. Any additional proceeds to us resulting from an increase in the number of warrants offered pursuant to this prospectus supplement will be used by us as described below.
We intend to use the net proceeds from the sale of our securities pursuant to this prospectus for general corporate purposes, which may include investing in new portfolio companies in accordance with our investment objective and strategies described in this prospectus, the repayment of outstanding indebtedness, acquisitions and for other general working capital purposes.
We estimate that it will take [] to [] months for us to substantially invest the net proceeds of this offering, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurance that we will be able to achieve this goal.
Pending these uses, we will invest such net proceeds primarily in cash, cash equivalents, and U.S. government securities or other high-quality debt investments that mature in one year or less consistent with our business development company election and our election to be taxed as a RIC, at yields significantly below those we expect to earn on our other portfolio investments. The management fee payable by us to our investment adviser may not be reduced while our assets are invested in these temporary investments.
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[ ] is acting as representative of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has agreed to purchase, and we have agreed to sell to that underwriter, the number of warrants set forth opposite the underwriters name.
Underwriter | Number of Warrants | |||
Total |
The underwriting agreement provides that the obligations of the underwriters to purchase the warrants included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the warrants (other than those covered by the overallotment option described below) if they purchase any of the warrants.
The underwriters propose to offer some of the warrants directly to the public at the public offering price set forth on the cover page of this prospectus supplement and some of the warrants to dealers at the public offering price less a concession not to exceed $[] per share. The underwriting discount of $[] per warrant is equal to []% of the initial offering price. If all of the warrants are not sold at the initial offering price, the representative may change the public offering price and other selling terms. The representative has advised us that the underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.
The underwriters hold an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an additional [] warrants at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering overallotments, if any, in connection with this offering. To the extent such option is exercised, each underwriter must purchase a number of additional warrants approximately proportionate to that underwriters initial purchase commitment.
We, along with each of our directors and officers, have agreed that we will not, without the prior written consent of [], on behalf of the underwriters, offer, pledge, sell, contract to sell or otherwise dispose of or agree to sell or otherwise dispose of, directly or indirectly or hedge [type of security] or securities convertible into or exchangeable for [type of security] for a period of [] days from the date of this prospectus supplement (the Lock-up Period), [provided, however, that we may issue and sell shares pursuant to our dividend reinvestment plan.] [ ] in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
The Lock-up Period in the preceding paragraph will be extended if (i) during the last 17 days of the Lock-up Period we issue an earnings release or material news or a material event relating to Full Circle Capital occurs or (ii) prior to the expiration of the Lock-up Period, we announce that we will release earnings results during the 16-day period beginning on the last day of the Lock-up Period, in which case the restrictions described in the preceding sentence will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or the occurrence of the material event.
The following table shows the underwriting discounts to be paid to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional warrants. This offering will conform with the requirements set forth in Financial Industry Regulatory Authority Rule 2310. The sum of all compensation to the underwriters in connection with this offering of warrants, including the underwriting discount, will not exceed 10% of the total public offering price of the warrants sold in this offering.
No Exercise | Full Exercise | |||||||
Per Common Share | $ | $ | ||||||
Total | $ | $ |
S-18
Full Circle Capital and our investment adviser have each agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Certain underwriters may make a market in the warrants. No underwriter is, however, obligated to conduct market-making activities and any such activities may be discontinued at any time without notice, at the sole discretion of the underwriter. No assurance can be given as to the liquidity of, or the trading market for, the warrants as a result of any market-making activities undertaken by any underwriter. This prospectus supplement is to be used by any underwriter in connection with the offering and, during the period in which a prospectus supplement must be delivered, with offers and sales of the warrants in market-making transactions in the over-the-counter market at negotiated prices related to prevailing market prices at the time of the sale.
In connection with the offering, [ ], on behalf of the underwriters, may purchase and sell warrants in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of warrants in excess of the number of warrants to be purchased by the underwriters in the offering, which creates a syndicate short position. Covered short sales are sales of warrants made in an amount up to the number of warrants represented by the underwriters overallotment option. In determining the source of warrants to close out the covered syndicate short position, the underwriters will consider, among other things, the price of warrants available for purchase in the open market as compared to the price at which they may purchase warrants through the overallotment option. Transactions to close out the covered syndicate short position involve either purchases of warrants in the open market after the distribution has been completed or the exercise of the overallotment option. The underwriters may also make naked short sales of warrants in excess of the overallotment option. The underwriters must close out any naked short position by purchasing warrants in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of warrants in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of warrants in the open market while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when [ ] repurchases warrants originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a decline in the market price of warrants. They may also cause the price of warrants to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the [ ], or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
We estimate that our portion of the total expenses of this offering, excluding the underwriting discounts, will be approximately $[].
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters. The representative may agree to allocate a number of warrants to underwriters for sale to their online brokerage account holders. The representative will allocate warrants to underwriters that may make Internet distributions on the same basis as other allocations. In addition, warrants may be sold by the underwriters to securities dealers who resell warrants to online brokerage account holders.
Certain underwriters may perform investment banking and advisory services for us, our investment adviser and our affiliates from time to time, for which they receive customary fees and expenses. Certain underwriters may, from time to time, engage in transactions with or perform services for us, our investment adviser and our affiliates in the ordinary course of business.
[Additional Underwriter Compensation
[to be provided as applicable]]
The principal business address of [ ] is [ ].
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In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of warrants described in this prospectus supplement or the accompanying prospectus may not be made to the public in that relevant member state other than:
| to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
| to fewer than 100 or, if the relevant member state has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by us for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of warrants shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the warrants to be offered so as to enable an investor to decide to purchase or subscribe for the warrants, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the relevant member state) and includes any relevant implementing measure in the relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
The sellers of the warrants have not authorized and do not authorize the making of any offer of warrants through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the warrants as contemplated in this prospectus supplement and the accompanying prospectus. Accordingly, no purchaser of the warrants, other than the underwriters, is authorized to make any further offer of the warrants on behalf of the sellers or the underwriters.
This prospectus supplement and the accompanying prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a relevant person). This prospectus supplement and the accompanying prospectus and their respective contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the warrants described in this prospectus supplement and the accompanying prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The warrants have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus supplement nor the accompanying prospectus nor any other offering material relating to the warrants has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the warrants to the public in France. |
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Such offers, sales and distributions will be made in France only:
| to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint dinvestisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; |
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à lépargne). |
The warrants may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
The warrants may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the warrants may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to warrants which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
The warrants offered in this prospectus supplement and the accompanying prospectus have not been registered under the Securities and Exchange Law of Japan. The warrants have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Neither this prospectus supplement nor the accompanying prospectus have been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the warrants may not be circulated or distributed, nor may the warrants be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
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Where the warrants are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
| to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
| where no consideration is or will be given for the transfer; or |
| where the transfer is by operation of law. |
[INCLUDE OTHER JURISDICTIONS AS APPROPRIATE]
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Certain legal matters in connection with the securities offered hereby will be passed upon for us by Sutherland Asbill & Brennan LLP, Washington, DC. Certain legal matters in connection with the offering will be passed upon for the underwriters by [].
The audited financial statements included in the accompanying prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants located at 150 Almaden Blvd, Suite 600, San Jose, CA 95113, upon the authority of said firm as experts in giving said report.
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our warrants offered by this prospectus supplement and the accompanying prospectus. The registration statement contains additional information about us and our shares of warrants being offered by this prospectus supplement and the accompanying prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com.
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