Hercules Capital Annual Report 2015

Plain-text annual report

HERCULES CAPITAL, INC. FORM 10-K (Annual Report) Filed 02/25/16 for the Period Ending 12/31/15 Address Telephone CIK 400 HAMILTON AVE SUITE 310 PALO ALTO, CA 94301 650-289-3060 0001280784 Symbol HTGC Industry Misc. Financial Services Sector Fiscal Year Financial 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-k (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File No. 814-00702 Hercules Capital, Inc.(formerly known as Hercules Technology Growth Capital, Inc.)(Exact name of Registrant as specified in its charter) Maryland 74-3113410(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)400 Hamilton Avenue, Suite 310Palo Alto, California 94301(Address of principal executive offices)(650) 289-3060(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Shares, par value $0.001 per share7.00% Notes due 20197.00% Notes due 20196.25% Notes due 2024 New York Stock ExchangeNew York Stock ExchangeNew York Stock ExchangeNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days: Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes ¨ No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer, largeaccelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recentlycompleted second fiscal quarter was approximately $808.7 million based upon a closing price of $11.55 reported for such date on the New York Stock Exchange. Common sharesheld by each executive officer and director and by each person who owns 5% or more of the outstanding common shares have been excluded in that such persons may be deemedto be affiliates. This determination of affiliate status is not intended and shall not be deemed to be an admission that, such persons are affiliates of the Registrant.On February 22, 2016, there were 72,635,377 shares outstanding of the registrant’s common stock, $0.001 par value.DOCUMENTS INCORPORATED BY REFERENCEDocuments incorporated by reference: Portions of the registrant’s Proxy Statement for its 2016 Annual Meeting of Shareholders to be filed within 120 days after theclose of the registrant’s year end are incorporated by refere nce into Part III of this Annual Report on Form 10-K. HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)FORM 10-kANNUAL REPORT Page Part I. Item 1.Business3Item 1A.Risk Factors25Item 1B.Unresolved SEC Staff Comments59Item 2.Properties59Item 3.Legal Proceedings59Item 4.Mine Safety Disclosures59 Part II. Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities60Item 6.Selected Consolidated Financial Data64Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations65Item 7A.Quantitative and Qualitative Disclosure About Market Risk107Item 8.Financial Statements and Supplementary Data108Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure179Item 9A.Controls and Procedures179Item 9B.Other Information180 Part III. Item 10. Directors, Executive Officers and Corporate Governance180Item 11.Executive Compensation180Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters180Item 13.Certain Relationships and Related Transactions and Director Independence180Item 14.Principal Accountant Fees and Services180 Part IV. Item 15. Exhibits and Financial Statement Schedules181Signatures188 Hercules Capital, Inc., our logo and other trademarks of Hercules Capital, Inc. are the property of Hercules Capital, Inc. (formerly known as HerculesTechnology Growth Capital, Inc.). All other trademarks or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners. In this Annual Report on Form 10-K, or Annual Report, the “Company,” ”Hercules,” “HTGC,” “we,” “us” and “our” refer to Hercules Capital, Inc. andits wholly owned subsidiaries and i ts affiliated securitization trusts on or after February 25, 2016 and “Hercules Technology Growth Capital, Inc.” and its whollyowned subsidiaries and its affiliated securitization trusts prior to February 25, 2016 unless the context otherwise requires.PART IItem 1.BusinessGENERALWe are a specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capital-backed companiesin a broadly diversified variety of technology, life sciences and sustainable and renewable technology industries. We source our investments through our principaloffice located in Palo Alto, CA, as well as through our additional offices in Boston, MA, New York, NY, McLean, VA, Santa Monica, CA and Hartford, CT.Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticatedand customized financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery anddevelopment, biotechnology, life sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We focus ourinvestments in companies active in the technology industry sub-sectors characterized by products or services that require advanced technologies, including, but notlimited to, computer software and hardware, networking systems, semiconductors, semiconductor capital equipment, information technology infrastructure orservices, internet consumer and business services, telecommunications, telecommunications equipment, renewable or alternative energy, media and life sciences.Within the life sciences sub-sector, we generally focus on medical devices, bio-pharmaceutical, drug discovery, drug delivery, health care services and informationsystems companies. Within the sustainable and renewable technology sub-sector, we focus on sustainable and renewable energy technologies and energy efficiencyand monitoring technologies. We refer to all of these companies as “technology-related” companies and intend, under normal circumstances, to invest at least 80% ofthe value of our assets in such businesses.We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We invest primarily in private companiesbut also have investments in public companies. We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinatedsecured loan, that is coupled with an equity component, including warrants, options or other rights to purchase common or preferred stock. Our structured debt withwarrants investments typically are secured by some or all of the assets of the portfolio company.Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from ourwarrant and equity-related investments. Our primary business objectives are to increase our net income, net operating income and net asset value by investing instructured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential forequity appreciation and realized gains. Our equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, whichrepresents a controlling interest under the Investment Company Act of 1940, as amended, or the 1940 Act . In some cases, we receive the right to make additionalequity investments in our portfolio companies in connection with future equity financing rounds. Capital that we provide directly to venture capital-backedcompanies in technology-related industries is generally used for growth and general working capital purposes as well as in select cases for acquisitions orrecapitalizations.We also make investments in qualifying small businesses through our two wholly-owned small business investment companies, or SBICs. Our SBICsubsidiaries, Hercules Technology II, L.P., or HT II, and Hercules Technology III, L.P., or HT III, hold approximately $128.3 million and $310.8 million in assets,respectively, and accounted for approximately 7.6% and 18.5% of our total assets, respectively, prior to consolidation at December 31, 2015. As of December 31,2015, the maximum statutory limit on the dollar amount of combined outstanding Small Business Administration, or SBA, guaranteed debentures is $350.0 million,subject to periodic adjustments by the SBA. At December 31, 2015, we have issued $190.2 million in SBA-guaranteed debentures in our SBIC subsidiaries. See “—Regulation—Small Business Administration Regulations” for additional information regarding our SBIC subsidiaries.3We regularly engage in discussions with third parties with respect to various potential transactions. We may acquire an investment or a portfolio ofinvestments or an entire company or sell a portion of our portfolio on an opportunistic basis. We, ou r subsidiaries or our affiliates may also agree to manage certainother funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other feesfor our services. We may also invest in the equity of these funds, along with other third parties, from which we would seek to earn a return and/or future incentiveallocations. Some of these transactions could be material to our business. Consummation of any such transaction wil l typically be subject to completion of duediligence, finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors andconditions including, without limitation, t he approval of our board of directors and required regulatory or third party consents and, in certain cases, the approval ofour stockholders. Accordingly, there can be no assurance that any such transaction would be consummated. Any of these transactions or funds may requiresignificant management resources either during the transaction phase or on an ongoing basis depending on the terms of the transaction.CORPORATE HISTORY AND OFFICESWe are a Maryland corporation formed in December 2003 that began investment operations in September 2004. On February 25, 2016, we changed our namefrom “Hercules Technology Growth Capital, Inc.” to “Hercules Capital, Inc.” We are an internally managed, non-diversified closed-end investment company that haselected to be regulated as a business development company under the 1940 Act. As a business development company, we are required to comply with certainregulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private U.S.companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. A business development companyalso must meet a coverage ratio of total net assets to total senior securities, which include all of our borrowings (including accrued interest payable) except fordebentures issued by the SBA and any preferred stock we may issue in the future, of at least 200% subsequent to each borrowing or issuance of senior securities. See“—Regulation as a Business Development Company—.”Our portfolio is comprised of, and we anticipate that our portfolio will continue to be comprised of, investments primarily in technology-related companies atvarious stages of their development. Consistent with regulatory requirements, we invest primarily in United States based companies and, to a lesser extent, in foreigncompanies.Effective January 1, 2006, we elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, asamended, or the Code. Pursuant to this election, we generally will not have to pay corporate-level taxes on any income that we distribute to our stockholders.However, our qualification and election to be treated as a RIC requires that we comply with provisions contained in the Code. For example, as a RIC we must receive90% or more of our income from qualified earnings, typically referred to as “good income,” as well as satisfy asset diversification and income distributionrequirements. As an investment company, we follow accounting and reporting guidance as set forth in Topic 946 of the Financial Accounting Standards Board’s(“FASB’s”) Accounting Standards Codification, as amended (“ASC”).Our principal executive offices are located at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301, and our telephone number is (650) 289-3060. Wealso have offices in Boston, MA, New York, NY, McLean, VA, Santa Monica, CA, and Hartford, CT. We maintain a website on the Internet at www.htgc.com . Wemake available, free of charge, on our website our proxy statement, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on ourwebsite is not incorporated by reference into this Annual Report, and you should not consider that information to be part of this Annual Report.We file annual, quarterly and current periodic reports, proxy statements and other information with the Securities and Exchange Commission, or SEC, underthe Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. This information is available at the SEC’s public reference room at 100 FStreet, N.E., Washington, D.C. 20549. You may obtain information about the operation of the SEC’s public reference room by calling the SEC at (202) 551-8090. Inaddition, the SEC maintains an Internet website, at www.sec.gov , that contains reports, proxy and information statements, and other information regarding issuers,including us, who file documents electronically with the SEC.4OUR MARkET OPPORTUNITYWe believe that technology-related companies compete in one of the largest and most rapidly growing sectors of the U.S. economy and that continued growthis supported by ongoing innovation and performance improvements in technology products as well as the adoption of technology across virtually all industries inresponse to competitive pressures. We believe that an attractive market opportunity exists for a specialty finance company focused primarily on investments instructured debt with warrants in technology- related companies for the following reasons: ·technology-related companies have generally been underserved by traditional lending sources; ·unfulfilled demand exists for structured debt financing to technology-related companies due to the complexity of evaluating risk in these investments;and ·structured debt with warrants products are less dilutive and complement equity financing from venture capital and private equity funds.Technology-Related Companies are Underserved by Traditional Lenders. We believe many viable technology-related companies backed by financialsponsors have been unable to obtain sufficient growth financing from traditional lenders, including financial services companies such as commercial banks andfinance companies because traditional lenders have continued to consolidate and have adopted a more risk-averse approach to lending. More importantly, we believetraditional lenders are typically unable to underwrite the risk associated with these companies effectively.The unique cash flow characteristics of many technology-related companies typically include significant research and development expenditures and highprojected revenue growth thus often making such companies difficult to evaluate from a credit perspective. In addition, the balance sheets of these companies ofteninclude a disproportionately large amount of intellectual property assets, which can be difficult to value. Finally, the speed of innovation in technology and rapidshifts in consumer demand and market share add to the difficulty in evaluating technology-related companies.Due to the difficulties described above, we believe traditional lenders generally refrain from entering the structured debt financing marketplace, insteadpreferring the risk-reward profile of asset based lending. Traditional lenders generally do not have flexible product offerings that meet the needs of technology-related companies. The financing products offered by traditional lenders typically impose on borrowers many restrictive covenants and conditions, including limitingcash outflows and requiring a significant depository relationship to facilitate rapid liquidation.Unfulfilled Demand for Structured Debt Financing to Technology-Related Companies. Private debt capital in the form of structured debt financing fromspecialty finance companies continues to be an important source of funding for technology-related companies. We believe that the level of demand for structureddebt financing is a function of the level of annual venture equity investment activity.We believe that demand for structured debt financing is currently underserved. The venture capital market for the technology-related companies in which weinvest has been active. Therefore, to the extent we have capital available, we believe this is an opportune time to be active in the structured lending market fortechnology-related companies.Structured Debt with Warrants Products Complement Equity Financing From Venture Capital and Private Equity Funds. We believe that technology-related companies and their financial sponsors will continue to view structured debt securities as an attractive source of capital because it augments the capitalprovided by venture capital and private equity funds. We believe that our structured debt with warrants product provides access to growth capital that otherwise mayonly be available through incremental investments by existing equity investors. As such, we provide portfolio companies and their financial sponsors with anopportunity to diversify their capital sources. Generally, we believe many technology-related companies at all stages of development target a portion of their capitalto be debt in an attempt to achieve a higher valuation through internal growth. In addition, because financial sponsor-backed companies have reached a more maturestage prior to reaching a liquidity event, we believe our investments could provide the debt capital needed to grow or recapitalize during the extended periodsometimes required prior to liquidity events.5OUR BUSINESS STRATEGYOur strategy to achieve our investment objective includes the following key elements:Leverage the Experience and Industry Relationships of Our Management Team and Investment Professionals . We have assembled a team of experiencedinvestment professionals with extensive experience as venture capitalists, commercial lenders, and originators of structured debt and equity investments intechnology-related companies. Our investment professionals have, on average, more than 15 years of experience as equity investors in, and/or lenders to, technology-related companies. In addition, our team members have originated structured debt, debt with warrants and equity investments in over 335 technology-relatedcompanies, representing over $5.7 billion in commitments from inception to December 31, 2015, and have developed a network of industry contacts with investorsand other participants within the venture capital and private equity communities. In addition, members of our management team also have operational, research anddevelopment and finance experience with technology-related companies. We have established contacts with leading venture capital and private equity fund sponsors,public and private companies, research institutions and other industry participants, which we believe will enable us to identify and attract well-positioned prospectiveportfolio companies.We concentrate our investing activities generally in industries in which our investment professionals have investment experience. We believe that our focuson financing technology-related companies will enable us to leverage our expertise in structuring prospective investments, to assess the value of both tangible andintangible assets, to evaluate the business prospects and operating characteristics of technology-related companies and to identify and originate potentially attractiveinvestments with these types of companies.Mitigate Risk of Principal Loss and Build a Portfolio of Equity-Related Securities. We expect that our investments have the potential to produce attractiverisk-adjusted returns through current income, in the form of interest and fee income, as well as capital appreciation from warrant and equity-related securities. Webelieve that we can mitigate the risk of loss on our debt investments through the combination of loan principal amortization, cash interest payments, relatively shortmaturities, security interests in the assets of our portfolio companies, and on select investment covenants requiring prospective portfolio companies to have certainamounts of available cash at the time of our investment and the continued support from a venture capital or private equity firm at the time we make our investment.Historically our structured debt investments to technology-related companies typically include warrants or other equity interests, giving us the potential torealize equity-like returns on a portion of our investment. In addition, in some cases, we receive the right to make additional equity investments in our portfoliocompanies, including the right to convert some portion of our debt into equity, in connection with future equity financing rounds. We believe these equity interestswill create the potential for meaningful long-term capital gains in connection with the future liquidity events of these technology-related companies.Provide Customized Financing Complementary to Financial Sponsors’ Capital. We offer a broad range of investment structures and possess expertise andexperience to effectively structure and price investments in technology-related companies. Unlike many of our competitors that only invest in companies that fit aspecific set of investment parameters, we have the flexibility to structure our investments to suit the particular needs of our portfolio companies. We offer customizedfinancing solutions ranging from senior debt to equity capital, with a focus on structured debt with warrants.We use our relationships in the financial sponsor community to originate investment opportunities. Because venture capital and private equity funds typicallyinvest solely in the equity securities of their portfolio companies, we believe that our debt investments will be viewed as an attractive and complimentary source ofcapital, both by the portfolio company and by the portfolio company’s financial sponsor. In addition, we believe that many venture capital and private equity fundsponsors encourage their portfolio companies to use debt financing for a portion of their capital needs as a means of potentially enhancing equity returns, minimizingequity dilution and increasing valuations prior to a subsequent equity financing round or a liquidity event.Invest at Various Stages of Development. We provide growth capital to technology-related companies at all stages of development, including select publiclylisted companies and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancingsand established-stage companies. We believe that this provides us with a broader range of potential investment opportunities than those available to many of ourcompetitors, who generally focus their investments on a particular stage in a company’s development. Because of the flexible structure of our investments and theextensive experience of our investment professionals, we believe we are well positioned to take advantage of these investment opportunities at all stages ofprospective portfolio companies’ development.6Benefit from Our Efficient Organizational Structure. We believe that the perpetual nature of our corporate structure enables us to be a long-term partner forour portfolio compani es in contrast to traditional investment funds, which typically have a limited life. In addition, because of our access to the equity markets, webelieve that we may benefit from a lower cost of capital than that available to private investment funds. We a re not subject to requirements to return invested capitalto investors nor do we have a finite investment horizon. Capital providers that are subject to such limitations are often required to seek a liquidity event more quicklythan they otherwise might, w hich can result in a lower overall return on an investment.Deal Sourcing Through Our Proprietary Database. We have developed a proprietary and comprehensive structured query language-based (“SQL”) databasesystem to track various aspects of our investment process including sourcing, originations, transaction monitoring and post-investment performance. As of December31, 2015, our proprietary SQL-based database system included approximately 45,000 technology-related companies and approximately 9,200 venture capital firms,private equity sponsors/investors, as well as various other industry contacts. This proprietary SQL system allows us to maintain, cultivate and grow our industryrelationships while providing us with comprehensive details on companies in the technology-related industries and their financial sponsors.OUR INVESTMENTS AND OPERATIONSWe principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on structured debt with warrants.We generally seek to invest in companies that have been operating for at least six to 12 months prior to the date of our investment. We anticipate that suchentities may, at the time of investment, be generating revenues or will have a business plan that anticipates generation of revenues within 24 to 48 months. Further,we anticipate that on the date of our investment we will generally obtain a lien on available assets, which may or may not include intellectual property, and thesecompanies will have sufficient cash on their balance sheet to operate as well as potentially amortize their debt for at least three to nine months following ourinvestment. We generally require that a prospective portfolio company, in addition to having sufficient capital to support leverage, demonstrate an operating plancapable of generating cash flows or raising the additional capital necessary to cover its operating expenses and service its debt, for an additional six to twelve monthssubject to market conditions.We expect that our investments will generally range from $12.0 million to $25.0 million, although we may make investments in amounts above or below thisrange. We typically structure our debt securities to provide for amortization of principal over the life of the loan, but may include a period of interest-only payments.Our loans will typically be collateralized by a security interest in the borrower’s assets, although we may not have the first claim on these assets and the assets maynot include intellectual property. Our debt investments carry fixed or variable contractual interest rates which generally ranged from the prevailing U.S. prime rate, orPrime, or the London Interbank Offered Rate, or LIBOR, to approximately 13.0% as of December 31, 2015. As of December 31, 2015, approximately 93.7% of ourloans were at floating rates or floating rates with a floor and 6.3% of the loans were at fixed rates.In addition to the cash yields received on our loans, in some instances, our loans generally include one or more of the following: end-of-term payments, exitfees, balloon payment fees, commitment fees, success fees or prepayment fees. In some cases our loans also include contractual payment-in-kind (“PIK”) interestarrangements. The increases in loan balances as a result of contractual PIK arrangements are included in income for the period in which such PIK interest wasaccrued, which is often in advance of receiving cash payment, and are separately identified on our statements of cash flows. We also may be required to include inincome for tax purposes certain other amounts prior to receiving the related cash.In addition, the majority of our investments in the structured debt of venture capital-backed companies generally have equity enhancement features, typicallyin the form of warrants or other equity-related securities that are considered original issue discounts (“OID”) to our loans and are designed to provide us with anopportunity for potential capital appreciation. The warrants typically will be immediately exercisable upon issuance and generally will remain exercisable for thelesser of five to ten years or three to five years after completion of an initial public offering. The exercise prices for the warrants varies from nominal exercise pricesto exercise prices that are at or above the current fair market value of the equity for which we receive warrants. We may structure warrants to provide minority rightsprovisions or on a very select basis put rights upon the occurrence of certain events. We generally target a total annualized return (including interest, fees and valueof warrants) of 12% to 25% for our debt investments.7Typically, our structured debt and equity investments take one of the following forms: ·Structured Debt with Warrants. We seek to invest a majority of our assets in structured debt with warrants of prospective portfolio companies. Ourinvestments in structured debt with warrants may be the only debt capital on the balance sheet of our portfolio companies, and in many cases we havea first priority security interest in all of our portfolio company’s assets, or in certain investments we may have a negative pledge on intellectualproperty. Our structured debt with warrants typically has a maturity of between two and seven years, and they may provide for full amortization afteran interest only period. Our structured debt with warrants generally carries a contractual interest rate between Prime or LIBOR and approximately13.0% and may include an additional end-of-term payment or contractual PIK interest arrangements. We may structure our structured debt withwarrants with restrictive affirmative and negative covenants, default penalties, prepayment penalties, lien protection, equity calls, change-in-controlprovisions or board observation rights. ·Senior Debt. We seek to invest a limited portion of our assets in senior debt. Senior debt may be collateralized by accounts receivable and/or inventoryfinancing of prospective portfolio companies. Senior debt has a senior position with respect to a borrower’s scheduled interest and principal paymentsand holds a first priority security interest in the assets pledged as collateral. Senior debt also may impose covenants on a borrower with regard to cashflows and changes in capital structure, among other items. We generally collateralize our investments by obtaining security interests in our portfoliocompanies’ assets, which may include their intellectual property. In other cases we may obtain a negative pledge covering a company’s intellectualproperty. Our senior loans, in certain instances, may be tied to the financing of specific assets. In connection with a senior debt investment, we mayalso provide the borrower with a working capital line-of-credit that will carry an interest rate ranging from Prime or LIBOR plus a spread with a floor,generally maturing in one to three years, and typically secured by accounts receivable and/or inventory. ·Equipment Loans. We intend to invest a limited portion of our assets in equipment-based loans to early-stage prospective portfolio companies.Equipment-based loans are secured by a first priority security interest in only the specific assets financed. These loans are generally for amounts up to$3.0 million but may be up to $15.0 million, carry a contractual interest rate between Prime and Prime plus 9.0%, and have an average term betweenthree and four years. Equipment loans may also include end of term payments. ·Equity-Related Securities. The equity-related securities we hold consist primarily of warrants or other equity interests generally obtained in connectionwith our structured debt investments. In addition to the warrants received as a part of a structured debt financing, we typically receive the right to makeequity investments in a portfolio company in connection with that company’s next round of equity financing. We may also on certain debt investmentshave the right to convert a portion of the debt investment into equity. These rights will provide us with the opportunity to further enhance our returnsover time through opportunistic equity investments in our portfolio companies. These equity-related investments are typically in the form of preferredor common equity and may be structured with a dividend yield, providing us with a current return, and with customary anti-dilution protection andpreemptive rights. We may achieve liquidity through a merger or acquisition of a portfolio company, a public offering of a portfolio company’s stockor by exercising our right, if any, to require a portfolio company to buy back the equity-related securities we hold. We may also make stand-alonedirect equity investments into portfolio companies in which we may not have any debt investment in the company. As of December 31, 2015, we heldwarrant and equity-related securities in 150 portfolio companies.A comparison of the typical features of our various investment alternatives is set forth in the chart below. Structured Debt with WarrantsSenior DebtEquipment LoansEquity-Related SecuritiesTypical StructureTerm debt with warrantsTerm or revolving debtTerm debt with warrantsPreferred stock or common stockInvestment HorizonLong-term, ranging from 2 to 7 years,with an average of 3 yearsUsually under 3 yearsRanging from 3 to 4 yearsRanging from 3 to 7 yearsRanking/SecuritySenior secured, either first out or lastout, or second lienSenior / First lienSecured only by underlyingequipmentNone/unsecuredCovenantsLess restrictive;mostly financialGenerally borrowing baseand financialNoneNoneRisk ToleranceMedium / HighLowHighHighCoupon/DividendCash pay - fixed and floating rate; PIK inlimited casesCash pay - fixed or floating rateCash pay - fixed or floatingrate and may include PIKGenerally noneCustomization or FlexibilityMore flexibleLittle to noneLittle to noneFlexibleEquity DilutionLow to mediumNone to lowLowHigh8 Investment Criteria We have identified several criteria, among others, that we believe are important in achieving our investment objective with respect to prospective portfoliocompanies. These criteria, while not inclusive, provide general guidelines for our investment decisions.Portfolio Composition. While we generally focus our investments in venture capital-backed companies in technology-related industries, we seek to investacross various financial sponsors as well as across various stages of companies’ development and various technology industry sub-sectors and geographies. As ofDecember 31, 2015, approximately 63.0% of the fair value of our portfolio was composed of investments in four industries: 23.7% was composed of investments inthe drug discovery and development industry, 13.7% was composed of investments in the drug delivery industry, 13.3% was composed of investments in thesustainable and renewable technology industry and 12.3% was composed of investments in the software industry.Continuing Support from One or More Financial Sponsors. We generally invest in companies in which one or more established financial sponsors havepreviously invested and continue to make a contribution to the management of the business. We believe that having established financial sponsors with meaningfulcommitments to the business is a key characteristic of a prospective portfolio company. In addition, we look for representatives of one or more financial sponsors tomaintain seats on the Board of Directors of a prospective portfolio company as an indication of such commitment.Company Stage of Development. While we invest in companies at various stages of development, we generally require that prospective portfolio companiesbe beyond the seed stage of development and generally have received or anticipate having commitments for their first institutional round of equity financing for earlystage companies. We expect a prospective portfolio company to demonstrate progress in its product development or demonstrate a path towards revenue generationor increase its revenues and operating cash flow over time. The anticipated growth rate of a prospective portfolio company is a key factor in determining the valuethat we ascribe to any warrants or other equity securities that we may acquire in connection with an investment in debt securities .Operating Plan. We generally require that a prospective portfolio company, in addition to having potential access to capital to support leverage, demonstratean operating plan capable of generating cash flows or the ability to potentially raise the additional capital necessary to cover its operating expenses and service itsdebt for a specific period. Specifically, we require that a prospective portfolio company demonstrate at the time of our proposed investment that in addition to havingsufficient capital to support leverage, it has an operating plan capable of generating cash flows or raising the additional capital necessary to cover its operatingexpenses and service its debt for an additional six to twelve months subject to market conditions.Security Interest. In many instances we seek a first priority security interest in all of the portfolio companies’ tangible and intangible assets as collateral forour debt investment, subject in some cases to permitted exceptions. In other cases we may obtain a negative pledge prohibiting a company from pledging orotherwise encumbering their intellectual property. Although we do not intend to operate as an asset-based lender, the estimated liquidation value of the assets, if any,collateralizing the debt securities that we hold is an important factor in our credit analysis and subject to assumptions that may change over the life of the investmentespecially when attempting to estimate the value of intellectual property. We generally evaluate both tangible assets, such as accounts receivable, inventory andequipment, and intangible assets, such as intellectual property, customer lists, networks and databases.Covenants. Our investments may include one or more of the following covenants: cross-default; material adverse change provisions; requirements that theportfolio company provide periodic financial reports and operating metrics; and limitations on the portfolio company’s ability to incur additional debt, sell assets,dividend recapture, engage in transactions with affiliates and consummate an extraordinary transaction, such as a merger or recapitalization without our consent. Inaddition, we may require other performance or financial based covenants, as we deem appropriate.Exit Strategy. Prior to making a debt investment that is accompanied by an equity-related security in a prospective portfolio company, we analyze thepotential for that company to increase the liquidity of its equity through a future event that would enable us to realize appreciation in the value of our equity interest.Liquidity events may include an initial public offering, a private sale of our equity interest to a third party, a merger or an acquisition of the company or a purchase ofour equity position by the company or one of its stockholders.9Investment ProcessWe have organized our management team around the four key elements of our investment process: ·Origination; ·Underwriting; ·Documentation; and ·Loan and Compliance Administration.Our investment process is summarized in the following chart:OriginationThe origination process for our investments includes sourcing, screening, preliminary due diligence and deal structuring and negotiation, all leading to anexecuted non-binding term sheet. As of December 31, 2015, our investment origination team, which consists of approximately 35 investment professionals, is headedby our Chief Investment Officer and our Chief Executive Officer. The origination team is responsible for sourcing potential investment opportunities and members ofthe investment origination team use their extensive relationships with various leading financial sponsors, management contacts within technology-related companies,trade sources, technology conferences and various publications to source prospective portfolio companies. Our investment origination team is divided into specialopportunity lower middle market, technology, sustainable and renewable technology, and life sciences sub-teams to better source potential portfolio companies.In addition, we have developed a proprietary and comprehensive SQL-based database system to track various aspects of our investment process includingsourcing, originations, transaction monitoring and post-investment performance. This proprietary SQL system allows our origination team to maintain, cultivate andgrow our industry relationships while providing our origination team with comprehensive details on companies in the technology-related industries and theirfinancial sponsors.If a prospective portfolio company generally meets certain underwriting criteria, we perform preliminary due diligence, which may include high levelcompany and technology assessments, evaluation of its financial sponsors’ support, market analysis, competitive analysis, identifying key management, risk analysisand transaction size, pricing, return analysis and structure analysis. If the preliminary due diligence is satisfactory, and the origination team recommends movingforward, we then structure, negotiate and execute a non-binding term sheet with the potential portfolio company. Upon execution of a term sheet, the investmentopportunity moves to the underwriting process to complete formal due diligence review and approval.10UnderwritingThe underwriting review includes formal due diligence and approval of the proposed investment in the portfolio company.Due Diligence. Our due diligence on a prospective investment is typically completed by two or more investment professionals whom we define as theunderwriting team. The underwriting team for a proposed investment consists of the deal sponsor who typically possesses general industry knowledge and isresponsible for originating and managing the transaction, other investment professional(s) who perform due diligence, credit and corporate financial analyses and, asneeded, our legal professionals. To ensure consistent underwriting, we generally use our standardized due diligence methodologies, which include due diligence onfinancial performance and credit risk as well as an analysis of the operations and the legal and applicable regulatory framework of a prospective portfolio company.The members of the underwriting team work together to conduct due diligence and understand the relationships among the prospective portfolio company’s businessplan, operations and financial performance.As part of our evaluation of a proposed investment, the underwriting team prepares an investment memorandum for presentation to the investment committee.In preparing the investment memorandum, the underwriting team typically interviews select key management of the company and select financial sponsors andassembles information necessary to the investment decision. If and when appropriate, the investment professionals may also contact industry experts and customers,vendors or, in some cases, competitors of the company.Approval Process. The sponsoring managing director or principal presents the investment memorandum to our investment committee for consideration. Theapproval of a majority of our investment committee and an affirmative vote by our Chief Executive Officer is required before we proceed with any investment. Themembers of our investment committee are our Chief Executive Officer, our Chief Financial Officer, and our Chief Investment Officer. The investment committeegenerally meets weekly and more frequently on an as-needed basis.DocumentationOur legal department administers the documentation process for our investments. This department is responsible for documenting the transactions approvedby our investment committee with a prospective portfolio company. This department negotiates loan documentation and, subject to appropriate approvals, finaldocuments are prepared for execution by all parties. The legal department generally uses the services of external law firms to complete the necessary documentation.Loan and Compliance AdministrationOur investment team, credit team, and finance department, headed by our investment committee, administer loans and track covenant compliance, ifapplicable, of our investments and oversees periodic reviews of our critical functions to ensure adherence with our internal policies and procedures. After funding ofa loan in accordance with the investment committee’s approval, the loan is recorded in our loan administration software and our SQL-based database system. Theinvestment team, credit team, and finance department are responsible for ensuring timely interest and principal payments and collateral management as well asadvising the investment committee on the financial performance and trends of each portfolio company, including any covenant violations that occur, to aid us inassessing the appropriate course of action for each portfolio company and evaluating overall portfolio quality. In addition, the investment team and credit team advisethe investment committee and the Audit Committee of our Board of Directors, accordingly, regarding the credit and investment grading for each portfolio companyas well as changes in the value of collateral that may occur.The investment team and credit team monitor our portfolio companies in order to determine whether the companies are meeting our financing criteria andtheir respective business plans and also monitors the financial trends of each portfolio company from its monthly or quarterly financial statements to assess theappropriate course of action for each company and to evaluate overall portfolio quality. In addition, our management team closely monitors the status andperformance of each individual company through our SQL-based database system and periodic contact with our portfolio companies’ management teams and theirrespective financial sponsors.Credit and Investment Grading System. Our investment team and credit team use an investment grading system to characterize and monitor our outstandingloans. Our investment team and credit team monitors and, when appropriate, recommends changes to investment grading. Our investment committee reviews therecommendations and/or changes to the investment grading, which are submitted on a quarterly basis to the Audit Committee and our Board of Directors forapproval.From time to time, we will identify investments that require closer monitoring or become workout assets. We develop a workout strategy for workout assetsand our investment committee monitors the progress against the strategy. We may incur losses from our investing activities, however, we work with our troubledportfolio companies in order to recover as much of our investments as is practicable, including possibly taking control of the portfolio company. There can be noassurance that principal will be recovered.11We use the following investment grading system approved by our Board of D irectors: Grade 1.Loans involve the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk profile isgenerally favorable. Grade 2.The borrower is performing as expected and the risk profile is neutral to favorable. All new loans are initially graded 2. Grade 3.The borrower may be performing below expectations, and the loan’s risk has increased materially since origination. We increase procedures tomonitor a borrower that may have limited amounts of cash remaining on the balance sheet, is approaching its next equity capital raise withinthe next three to six months, or if the estimated fair value of the enterprise may be lower than when the loan was originated. We will generallylower the loan grade to a level 3 even if the company is performing in accordance to plan as it approaches the need to raise additional cash tofund its operations. Once the borrower closes its new equity capital raise, we may increase the loan grade back to grade 2 or maintain it at agrade 3 as the company continues to pursue its business plan. Grade 4.The borrower is performing materially below expectations, and the loan risk has substantially increased since origination. Loans graded 4 mayexperience some partial loss or full return of principal but are expected to realize some loss of interest which is not anticipated to be repaid infull, which, to the extent not already reflected, may require the fair value of the loan to be reduced to the amount we anticipate will berecovered. Grade 4 investments are closely monitored. Grade 5.The borrower is in workout, materially performing below expectations and a significant risk of principal loss is probable. Loans graded 5 willexperience some partial principal loss or full loss of remaining principal outstanding is expected. Grade 5 loans will require the fair value ofthe loans be reduced to the amount, if any, we anticipate will be recovered.At December 31, 2015, our investments had a weighted average investment grading of 2.16.Managerial AssistanceAs a business development company, we are required to offer, and provide upon request, managerial assistance to our portfolio companies. This assistancecould involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with andadvising officers of portfolio companies and providing other organizational and financial guidance. We may, from time to time, receive fees for these services. In theevent that such fees are received, they are incorporated into our operating income and are passed through to our shareholders, given the nature of our structure as aninternally managed business development company. See “—Regulation—Significant Managerial Assistance” for additional information.COMPETITIONOur primary competitors provide financing to prospective portfolio companies and include non-bank financial institutions, federally or state chartered banks,venture debt funds, financial institutions, venture capital funds, private equity funds, investment funds and investment banks. Many of these entities have greaterfinancial and managerial resources than we have, and the 1940 Act imposes certain regulatory restrictions on us as a business development company to which manyof our competitors are not subject. However, we believe that few of our competitors possess the expertise to properly structure and price debt investments to venturecapital-backed companies in technology-related industries. We believe that our specialization in financing technology-related companies will enable us to determinea range of potential values of intellectual property assets, evaluate the business prospects and operating characteristics of prospective portfolio companies and, as aresult, identify investment opportunities that produce attractive risk-adjusted returns. For additional information concerning the competitive risks we face, see “Item1A. Risk Factors—Risks Related to our Business and Structure—We operate in a highly competitive market for investment opportunities, and we may not be able tocompete effectively.”12BROkERAGE ALLOCATIONS AND OTHER PRACTICESBecause we generally acquire and dispose of our investments in privately negotiated transactions, we typically do not use brokers in the normal course ofbusiness. However, from time to time, we may work with brokers to sell positions we have acquired in the securities of publicly listed companies or to acquirepositions (principally equity) in companies where we see a market opportunity to acquire such securities at attractive valuations. In cases where we do use a broker,we do not execute transactions through any particular broker or dealer, but will seek to obtain the best net results for the Company, taking into account such factorsas price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’srisk and skill in positioning blocks of securities. While we generally seek reasonably competitive execution costs, we may not necessarily pay the lowest spread orcommission available. Subject to applicable legal requirements, we may select a broker based partly upon brokerage or research services provided to us. In return forsuch services, we may pay a higher commission than other brokers would charge if we determine in good faith that such commission is reasonable in relation to theservices provided.EMPLOYEESAs of December 31, 2015, we had 63 employees, including approximately 35 investment and portfolio management professionals, all of whom haveextensive experience working on financing transactions for technology-related companies.REGULATIONThe following discussion is a general summary of the material prohibitions and descriptions governing business development companies. It does not purportto be a complete description of all of the laws and regulations affecting business development companies.A business development company primarily focuses on investing in or lending to private companies and making managerial assistance available to them,while providing its stockholders with the ability to retain the liquidity of a publicly-traded stock. The 1940 Act contains prohibitions and restrictions relating totransactions between business development companies and their directors and officers and principal underwriters and certain other related persons and requires that amajority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may notchange the nature of our business so as to cease to be, or to withdraw our election as, a business development company unless approved by a majority of ouroutstanding voting securities as defined in the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of:(i) 67% or more of such company’s shares present at a meeting if more than 50% of the outstanding shares of such company are present or represented by proxy, or(ii) more than 50% of the outstanding shares of such company.Qualifying AssetsUnder 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, whichare referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principalcategories of qualifying assets relevant to our proposed 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 limitedexceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of aneligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is definedin 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 acompany that would be an investment company but for certain exclusions under the 1940 Act; and (c)does not have any class of securities listed on a national securities exchange; or if it has securities listed on a national securities exchange suchcompany has a market capitalization of less than $250 million; is controlled by the business development company and has an affiliate of abusiness development company on its board of directors; or meets such other criteria as may be established by the SEC. (2)Securities of any portfolio company which we control.13 (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 intransactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issue r, immediately prior to the purchase of itssecurities 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 wealready 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 ofwarrants 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.Control, as defined by the 1940 Act, is presumed to exist where a business development company beneficially owns more than 25% of the outstanding votingsecurities of the portfolio company.We do not intend to acquire securities issued by any investment company, including other business development companies, that exceed the limits imposedby the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any investment company (as defined in the 1940 Act), investmore than 5% of the value of our total assets in the securities of one such investment company or invest more than 10% of the value of our total assets in thesecurities of such other investment companies in the aggregate. With regard to that portion of our portfolio invested in securities issued by investment companies, itshould be noted that such investments might subject our stockholders to additional expenses.Significant Managerial AssistanceBusiness development companies generally must offer to make available to the issuer of the securities significant managerial assistance, except incircumstances where either (i) the business development company controls such issuer of securities or (ii) the business development company purchases suchsecurities in conjunction with one or more other persons acting together and one of the other persons in the group makes available such managerial assistance.Making available significant 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 businessobjectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings,consulting with and advising a portfolio company’s officers or other organizational or financial guidance.Temporary InvestmentsPending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S. government securitiesor 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 ourassets are qualifying assets. We may invest in U.S. treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash orsecurities 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 thesimultaneous 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 reflectsan 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 morethan 25% of our total assets constitute repurchase agreements from a single counterparty, we generally would not meet the diversification tests imposed on us by theCode 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 ofthis limit. We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.Warrants and OptionsUnder the 1940 Act, a business development company is subject to restrictions on the amount of warrants, options, restricted stock or rights to purchaseshares of capital stock that it may have outstanding at any time. In particular, the amount of capital stock that would result from the conversion or exercise of alloutstanding warrants, options or other rights to purchase capital stock cannot exceed 25% of the business development company’s total outstanding shares of capitalstock. This amount is reduced to 20% of the business development company’s total outstanding shares of capital stock if the amount of warrants, options or rightsissued pursuant to an executive compensation plan would exceed 15% of the business development company’s total outstanding shares of capital stock. We havereceived exemptive relief from the SEC permitting us to issue stock options and restricted stock to our employees and directors subject to the above conditions,among others. For a discussion regarding the conditions of this exemptive relief, see “—Exemptive Relief” below and Note 7 to our consolidated financialstatements.14Senior Securities; Coverage RatioWe will be permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our assetcoverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, we may not be permitted to declare any cashdividend or other distribution on our outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase, we have assetcoverage of at least 200% after deducting the amount of such dividend, distribution, or purchase price. We may also borrow amounts up to 5% of the value of ourtotal assets for temporary or emergency purposes. For a discussion of the risks associated with the resulting leverage, see “Item 1A. Risk Factors—Risks Related toOur Business & Structure—Because we have substantial indebtedness, there could be increased risk in investing in our company.” On April 5, 2007, we receivedapproval from the SEC on our request for exemptive relief that permits us to exclude the indebtedness of our wholly-owned subsidiaries that are small businessinvestment companies from the 200% asset coverage requirement applicable to us.Capital StructureWe 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, at a pricebelow the current net asset value of the common stock, or sell warrants, options or other rights to acquire such common stock, at a price below the current net assetvalue of the common stock if our board of directors determines that such sale is in the best interests of the Company and our stockholders have approved the practiceof making such sales.At the 2015 Annual Meeting of Stockholders on July 7, 2015, our common stockholders approved a proposal to allow us to issue common stock at a discountfrom its then current net asset value (“NAV”) per share, which is effective for a period expiring on the earlier of July 7, 2016 or the 2016 annual meeting ofstockholders. In connection with the receipt of such stockholder approval, we will limit the number of shares that we issue at a price below net asset value pursuant tothis authorization so that the aggregate dilutive effect on our then outstanding shares will not exceed 20%. Our Board of Directors, subject to its fiduciary duties andregulatory requirements, has the discretion to determine the amount of the discount, and as a result, the discount could be up to 100% of net asset value per share.During the year ended December 31, 2015, we have not issued common stock at a discount to NAV.Code of EthicsWe have adopted and will maintain a code of ethics that establishes procedures for personal investments and restricts certain personal securities transactions.Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long assuch investments are made in accordance with the code’s requirements. Our code of ethics will generally not permit investments by our employees in securities thatmay be purchased or held by us. We may be prohibited under the 1940 Act from conducting certain transactions with our affiliates without the prior approval of ourdirectors who are not interested persons and, in some cases, the prior approval of the SEC.Our current code of ethics is posted on our website at www.htgc.com and was filed with the SEC as an exhibit to a Form 8-K filing on July 13, 2015. Youmay read and copy the code of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on the operation of the PublicReference Room by calling the SEC at (202) 551-8090. In addition, the code of ethics is available on the EDGAR Database on the SEC’s Internet site athttp://www.sec.gov . You may also obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address:publicinfo@sec.gov , or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.Privacy PrinciplesWe are committed to maintaining the privacy of our stockholders and safeguarding their non-public personal information. The following information isprovided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information withselect other parties.Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of ourstockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders, except aspermitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent).We restrict access to non-public personal information about our stockholders to our employees with a legitimate business need for the information. Wemaintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.15Proxy Voting Policies and ProceduresWe vote proxies relating to our portfolio securities in the best interest of our stockholders. We review on a case-by-case basis each proposal submitted to astockholder vote to determine its impact on the portfolio securities held by us. Although we generally vote against proposals that may have a negative impact on ourportfolio securities, we may vote for such a proposal if there exists compelling long-term reasons to do so.Our proxy voting decisions are made by our investment committee, which is responsible for monitoring each of our investments. To ensure that our vote isnot the product of a conflict of interest, we require that: (i) anyone involved in the decision making process disclose to our Chief Compliance Officer any potentialconflict 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 (ii) employees involved in the decisionmaking process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interestedparties.Exemptive ReliefOn June 21, 2005, we filed a request with the SEC for exemptive relief to allow us to take certain actions that would otherwise be prohibited by the 1940 Act,as applicable to business development companies. Specifically, we requested that the SEC permit us to issue stock options to our non-employee directors ascontemplated by Section 61(a)(3)(B)(i)(II) of the 1940 Act. On February 15, 2007, we received approval from the SEC on this exemptive request. In addition, in June2007, we filed an amendment to the February 2007 order to adjust the number of shares issued to the non-employee directors. On October 10, 2007, we receivedapproval from the SEC on this amended exemptive request.On April 5, 2007, we received approval from the SEC on our request for exemptive relief that permits us to exclude the indebtedness of our wholly-ownedsubsidiaries that are small business investment companies from the 200% asset coverage requirement applicable to us. On May 23, 2007, we received approval from the SEC on our request for exemptive relief that permits us to issue restricted stock to our employees, officersand directors. On June 21, 2007, our shareholders approved amendments to the 2004 Equity Incentive Plan and 2006 Non-Employee Incentive Plan (collectively, the“Plans”) permitting such restricted grants. The maximum amount of shares that may be issued under the Plans will be 10% of the outstanding shares of our commonstock on the effective date of the Plans plus 10% of the outstanding number of shares of our common stock issued or delivered by us (other than pursuant tocompensation plans) during the term of the Plans. The amount of voting securities that would result from the exercise of all of our outstanding warrants, options, andrights, if any, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 25% of our outstanding voting securities, exceptthat if such amount would exceed 15% of our outstanding voting securities, then the total amount of voting securities that would result from the exercise of alloutstanding warrants, options, and rights, if any, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 20% of ouroutstanding voting securities.On June 22, 2010 we received approval from the SEC on our request for exemptive relief that permits our employees to exercise their stock options andrestricted stock and pay any related income taxes using a cashless exercise program.OtherWe will be periodically examined by the SEC for compliance with the Exchange Act and the 1940 Act.We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to our stockholders arising fromwillful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review thesepolicies and procedures annually for their adequacy and the effectiveness of their implementation. Our Chief Compliance Officer is responsible for administeringthese policies and procedures.16Small Business Administration RegulationsWe make investments in qualifying small businesses through our two wholly-owned SBIC subsidiaries, HT II and HT III. With our net investments of $44.0million and $74.5 million in HT II and HT III, respectively, we have the combined capacity to issue a total of $190.2 million of SBA guaranteed debentures, subjectto SBA approval. At December 31, 2015, we have issued $190.2 million in SBA guaranteed debentures in our SBIC subsidiaries.We intend to seek an additional SBIC license to ensure continued access to the maximum statutory limit of SBA guaranteed debentures under the SBICprogram, which currently is $350.0 million for a group of SBICs under common control, subject to periodic adjustments by the SBA. We have formed HerculesTechnology IV, L.P. for that purpose. There can be no assurance of when or if we will receive SBA approval for another SBIC license.SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businessesinclude businesses that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the twomost recent fiscal years. In addition, SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is onethat has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscalyears. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and arebased on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in theequity securities of such businesses and provide them with consulting and advisory services. Through our wholly-owned subsidiaries HT II and HT III, we plan toprovide long-term loans to qualifying small businesses, and in connection therewith, make equity investments.HT II and HT III are periodically examined and audited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails tocomply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declareoutstanding debentures immediately due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited intheir ability to make distributions to the Company if they do not have sufficient capital in accordance with SBA regulations. Such actions by the SBA would, in turn,negatively affect the Company because HT II and III are our wholly owned subsidiaries. HT II and HT III were in compliance with the terms of the SBIC’s leverageas of December 31, 2015 as a result of having sufficient capital as defined under the SBA regulations.HT II and HT III hold approximately $128.3 million and $310.8 million in assets, respectively, and accounted for approximately 7.6% and 18.5% of our totalassets prior to consolidation at December 31, 2015.The SBA restricts the ability of SBICs to repurchase their capital stock. SBA regulations also include restrictions on a “change of control” or transfer of anSBIC and require that SBICs invest idle funds in accordance with SBA regulations. In addition, HT II and HT III may also be limited in their ability to makedistributions to us if they do not have sufficient capital and/or distributed earnings, in accordance with SBA regulations.Our SBIC subsidiaries are subject to regulation and oversight by the SBA, including requirements with respect to maintaining certain minimum financialratios and other covenants. Receipt of an SBIC license does not assure that our SBIC subsidiaries will receive SBA guaranteed debenture funding, which isdependent upon our SBIC subsidiaries continuing to be in compliance with SBA regulations and policies. The SBA, as a creditor, will have a superior claim to ourSBIC subsidiaries’ assets over our stockholders in the event we liquidate our SBIC subsidiaries or the SBA exercises its remedies under the SBA-guaranteeddebentures issued by our SBIC subsidiaries upon an event of default.17CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONSThe following discussion is a general summary of certain material U.S. federal income tax considerations relating to our qualification and taxation as a RICand the acquisition, ownership and disposition of our preferred stock or common stock, but does not purport to be a complete description of the income taxconsiderations relating thereto.Election to be Taxed as a RICThrough December 31, 2005, we were subject to federal income tax as an ordinary corporation under Subchapter C of the Code. Effective beginning onJanuary 1, 2006 we met the criteria specified below to qualify as a RIC, and elected to be treated as a RIC under Subchapter M of the Code with the filing of ourfederal income tax return for 2006. As a RIC, we generally will not have to pay corporate taxes on any income we distribute to our stockholders as dividends, whichallows us to reduce or eliminate our corporate level tax. On December 31, 2005, immediately before the effective date of our RIC election, we held assets with“built-in gains,” which are assets whose fair market value as of the effective date of the election exceeded their tax basis as of such date. We elected to recognize allof our net built-in gains on such assets at the time of the conversion and paid tax on the built-in gain with the filing of our 2005 federal income tax return. In makingthis election, we marked our portfolio investments and other assets to market at the time of our RIC election and paid approximately $294,000 in income tax on theresulting gains.Taxation as a Regulated Investment CompanyFor any taxable year in which we: ·qualify as a RIC; and ·distribute dividends to our shareholders of an amount at least equal to 90% of the sum of our net ordinary income and realized net short-term gains inexcess of realized net long-term capital losses, or our “investment company taxable income,” (the “Annual Distribution Requirement”); we generallywill not be subject to federal income tax on the portion of our investment company taxable income and net capital gain ( i.e. , net realized long-termcapital gains in excess of net realized short-term capital losses) we distribute (or are deemed to distribute) as dividends to stockholders with respect tothat taxable year. As described above, we made the election to recognize built-in gains as of the effective date of our election to be treated as a RICand therefore will not be subject to built-in gains tax when we sell those assets. However, if we subsequently acquire built-in gain assets from a Ccorporation in a carryover basis transaction, then we may be subject to tax on the gains recognized by us on dispositions of such assets unless we makea special election to pay corporate-level tax on such built-in gain at the time the assets are acquired. We will be subject to U.S. federal income tax atthe regular corporate rates on any income or capital gains not distributed (or deemed distributed) as dividends to our stockholders.In order to qualify as a RIC for federal income tax purposes and obtain the tax benefits of RIC status, in addition to satisfying the Annual DistributionRequirement, we must, among other things: ·have in effect at all times during each taxable year an election to be regulated as a business development company under the 1940 Act; ·derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities loans, gains fromthe sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities and (b) net incomederived from an interest in a “qualified publicly traded partnership” (the “90% Income Test”); and diversify our holdings so that at the end of eachquarter of the taxable year: ·at the close of each quarter of each 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 morethan 10% of the outstanding voting securities of such issuer; and ·at the close of each quarter of each taxable year, no more than 25% of the value of our assets is invested in (i) securities (other than U.S. governmentsecurities or securities of other RICs) of one issuer, (ii) securities of two or more issuers that are controlled, as determined under applicable tax rules,by us and that are engaged in the same or similar or related trades or businesses or (iii) securities of one or more “qualified publicly tradedpartnerships” (the “Diversification Tests”).18We may invest in partnerships which may result in our being subject to state, local or foreign income, franchise or other tax liabilities. In addition, some ofthe income and fees that we may recognize will not satisfy the 90% Income Test. In order to mitigate the risk that such income and fees would disqualify us as a RICas a result of a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirect ly through one or more entities classified ascorporations for U.S. federal income tax purposes. Such corporations will be subject to U.S. corporate income tax on their earnings, which ultimately will reduce ourreturn on such income and fees.As a RIC, we will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income and gains unless we distribute in respect of eachcalendar year in a timely manner dividends of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals andelections) for each calendar year, (2) 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 in thatcalendar year and (3) any ordinary income or capital gain net income recognized, but not distributed, in preceding calendar years (the “Excise Tax AvoidanceRequirements”). We will not be subject to excise taxes on amounts on which we are required to pay corporate income tax (such as retained net capital gains).Depending on the level of our investment company taxable income and net capital gains earned in a taxable year, we may choose to carry over all or a portion ofsuch investment company taxable income and net capital gains in excess of current year dividend distributions from such investment company taxable income andnet capital gains into the next taxable year and pay a 4% excise tax on such investment company taxable income and net capital gains, as required. The maximumamount of such excess investment company taxable income and net capital gains that may be carried over for distribution in the next taxable year under the Code isthe total amount of dividends paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent we choose to carry overinvestment company taxable income or net capital gains into the next taxable year, dividends declared and paid by us in a taxable year may differ from investmentcompany taxable income or net capital gains for that taxable year as such dividends may include the distribution of dividends derived from the current taxable year’sinvestment company taxable income or net capital gains, the distribution of prior taxable year’s investment company taxable income or net capital gains carried overinto and distributed in the current taxable year, or returns of capital.Under applicable Treasury regulations and other administrative guidance issued by the Internal Revenue Service (the “IRS”), we are permitted to treatcertain distributions payable in our stock as taxable dividends that will satisfy the Annual Distribution Requirement as well as the Excise Tax AvoidanceRequirement provided that shareholders have the opportunity to elect to receive the distribution in cash. Taxable stockholders receiving such dividends will berequired to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capitalgain dividend) to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. stockholder may berequired 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 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 ofsuch dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed ondividends, then such sales may put downward pressure on the trading price of our stock. We may in the future determine to distribute taxable dividends that arepayable in part in our common stock.We may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debtobligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest provisions or, in certain cases,increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accruesover the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discountaccrued will be included in our investment company taxable income for the taxable year of accrual, we may be required to make a distribution to our stockholders inorder to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement, even though we will not have received any corresponding cashamount.Gain or loss realized by us from the sale or exchange of warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will betreated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.19We are author ized to borrow funds and to sell assets in order to satisfy the Annual Distribution Requirement and the Excise Tax Avoidance Requirement(collectively, the “Distribution Requirements”). However, under the 1940 Act, we are not permitted to make distribution s to our stockholders while our debtobligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “—Regulation—Senior Securities; Coverage Ratio.” We maybe restricted from making distributions under the terms of our debt obligations themselves unless certain conditions are satisfied. Moreover, our ability to dispose ofassets to meet the Distribution Requirements may be limited by (1) the illiquid nature of our portfolio, or (2) other requirements relating to o ur status as a RIC,including the Diversification Tests. If we dispose of assets in order to meet the Distribution Requirements, we may make such dispositions at times that, from aninvestment standpoint, are not advantageous. If we are prohibited from mak ing distributions or are unable to obtain cash from other sources to make thedistributions, we may fail to be subject to tax as a RIC, which would result in us becoming subject to corporate-level federal income tax.In addition, we will be partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC Distribution Requirements. Our SBICsubsidiaries may be limited by the Small Business Investment Act of 1958, as amended, and SBA regulations governing SBICs, from making certain distributions tous that may be necessary to maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiaries to make certaindistributions to maintain our RIC status. We cannot assure you that the SBA will grant such waiver. If our SBIC subsidiaries are unable to obtain a waiver,compliance with the SBA regulations may cause us to fail to be subject to tax as a RIC, which would result in us becoming subject to corporate-level federal incometax.Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (i) convert dividendsthat would otherwise constitute qualified dividend income into ordinary income, (ii) treat dividends that would otherwise be eligible for deductions available tocertain U.S. corporations under the Code as ineligible for such treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv)convert long-term capital gains into short-term capital gains or ordinary income, (v) convert short-term capital losses into long-term capital losses, (vi) convert anordinary loss or deduction into a capital loss (the deductibility of which is more limited), (vii) cause us to recognize income or gain without a corresponding receiptof cash, (viii) adversely alter the characterization of certain complex financial transactions, and (ix) produce gross income that will not constitute qualifying grossincome for purposes of the gross income requirement that applies to RICs. These rules also could affect the amount, timing and character of distributions tostockholders.A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus netrealized short-term capital gains in excess of net realized long-term capital losses). If our expenses in a given taxable year exceed gross taxable income (e.g., as theresult of large amounts of equity-based compensation), we would incur a net operating loss for that year. However, a RIC is not permitted to carry forward netoperating losses to subsequent taxable years and such net operating losses do not pass through to the RIC’s stockholders. In addition, deductible expenses can beused only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, realized capital losses in excess ofrealized capital gains) to offset the RIC’s investment company taxable income, but may carry forward such net capital losses, and use them to offset capital gainsindefinitely. Due to these limits on the deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several taxableyears that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the aggregate net income we actually earnedduring those taxable years. Such required distributions may be made from our cash assets or by liquidation of investments, if necessary. We may realize gains orlosses from such liquidations. In the event we realize net capital gains from such transactions, you may receive a larger capital gain distribution than you would havereceived in the absence of such transactions .Investment income received from sources within foreign countries, or capital gains earned by investing in securities of foreign issuers, may be subject toforeign income taxes withheld at the source. In this regard, withholding tax rates in countries with which the United States does not have a tax treaty are often as highas 35% or more. The United States has entered into tax treaties with many foreign countries that may entitle us to a reduced rate of tax or exemption from tax on thisrelated income and gains. The effective rate of foreign tax cannot be determined at this time since the amount of our assets to be invested within various countries isnot now known. We do not anticipate being eligible for the special election that allows a RIC to treat foreign income taxes paid by such RIC as having been paid byits shareholders.If we acquire stock in certain foreign corporations that receive at least 75% of their annual gross income from passive sources (such as interest, dividends,rents, royalties or capital gain) or hold at least 50% of their total assets in investments producing such passive income (“passive foreign investment companies”), wecould be subject to federal income tax and additional interest charges on “excess distributions” received from such companies or gain from the sale of stock in suchcompanies, even if all income or gain actually received by us is timely distributed to our shareholders. We would not be able to pass through to our shareholders anycredit or deduction for such a tax. Certain elections may, if available, ameliorate these adverse tax consequences, but any such election requires us to recognizetaxable income or gain without the concurrent receipt of cash. We intend to limit and/or manage our holdings in passive foreign investment companies to minimizeour liability for any such taxes and related interest charges.20Foreign exchange gains and losses realized by us in connection with certain transactions involving foreign currencies, or payables or recei vablesdenominated in a foreign currency, as well as certain non-U.S. dollar denominated debt securities, certain foreign currency futures contracts, foreign currency optioncontracts, foreign currency forward contracts, and similar financial instruments a re subject to Code provisions that generally treat such gains and losses as ordinaryincome and losses and may affect the amount, timing and character of distributions to our stockholders. Any such transactions that are not directly related to ourinvestme nt in securities (possibly including speculative currency positions or currency derivatives not used for hedging purposes) also could, under future Treasuryregulations, produce income not among the types of “qualifying income” from which a RIC must derive at least 90% of its annual gross income.Failure to Qualify as a Regulated Investment CompanyIf we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for such year ifcertain relief provisions are applicable (which may, among other things, require us to pay certain corporate-level federal taxes or to dispose of certain assets).If we were unable to qualify for treatment as a RIC and the foregoing relief provisions are not applicable, we would be subject to tax on all of our taxableincome at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Such distributions would betaxable to our stockholders and provided certain holding period and other requirements were met, could qualify for treatment as “qualified dividend income” eligiblefor the 20% maximum rate to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributionsgenerally would be eligible for the dividends-received deduction with respect to distributions from our earnings and profits. Distributions in excess of our current andaccumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would betreated as a capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements for that taxable yearand dispose of any earnings and profits from any taxable year in which we failed to qualify as a RIC. Subject to a limited exception applicable to RICs that qualifiedas such under Subchapter M of the Code for at least one taxable year prior to disqualification and that requalify as a RIC no later than the second taxable yearfollowing the nonqualifying taxable 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 failedto qualify as a RIC that are recognized within the subsequent ten taxable years, unless we made a special election to pay corporate-level tax on such built-in gain atthe time of our requalification as a RIC. DETERMINATION OF NET ASSET VALUEWe determine the net asset value per share of our common stock quarterly. The net asset value per share is equal to the value of our total assets minusliabilities and any preferred stock outstanding divided by the total number of shares of common stock outstanding. As of the date of this report, we do not have anypreferred stock outstanding.At December 31, 2015, 90.0% of the Company’s total assets represented investments in portfolio companies whose fair value is determined by the Board ofDirectors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii)for all other securities and assets, fair value is as determined in good faith by the Board of Directors. The Company’s investments are carried at fair value inaccordance with the 1940 Act and Accounting Standards Codification Topic 946 Financial Services – Investment Companies (“ASC 946”) and measured inaccordance with Accounting Standards Codification Topic 820 Fair Value Measurements and Disclosures (“ASC 820”). The Company’s debt securities are primarilyinvested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences,healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of theCompany’s investments in these portfolio companies are considered Level 3 assets under ASC 820 because there is no known or accessible market or market indexesfor these investment securities to be traded or exchanged. As such, the Company values substantially all of its investments at fair value as determined in good faithpursuant to a consistent valuation policy by the Company’s Board of Directors in accordance with the provisions of ASC 820 and the 1940 Act. Due to the inherentuncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments determined ingood faith by its Board of Directors may differ significantly from the value that would have been used had a readily available market existed for such investments,and the differences could be material.The Company may from time to time engage an independent valuation firm to provide the Company with valuation assistance with respect to certain portfolioinvestments on a quarterly basis. The Company engages independent valuation firms on a discretionary basis. Specifically, on a quarterly basis, the Company willidentify portfolio investments with respect to which an independent valuation firm will assist in valuing. The Company selects these portfolio investments based on anumber of factors, including, but not limited to, the potential for material fluctuations in valuation results, credit quality and the time lapse since the last valuation ofthe portfolio investment by an independent valuation firm.21The Company intends to continue to engage an independent valuation firm to provide management with assistance regarding the Company’s determination ofthe fair value of selected portfolio investments each quarter unless directed by the Board of Directors to cancel such valuation services . The scope of servicesrendered by an independent valuation firm is at the discretion of the Board of Directors. The Company’s Board of Directors is ultimately, and solely, responsible fordetermining the fair value of the Company’s investments in good fa ith.With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, theCompany’s Board of Directors has approved a multi-step valuation process each quarter, as described below:(1) the Company’s quarterly valuation process begins with each portfolio company being initially valued by the investment professionals responsible for theportfolio investment;(2) preliminary valuation conclusions are then documented and business based assumptions are discussed with the Company’s investment committee;(3) the Audit Committee of the Board of Directors reviews the preliminary valuation of the investments in the portfolio as provided by the investmentcommittee, which incorporates the results of the independent valuation firm as appropriate; and(4) the Board of Directors, upon the recommendation of the Audit Committee, discusses valuations and determines the fair value of each investment in ourportfolio in good faith based on the input of, where applicable, the respective independent valuation firm and the investment committee.ASC 820 establishes a framework for measuring the fair value of the assets and liabilities and outlines a fair value hierarchy which prioritizes the inputs usedto measure fair value and the effect of fair value measures on earnings. ASC 820 also enhances disclosure requirements for fair value measurements based on thelevel within the hierarchy of the information used in the valuation. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measuredat fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date.The Company has categorized all investments recorded at fair value in accordance with ASC 820 based upon the level of judgment associated with the inputsused to measure their fair value. Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuationof these assets and liabilities, are as follows:Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date. The types of assets carried at Level 1 fair valuegenerally are equities listed in active markets.Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset in connection with market data at themeasurement date and for the extent of the instrument’s anticipated life. Fair valued assets that are generally included in this category are publicly held debtinvestments and warrants held in a public company.Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset at the measurement date. It includes prices orvaluations that require inputs that are both significant to the fair value measurement and unobservable. Generally, assets carried at fair value and included inthis category are the debt investments and warrants and equities held in a private company.Debt InvestmentsThe Company follows the guidance set forth in ASC 820 which establishes a framework for measuring the fair value of assets and liabilities and outlines afair value hierarchy which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. The Company’s debt securities areprimarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, lifesciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially allof the Company’s investments in these portfolio companies are considered Level 3 assets under ASC 820 because there is no known or accessible market or marketindexes for debt instruments for these investment securities to be traded or exchanged. In addition, the Company may, from time to time, invest in public debt ofcompanies that meet the Company’s investment objectives. These investments are considered Level 2 assets.In making a good faith determination of the value of the Company’s investments, the Company generally starts with the cost basis of the investment, whichincludes the value attributed to the OID, if any, and PIK interest or other receivables which have been accrued to principal as earned. The Company then applies thevaluation methods as set forth below.22The Company applies a procedure for debt investments that assumes the sale of each investment in a hypothetical market to a hypothetical market participantwhere buyers and sellers are willing participants. The hypothetical market does not include scenarios where the underlying security was simply repaid orextinguished, but includes an exit concept. The Company determines the yield at inception for each debt inves tment.The Company then uses senior secured, leveraged loan yields provided by third party providers to determine the change in market yields between inception ofthe debt security and the measurement date. Industry specific indices and other relevant market data are used to benchmark/assess market based movements.Under this process, the Company also evaluates the collateral for recoverability of the debt investment. The Company considers each portfolio company’scredit rating, security liens and other characteristics of the investment to adjust the baseline yield to derive a credit adjusted hypothetical yield for each investment asof the measurement date. The anticipated future cash flows from each investment are then discounted at the hypothetical yield to estimate each investment’s fairvalue as of the measurement date.The Company’s process includes, among other things, the underlying investment performance, the current portfolio company’s financial condition andmarket changing events that impact valuation, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurementdate. The Company values its syndicated loans using broker quotes and bond indices amongst other factors. If there is a significant deterioration of the credit qualityof a debt investment, the Company may consider other factors to estimate fair value, including the proceeds that would be received in a liquidation analysis.The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a debtinvestment is doubtful or, if under the in-exchange premise, when the value of a debt security is less than amortized cost of the investment. Conversely, whereappropriate, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, that itsinvestment has also appreciated in value or, if under the in-exchange premise, the value of a debt security is greater than amortized cost.When originating a debt instrument, the Company generally receives warrants or other equity-related securities from the borrower. The Company determinesthe cost basis of the warrants or other equity-related securities received based upon their respective fair values on the date of receipt in proportion to the total fairvalue of the debt and warrants or other equity-related securities received. Any resulting discount on the debt investments from recordation of the warrant or otherequity instruments is accreted into interest income over the life of the debt investment.Debt investments that are traded on a public exchange will be valued at the prevailing market price at period end.Equity-Related Securities and WarrantsSecurities that are traded in the over-the-counter markets or on a stock exchange will be valued at the prevailing bid price at period end. The Company has alimited amount of equity securities in public companies. In accordance with the 1940 Act, unrestricted publicly traded securities for which market quotations arereadily available are valued at the closing market quote on the measurement date.The Company estimates the fair value of warrants using a Black Scholes option pricing model. At each reporting date, privately held warrant and equity-related securities are valued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financialcondition and general market conditions, price to enterprise value or price to equity ratios, discounted cash flow, valuation comparisons to comparable publiccompanies or other industry benchmarks. When an external event occurs, such as a purchase transaction, public offering, or subsequent equity sale, the pricingindicated by that external event is utilized to corroborate the Company’s valuation of the warrant and equity-related securities. The Company periodically reviews thevaluation of its portfolio companies that have not been involved in a qualifying external event to determine if the enterprise value of the portfolio company may haveincreased or decreased since the last valuation measurement date.23Determinations In Connection With OfferingsIn connection with each offering of shares of our common stock, the Board of Directors or a committee thereof is required to make the determination that weare not selling shares of our common stock at a price below our then current net asset value at the time at which the sale is made, unless it is determined by the Boardof Directors that such sale is in the best interests of our stockholders and such sale is otherwise approved by our stockholders. The Board of Directors considers thefollowing factors, among others, in making such determination: ·the net asset value of our common stock disclosed in the most recent periodic report we filed with the SEC; ·our management’s assessment of whether any material change in the net asset value has occurred (including through the realization of net gains on thesale of our portfolio investments) from the period beginning on the date of the most recently disclosed net asset value to the period ending two daysprior 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 currentnet asset value of our common stock, which is generally based upon the net asset value of our common stock disclosed in the most recent periodicreport that we filed with the SEC, as adjusted to reflect our management’s assessment of any material change in the net asset value of our commonstock 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 stockin the proposed offering.Importantly, this determination does not require that we calculate net asset value in connection with each offering of shares of our common stock, but insteadit involves the determination by the Board of Directors or a committee thereof that we are not selling shares of our common stock at a price below the then currentnet asset value at the time at which the sale is made.Moreover, to the extent that there is a possibility that we may (i) issue shares of our common stock at a price below the then current net asset value of ourcommon stock at the time at which the sale is made or (ii) trigger the undertaking (which we will provide to the SEC in a registration statement to which a prospectuswill be a part) to suspend the offering of shares of our common stock pursuant to a prospectus if the net asset value fluctuates by certain amounts in certaincircumstances until such prospectus is amended, the Board of Directors or a committee thereof will elect, in the case of clause (i) above, either to postpone theoffering until such time that there is no longer the possibility of the occurrence of such, events or to undertake to determine net asset value within two days prior toany such sale to ensure that such sale will not be below our then current net asset value, and, in the case of clause (ii) above, to comply with such undertaking or toundertake to determine net asset value to ensure that such undertaking has not been triggered.These processes and procedures are part of our compliance policies and procedures. Records will be made contemporaneously with all determinationsdescribed in this section and these records will be maintained with other records we are required to maintain under the 1940 Act.24 Item 1A.Risk FactorsInvesting in our securities may be speculative and involves a high degree of risk. You should consider carefully the risks described below and all otherinformation contained in this Annual Report, including our financial statements and the related notes and the schedules and exhibits to this Annual Report. The risksset forth below are not the only risks we face. If any of the following risks occur, our business, financial condition and results of operations could be materiallyadversely 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.Risks Related to our Business StructureWe are dependent upon key management personnel for their time availability and for our future success and if we are not able to hire and retain qualifiedpersonnel, or if we lose any member of our senior management team, our ability to implement our business strategy could be significantly harmed.We depend upon the members of our senior management as well as other key personnel for the identification, final selection, structuring, closing andmonitoring of our investments. These employees have critical industry experience and relationships on which we rely to implement our business plan. If we lose theservices of any senior management members we may not be able to operate the business as we expect, and our ability to compete could be harmed, which couldcause our operating results to suffer. Furthermore, we do not have an employment agreement with our senior management that restricts them from creating newinvestment vehicles subject to compliance with applicable law. We believe our future success will depend, in part, on our ability to identify, attract and retainsufficient numbers of highly skilled employees. If we do not succeed in identifying, attracting and retaining such personnel, we may not be able to operate ourbusiness as we expect.Our business model depends to a significant extent upon strong referral relationships with venture capital and private equity fund sponsors, and our inabilityto develop or maintain these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.We expect that members of our management team will maintain their relationships with venture capital and private equity firms, and we will rely to asignificant extent upon these relationships to provide us with our deal flow. If we fail to maintain our existing relationships, our relationships become strained as aresult of enforcing our rights with respect to non-performing portfolio companies in protecting our investments or we fail to develop new relationships with otherfirms or sources of investment opportunities, then we will not be able to grow our investment portfolio. In addition, persons with whom members of our managementteam have relationships are not obligated to provide us with investment opportunities and, therefore, there is no assurance that such relationships will lead to theorigination of debt or other investments.We operate in a highly competitive market for investment opportunities, and we may not be able to compete effectively.A number of entities compete with us to make the types of investments that we plan to make in prospective portfolio companies. We compete with a largenumber of venture capital and private equity firms, as well as with other investment funds, business development companies, investment banks and other sources offinancing, including traditional financial services companies such as commercial banks and finance companies. Many of our competitors are substantially larger andhave considerably greater financial, technical, marketing and other resources than we do. For example, some competitors may have a lower cost of funds and/oraccess to funding sources that are not available to us. This may enable some competitors to make loans with interest rates that are comparable to or lower than therates that we typically offer. A significant increase in the number and/or the size of our competitors, including traditional commercial lenders and other financingsources, in technology-related industries could force us to accept less attractive investment terms. We may be unable to capitalize on certain opportunities if we donot match competitors’ pricing, terms and structure. If we do match competitors’ pricing, terms or structure, we may experience decreased net interest income andincreased risk of credit losses. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to considera wider variety of investments, establish more relationships and build their market shares. Furthermore, many potential competitors are not subject to the regulatoryrestrictions that the 1940 Act imposes on us as a business development company or that the Code imposes on us as a RIC. If we are not able to compete effectively,our business, financial condition, and results of operations will be adversely affected. As a result of this competition, there can be no assurance that we will be able toidentify and take advantage of attractive investment opportunities, or that we will be able to fully invest our available capital.25If w e are unable to manage our future growth effectively, we may be unable to achieve our investment objective, which could adversely affect our financialcondition and results of operations and cause the value of your investment to decline.Our ability to achieve our investment objective will depend on our ability to sustain growth. Sustaining growth will depend, in turn, on our seniormanagement team’s ability to identify, evaluate, finance and invest in suitable companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our marketing capabilities, our management of the investment process, our ability to provide efficient services and our accessto financing sources on acceptable terms. Organizational growth and scale-up of our investments could strain our existing managerial, investment, financial and otherresources. Management of the Company's growth divert financial resources from other projects. Failure to manage our future growth effectively could have amaterial adverse effect on our business, financial condition and results of operations.Because we intend to distribute substantially all of our income to our stockholders in order to qualify as a RIC, we will continue to need additional capital tofinance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired.In order to satisfy the tax requirements applicable to a RIC, to avoid payment of excise taxes and to minimize or avoid payment of income taxes, we intend todistribute to our stockholders substantially all of our net ordinary income and realized net capital gains except for certain realized net capital gains, which we mayretain, pay applicable income taxes with respect thereto and elect to treat as deemed distributions to our stockholders. As a business development company, wegenerally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which includes all of our borrowings and any preferredstock that we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. This limitation may prevent us from incurring debtand require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available tous on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. If we are unable to incur additional debt, wemay be required to raise additional equity at a time when it may be disadvantageous to do so. In addition, shares of closed-end investment companies have recentlytraded 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 pershare may decline. We cannot predict whether shares of our common stock will trade above, at or below our net asset value. If our common stock trades below its netasset value, we generally will not be able to issue additional shares of our common stock at its market price without first obtaining the approval for such issuancefrom our stockholders and our independent directors. If additional funds are not available to us, we could be forced to curtail or cease new lending and investmentactivities, and our net asset value could decline. In addition, our results of operations and financial condition could be adversely affected.Because most of our investments typically are not in publicly-traded securities, there is uncertainty regarding the value of our investments, which couldadversely affect the determination of our net asset value.At December 31, 2015, portfolio investments, whose fair value is determined in good faith by the Board of Directors, were approximately 90.0% of our totalassets. We expect our investments to continue to consist primarily of securities issued by privately-held companies, the fair value of which is not readilydeterminable. In addition, we are not permitted to maintain a general reserve for anticipated loan losses. Instead, we are required by the 1940 Act to specifically valueeach investment and record an unrealized gain or loss for any asset that we believe has increased or decreased in value.There is no single standard for determining fair value in good faith. We value these securities at fair value as determined in good faith by our Board ofDirectors, based on the recommendations of our Audit Committee. In making a good faith determination of the value of these securities, we generally start with thecost basis of each security, which includes the amortized OID and PIK interest, if any. The Audit Committee uses its best judgment in arriving at the fair value ofthese securities. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment whileapplying a valuation process for the types of investments we make, which includes but is not limited to deriving a hypothetical exit price. However, the Board ofDirectors retains ultimate authority as to the appropriate valuation of each investment. Because such valuations are inherently uncertain and may be based onestimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed. We adjustquarterly the valuation of our portfolio to reflect the Board of Directors’ determination of the fair value of each investment in our portfolio. Any changes in fair valueare recorded in our statement of operations as net change in unrealized appreciation or depreciation. Our net asset value could be adversely affected if ourdeterminations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.26Because we have substantial indebtedness, there could be increased risk in investing in our company.Lenders have fixed dollar claims on our assets that are superior to the claims of stockholders, and we have granted, and may in the future grant, lenders asecurity interest in our assets in connection with borrowings. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. Inaddition, borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investingin our securities. Leverage is generally considered a speculative investment technique. If the value of our assets increases, then leverage would cause the net assetvalue attributable to our common stock to increase more than it otherwise would have had we not leveraged. Conversely, if the value of our assets decreases,leverage would cause the net asset value attributable to our common stock to decline more than it otherwise would have had we not used leverage. Similarly, anyincrease in our revenue in excess of interest expense on our borrowed funds would cause our net income to increase more than it would without the leverage. Anydecrease in our revenue would cause our net income to decline more than it would have had we not borrowed funds and could negatively affect our ability to makedistributions on common stock. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailingeconomic conditions and competitive pressures. We and, indirectly, our stockholders will bear the cost associated with our leverage activity. If we are not able toservice our substantial indebtedness, our business could be harmed materially.Our secured credit facilities with Wells Fargo Capital Finance LLC (the “Wells Facility”) and MUFG Union Bank, N.A. (the “Union Bank Facility,” andtogether with the Wells Facility, our “Credit Facilities”) our Convertible Senior Notes, our 2019 Notes, our 2024 Notes and our 2021 Asset-Backed Notes (as eachterm is defined below) contain financial and operating covenants that could restrict our business activities, including our ability to declare dividends if we defaultunder certain provisions.As of December 31, 2015, we had approximately $50.0 million of indebtedness outstanding on the Wells Facility. In addition, as of December 31, 2015, wehad approximately $190.2 million of indebtedness outstanding incurred by our SBIC subsidiaries, approximately $17.6 million in aggregate principal amount of6.00% convertible senior notes (the “Convertible Senior Notes”), approximately $110.4 million in aggregate principal amount of 7.00% notes due 2019 (the “2019Notes”), approximately $103.0 million in aggregate principal amount of 6.25% notes due 2024 (the “2024 Notes”) and approximately $129.3 million in aggregateprincipal amount of fixed rate asset-backed notes issued in November 2014 (the “2021 Asset-Backed Notes”) in connection with our $237.4 million debtsecuritization (the “2014 Debt Securitization”).There can be no assurance that we will be successful in obtaining any additional debt capital on terms acceptable to us or at all. If we are unable to obtain debtcapital, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage to the extent that our investment strategyis successful and we may be limited in our ability to make new commitments or fundings to our portfolio companies.As a business development company, generally, we are not permitted to incur indebtedness unless immediately after such borrowing we have an assetcoverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). In addition, we may not be permitted todeclare any cash dividend or other distribution on our outstanding common shares, or purchase any such shares, unless, at the time of such declaration or purchase,we have asset coverage of at least 200% after deducting the amount of such dividend, distribution, or purchase price. If this ratio declines below 200%, we may notbe able to incur additional debt and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able tomake distributions. As of December 31, 2015 our asset coverage ratio under our regulatory requirements as a business development company was 274.8% excludingour SBIC debentures as a result of our exemptive order from the SEC that allows us to exclude all SBA leverage from our asset coverage ratio.Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net ofexpenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. Annual Return on Our Portfolio (Net of Expenses) -10% -5% 0% 5% 10% Corresponding return to stockholder (1) (23.62%) (14.32%) (5.01%) 4.30% 13.60% (1)Assumes $1.3 billion in total assets, $600.5 million in debt outstanding, $717.1 million in stockholders’ equity, and an average cost of funds of 5.98%, which is the approximate averagecost of borrowed funds, including our Credit Facilities, our Convertible Senior Notes, 2019 Notes, 2024 Notes, our SBA debentures and our 2021 Asset-Backed Notes for the periodended December 31, 2015. Actual interest payments may be different.27It is likely that the terms of any current or future long-term or revolving credit or warehouse facility we may enter into in the future could constrain our ability to grow our business.Under our borrowings and our Credit Facilities, current lenders have, and any future lender or lenders may have, fixed dollar claims on our assets that aresenior to the claims of our stockholders and, thus, will have a preference over our stockholders with respect to our assets pledged as collateral under the CreditFacilities. Our Credit Facilities and borrowings also subject us to various financial and operating covenants, including, but not limited to, maintaining certainfinancial ratios and minimum tangible net worth amounts. Future credit facilities and borrowings will likely subject us to similar or additional covenants. In addition,we may grant a security interest in our assets in connection with any such credit facilities and borrowings.Our Credit Facilities generally contain customary default provisions such as a minimum net worth amount, a profitability test, and a restriction on changingour business and loan quality standards. In addition, our Credit Facilities require or are expected to require the repayment of all outstanding debt on the maturitywhich may disrupt our business and potentially the business of our portfolio companies that are financed through the facilities. An event of default under thesefacilities would likely result, among other things, in termination of the availability of further funds under the facilities and accelerated maturity dates for all amountsoutstanding under the facilities, which would likely disrupt our business and, potentially, the business of the portfolio companies whose loans we finance through thefacilities. This could reduce our revenues and, by delaying any cash payment allowed to us under our facilities until the lender has been paid in full, reduce ourliquidity and cash flow and impair our ability to grow our business and our ability to make distributions sufficient to maintain our ability to be subject to tax as aRIC.The terms of future available financing may place limits on our financial and operation flexibility. If we are unable to obtain sufficient capital in the future,we may be forced to reduce or discontinue our operations, not be able to make new investments, or otherwise respond to changing business conditions or competitivepressures.In addition to regulatory requirements that restrict our ability to raise capital, our Credit Facilities, the Convertible Senior Notes, the 2019 Notes and the2024 Notes contain various covenants which, if not complied with, could require accelerated repayment under the facility or require us to repurchase theConvertible Senior Notes, the 2019 Notes and the 2024 Notes thereby materially and adversely affecting our liquidity, financial condition, results ofoperations and ability to pay dividends.The credit agreements governing our Credit Facilities, the Convertible Senior Notes, the 2019 Notes, and the 2024 Notes require us to comply with certainfinancial and operational covenants. These covenants require us to, among other things, maintain certain financial ratios, including asset coverage, debt to equity andinterest 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 noassurances 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 awaiver from the lenders under our Credit Facilities or the trustee or holders under the Convertible Senior Notes and could accelerate repayment under the facilities orthe Convertible Senior Notes, the 2019 Notes or 2024 Notes and thereby have a material adverse impact on our liquidity, financial condition, results of operationsand ability to pay a sufficient amount of dividends and maintain our ability to be subject to tax as a RIC. In addition, holders of the Convertible Senior Notes willhave 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 theirprincipal 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 makerepurchases. See “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition—Borrowings.”We may be unable to obtain debt capital on favorable terms or at all, in which case we would not be able to use leverage to increase the return on ourinvestments.If we are unable to obtain debt capital, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage tothe extent that our investment strategy is successful and we may be limited in our ability to make new commitments or fundings to our portfolio companies. Aninability to obtain debt capital may also limit our ability to refinance existing indebtedness, particularly during periods of adverse credit market conditions whenrefinancing indebtedness may not be available under interest rates and other terms acceptable to us or at all.28We are subject to certain risks as a result of our interests in connection with the 2014 Debt Securitization and our equity interest in the 2014 SecuritizationIssuer.On November 13, 2014, in connection with the 2014 Debt Securitization and the offering of the 2021 Asset-Backed Notes by Hercules Capital Funding Trust2014-1 (the “2014 Securitization Issuer”), we sold and/or contributed to Hercules Capital Funding 2014-1 LLC, as trust depositor (the “2014 Trust Depositor”),certain senior loans made to certain of our portfolio companies (the “2014 Loans”), which the 2014 Trust Depositor in turn sold and/or contributed to the 2014Securitization Issuer in exchange for 100% of the equity interest in the 2014 Securitization Issuer, cash proceeds and other consideration. Following these transfers,the 2014 Securitization Issuer, and not the 2014 Trust Depositor or us, held all of the ownership interest in the 2014 Loans.As a result of the 2014 Debt Securitization, we hold, indirectly through the 2014 Trust Depositor, 100% of the equity interests in the 2014 SecuritizationIssuer. As a result, we consolidate the financial statements of the 2014 Trust Depositor and the 2014 Securitization Issuer, as well as our other subsidiaries, in ourconsolidated financial statements. Because the 2014 Trust Depositor and the 2014 Securitization Issuer is disregarded as an entity separate from its owners for U.S.federal income tax purposes, the sale or contribution by us to the 2014 Trust Depositor, and by the 2014 Trust Depositor to the 2014 Securitization Issuer, asapplicable, did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service (“IRS”) were to take a contrary position,there could be a material adverse effect on our business, financial condition, results of operations or cash flows.Further, a failure of the 2014 Securitization Issuer to be treated as a disregarded entity for U.S. federal income tax purposes would constitute an event ofdefault pursuant to the indenture under the 2014 Debt Securitization, upon which the trustee under the 2014 Debt Securitization (the “2014 Trustee”), may and will atthe direction of a supermajority of the holders of the 2021 Asset-Backed Notes (the “2021 Noteholders”), declare the 2021 Asset-Backed Notes, to be immediatelydue and payable and exercise remedies under the applicable indenture, including (i) to institute proceedings for the collection of all amounts then payable on the 2021Asset-Backed Notes, or under the applicable indenture, enforce any judgment obtained, and collect from the 2014 Securitization Issuer and any other obligor uponthe 2021 Asset-Backed Notes monies adjudged due; (ii) institute proceedings from time to time for the complete or partial foreclosure of the applicable indenturewith respect to the property of the 2014 Securitization Issuer; (iii) exercise any remedies as a secured party under the relevant Uniform Commercial Code (“UCC”)and take other appropriate action under applicable law to protect and enforce the rights and remedies of the 2014 Trustee and the 2021 Noteholders; or (iv) sell theproperty of the 2014 Securitization Issuer or any portion thereof or rights or interest therein at one or more public or private sales called and conducted in any matterpermitted by law. Any such exercise of remedies could have a material adverse effect on our business, financial condition, results of operations or cash flows.An event of default in connection with the 2014 Debt Securitization could give rise to a cross-default under our other material indebtedness.The documents governing our other material indebtedness contain customary cross-default provisions that could be triggered if an event of default occurs inconnection with the 2014 Debt Securitization. An event of default with respect to our other indebtedness could lead to the acceleration of such indebtedness and theexercise of other remedies as provided in the documents governing such other indebtedness. This could have a material adverse effect on our business, financialcondition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our ability to be subject to tax as a RIC.We may not receive cash distributions in respect of our indirect ownership interests in the 2014 Securitization Issuer.Apart from fees payable to us in connection with our role as servicer of the 2014 Loans and the reimbursement of related amounts under the documentsgoverning the 2014 Debt Securitization, we receive cash in connection with the 2014 Debt Securitization only to the extent that the 2014 Trust Depositor receivespayments in respect of its equity interests in the 2014 Securitization Issuer. The respective holders of the equity interests in the 2014 Securitization Issuer are theresidual claimants on distributions, if any, made by the 2014 Securitization Issuer after the respective 2014 Noteholders and other claimants have been paid in full oneach payment date or upon maturity of the 2021 Asset-Backed Notes, subject to the priority of payments under the 2014 Debt Securitization documents governingthe 2014 Debt Securitization. To the extent that the value of a 2014 Securitization Issuer’s portfolio of loans is reduced as a result of conditions in the credit markets(relevant in the event of a liquidation event), other macroeconomic factors, distressed or defaulted loans or the failure of individual portfolio companies to otherwisemeet their obligations in respect of the loans, or for any other reason, the ability of the 2014 Securitization Issuer to make cash distributions in respect of the 2014Trust Depositor’s equity interests would be negatively affected and consequently, the value of the equity interests in the 2014 Securitization Issuer would also bereduced. In the event that we fail to receive cash indirectly from the 2014 Securitization Issuer, we could be unable to make distributions, if at all, in amountssufficient to maintain our ability to be subject to tax as a RIC.29The interests of the 2014 Noteholders may not be aligned with our interests.The 2021 Asset-Backed Notes are debt obligations ranking senior in right of payment to the rights of the holder of the equity interests in the 2014Securitization Issuer, as residual claimants in respect of distributions, if any, made by the 2014 Securitization Issuer. As such, there are circumstances in which theinterests of the 2014 Noteholders may not be aligned with the interests of holders of the equity interests in the 2014 Securitization Issuer. For example, under theterms of the documents governing the 2014 Debt Securitization, the 2014 Noteholders have the right to receive payments of principal and interest prior to holders ofthe equity interests.For as long as the 2021 Asset-Backed Notes remain outstanding, the respective 2014 Noteholders have the right to act in certain circumstances with respect tothe 2014 Loans in ways that may benefit their interests but not the interests of the respective holders of the equity interests in the 2014 Securitization Issuer,including by exercising remedies under the documents governing the 2014 Debt Securitization.If an event of default occurs, the 2014 Noteholders will be entitled to determine the remedies to be exercised, subject to the terms of the documents governingthe 2014 Debt Securitization. For example, upon the occurrence of an event of default with respect to the 2021 Asset-Backed Notes, the 2014 Trustee may and will atthe direction of the holders of a supermajority of the applicable 2021 Asset-Backed Notes declare the principal, together with any accrued interest, of the notes to beimmediately due and payable. This would have the effect of accelerating the principal on such notes, triggering a repayment obligation on the part of the 2014Securitization Issuer. The 2021 Asset-Backed Notes then outstanding will be paid in full before any further payment or distribution on the equity interest is made.There can be no assurance that there will be sufficient funds through collections on the 2014 Loans or through the proceeds of the sale of the 2014 Loans in the eventof a bankruptcy or insolvency to repay in full the obligations under the 2021 Asset-Backed Notes, or to make any distribution to holders of the equity interests in the2014 Securitization Issuer.Remedies pursued by the 2014 Noteholders could be adverse to our interests as the indirect holder of the equity interests in the 2014 Securitization Issuer.The 2014 Noteholders have no obligation to consider any possible adverse effect on such other interests. Thus, there can be no assurance that any remedies pursuedby the 2014 Noteholders will be consistent with the best interests of the 2014 Trust Depositor or that we will receive, indirectly through the 2014 Trust Depositor,any payments or distributions upon an acceleration of the 2021 Asset-Backed Notes. Any failure of the 2014 Securitization Issuer to make distributions in respect ofthe equity interests that we indirectly hold, whether as a result of an event of default and the acceleration of payments on the 2021 Asset-Backed Notes or otherwise,could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributionssufficient to maintain our ability to be subject to tax as a RIC.Certain events related to the performance of 2014 Loans could lead to the acceleration of principal payments on the 2021 Asset-Backed Notes.The following constitute rapid amortization events (“Rapid Amortization Events”) under the documents governing the 2014 Debt Securitization: (i) theaggregate outstanding principal balance of delinquent 2014 Loans, and restructured 2014 Loans that would have been delinquent 2014 Loans had such loans notbecome restructured loans exceeds 10% of the current aggregate outstanding principal balance of the 2014 Loans for a period of three consecutive months; (ii) theaggregate outstanding principal balance of defaulted 2014 Loans exceeds 5% of the initial outstanding principal balance of the 2014 Loans determined as November13, 2014 for a period of three consecutive months; (iii) the aggregate outstanding principal balance of the 2021 Asset-Backed Notes exceeds the borrowing base for aperiod of three consecutive months; (iv) the 2014 Securitization Issuer’s pool of 2014 Loans contains 2014 Loans to ten or fewer obligors; and (v) the occurrence ofan event of default under the documents governing the 2014 Debt Securitization. After a Rapid Amortization Event has occurred, subject to the priority of paymentsunder the documents governing the 2014 Debt Securitization, principal collections on the 2014 Loans will be used to make accelerated payments of principal on the2021 Asset-Backed Notes until the principal balance of the 2021 Asset-Back Notes is reduced to zero. Such an event could delay, reduce or eliminate the ability ofthe 2014 Securitization Issuer to make distributions in respect of the equity interests that we indirectly hold, which could have a material adverse effect on ourbusiness, financial condition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our ability to be subjectto tax as a RIC.We have certain repurchase obligations with respect to the 2014 Loans transferred in connection with the 2014 Debt Securitization.As part of the 2014 Debt Securitization, we entered into a sale and contribution agreement and a sale and servicing agreement under which we would berequired to repurchase any 2014 Loan (or participation interest therein) which was sold to the 2014 Securitization Issuer in breach of certain customaryrepresentations and warranty made by us or by the 2014 Trust Depositors with respect to such 2014 Loan or the legal structure of the 2014 Debt Securitization. Tothe extent that there is a breach of such representations and warranties and we fail to satisfy any such repurchase obligation, a 2014 Trustee may, on behalf of the2014 Securitization Issuer, bring an action against us to enforce these repurchase obligations.30Our investments in a portfolio company, whether debt, equity, or a combination thereof, may lead to our receiving material non-public information(“MNPI”) or o btaining ‘control’ of the target company. Our ability to exit an investment where we have MNPI or control could be limited and could resultin a realized loss on the investment.If we receive MNPI, or a controlling interest in a portfolio company, our ability to divest ourselves from a debt or equity investment could berestricted. Causes of such restriction could include market factors, such as liquidity in a private stock, or limited trading volume in a public company’s securities, orregulatory factors, such as the receipt of MNPI or insider blackout periods, where we are under legal obligation not to sell. Additionally, we may choose not to takecertain actions to protect a debt investment in a control investment portfolio company. As a result, we could experience a decrease in the value of our portfoliocompany holdings and potentially incur a realized loss on the investment.Regulations governing our operations as a business development company may affect our ability to, and the manner in which, we raise additional capital,which may expose us to risks.Our business will require a substantial amount of capital. We may acquire additional capital from the issuance of senior securities, including borrowings,securitization transactions or other indebtedness, or the issuance of additional shares of our common stock. However, we may not be able to raise additional capital inthe future on favorable terms or at all. We may issue debt securities, other evidences of indebtedness or preferred stock, and we may borrow money from banks orother financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the 1940 Act, we arenot permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debtmay not exceed 50% of the value of our assets). In addition, we may not be permitted to declare any cash dividend or other distribution on our outstanding commonshares, or purchase any such shares, unless, at the time of such declaration or purchase, we have asset coverage of at least 200% after deducting the amount of suchdividend, distribution, or purchase price. Our ability to pay dividends or issue additional senior securities would be restricted if our asset coverage ratio were not atleast 200%.If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to liquidate a portion of our investments andrepay a portion of our indebtedness at a time when such transaction may be disadvantageous. As a result of issuing senior securities, we would also be exposed torisks associated with leverage, including an increased risk of loss. If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capitalstructure, preferred stockholders would have separate voting rights and might have rights, preferences, or privileges more favorable than those of our commonstockholders and the issuance of preferred stock could have the effect of delaying, deferring, or preventing a transaction or a change of control that might involve apremium price for holders of our common stock or otherwise be in your best interest.To the extent that we are constrained in our ability to issue debt or other senior securities, we will depend on issuances of common stock to financeoperations. Other than in certain limited situations such as rights offerings, as a business development company, we are generally not able to issue our common stockat a price below net asset value without first obtaining required approvals from our stockholders and our independent directors. If we raise additional funds by issuingmore common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time willdecrease, and you might experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, onfavorable terms or at all.When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and management of the companymay make decisions that could decrease the value of our portfolio holdings.We make both debt and minority equity investments; therefore, we are subject to the risk that a portfolio company may make business decisions with whichwe disagree, and the stockholders and management of such company may take risks or otherwise act in ways that do not serve our interests. As a result, a portfoliocompany may make decisions that could decrease the value of our portfolio holdings.31If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a business development company or be precluded frominvesting according to our current business strategy.As a business development company, we may not acquire any assets other than “qualifying assets” as defined under the 1940 Act, unless, at the time of andafter giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Item 1. Business –Regulation.”We believe that most of the senior loans we make will constitute qualifying assets. However, we may be precluded from investing in what we believe areattractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifyingassets, we could lose our status as a business development company, which would have a material adverse effect on our business, financial condition and results ofoperations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of ourposition) or could require us to dispose of investments at inappropriate times in order to comply with the 1940 Act. If we need to dispose of such investmentsquickly, it would be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and, even if we do find abuyer, we may have to sell the investments at a substantial loss.A failure on our part to maintain our qualification as a business development company would significantly reduce our operating flexibility.If we fail to continuously qualify as a business development company, we might be subject to regulation as a registered closed-end investment companyunder the 1940 Act, which would significantly decrease our operating flexibility, and lead to situations where we might have to restrict our borrowings, reduce ourleverage, sell securities and pursue other activities that we are allowed to engage in as a business development company. In addition, failure to comply with therequirements imposed on business development companies by the 1940 Act could cause the SEC to bring an enforcement action against us. For additionalinformation on the qualification requirements of a business development company, see “Item 1. Business – Regulation.”To the extent OID and PIK interest constitute a portion of our income, we will be exposed to risks associated with such income being required to be includedin taxable and accounting income prior to receipt of cash representing such income.Our investments may include OID instruments and contractual PIK interest arrangements, which represents contractual interest added to a loan balance anddue at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of our income, we are exposed to risks associated with such income beingrequired to be included in taxable and accounting income prior to receipt of cash, including the following: ·The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OIDand PIK instruments generally represent a significantly higher credit risk than coupon loans. ·Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at thematurity of the obligation. ·OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of thedeferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cashdistributions. ·For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid-in capital, eventhough the cash to pay them comes from the offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income couldbe paid out of amounts invested by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as areturn of capital. ·The deferral of PIK interest may have a negative impact on our liquidity as it represents non-cash income that may require cash distributions to ourstockholders in order to maintain our ability to be subject to tax as a RIC.If we are unable to satisfy Code requirements for qualification as a RIC, then we will be subject to corporate-level income tax, which would adversely affectour results of operations and financial condition.We elected to be treated as a RIC for federal income tax purposes with the filing of our federal corporate income tax return for 2006. We will not qualify forthe tax treatment allowable to RICs if we are unable to comply with the source of income, asset diversification and distribution requirements contained in SubchapterM of the Code, or if we fail to maintain our election to be regulated as a business development company under the 1940 Act. If we fail to qualify for the federalincome tax benefits allowable to RICs for any reason and become subject to a corporate-level income tax, the resulting taxes could substantially reduce our netassets, the amount of income available for distribution as dividends to our stockholders and the actual amount of our distributions. Such a failure would have amaterial adverse effect on us, the net asset value of our common stock and the total return, if any, obtainable from your investment in our common stock.32We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representingsuch income.In accordance with U.S. federal tax requirements, we are required to include in income for tax purposes certain amounts that we have not yet received in cash,such as OID and contractual PIK interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. Inaddition to the cash yields received on our loans, in some instances, our loans generally include one or more of the following: end-of-term payments, exit fees,balloon payment fees, commitment fees, success fees or prepayment fees. In some cases our loans also include contractual PIK interest arrangements. The increasesin loan balances as a result of contractual PIK arrangements are included in income for the period in which such PIK interest was accrued, which is often in advanceof receiving cash payment, and are separately identified on our statements of cash flows. We also may be required to include in income for tax purposes certain otheramounts prior to receiving the related cash.Any warrants that we receive in connection with our debt investments will generally be valued as part of the negotiation process with the particular portfoliocompany. As a result, a portion of the aggregate purchase price for the debt investments and warrants will be allocated to the warrants that we receive. This willgenerally result in original issue discount for tax purposes, which we must recognize as ordinary income, increasing the amount that we are required to distribute toqualify for the federal income tax benefits applicable to RICs. Because these warrants generally will not produce distributable cash for us at the same time as we arerequired to make distributions in respect of the related OID, if ever, we would need to obtain cash from other sources or to pay a portion of our distributions usingshares of newly issued common stock, consistent with IRS requirements, to satisfy such distribution requirements.Other features of the debt instruments that we hold may also cause such instruments to generate original issue discount, resulting in a dividend distributionrequirement in excess of current cash interest received. Since in certain cases we may recognize income before or without receiving cash representing such income,we may have difficulty meeting the RIC tax requirement to distribute dividends each taxable year to our shareholders generally of an amount equal to at least 90% ofour investment company taxable income. Under such circumstances, we may have to sell some of our assets, raise additional debt or equity capital or reduce newinvestment originations to meet these distribution requirements. If we are unable to obtain cash from other sources and are otherwise unable to satisfy suchdistribution requirements, we may fail to qualify for the federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level income tax onall our taxable income (including any net realized securities gains).Furthermore, we may invest in the equity securities of non-U.S. corporations (or other non-U.S. entities classified as corporations for U.S. federal income taxpurposes) that could be treated under the Code and U.S. Treasury regulations as “passive foreign investment companies” and/or “controlled foreign corporations.”The rules relating to investment in these types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in effect, taxed currently (or on anaccelerated basis with respect to corporate level events) or taxed at increased tax rates at distribution or disposition. In certain circumstances, these rules also couldrequire us to recognize taxable income or gains where we do not receive a corresponding payment in cash.Our portfolio investments may present special tax issues.Investments in below-investment grade debt instruments and certain equity securities may present special tax issues for us. U.S. federal income tax rules arenot entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may betaken for bad debts or worthless debt in equity securities, how payments received on obligations in default should be allocated between principal and interest income,as well as whether exchanges of debt instruments in a bankruptcy or workout context are taxable. Such matters could cause us to recognize taxable income for U.S.federal income tax purposes, even in the absence of cash or economic gain, and require us to make taxable distributions to our stockholders to maintain our RICstatus or preclude the imposition of either U.S. federal corporate income or excise taxation. Additionally, because such taxable income may not be matched bycorresponding cash received by us, we may be required to borrow money or dispose of other investments to be able to make distributions to our stockholders. Theseand other issues will be considered by us, to the extent determined necessary, in order that we minimize the level of any U.S. federal income or excise tax that wewould otherwise incur. See “Item 1. Business — Taxation as a RIC.Legislative or regulatory tax changes could adversely affect you.At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended. Any of those newlaws, regulations or interpretations may take effect retroactively and could adversely affect the taxation of us or of you as a stockholder. Therefore, changes in taxlaws, regulations or administrative interpretations or any amendments thereto could diminish the value of an investment in our shares or the value or the resalepotential of our investments.33There is a risk that you may not receive distributions or that our distributions may not grow over time.We intend to make distributions on a quarterly basis to our stockholders. We cannot assure you that we will achieve investment results, or our business maynot perform in a manner that will allow us to make a specified level of distributions or year-to-year increases in cash distributions. In addition, due to the assetcoverage test applicable to us as a business development company, we may be limited in our ability to make distributions. Also, our Credit Facilities limit our abilityto declare dividends if we default under certain provisions of our Credit Facilities.We have and may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.Under applicable Treasury regulations and other administrative authorities issued by the IRS, RICs are permitted to treat certain distributions payable in theirstock, as taxable dividends that will satisfy their annual distribution obligations for federal income tax and excise tax purposes provided that shareholders have theopportunity to elect to receive all or a portion of such distribution in cash. Taxable stockholders receiving such dividends will be required to include the full amountof the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of ourcurrent and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to suchdividends 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 theamount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S.stockholders, we may be required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that ispayable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, then such salesmay put downward pressure on the trading price of our stock. We may in the future determine to distribute taxable dividends that are partially payable in ourcommon stock.We are exposed to risks associated with changes in interest rates, including fluctuations in interest rates which could adversely affect our profitability or thevalue of our portfolioGeneral interest rate fluctuations may have a substantial negative impact on our investments and investment opportunities, and, accordingly, may have amaterial adverse effect on our investment objective and rate of return on investment capital. A portion of our income will depend upon the difference between therate at which we borrow funds and the interest rate on the debt securities in which we invest. Because we will borrow money to make investments and may issue debtsecurities, preferred stock or other securities, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interestor dividends on such debt securities, preferred stock or other securities and the rate at which we invest these funds. Typically, we anticipate that our interest-earninginvestments will accrue and pay interest at both variable and fixed rates, and that our interest-bearing liabilities will generally accrue interest at fixed rates.A significant increase in market interest rates could harm our ability to attract new portfolio companies and originate new loans and investments. We expectthat most of our current initial investments in debt securities will be at floating rate with a floor. However, in the event that we make investments in debt securities atvariable rates, a significant increase in market interest rates could also result in an increase in our non-performing assets and a decrease in the value of our portfoliobecause our floating-rate loan portfolio companies may be unable to meet higher payment obligations. As of December 31, 2015, approximately 93.7% of our loanswere at floating rates or floating rates with a floor and 6.3% of the loans were at fixed rates.In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. In addition, a decrease in interestrates may reduce net income, because new investments may be made at lower rates despite the increased demand for our capital that the decrease in interest ratesmay produce. We may, but will not be required to, hedge against the risk of adverse movement in interest rates in our short-term and long-term borrowings relative toour portfolio of assets. If we engage in hedging activities, it may limit our ability to participate in the benefits of lower interest rates with respect to the hedgedportfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financialcondition, and results of operations.34We may expose ourselves to risks if we engage in hedging transactions.If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forwardcontracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions fromchanges in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility offluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed togain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunityfor 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 isso 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 toestablish a perfect correlation between such hedging instruments and there can be no assurance that any such hedging arrangements will achieve the desired effect.During the year ended December 31, 2015, we did not engage in any hedging activities.Our realized gains are reduced by amounts paid pursuant to the warrant participation agreement.Citigroup Global Markets Realty Corp. (“Citigroup”), a former credit facility provider to Hercules, has an equity participation right through a warrantparticipation agreement on the pool of loans and certain warrants formerly collateralized under its then existing credit facility (the “Citibank Credit Facility”).Pursuant to the warrant participation agreement, we granted to Citigroup a 10% participation in all warrants held as collateral under the Citibank Credit Facility. As aresult, Citigroup is entitled to 10% of the realized gains on certain warrants until the realized gains paid to Citigroup pursuant to the agreement equals $3,750,000(the “Maximum Participation Limit”). The obligations under the warrant participation agreement continue even after the Citibank Credit Facility is terminated untilthe Maximum Participation Limit has been reached.During the year ended December 31, 2015, we reduced our realized gain by approximately $143,000 for Citigroup’s participation from the acquisitionproceeds we received on equity exercised from warrants that were included in the collateral pool. We recorded an increase on participation liability and a decrease onunrealized appreciation by a net amount of approximately $11,000 as a result of appreciation of fair value on the pool of warrants collateralized under the warrantparticipation agreement offset by the acquisition proceeds we received on our Atrenta, Inc. equity investment. The remaining value of their participation right onunrealized gains in the related equity investments was approximately $111,000 as of December 31, 2015 and is included in accrued liabilities. There can be noassurances that the unrealized appreciation of the warrants will not be higher or lower in future periods due to fluctuations in the value of the warrants, therebyincreasing or reducing the effect on the cost of borrowing. Since inception of the agreement, we have paid approximately $2.2 million under the warrant participationagreement thereby reducing our realized gains by this amount. We will continue to pay Citigroup under the warrant participation agreement until the MaximumParticipation Limit is reached or the warrants expire. Warrants subject to the Citigroup warrant participation agreement are set to expire between February 2016 andJanuary 2017.Legislation may allow us to incur additional leverage.As a business development company, under the 1940 Act generally we are not permitted to incur indebtedness unless immediately after such borrowing wehave an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). If recent legislation in the U.S.House of Representatives is passed, or similar legislation is introduced, it would modify this section of the 1940 Act and increase the amount of debt that businessdevelopment companies may incur. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an investment in us mayincrease. However, the ultimate form and likely outcome of such legislation or any similar legislation cannot be predicted.35Two of our wholly-owned subsidiaries are license d by the U.S. Small Business Administration, and as a result, we will be subject to SBA regulations, whichcould limit our capital or investment decisions.Our wholly-owned subsidiaries HT II and HT III are licensed to act as SBICs and are regulated by the SBA. HT II and HT III hold approximately $128.3million and $310.8 million in assets, respectively, and they accounted for approximately 7.6% and 18.5% of our total assets, respectively, prior to consolidation atDecember 31, 2015. The SBIC licenses allow our SBIC subsidiaries to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capitalcommitment by the SBA and other customary procedures.The SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant SBAregulations. The SBA prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of personsacting in concert) owning 10.0% or more of a class of capital stock of a licensed SBIC. If either HT II or HT III fail to comply with applicable SBA regulations, theSBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declare outstanding debentures immediately due andpayable, and/ or limit HT II or HT III from making new investments. Such actions by the SBA would, in turn, negatively affect us because HT II and HT III are ourwholly owned subsidiaries.HT II and HT III were in compliance with the terms of the SBIC’s leverage as of December 31, 2015 as a result of having sufficient capital as defined underthe SBA regulations. Compliance with SBA requirements may cause HT II and HT III to forego attractive investment opportunities that are not permitted under SBAregulations. See “Item 1. Business — Regulation—Small Business Administration Regulations.”SBA regulations limit the outstanding dollar amount of SBA guaranteed debentures that may be issued by an SBIC or group of SBICs under commoncontrol.The SBA regulations currently limit the dollar amount of SBA-guaranteed debentures that can be issued by any one SBIC to $150.0 million or to a group ofSBICs under common control to $350.0 million.An SBIC may not borrow an amount in excess of two times (and in certain cases, up to three times) its regulatory capital. As of December 31, 2015, we haveissued $190.2 million in SBA-guaranteed debentures in our SBIC subsidiaries, which is the maximum combined capacity for our SBIC subsidiaries under ourexisting licenses. During times that we reach the maximum dollar amount of SBA-guaranteed debentures permitted, and if we require additional capital, our cost ofcapital is likely to increase, and there is no assurance that we will be able to obtain additional financing on acceptable terms.Moreover, the current status of our SBIC subsidiaries as SBICs does not automatically assure that our SBIC subsidiaries will continue to receive SBA-guaranteed debenture funding. Receipt of SBA leverage funding is dependent upon our SBIC subsidiaries continuing to be in compliance with SBA regulations andpolicies and available SBA funding. The amount of SBA leverage funding available to SBICs is dependent upon annual Congressional authorizations and in thefuture may be subject to annual Congressional appropriations. There can be no assurance that there will be sufficient debenture funding available at the times desiredby our SBIC subsidiaries.The debentures guaranteed by the SBA have a maturity of ten years and require semi-annual payments of interest. Our SBIC subsidiaries will need togenerate sufficient cash flow to make required interest payments on the debentures. If our SBIC subsidiaries are unable to meet their financial obligations under thedebentures, the SBA, as a creditor, will have a superior claim to our SBIC subsidiaries’ assets over our stockholders in the event we liquidate our SBIC subsidiariesor the SBA exercises its remedies under such debentures as the result of a default by us.Our wholly-owned SBIC subsidiaries may be unable to make distributions to us that will enable us to maintain RIC status, which could result in theimposition of an entity-level tax.In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level taxes, we will be required to distribute substantially all of ourinvestment company taxable income and net capital gains, including income from certain of our subsidiaries, which includes the income from our SBIC subsidiaries.We will be partially dependent on our SBIC subsidiaries for cash distributions to enable us to meet the RIC distribution requirements. Our SBIC subsidiaries may belimited by the Small Business Investment Act of 1958, as amended, and SBA regulations governing SBICs, from making certain distributions to us that may benecessary to maintain our ability to be subject to tax as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiaries to make certaindistributions to maintain our ability to be subject to tax as a RIC. We cannot assure you that the SBA will grant such waiver. If our SBIC subsidiaries are unable toobtain a waiver, compliance with the SBA regulations may result in loss of RIC tax treatment and a consequent imposition of an entity-level tax on us.36If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or preventfraud. As a result, stockholders could lose confidence in our financial and other public repor ting, which would harm our business and the trading price ofour common stock.Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controlsand procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation couldcause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or theSarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm (when undertaken, as noted below), may reveal deficiencies inour internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidatedfinancial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors and lenders to lose confidence inour reported financial information, which could have a negative effect on the trading price of our common stock.Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects ofwhich may be adverse.Our Board of Directors has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of our operating policies and strategieswithout prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, orwithdraw our election as, a business development company. We cannot predict the effect any changes to our current operating policies and strategies would have onour business, operating results and the market price of our common stock. Nevertheless, any such changes could materially and adversely affect our business andimpair our ability to make distributions to our stockholders.Changes in laws or regulations governing our business could negatively affect the profitability of our operations.Changes in the laws or regulations, or the interpretations of the laws and regulations, which govern business development companies, SBICs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws andregulations, in addition to applicable foreign and international laws and regulations, and are subject to judicial and administrative decisions that affect our operations,including our loan originations maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection andforeclosure procedures, and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adoptedmore stringent requirements than those in which we currently conduct business, then we may have to incur significant expenses in order to comply or we may have torestrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, then we may lose licenses needed for the conduct of ourbusiness and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon our business results of operations or financialcondition.Our business is subject to increasingly complex corporate governance, public disclosure and accounting requirements that could adversely affect ourbusiness and financial results.We are subject to changing rules and regulations of federal and state government as well as the stock exchange on which our common stock is listed. Theseentities, including the Public Company Accounting Oversight Board, the SEC and the New York Stock Exchange (“NYSE”) have issued a significant number of newand increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements inresponse to laws enacted by Congress. On July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There aresignificant corporate governance and executive compensation-related provisions in the Dodd-Frank Act, and the SEC has adopted, and will continue to adopt,additional rules and regulations that may impact us. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increasein expenses and a diversion of management’s time from other business activities.In addition, our failure to maintain compliance with such rules, or for our management to appropriately address issues relating to our compliance with suchrules fully and in a timely manner, exposes us to an increasing risk of inadvertent non-compliance. While the Company’s management team takes reasonable effortsto ensure that the Company is in full compliance with all laws applicable to its operations, the increasing rate and extent of regulatory change increases the risk of afailure to comply, which may result in our ability to operate our business in the ordinary course or may subject us to potential fines, regulatory findings or othermatters that may materially impact our business.37We incur significant costs as a result of being a publicly traded company.As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable toa company whose securities are registered under the Exchange Act as well as additional corporate governance requirements, including requirements under theSarbanes-Oxley Act and other rules implemented by the SEC.Results may fluctuate and may not be indicative of future performance.Our operating results may fluctuate and, therefore, you should not rely on current or historical period results to be indicative of our performance in futurereporting periods. Factors that could cause operating results to fluctuate include, but are not limited to, variations in the investment origination volume and feeincome earned, changes in the accrual status of our debt investments, variations in timing of prepayments, variations in and the timing of the recognition of netrealized gains or losses and changes in unrealized appreciation or depreciation, the level of our expenses, the degree to which we encounter competition in ourmarkets, and general economic conditions.We face cyber-security risks and the failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems andmanagement continuity planning could impair our ability to conduct business effectively.Our business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controlsdesign, implementation and updating, our information technology systems could become subject to cyber-attacks. Network, system, application and data breachescould result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations andfinancial condition.The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disasterrecovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations andfinancial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significantnumber of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, ourcomputer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like othercompanies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions.If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmittedthrough, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation,financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.38We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the marketprice of our common stock and our ability to pay dividends.Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as aresult of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, dataprocessing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors includingevents that are wholly or partially beyond our control and adversely affect our business. There could be: ·sudden electrical or telecommunication outages; ·natural disasters such as earthquakes, tornadoes and hurricanes; ·disease pandemics; ·events arising from local or larger scale political or social matters, including terrorist acts; and ·cyber-attacks.These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our abilityto pay dividends to our stockholders.Risks Related to Current Economic and Market ConditionsCapital markets may experience periods of disruption and instability and we cannot predict when these conditions will occur. Such market conditions couldmaterially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on our business,financial condition and results of operations.The global capital markets have experienced a period of disruption as evidenced by a lack of liquidity in the debt capital markets, write-offs in the financialservices sector, the re-pricing of credit risk and the failure of certain major financial institutions. While the capital markets have improved, these conditions coulddeteriorate again in the future. During such market disruptions, we may have difficulty raising debt or equity capital, especially as a result of regulatory constraints.Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have amaterial adverse effect on our business. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realizesignificantly less than the value at which we have recorded our investments. In addition, significant changes in the capital markets, including the disruption andvolatility, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving ourinvestments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business,financial condition and results of operations.Various social and political tensions in the United States and around the world, including in the Middle East, Eastern Europe and Russia, may continue tocontribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause further economicuncertainties or deterioration in the United States and worldwide. Several European Union (“EU”) countries, including Greece, Ireland, Italy, Spain, and Portugal,continue to face budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is alsocontinued concern about national-level support for the euro and the accompanying coordination of fiscal and wage policy among European Economic and MonetaryUnion member countries. In July and August 2015, Greece reached agreements with its creditors for bailouts that provide aid in exchange for certain austeritymeasures. These and similar austerity measures may adversely affect world economic conditions and have an impact on our business and that of our portfoliocompanies. In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued sell-off of trading in Chinesemarkets. In August 2015, Chinese authorities sharply devalued China’s currency.These market and economic disruptions affect, and these and other similar market and economic disruptions may in the future affect, the U.S. capital markets,which could adversely affect our business and that of our portfolio companies. We cannot predict the duration of the effects related to these or similar events in thefuture on the United States economy and securities markets or on our investments. We monitor developments and seek to manage our investments in a mannerconsistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.39Depending on funding requirements, we may need to raise additional capital to meet our unfunded commitments either through equity offerings or throughadditional borrowings.As of December 31, 2015, we had approximately $75.4 million of unfunded commitments, including undrawn revolving facilities, which were available at therequest of the portfolio company and unencumbered by milestones. In addition, we had approximately $40.5 million of unavailable commitments to portfoliocompanies due to milestone and other covenant restrictions.Our unfunded contractual commitments may be significant from time to time. A portion of these unfunded contractual commitments are dependent upon theportfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, our credit agreements contain customary lendingprovisions which allow us relief from funding obligations for previously made commitments in instances where the underlying company experiences materiallyadverse events that affect the financial condition or business outlook for the company. These commitments will be subject to the same underwriting and ongoingportfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the totalcommitment amount does not necessarily represent future cash requirements. Closed commitments generally fund 70-80% of the committed amount in aggregateover the life of the commitment. We believe that our assets provide adequate cover to satisfy all of our unfunded comments and we intend to use cash flow fromnormal and early principal repayments and proceeds from borrowings and notes to fund these commitments. However, there can be no assurance that we will havesufficient capital available to fund these commitments as they come due.Our ability to secure additional financing and satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our futureoperating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of creditgenerally, and financial, business and other factors, many of which are beyond our control. The prolonged continuation or worsening of current economic and capitalmarket conditions could have a material adverse effect on our ability to secure financing on favorable terms, if at all.Changes relating to the LIBOR calculation process may adversely affect the value of our portfolio of the LIBOR-indexed, floating-rate debt securities.In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (“BBA”) in connection withthe calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicableto them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may haveresulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with theirregulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in variousjurisdictions are ongoing.Actions by the BBA, regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR isdetermined. Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including our portfolioof LIBOR-indexed, floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden orprolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio ofLIBOR-indexed, floating-rate debt securities.Risks Related to Our InvestmentsOur investments are concentrated in certain industries and in a number of technology-related companies, which subjects us to the risk of significant loss ifany of these companies default on their obligations under any of their debt securities that we hold, or if any of the technology-related industry sectorsexperience a downturn.We have invested and intend to continue investing in a limited number of technology-related companies. A consequence of this limited number ofinvestments 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 writedown the value of any one investment. Beyond the asset diversification requirements to which we are subject as a business development company and a RIC, we donot have fixed guidelines for diversification or limitations on the size of our investments in any one portfolio company and our investments could be concentrated inrelatively few issuers. In addition, we have invested in and intend to continue investing, under normal circumstances, at least 80% of the value of our total assets(including the amount of any borrowings for investment purposes) in technology-related companies.As of December 31, 2015, approximately 63.0% of the fair value of our portfolio was composed of investments in four industries: 23.7% was composed ofinvestments in the drug discovery and development industry, 13.7% was composed of investments in the drug delivery industry, 13.3% was composed of investmentsin the sustainable and renewable technology industry and 12.3% was composed of investments in the software industry.40As a result, a downturn in technology-related industry sectors and particularly those in which we are heavily concentrated could materially adversely affectour financial condition.Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected.Our total investment in companies may be significant individually or in the aggregate. As a result, if a significant investment in one or more companies failsto perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be more significant than if we had made smallerinvestments in more companies. The following table shows the fair value of the totals of investments held in portfolio companies at December 31, 2015 thatrepresent greater than 5% of our net assets: December 31, 2015 (in thousands)Fair Value Percentage ofNet Assets Machine Zone, Inc.$90,187 12.6%Sungevity Development, LLC 62,779 8.8% Machine Zone, Inc. is a technology company that is best known for building mobile Massively Multiplayer Online games with a focus on community-basedgameplay.Sungevity Development, LLC. is a global residential solar energy provider focused on making it easy and affordable for homeowners to benefit from solarpower.Our financial results could be materially adversely affected if these portfolio companies or any of our other significant portfolio companies encounterfinancial difficulty and fail to repay their obligations or to perform as expected.Our investments may be in portfolio companies that have limited operating histories and resources.We expect that our portfolio will continue to consist of investments that may have relatively limited operating histories. These companies may be particularlyvulnerable to U.S. and foreign economic downturns may have more limited access to capital and higher funding costs, may have a weaker financial position and mayneed more capital to expand or compete. These businesses also may experience substantial variations in operating results. They may face intense competition,including from larger, more established companies with greater financial, technical and marketing resources. Furthermore, some of these companies do business inregulated industries and could be affected by changes in government regulation applicable to their given industry. Accordingly, these factors could impair their cashflow or result in other events, such as bankruptcy, which could limit their ability to repay their obligations to us, and may adversely affect the return on, or therecovery of, our investment in these companies. We cannot assure you that any of our investments in our portfolio companies will be successful. We may lose ourentire investment in any or all of our portfolio companies.Investing in publicly traded companies can involve a high degree of risk and can be speculative.We have invested, and expect to continue to invest, a portion of our portfolio in publicly traded companies or companies that are in the process of completingtheir initial public offering (“IPO”). As publicly traded companies, the securities of these companies may not trade at high volumes, and prices can be volatile,particularly during times of general market volatility, which may restrict our ability to sell our positions and may have a material adverse impact on us.Our ability to invest in public companies may be limited in certain circumstances.To maintain our status as a business development company, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Actunless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions forfollow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as aqualifying asset only if such issuer has a market capitalization that is less than $250 million at the time of such investment and meets the other specifiedrequirements.41Our inve stment strategy focuses on technology-related companies, which are subject to many risks, including volatility, intense competition, shortenedproduct life cycles, changes in regulatory and governmental programs and periodic downturns, and you could lose a ll or part of your investment.We have invested and will continue investing primarily in technology-related companies, many of which may have narrow product lines and small marketshares, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as to general economic downturns. The revenues, income(or losses), and valuations of technology-related companies can and often do fluctuate suddenly and dramatically. In addition, technology-related industries aregenerally characterized by abrupt business cycles and intense competition. Overcapacity in technology-related industries, together with cyclical economic downturns,may result in substantial decreases in the market capitalization of many technology-related companies. Such decreases in market capitalization may occur again, andany future decreases in technology-related company valuations may be substantial and may not be temporary in nature. Therefore, our portfolio companies may faceconsiderably more risk of loss than do companies in other industry sectors.Because of rapid technological change, the average selling prices of products and some services provided by technology-related companies have historicallydecreased over their productive lives. As a result, the average selling prices of products and services offered by technology-related companies may decrease overtime, which could adversely affect their operating results, their ability to meet obligations under their debt securities and the value of their equity securities. Thiscould, in turn, materially adversely affect our business, financial condition and results of operations.Our investments in sustainable and renewable technology companies are subject to substantial operational risks, such as underestimated cost projections,unanticipated operation and maintenance expenses, loss of government subsidies, and inability to deliver cost-effective alternative energy solutions compared totraditional energy products. In addition, sustainable and renewable technology companies employ a variety of means of increasing cash flow, including increasingutilization of existing facilities, expanding operations through new construction or acquisitions, or securing additional long-term contracts. Thus, some energycompanies may be subject to construction risk, acquisition risk or other risks arising from their specific business strategies. Furthermore, production levels for solar,wind and other renewable energies may be dependent upon adequate sunlight, wind, or biogas production, which can vary from market to market and period toperiod, resulting in volatility in production levels and profitability. Demand for sustainable and renewable technology is also influenced by the available supply andprices for other energy products, such as coal, oil and natural gases. A change in prices in these energy products could reduce demand for alternative energy.A natural disaster may also impact the operations of our portfolio companies, including our technology-related portfolio companies. The nature and level ofnatural disasters cannot be predicted and may be exacerbated by global climate change. A portion of our technology-related portfolio companies rely on itemsassembled or produced in areas susceptible to natural disasters, and may sell finished goods into markets susceptible to natural disasters. A major disaster, such as anearthquake, tsunami, flood or other catastrophic event could result in disruption to the business and operations of our technology-related portfolio companies.We will invest in technology-related companies that are reliant on U.S. and foreign regulatory and governmental programs. Any material changes ordiscontinuation, due to change in administration or U.S. Congress or otherwise could have a material adverse effect on the operations of a portfolio company in theseindustries and, in turn, impair our ability to timely collect principal and interest payments owed to us to the extent applicable.We have invested in and may continue investing in technology-related companies that do not have venture capital or private equity firms as equity investors,and these companies may entail a higher risk of loss than do companies with institutional equity investors, which could increase the risk of loss of yourinvestment.Our portfolio companies will often require substantial additional equity financing to satisfy their continuing working capital and other cash requirements and,in most instances, to service the interest and principal payments on our investment. Portfolio companies that do not have venture capital or private equity investorsmay be unable to raise any additional capital to satisfy their obligations or to raise sufficient additional capital to reach the next stage of development. Portfoliocompanies that do not have venture capital or private equity investors may be less financially sophisticated and may not have access to independent members to serveon their boards, which means that they may be less successful than portfolio companies sponsored by venture capital or private equity firms. Accordingly, financingthese types of companies may entail a higher risk of loss than would financing companies that are sponsored by venture capital or private equity firms.42Sustainable and renewable technology compa nies are subject to extensive government regulation and certain other risks particular to the sectors in whichthey operate and our business and growth strategy could be adversely affected if government regulations, priorities and resources impacting such sectorschange or if our portfolio companies fail to comply with such regulations.As part of our investment strategy, we plan to invest in portfolio companies in sustainable and renewable technology sectors that may be subject to extensiveregulation by foreign, U.S. federal, state and/or local agencies. Changes in existing laws, rules or regulations, or judicial or administrative interpretations thereof, ornew laws, rules or regulations could have an adverse impact on the business and industries of our portfolio companies. In addition, changes in government prioritiesor limitations on government resources could also adversely impact our portfolio companies. We are unable to predict whether any such changes in laws, rules orregulations will occur and, if they do occur, the impact of these changes on our portfolio companies and our investment returns. Furthermore, if any of our portfoliocompanies fail to comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect theiroperations. Our portfolio companies may be subject to the expense, delay and uncertainty of the regulatory approval process for their products and, even if approved,these products may not be accepted in the marketplace.In addition, there is considerable uncertainty about whether foreign, U.S., state and/or local governmental entities will enact or maintain legislation orregulatory programs that mandate reductions in greenhouse gas emissions or provide incentives for sustainable and renewable technology companies. Without suchregulatory policies, investments in sustainable and renewable technology companies may not be economical and financing for sustainable and renewable technologycompanies may become unavailable, which could materially adversely affect the ability of our portfolio companies to repay the debt they owe to us. Any of thesefactors could materially and adversely affect the operations and financial condition of a portfolio company and, in turn, the ability of the portfolio company to repaythe debt they owe to us.Cyclicality within the energy sector may adversely affect some of our portfolio companies.Industries within the energy sector are cyclical with fluctuations in commodity prices and demand for, and production of commodities driven by a variety offactors. The highly cyclical nature of the industries within the energy sector may lead to volatile changes in commodity prices, which may adversely affect theearnings of energy companies in which we may invest and the performance and valuation of our portfolio.Volatility of oil and natural gas prices could impair certain of our portfolio companies’ operations and ability to satisfy obligations to their respective lendersand investors, including us, which could negatively impact our financial condition.Some of our portfolio companies’ businesses are heavily dependent upon the prices of, and demand for, oil and natural gas, which have recently declinedsignificantly and such volatility could continue or increase in the future. A substantial or extended decline in oil and natural gas demand or prices may adverselyaffect the business, financial condition, cash flow, liquidity or results of operations of these portfolio companies and might impair their ability to meet capitalexpenditure obligations and financial commitments. A prolonged or continued decline in oil prices could therefore have a material adverse effect on our business,financial condition and results of operations.Our investments in the life sciences industry are subject to extensive government regulation, litigation risk and certain other risks particular to that industry.We have invested and plan to continue investing in companies in the life sciences industry that are subject to extensive regulation by the Food and DrugAdministration, or the FDA, and to a lesser extent, other federal, state and other foreign agencies. If any of these portfolio companies fail to comply with applicableregulations, they could be subject to significant penalties and claims that could materially and adversely affect their operations. Portfolio companies that producemedical devices or drugs are subject to the expense, delay and uncertainty of the regulatory approval process for their products and, even if approved, these productsmay not be accepted in the marketplace. In addition, governmental budgetary constraints effecting the regulatory approval process, new laws, regulations or judicialinterpretations of existing laws and regulations might adversely affect a portfolio company in this industry. Portfolio companies in the life sciences industry may alsohave a limited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore face a risk of disruption to theirmanufacturing process if they are unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the operations of aportfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us.43Our investments in the drug discovery industry are subject to numerous risks, including competition, extensive government regulation, product liability andcommercial difficulties.Our investments in the drug discovery industry are subject to numerous risks. The successful and timely implementation of the business model of our drugdiscovery portfolio companies depends on their ability to adapt to changing technologies and introduce new products. As competitors continue to introducecompetitive products, the development and acquisition of innovative products and technologies that improve efficacy, safety, patient’s and clinician’s ease of use andcost-effectiveness are important to the success of such portfolio companies. The success of new product offerings will depend on many factors, including the abilityto properly anticipate and satisfy customer needs, obtain regulatory approvals on a timely basis, develop and manufacture products in an economic and timelymanner, obtain or maintain advantageous positions with respect to intellectual property, and differentiate products from those of competitors. Failure by our portfoliocompanies to introduce planned products or other new products or to introduce products on schedule could have a material adverse effect on our business, financialcondition and results of operations.Further, the development of products by drug discovery companies requires significant research and development, clinical trials and regulatory approvals.The results of product development efforts may be affected by a number of factors, including the ability to innovate, develop and manufacture new products,complete clinical trials, obtain regulatory approvals and reimbursement in the U.S. and abroad, or gain and maintain market approval of products. In addition,regulatory review processes by U.S. and foreign agencies may extend longer than anticipated as a result of decreased funding and tighter fiscal budgets. Further,patents attained by others can preclude or delay the commercialization of a product. There can be no assurance that any products now in development will achievetechnological feasibility, obtain regulatory approval, or gain market acceptance. Failure can occur at any point in the development process, including after significantfunds have been invested. Products may fail to reach the market or may have only limited commercial success because of efficacy or safety concerns, failure toachieve positive clinical outcomes, inability to obtain necessary regulatory approvals, failure to achieve market adoption, limited scope of approved uses, excessivecosts to manufacture, the failure to establish or maintain intellectual property rights, or the infringement of intellectual property rights of others.Future legislation, and/or regulations and policies adopted by the FDA or other U.S. or foreign regulatory authorities may increase the time and costrequired by some of our portfolio companies to conduct and complete clinical trials for the product candidates that they develop, and there is no assurancethat these companies will obtain regulatory approval to market and commercialize their products in the U.S. and in foreign countries.The FDA has established regulations, guidelines and policies to govern the drug development and approval process, as have foreign regulatory authorities,which affect some of our portfolio companies. Any change in regulatory requirements due to the adoption by the FDA and/or foreign regulatory authorities of newlegislation, regulations, or policies may require some of our portfolio companies to amend existing clinical trial protocols or add new clinical trials to comply withthese changes. Such amendments to existing protocols and/or clinical trial applications or the need for new ones, may significantly impact the cost, timing andcompletion of the clinical trials.In addition, increased scrutiny by the U.S. Congress of the FDA’s and other authorities approval processes may significantly delay or prevent regulatoryapproval, as well as impose more stringent product labeling and post-marketing testing and other requirements. Foreign regulatory authorities may also increase theirscrutiny of approval processes resulting in similar delays. Increased scrutiny and approvals processes may limit the ability of our portfolio companies to market andcommercialize their products in the U.S. and in foreign countries.Life sciences companies, including drug development companies, device manufacturers, service providers and others, are also subject to material pressureswhen there are changes in the outlook for healthcare insurance markets. The ability for individuals, along with private and public insurers, to account for the costs ofpaying for healthcare insurance can place strain on the ability of new technology, devices and services to enter those markets, particularly when they are new oruntested. As a result, it is not uncommon for changes in the insurance market place to lead to a slower rate of adoption, price pressure and other forces that maymaterially limit the success of companies bringing such technologies to market. Changes in the health insurance sector might then have an impact on the value ofcompanies in our portfolio or our ability to invest in the sector generally.Changes in healthcare laws and other regulations, or the enforcement or interpretation of such laws or regulations, applicable to some of our portfoliocompanies’ businesses may constrain their ability to offer their products and services.Changes in healthcare or other laws and regulations, or the enforcement or interpretation of such laws or regulations, applicable to the businesses of some ofour portfolio companies may occur that could increase their compliance and other costs of doing business, require significant systems enhancements, or render theirproducts or services less profitable or obsolete, any of which could have a material adverse effect on their results of operations. There has also been an increasedpolitical and regulatory focus on healthcare laws in recent years, and new legislation could have a material effect on the business and operations of some of ourportfolio companies.44Price declines and illiquidity in the corporate debt markets could adversely affect th e fair value of our portfolio investments, reducing our net asset valuethrough increased net unrealized depreciation.As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at fair market value asdetermined in good faith by or under the direction of our board of directors. As part of the valuation process, we may take into account the following types of factors,if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (an estimate of the total fair value of the portfolio company’sdebt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, themarkets in which the portfolio company does business, a comparison of the portfolio company’s securities to similar publicly traded securities, changes in the interestrate environment and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors. Whenan external event such as a purchase transaction, public offering or subsequent equity sale occurs, we use the pricing indicated by the external event to corroborateour valuation. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that ourinvestments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). As a result, volatility in the capitalmarkets can also adversely affect our investment valuations. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation.The effect of all of these factors on our portfolio can reduce our net asset value by increasing net unrealized depreciation in our portfolio.Depending on market conditions, we could incur substantial realized losses and may suffer substantial unrealized depreciation in future periods, which couldhave a material adverse impact on our business, financial condition and results of operations.Economic recessions or slowdowns could impair the ability of our portfolio companies to repay loans, which, in turn, could increase our non-performingassets, decrease the value of our portfolio, reduce our volume of new loans and have a material adverse effect on our results of operations.Many of our portfolio companies may be susceptible to economic slowdowns or recessions in both the U.S. and foreign countries, and may be unable to repayour loans during such periods. Therefore, during such periods, our non-performing assets are likely to increase and the value of our portfolio is likely to decrease.Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns orrecessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase ourfunding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasinginvestments and harm our operating results.In particular, intellectual property owned or controlled by our portfolio companies may constitute an important portion of the value of the collateral of ourloans to our portfolio companies. Adverse economic conditions may decrease the demand for our portfolio companies’ intellectual property and consequently itsvalue in the event of a bankruptcy or required sale through a foreclosure proceeding. As a result, our ability to fully recover the amounts owed to us under the termsof the loans may be impaired by such events.A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination ofthe portfolio company’s loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfoliocompany’s ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or tonegotiate new terms with a defaulting portfolio company.Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interests rates may makeit more difficult for portfolio companies to make periodic payments on their loans.Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity. This risk and the risk of default isincreased to the extent that the loan documents do not require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. Inaddition, if general interest rates rise, there is a risk that our portfolio companies will be unable to pay escalating interest amounts, which could result in a defaultunder their loan documents with us. Any failure of one or more portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one ormore portfolio companies to make ongoing payments following an increase in contractual interest rates could have a material adverse effect on our business,financial condition, results of operations and cash flows.45The disposition of our investments may result in contingent liabilities.We currently expect that a portion of our investments will involve private securities. In connection with the disposition of an investment in private securities,we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of abusiness. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respectto certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through ourreturn of certain distributions previously made to us.The health and performance of our portfolio companies could be adversely affected by political and economic conditions in the countries in which theyconduct business.Some of the products of our portfolio companies are developed, manufactured, assembled, tested or marketed outside the U.S. Any conflict or uncertainty inthese countries, including due to natural disasters, public health concerns, political unrest or safety concerns, among other things, could harm their business, financialcondition and results of operations. In addition, if the government of any country in which their products are developed, manufactured or sold sets technical orregulatory standards for products developed or manufactured in or imported into their country that are not widely shared, it may lead some of their customers tosuspend imports of their products into that country, require manufacturers or developers in that country to manufacture or develop products with different technicalor regulatory standards and disrupt cross-border manufacturing, marketing or business relationships which, in each case, could harm their businesses.Any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our incomeavailable for distribution and could impair our ability to service our borrowings.As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value asdetermined in good faith by our Board of Directors. Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation. Anyunrealized depreciation in our investment portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect tothe affected investments. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods andcould materially adversely affect our ability to service our outstanding borrowings.A lack of IPO or merger and acquisition opportunities may cause companies to stay in our portfolio longer, leading to lower returns, unrealized depreciation,or realized losses.A lack of IPO or merger and acquisition (“M&A”) opportunities for venture capital-backed companies could lead to companies staying longer in our portfolioas private entities still requiring funding. This situation may adversely affect the amount of available funding for early-stage companies in particular as, in general,venture-capital firms are being forced to provide additional financing to late-stage companies that cannot complete an IPO or M&A transaction. In the best case, suchstagnation would dampen returns, and in the worst case, could lead to unrealized depreciation and realized losses as some companies run short of cash and have toaccept lower valuations in private fundings or are not able to access additional capital at all. A lack of IPO or M&A opportunities for venture capital-backedcompanies can also cause some venture capital firms to change their strategies, leading some of them to reduce funding of their portfolio companies and making itmore difficult for such companies to access capital and to fulfill their potential, which can result in unrealized depreciation and realized losses in such companies byother companies such as ourselves who are co-investors in such companies.The majority of our portfolio companies will need multiple rounds of additional financing to repay their debts to us and continue operations. Our portfoliocompanies may not be able to raise additional financing, which could harm our investment returns.The majority of our portfolio companies will often require substantial additional equity financing to satisfy their continuing working capital and other cashrequirements and, in most instances, to service the interest and principal payments on our investment. Each round of venture financing is typically intended toprovide a company with only enough capital to reach the next stage of development. We cannot predict the circumstances or market conditions under which ourportfolio companies will seek additional capital. It is possible that one or more of our portfolio companies will not be able to raise additional financing or may beable to do so only at a price or on terms unfavorable to us, either of which would negatively impact our investment returns. Some of these companies may be unableto obtain sufficient financing from private investors, public capital markets or traditional lenders. This may have a significant impact if the companies are unable toobtain certain federal, state or foreign agency approval for their products or the marketing thereof, of if regulatory review processes extend longer than anticipated,and the companies need continued funding for their operations during these times. Accordingly, financing these types of companies may entail a higher risk of lossthan would financing companies that are able to utilize traditional credit sources.46If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.To attempt to mitigate credit risks, we will typically take a security interest in the available assets of our portfolio companies. There is no assurance that wewill obtain or properly perfect our liens.There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraiseand may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of a portfolio company to raiseadditional capital. In some circumstances, our lien could be subordinated to claims of other creditors. Consequently, the fact that a loan is secured does not guaranteethat we will receive principal and interest payments according to the loan’s terms, or that we will be able to collect on the loan should we be forced to enforce ourremedies.In addition, because we invest in technology-related companies, a substantial portion of the assets securing our investment may be in the form of intellectualproperty, if any, inventory and equipment and, to a lesser extent, cash and accounts receivable. Intellectual property, if any, that is securing our loan could lose valueif, among other things, the company’s rights to the intellectual property are challenged or if the company’s license to the intellectual property is revoked or expires,the technology fails to achieve its intended results or a new technology makes the intellectual property functionally obsolete. Inventory may not be adequate to secureour loan if our valuation of the inventory at the time that we made the loan was not accurate or if there is a reduction in the demand for the inventory. Similarly, any equipment securing our loan may not provide us with the anticipated security if there are changes in technology or advances in new equipmentthat render the particular equipment obsolete or of limited value, or if the company fails to adequately maintain or repair the equipment. Any one or more of thepreceding factors could materially impair our ability to recover earned interest and principal in a foreclosure.At December 31, 2015, approximately 39.7% of our portfolio company debt investments were secured by a first priority security in all of the assets of theportfolio company, including their intellectual property, 49.7% of the debt investments were to portfolio companies that were prohibited from pledging orencumbering their intellectual property, or subject to a negative pledge, 7.9% of the our portfolio company debt investments were secured by a second prioritysecurity interest in all of the portfolio company’s assets, other than intellectual property and 2.7% of our portfolio company debt investments were subordinatedsecured by all of the portfolio company’s assets, including intellectual property. At December 31, 2015 we had no equipment only liens on any of our portfoliocompanies.We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient.In the event of a default by a portfolio company on a secured loan, we will only have recourse to the assets collateralizing the loan. If the underlying collateralvalue is less than the loan amount, we will suffer a loss. In addition, we sometimes make loans that are unsecured, which are subject to the risk that other lenders maybe directly secured by the assets of the portfolio company. In the event of a default, those collateralized lenders would have priority over us with respect to theproceeds of a sale of the underlying assets. In cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assetsof the portfolio company prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subject to“equitable subordination.” This means that depending on the facts and circumstances, including the extent to which we actually provided significant “managerialassistance,” if any, to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of othercreditors. In addition, certain of our loans are subordinate to other debt of the portfolio company. If a portfolio company defaults on our loan or on debt senior to ourloan, or in the event of a portfolio company bankruptcy, our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists,the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through“standstill” periods) and control decisions made in bankruptcy proceedings relating to the portfolio company. Bankruptcy and portfolio company litigation cansignificantly increase collection losses and the time needed for us to acquire the underlying collateral in the event of a default, during which time the collateral maydecline in value, causing us to suffer losses.If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able to obtain thenecessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a portfolio company’sability to refinance our loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borroweris unable to repay our loan at maturity, we could suffer a loss which may adversely impact our financial performance.47The inability of our portfolio companies to commercialize their technologies or create or develop commercially viable products or businesses would have anegative impact on our investment returns.The possibility that our portfolio companies will not be able to commercialize their technology, products or business concepts presents significant risks to thevalue of our investment. Additionally, although some of our portfolio companies may already have a commercially successful product or product line when weinvest, technology-related products and services often have a more limited market- or life-span than have products in other industries. Thus, the ultimate success ofthese companies often depends on their ability to continually innovate, or raise additional capital, in increasingly competitive markets. Their inability to do so couldaffect our investment return. In addition, the intellectual property held by our portfolio companies often represents a substantial portion of the collateral, if any,securing our investments. We cannot assure you that any of our portfolio companies will successfully acquire or develop any new technologies, or that theintellectual property the companies currently hold will remain viable. Even if our portfolio companies are able to develop commercially viable products, the marketfor new products and services is highly competitive and rapidly changing. Neither our portfolio companies nor we have any control over the pace of technologydevelopment. Commercial success is difficult to predict, and the marketing efforts of our portfolio companies may not be successful.An investment strategy focused on privately-held companies presents certain challenges, including the lack of available information about these companies, adependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.We invest primarily in privately-held companies. Generally, very little public information exists about these companies, and we are required to rely on theability of our management and investment teams to obtain adequate information to evaluate the potential returns from investing in these companies. Such small,privately held companies as we routinely invest in may also lack quality infrastructures, thus leading to poor disclosure standards or control environments. If we areunable to uncover all material information about these companies, then we may not make a fully informed investment decision, and we may not receive the expectedreturn on our investment or lose some or all of the money invested in these companies.Also, privately-held companies frequently have less diverse product lines and a smaller market presence than do larger competitors. Privately-held companiesare, thus, generally more vulnerable to economic downturns and may experience more substantial variations in operating results than do larger competitors. Thesefactors could affect our investment returns and our results of operations and financial condition.In addition, our success depends, in large part, upon the abilities of the key management personnel of our portfolio companies, who are responsible for theday-to-day operations of our portfolio companies. Competition for qualified personnel is intense at any stage of a company’s development, and high turnover ofpersonnel is common in technology-related companies. The loss of one or more key managers can hinder or delay a company’s implementation of its business planand harm its financial condition. Our portfolio companies may not be able to attract and retain qualified managers and personnel. Any inability to do so maynegatively impact our investment returns and our results of operations and financial condition.If our portfolio companies are unable to protect their intellectual property rights, or are required to devote significant resources to protecting theirintellectual property rights, then our investments could be harmed.Our future success and competitive position depend in part upon the ability of our portfolio companies to obtain and maintain proprietary technology used intheir products and services, which will often represent a significant portion of the collateral, if any, securing our investment. The portfolio companies will rely, inpart, on patent, trade secret and trademark law to protect that technology, but competitors may misappropriate their intellectual property, and disputes as toownership of intellectual property may arise. Portfolio companies may, from time to time, be required to institute litigation in order to enforce their patents,copyrights or other intellectual property rights, to protect their trade secrets, to determine the validity and scope of the proprietary rights of others or to defend againstclaims of infringement. Such litigation could result in substantial costs and diversion of resources. Similarly, if a portfolio company is found to infringe upon ormisappropriate a third party’s patent or other proprietary rights, that portfolio company could be required to pay damages to such third party, alter its own products orprocesses, obtain a license from the third party and/or cease activities utilizing such proprietary rights, including making or selling products utilizing such proprietaryrights. Any of the foregoing events could negatively affect both the portfolio company’s ability to service our debt investment and the value of any related debt andequity securities that we own, as well as any collateral securing our investment. 48Our financial condition, results of operations and cash flow s could be negatively affected if we are unable to recover our principal investment as a result of anegative pledge or lack of a security interest on the intellectual property of our venture growth stage companies.In some cases, we collateralize our loans with a secured collateral position in a portfolio company's assets, which may include a negative pledge or, to a lesserextent, no security on their intellectual property. In the event of a default on a loan, the intellectual property of the portfolio company will most likely be liquidated toprovide proceeds to pay the creditors of the company. There can be no assurance that our security interest, if any, in the proceeds of the intellectual property will beenforceable in a court of law or bankruptcy court or that there will not be others with senior or pari passu credit interests.Our relationship with certain portfolio companies may expose us to our portfolio companies' trade secrets and confidential information which may require usto be parties to non-disclosure agreements and restrict us from engaging in certain transactions.Our relationship with some of our portfolio companies may expose us to our portfolio companies' trade secrets and confidential information (includingtransactional data and personal data about their employees and clients) which may require us to be parties to non-disclosure agreements and restrict us from engagingin certain transactions. Unauthorized access or disclosure of such information may occur, resulting in theft, loss or other misappropriation. Any theft, loss, improperuse, such as insider trading or other misappropriation of confidential information could have a material adverse impact on our competitive positions, our relationshipwith our portfolio companies and our reputation and could subject us to regulatory inquiries, enforcement and fines, civil litigation (which may cause us to incursignificant expense or expose us to losses) and possible financial liability or costs.Portfolio company litigation could result in additional costs, the diversion of management time and resources and have an adverse impact on the fair value ofour investment.To the extent that litigation arises with respect to any of our portfolio companies, we may be named as a defendant, which could result in additional costs andthe diversion of management time and resources. Furthermore, if we are providing managerial assistance to the portfolio company or have representatives on theportfolio company’s board of directors, our costs and diversion of our management’s time and resources in assessing the portfolio company could be substantial inlight of any such litigation regardless of whether we are named as a defendant. In addition, litigation involving a portfolio company may be costly and affect theoperations of the portfolio company’s business, which could in turn have an adverse impact on the fair value of our investment in such company.We may not be able to realize our entire investment on equipment-based loans, if any, in the case of default.We may from time-to-time provide loans that will be collateralized only by equipment of the portfolio company. If the portfolio company defaults on the loanwe would take possession of the underlying equipment to satisfy the outstanding debt. The residual value of the equipment at the time we would take possession maynot be sufficient to satisfy the outstanding debt and we could experience a loss on the disposition of the equipment.Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies. Our total investments at value in foreigncompanies were approximately $33.4 million or 2.8% of total investments at December 31, 2015. Investing in foreign companies may expose us to additional risksnot typically associated with investing in U.S. companies. 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 U.S., higher transaction costs, less governmentsupervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting andauditing standards and greater price volatility, among other things.If our investments do not meet our performance expectations, you may not receive distributions.We intend to make distributions on a quarterly basis to our stockholders. We may not be able to achieve operating results that will allow us to makedistributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as abusiness development company, we may be limited in our ability to make distributions. Also, restrictions and provisions in any future credit facilities may limit ourability to make distributions. As a RIC, if we do not distribute a certain percentage of our income each taxable year, we will suffer adverse tax consequences,including failure to obtain, or possible loss of, the federal income tax benefits allowable to RICs. We cannot assure you that you will receive distributions at aparticular level or at all.49We may not have sufficient funds to make follow-on investments. Our decision not to make a follow-on investment may have a negative impact on a portfoliocompany in need of such an investment or may result in a missed opportunity for us.After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have theopportunity or need to increase our investment in a successful situation, for example, the exercise of a warrant to purchase common stock, or a negative situation, toprotect an existing investment. Any decision we make not to make a follow-on investment or any inability on our part to make such an investment may have anegative impact on a portfolio company in need of such an investment or may result in a missed opportunity for us to increase our participation in a successfuloperation and may dilute our equity interest or otherwise reduce the expected yield on our investment. Moreover, a follow-on investment may limit the number ofcompanies in which we can make initial investments. In determining whether to make a follow-on investment, our management will exercise its business judgmentand apply criteria similar to those used when making the initial investment. There is no assurance that we will make, or will have sufficient funds to make, follow-oninvestments and this could adversely affect our success and result in the loss of a substantial portion or all of our investment in a portfolio company. The lack of liquidity in our investments may adversely affect our business and, if we need to sell any of our investments, we may not be able to do so at afavorable price. As a result, we may suffer losses.We generally invest in debt securities with terms of up to seven years and hold such investments until maturity, and we do not expect that our related holdingsof equity securities will provide us with liquidity opportunities in the near-term. We invest and expect to continue investing in companies whose securities have noestablished trading market and whose securities are and will be subject to legal and other restrictions on resale or whose securities are and will be less liquid than arepublicly-traded securities. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we are required toliquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. As a result,we do not expect to achieve liquidity in our investments in the near-term. However, to maintain our qualification as a business development company and as a RIC,we may have to dispose of investments if we do not satisfy one or more of the applicable criteria under the respective regulatory frameworks.Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies.We invest primarily in debt securities issued by our portfolio companies. In some cases, portfolio companies will be permitted to incur other debt, or issueother equity securities, that rank equally with, or senior to, our investment. Such instruments may provide that the holders thereof are entitled to receive payment ofdividends, interest or principal on or before the dates on which we are entitled to receive payments in respect of our investments. These debt instruments wouldusually prohibit the portfolio companies from paying interest on or repaying our investments in the event and during the continuance of a default under such debt.Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investmentin that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying suchholders, the portfolio company might not have any remaining assets to use for repaying its obligation to us. In the case of securities ranking equally with ourinvestments, we would have to share on a pari passu basis any distributions with other security holders in the event of an insolvency, liquidation, dissolution,reorganization or bankruptcy of the relevant portfolio company.The rights we may have with respect to the collateral securing any junior priority loans we make to our portfolio companies may also be limited pursuant tothe terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that seniorobligations are outstanding, we may forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right tocommence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments tocollateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. We may not have the ability to controlor direct such actions, even if as a result our rights as junior lenders are adversely affected.Our warrant and equity-related investments are highly speculative, and we may not realize gains from these investments. If our warrant and equity-relatedinvestments do not generate gains, then the return on our invested capital will be lower than it would otherwise be, which could result in a decline in thevalue of shares of our common stock.When we invest in debt securities, we generally expect to acquire warrants or other equity-related securities as well. Our goal is ultimately to dispose of theseequity interests and realize gains upon disposition of such interests. Over time, the gains that we realize on these equity interests may offset, to some extent, lossesthat we experience on defaults under debt securities that we hold. However, the equity interests that we receive may not appreciate in value and, in fact, may declinein value. 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 maynot be sufficient to offset any other losses that we experience.50Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.During 2015, we received debt investment early repayments and pay down of working capital debt investments of approximately $503.6 million. We aresubject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest theseproceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially loweryields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company mayalso be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfoliocompanies elect to prepay amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the marketprice of our common stock.We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of ourinvestment in these companies.We structure the debt investments in our portfolio companies to include business and financial covenants placing affirmative and negative obligations on theoperation of the company’s business and its financial condition. However, from time to time we may elect to waive breaches of these covenants, including our rightto payment, or waive or defer enforcement of remedies, such as acceleration of obligations or foreclosure on collateral, depending upon the financial condition andprospects of the particular portfolio company. These actions may reduce the likelihood of receiving the full amount of future payments of interest or principal and beaccompanied by a deterioration in the value of the underlying collateral as many of these companies may have limited financial resources, may be unable to meetfuture obligations and may go bankrupt. This could negatively impact our ability to pay dividends, could adversely affect our results of operation and financialcondition and cause the loss of all or part of your investment.We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over theborrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistanceor actions to compel and collect payments from the borrower outside the ordinary course of business.Our loans could be subject to equitable subordination by a court which would increase our risk of loss with respect to such loans or we could be subject tolender liability claims.Courts may apply the doctrine of equitable subordination to subordinate the claim or lien of a lender against a borrower to claims or liens of other creditors ofthe borrower, when the lender or its affiliates is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also applied the doctrine ofequitable subordination when a lender or its affiliates is found to have exerted inappropriate control over a client, including control resulting from the ownership ofequity interests in a client or providing of significant managerial assistance. We have made direct equity investments or received warrants in connection with loans.These investments represent approximately 7.5% of the outstanding value of our investment portfolio as of December 31, 2015. Payments on one or more of ourloans, particularly a loan to a client in which we also hold an equity interest, may be subject to claims of equitable subordination. If we were deemed to have theability to control or otherwise exercise influence over the business and affairs of one or more of our portfolio companies resulting in economic hardship to othercreditors of that company, this control or influence may constitute grounds for equitable subordination and a court may treat one or more of our loans as if it wereunsecured or common equity in the portfolio company. In that case, if the portfolio company were to liquidate, we would be entitled to repayment of our loan on apro-rata basis with other unsecured debt or, if the effect of subordination was to place us at the level of common equity, then on an equal basis with other holders ofthe portfolio company’s common equity only after all of its obligations relating to its debt and preferred securities had been satisfied.In addition to these risks, in the event we elect to convert our debt position to equity, or otherwise take control of a portfolio company (such as throughplacing a member of our management team on its board of directors), as part of a restructuring, we face additional risks acting in that capacity. It is not uncommonfor unsecured, or otherwise unsatisfied creditors, to sue parties that elect to use their debt positions to later control a company following a restructuring orbankruptcy. Apart from lawsuits, key customers and suppliers might act in a fashion contrary to the interests of a portfolio company if they were left unsatisfied in arestructuring or bankruptcy. Any combination of these factors might lead to the loss in value of a company subject to such activity and may divert the time andattention of our management team and investment team to help to address such issues in a portfolio company.51Risks Related to Our SecuritiesInvesting in shares of our common stock involves an above average degree of risk.The investments we make in accordance with our investment objective may result in a higher amount of risk, volatility or loss of principal than alternativeinvestment options. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our common stock may not besuitable for investors with lower risk tolerance.Our common stock may trade below its net asset value per share, which limits our ability to raise additional equity capital.If our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common stock at its marketprice without first obtaining the approval for such issuance from our stockholders and our independent directors. If our common stock trades below net asset value,the higher cost of equity capital may result in it being unattractive to raise new equity, which may limit our ability to grow. The risk of trading below net asset valueis separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether shares of our common stock will trade above, at orbelow our net asset value.Provisions of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.Our charter and bylaws contain provisions that may have the effect of discouraging, delaying, or making difficult a change in control of our company or theremoval of our incumbent directors. Under our charter, our Board of Directors is divided into three classes serving staggered terms, which will make it more difficultfor a hostile bidder to acquire control of us. In addition, our Board of Directors may, without stockholder action, authorize the issuance of shares of stock in one ormore classes or series, including preferred stock. Subject to compliance with the 1940 Act, our Board of Directors may, without stockholder action, amend ourcharter to increase the number of shares of stock of any class or series that we have authority to issue. The existence of these provisions, among others, may have anegative impact on the price of our common stock and may discourage third party bids for ownership of our company. These provisions may prevent any premiumsbeing offered to you for shares of our common stock in connection with a takeover.Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices forour common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.We may periodically obtain the approval of our stockholders to issue shares of our common stock at prices below the then current net asset value per share ofour common stock. If we receive such approval from the stockholders, we may issue shares of our common stock at a price below the then current net assetvalue per share of common stock. Any such issuance could materially dilute your interest in our common stock and reduce our net asset value per share.We may periodically obtain the approval of our stockholders to issue shares of our common stock at prices below the then current net asset value per share ofour common stock. Such approval has allowed and may again allow us to access the capital markets in a way that we typically are unable to do as a result ofrestrictions that, absent stockholder approval, apply to business development companies under the 1940 Act. Any decision to sell shares of our common stock belowthe then current net asset value per share of our common stock is subject to the determination by our board of directors that such issuance and sale is in our and ourstockholders’ best interests.Any sale or other issuance of shares of our common stock at a price below net asset value per share has resulted and will continue to result in an immediatedilution to your interest in our common stock and a reduction of our net asset value per share. This dilution would occur as a result of a proportionately greaterdecrease in a stockholder’s interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. Because thenumber of future shares of common stock that may be issued below our net asset value per share and the price and timing of such issuances are not currently known,we cannot predict the actual dilutive effect of any such issuance. We also cannot determine the resulting reduction in our net asset value per share of any suchissuance at this time. We caution you that such effects may be material, and we undertake to describe all the material risks and dilutive effects of any offering that wemake at a price below our then current net asset value in the future in a prospectus supplement issued in connection with any such offering. We cannot predictwhether shares of our common stock will trade above, at or below our net asset value.52If we conduct an offering of our common stock at a price below net asset value, investors are likely to incur immediate dilution upon the closing of theoffering.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, at a pricebelow the current net asset value of the common stock, or sell warrants, options or other rights to acquire such common stock, at a price below the current net assetvalue of the 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 stockholdershave approved the practice of making such sales.At the 2015 Annual Meeting of Stockholders, our common stockholders approved a proposal to allow us to issue common stock at a discount from its thencurrent net asset value per share, which is effective for a period expiring on the earlier of July 7, 2016 or the 2016 annual meeting of stockholders. In connection withthe receipt of such stockholder approval, we will limit the number of shares that it issues at a price below net asset value pursuant to this authorization so that theaggregate dilutive effect on our then outstanding shares will not exceed 20%. Our Board of Directors, subject to its fiduciary duties and regulatory requirements, hasthe discretion to determine the amount of the discount, and as a result, the discount could be up to 100% of net asset value per share. If we were to issue shares at aprice below net asset value, such sales would result in an immediate dilution to existing common stockholders, which would include a reduction in the net asset valueper share as a result of the issuance. This dilution would also include a proportionately greater decrease in a stockholder’s interest in our earnings and assets andvoting interest in us than the increase in our assets resulting from such issuance.In addition, if we determined to conduct additional offerings in the future there may be even greater dilution if we determine to conduct such offerings atprices below net asset value. As a result, investors will experience further dilution and additional discounts to the price of our common stock. Because the number ofshares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect of an offering cannot be predicted.We did not sell any of our securities at a price below net asset value during the year ended December 31, 2015.Our shares may trade at discounts from net asset value or at premiums that are unsustainable over the long term.Shares of business development companies may trade at a market price that is less than the net asset value that is attributable to those shares. Our shares havehistorically traded above and below our net asset value. The possibility that our shares of common stock will trade at a discount from net asset value or at a premiumthat is unsustainable over the long term is separate and distinct from the risk that our net asset value may decrease. It is not possible to predict whether our shares willtrade at, above or below net asset value in the future.A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our debt securities, if any, or change in the debt marketscould cause the liquidity or market value of our debt securities to decline significantly. Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratingswill generally affect the market value of our outstanding debt securities. These credit ratings may not reflect the potential impact of risks relating to the structure ormarketing of such debt securities. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by theissuing organization in its sole discretion.Neither we nor any underwriter undertakes any obligation to maintain our credit ratings or to advise holders of our debt securities of any changes in our creditratings. There can be no assurance that a credit rating will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely iffuture circumstances relating to the basis of the credit rating, such as adverse changes in our company, so warrant. The conditions of the financial markets andprevailing interest rates have fluctuated in the past and are likely to fluctuate in the future.Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan.All dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares of ourcommon stock. As a result, our stockholders that opt out of our dividend reinvestment plan will experience dilution in their ownership percentage of our commonstock over time.53Our stockholders may experience dilution upon the repurchase of common shares.On February 24, 2015, our Board of Directors authorized a stock repurchase plan permitting us to repurchase up to $50.0 million of our common stock. Thisplan expired on August 24, 2015. On August 27, 2015, our Board of Directors authorized a replacement stock repurchase plan permitting us to repurchase up to$50.0 million of our common stock. We may repurchase shares of our common stock in the open market, including block purchases, at prices that may be above orbelow the net asset value as reported in the most recently published financial statements. We expect that the share repurchase program will be in effect until August23, 2016, or until the approved dollar amount has been used to repurchase shares. If we were to repurchase shares at a price above net asset value, such repurchaseswould result in an immediate dilution to existing common stockholders due to a reduction in the our earnings and assets due to the repurchase that is greater than thereduction in total shares outstanding. See “ – Subsequent Events”.Our stockholders may experience dilution upon the conversion of the Convertible Notes.On or after October 15, 2015 until the close of business on the scheduled trading day immediately preceding the maturity date, holders of our ConvertibleSenior Notes may convert their notes into shares of our common stock at any time. Upon conversion of the Convertible Senior Notes, we have the choice to pay ordeliver, as the case may be, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock. The current conversion priceof the Convertible Senior Notes is approximately $11.03 per share of common stock, in each case subject to adjustment in certain circumstances. Since theConvertible Senior Notes became convertible, we have made the election to deliver the combination of cash and stock. If we deliver shares of common stock upon aconversion at the time our tangible book value per share exceeds the conversion price in effect at such time, our stockholders will incur dilution. In addition, ourstockholders will experience dilution in their ownership percentage of common stock upon our issuance of common stock in connection with the conversion of theConvertible 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.Our distribution proceeds may exceed our earnings. Therefore, portions of the distributions that we make may represent a return of capital to stockholders,which will lower their tax basis in their shares.The tax treatment and characterization of our distributions may vary significantly from time to time due to the nature of our investments. The ultimate taxcharacterization of our distributions made during a taxable year may not finally be determined until after the end of that taxable year. We may make distributionsduring a taxable year that exceed our investment company taxable income and net capital gains for that taxable year. In such a situation, the amount by which ourtotal distributions exceed investment company taxable income and net capital gains generally would be treated as a return of capital up to the amount of astockholder’s tax basis in the shares, with any amounts exceeding such tax basis treated as a gain from the sale or exchange of such shares. A return of capitalgenerally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. Moreover, we may pay all or asubstantial portion of our distributions from the proceeds of the sale of shares of our common stock or from borrowings in anticipation of future cash flow, whichcould constitute a return of stockholders’ capital and will lower such stockholders’ tax basis in our shares, which may result in increased tax liability to stockholderswhen they sell such shares.54Our common stock price has been and continues to be volatile and may decrease substantially.As with any company, the price of our common stock will fluctuate with market conditions and other factors, which include, but are not limited to, thefollowing: ·price and volume fluctuations in the overall stock market from time to time; ·significant volatility in the market price and trading volume of securities of RICs, business development companies or other financial servicescompanies; ·any inability to deploy or invest our capital; ·fluctuations in interest rates; ·any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; ·the financial performance of specific industries in which we invest in on a recurring basis; ·announcement of strategic developments, acquisitions, and other material events by us or our competitors, or operating performance of companiescomparable to us; ·changes in regulatory policies or tax guidelines with respect to RICs, SBICs or business development companies; ·losing RIC status; ·actual or anticipated changes in our earnings or fluctuations in our operating results, or changes in the expectations of securities analysts; ·changes in the value of our portfolio of investments; ·realized losses in investments in our portfolio companies; ·general economic conditions and trends; ·inability to access the capital markets; ·loss of a major funded source; or ·departure of key personnel.In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against thatcompany. Due to the potential volatility of our stock price, we may be the target of securities litigation in the future. Securities litigation could result in substantialcosts and could divert management’s attention and resources from our business.Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less thanour net asset value per share, then you will experience an immediate dilution of the aggregate net asset value of your shares.In the event we issue subscription rights, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of arights offering pursuant to this prospectus, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. We cannotstate 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 ofsuch rights offering.In addition, if the subscription price is less than the net asset value per share of our common stock, then our stockholders would experience an immediatedilution of the aggregate net asset value of their shares as a result of the offering. The amount of any decrease in net asset value is not predictable because it is notknown at this time what the subscription price and net asset value per share will be on the expiration date of a rights offering or what proportion of the shares will bepurchased as a result of such rights offering. Such dilution could be substantial.55The trading market or market value of our publicly issued debt securities may fluctuate.Our publicly issued debt securities may or may not have an established trading market. We cannot assure you that a trading market for our publicly issueddebt securities will ever develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely affect the trading marketfor, and market value of, our publicly issued debt securities. These factors include, but are not limited to, the following: ·the time remaining to the maturity of these debt securities; ·the outstanding principal amount of debt securities with terms identical to these debt securities; ·the ratings assigned by national statistical ratings agencies; ·the general economic environment; ·the supply of debt securities trading in the secondary market, if any; ·the redemption or repayment features, if any, of these debt securities; ·the level, direction and volatility of market interest rates generally; and ·market rates of interest higher or lower than rates borne by the debt securities. You should also be aware that there may be a limited number of buyerswhen you decide to sell your debt securities. This too may materially adversely affect the market value of the debt securities or the trading market forthe debt securities. The 2019 Notes and 2024 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.The 2019 Notes and 2024 Notes are obligations exclusively of Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc.) and notof any of our subsidiaries. None of our subsidiaries are or act as guarantors of the 2019 Notes and 2024 Notes and neither the 2019 Notes nor the 2024 Notes isrequired to be guaranteed by any subsidiaries we may acquire or create in the future. Our secured indebtedness with respect to the SBA debentures is held throughour SBIC subsidiaries. The assets of any such subsidiaries are not directly available to satisfy the claims of our creditors, including holders of the 2019 Notes and2024 Notes.Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including holders of preferred stock, if any, ofour subsidiaries) will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the 2019 Notes and2024 Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still bestructurally 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 ourclaims. Consequently, the 2019 Notes and 2014 Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of oursubsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. In addition, our subsidiaries may incur substantialadditional indebtedness in the future, all of which would be structurally senior to the 2019 Notes and 2024 Notes. 56The indenture under which the 2019 Notes and 202 4 Notes were issued contains limited protection for their respective holders.The indenture under which the 2019 Notes and 2024 Notes were issued offers limited protection to their respective holders. The terms of the indenture andthe 2019 Notes and 2024 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 an investment in the 2019 Notes and 2024 Notes. In particular, the terms of the indentures and the 2019Notes and 2024 Notes do 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 inright of payment to the 2019 Notes and 2024 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively seniorin right of payment to the 2019 Notes and 2024 Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that isguaranteed by one or more of our subsidiaries and which therefore would rank structurally senior to the 2019 Notes and 2024 Notes and (4) securities,indebtedness or other obligations issued or incurred by our subsidiaries that would be senior in right of payment to our equity interests in our subsidiariesand therefore would rank structurally senior in right of payment to the 2019 Notes and 2024 Notes with respect to the assets of our subsidiaries, in eachcase other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act as modified bySection 61(a)(1) of the 1940 Act or any successor provisions; ·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 the2019 Notes and 2024 Notes, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) ofthe 1940 Act as modified by Section 61(a)(1) of the 1940 Act or any successor provisions giving effect to any exemptive relief granted to us by the SEC(these provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capitalstock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase andafter deducting the amount of such dividend, distribution or purchase); ·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 distributions or other amounts to us from our subsidiaries.In the indenture and the 2019 and 2024 notes do not require us to offer to purchase the Notes in connection with a change of control or any other event.Furthermore, the terms of the indenture and the 2019 Notes and 2024 Notes do not protect their respective holders 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 toany financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity, except as required under 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 2019 Notes and 2024 Notes mayhave important consequences for their holders, including making it more difficult for us to satisfy our obligations with respect to the 2019 Notes and 2024 Notes ornegatively affecting their trading value.Certain of our current debt instruments include more protections for their respective holders than the indenture and the 2019 Notes and 2024 Notes. Inaddition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the 2019 Notes and 2024 Notes, includingadditional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levelsand prices of the 2019 Notes and 2024 Notes. 57An active trading market for the Notes may not dev elop or be sustained, which could limit the market price of the Notes or your ability to sell them.Although the 2019 Notes are listed on the NYSE under the symbol “HTGZ,” in the case of the April 2019 Notes, “HTGY” in the case of the September 2019Notes and “HTGX,” in the case of the 2024 Notes, we cannot provide any assurances that an active trading market will develop or be sustained for the April 2019Notes, the September 2019 Notes, or the 2024 Notes or that any of the notes will be able to be sold. At various times, the 2019 Notes and 2024 Notes may trade at adiscount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, ourfinancial condition, performance and prospects and other factors. To the extent an active trading market is not sustained, the liquidity and trading price for the 2019Notes and 2024 Notes may be harmed.If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2019 Notes and 2024 Notes.Any default under the agreements governing our indebtedness, including a default under the Wells Facility, the Union Bank Facility and the ConvertibleSenior Notes or other indebtedness to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of suchindebtedness could make us unable to pay principal, premium, if any, and interest on the 2019 Notes and 2024 Notes and substantially decrease the market value ofthe 2014 Notes and 2024 Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments ofprincipal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operatingcovenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of suchdefault, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest,the lenders under the Wells Facility and the Union Bank Facility or other debt we may incur in the future could elect to terminate their commitments, cease makingfurther loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines,we may in the future need to seek to obtain waivers from the required lenders under the Wells Facility or Union Bank Facility or the required holders of ourConvertible Senior Notes or other debt that we may incur in the future to avoid being in default. If we breach our covenants under the Wells Facility or Union BankFacility or the Convertible Senior Notes or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs,we would be in default under the Wells Facility or Union Bank Facility or the Convertible Senior Notes or other debt, the lenders or holders could exercise theirrights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including thelenders under the Wells Facility and the Union Bank Facility, could proceed against the collateral securing the debt. Because the Wells Facility, the Union BankFacility and the Convertible Senior Notes have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under theNotes, the Wells Facility, Union Bank Facility, the Convertible Senior Notes or under any future credit facility is accelerated, we may be unable to repay or financethe amounts due. 58 Item 1B.Unresolved Staff CommentsNone.Item 2 .PropertiesNeither we nor any of our subsidiaries own any real estate or other physical properties materially important to our operation or any of our subsidiaries.Currently, we lease approximately 14,500 square feet of office space in Palo Alto, CA for our corporate headquarters. We also lease office space in Boston, MA,New York, NY, McLean, VA, Santa Monica, CA and Hartford, CT.Item 3.Legal ProceedingsWe may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third partiesmay try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot atthis time be predicted with certainty, we do not expect any current matters will materially affect our financial condition or results of operations; however, there canbe no assurance whether any pending legal proceedings will have a material adverse effect on our financial condition or results of operations in any future reportingperiod.Item 4.Mine Safety DisclosuresNot applicable. 59PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesPRICE RANGE OF COMMON STOCkOur common stock is traded on the NYSE under the symbol “HTGC.” The following table sets forth the range of high and low sales prices of our commonstock for each fiscal quarter during the two most recently completed fiscal years as reported on the NYSE. Price Range Quarter Ended High Low March 31, 2014 $15.27 $13.24 June 30, 2014 $15.54 $12.75 September 30, 2014 $16.24 $14.16 December 31, 2014 $15.82 $13.16 March 31, 2015 $15.27 $13.47 June 30, 2015 $13.37 $11.25 September 30, 2015 $12.23 $9.99 December 31, 2015 $12.44 $10.23 The last reported price for our common stock on February 22, 2016 was $10.33 per share.As of February 5, 2016, we had approximately 42,865 stockholders of record. Most of the shares of our common stock are held by brokers and otherinstitutions on behalf of stockholders. We believe that there are currently approximately 93 additional beneficial holders of our common stock.Shares of business development companies may trade at a market price that is less than the net asset value per share. The possibilities that our shares ofcommon stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk that ournet asset value will decrease. At times, our shares of common stock have traded at a premium to net asset value or at a significant discount to the net asset value pershare.SALES OF UNREGISTERED SECURITIESDuring 2015 and 2013, the Board of Directors elected to receive approximately $300,000 and $106,000, respectively, of their compensation in the form ofcommon stock and the Company issued 27,132 and 10,335 shares, respectively, to the directors based on the closing prices of the common stock on the specifiedelection dates. During 2014, the Board of Directors did not elect to receive compensation in the form of common stock.During 2015, 2014 and 2013, we issued approximately 199,894, 96,976 and 159,000 shares, respectively, of common stock to shareholders in connectionwith the dividend reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act of 1933, as amended, or the SecuritiesAct. The aggregate value of the shares of our common stock issued under our dividend reinvestment plan during the years ended December 31, 2015, 2014 and 2013were approximately $2.4 million, $1.5 million and $2.2 million, respectively.EQUITY COMPENSATION PLAN INFORMATIONSee “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”60ISSUER PURCHASES OF EQUITY SECURITIESOn February 24, 2015, our Board of Directors authorized a stock repurchase plan permitting us to repurchase up to $50.0 million of our common stock. Thisplan expired on August 24, 2015. On August 27, 2015, our Board of Directors authorized a replacement stock repurchase plan permitting us to repurchase up to$50.0 million of our common stock. We may repurchase shares of our common stock in the open market, including block purchases, at prices that may be above orbelow the net asset value as reported in the most recently published financial statements. We expect that the share repurchase program will be in effect until August23, 2016, or until the approved dollar amount has been used to repurchase shares. See “ – Subsequent Events”.During the year ended December 31, 2015, we made the following repurchases pursuant to the repurchase plans: (in thousands, except share and per share data ) Period Total Number ofShares Purchased Average Price PaidPer Share Total Number ofShares Purchased asPart of PubliclyAnnounced Plan (1) Maximum RemainingDollar Value that May YetBe Purchased Under Plan(1) August 24, 2015 75,249 $10.93 75,249 $49,178 September 23, 2015 - September 30, 2015 348,202 10.99 348,202 45,508 December 14, 2015 13,555 10.80 13,555 45,362 Total 437,006 $10.61 437,006 $45,362 (1)Note that all repurchase activity per the table above was made pursuant to the stock repurchase plan authorized by our Board of Directors on February 24, 2015 and replaced on August 27,2015 after the plan initially expired on August 24, 2015. The plan permits us to repurchase up to $50.0 million of our common stock, including the repurchases made on August 24, 2015.We expect that the share repurchase program will be in effect until August 23, 2016, or until the approved dollar amount has been used to repurchase shares.We anticipate that the manner, timing, and amount of any share purchases will be determined by management based upon the evaluation of marketconditions, stock price, and additional factors in accordance with regulatory requirements. Pursuant to the 1940 Act, we are required to notify shareholders whensuch a program is initiated or implemented. The repurchase program does not require us to acquire any specific number of shares and may be extended, modified, ordiscontinued at any time.DIVIDEND POLICYAs a RIC, we intend to distribute quarterly dividends to our stockholders. To the extent we do not distribute dividends to our stockholders in respect of eachcalendar year dividends of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals and elections) for the calendaryear, (2) 98.2% of our capital gains in excess of capital losses, or capital gain net income (adjusted for certain ordinary losses), for the one year period ending onOctober 31 of the calendar year, and (3) any ordinary income and capital gain net income for preceding years that were not distributed, we are required to pay a 4%excise tax on our undistributed income.To the extent that we earn annual taxable income in excess of dividends paid from such taxable income for a taxable year, we may carry over the excesstaxable income into the next taxable year and such excess income will be available for distribution in the next taxable year as permitted by the Code. We will not besubject to excise taxes on amounts on which we are required to pay corporate income tax (such as retained net capital gains). In order to obtain the tax benefitsapplicable to RICs, we are required to distribute dividends to our stockholders with respect to each taxable year of an amount at least equal to 90% of our investmentcompany taxable income. We may, in the future, make actual distributions to our stockholders of some or all realized net long-term capital gains in excess of realizednet short-term capital losses, or net capital gains. We can offer no assurance that we will achieve results that will permit the payment of any distributions and, if weissue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Actor if distributions are limited by the terms of any of our borrowings. See “Item 1. Business— Regulation.”61The following table summarizes dividends declared and paid, to be paid or reinvested on all shares, including restricted stock, to date: Date Declared Record Date Payment Date Amount Per Share October 27, 2005 November 1, 2005 November 17, 2005 $0.03 December 9, 2005 January 6, 2006 January 27, 2006 0.30 April 3, 2006 April 10, 2006 May 5, 2006 0.30 July 19, 2006 July 31, 2006 August 28, 2006 0.30 October 16, 2006 November 6, 2006 December 1, 2006 0.30 February 7, 2007 February 19, 2007 March 19, 2007 0.30 May 3, 2007 May 16, 2007 June 18, 2007 0.30 August 2, 2007 August 16, 2007 September 17, 2007 0.30 November 1, 2007 November 16, 2007 December 17, 2007 0.30 February 7, 2008 February 15, 2008 March 17, 2008 0.30 May 8, 2008 May 16, 2008 June 16, 2008 0.34 August 7, 2008 August 15, 2008 September 19, 2008 0.34 November 6, 2008 November 14, 2008 December 15, 2008 0.34 February 12, 2009 February 23, 2009 March 30, 2009 0.32 *May 7, 2009 May 15, 2009 June 15, 2009 0.30 August 6, 2009 August 14, 2009 September 14, 2009 0.30 October 15, 2009 October 20, 2009 November 23, 2009 0.30 December 16, 2009 December 24, 2009 December 30, 2009 0.04 February 11, 2010 February 19, 2010 March 19, 2010 0.20 May 3, 2010 May 12, 2010 June 18, 2010 0.20 August 2, 2010 August 12, 2010 September 17,2010 0.20 November 4, 2010 November 10, 2010 December 17, 2010 0.20 March 1, 2011 March 10, 2011 March 24, 2011 0.22 May 5, 2011 May 11, 2011 June 23, 2011 0.22 August 4, 2011 August 15, 2011 September 15, 2011 0.22 November 3, 2011 November 14, 2011 November 29, 2011 0.22 February 27, 2012 March 12, 2012 March 15, 2012 0.23 April 30, 2012 May 18, 2012 May 25, 2012 0.24 July 30, 2012 August 17, 2012 August 24, 2012 0.24 October 26, 2012 November 14, 2012 November 21, 2012 0.24 February 26, 2013 March 11, 2013 March 19, 2013 0.25 April 29, 2013 May 14, 2013 May 21, 2013 0.27 July 29, 2013 August 13, 2013 August 20, 2013 0.28 November 4, 2013 November 18, 2013 November 25, 2013 0.31 February 24, 2014 March 10, 2014 March 17, 2014 0.31 April 28, 2014 May 12, 2014 May 19, 2014 0.31 July 28, 2014 August 18, 2014 August 25, 2014 0.31 October 29, 2014 November 17, 2014 November 24, 2014 0.31 February 24, 2015 March 12, 2015 March 19, 2015 0.31 May 4, 2015 May 18, 2015 May 25, 2015 0.31 July 29, 2015 August 17, 2015 August 24, 2015 0.31 October 28, 2015 November 16, 2015 November 23, 2015 0.31 February 17, 2016 March 7, 2016 March 14, 2016 0.31 $11.54 *Dividend paid in cash and stock.On February 17, 2016 the Board of Directors declared a cash dividend of $0.31 per share to be paid on March 14, 2016 to shareholders of record as of March7, 2016. This dividend would represent our forty-second consecutive dividend declaration since our initial public offering, bringing the total cumulative dividendsdeclared to date to $11.54 per share.62Our Board of Directors maintains a variable dividend policy with the objective of distributing four quarterly distributions in an amount that approximates 90—100% of our taxa ble quarterly income or potential annual income for a particular year. In addition, at the end of the year, our Board of Directors may choose topay an additional special dividend or fifth dividend, so that we may distribute approximately all of our annual taxable income in the year it was earned, or may electto maintain the option to spill over our excess taxable income into the coming year for future dividend payments.Distributions in excess of our current and accumulated earnings and profits would generally be treated first as a return of capital to the extent of thestockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions is madeannually as of the end of our fiscal year based upon our taxable income for the full fiscal year and distributions paid for the full fiscal year. Of the dividends declaredduring the fiscal years ended December 31, 2015, 2014, and 2013, 100% were distributions derived from our current and accumulated earnings and profits. There canbe no certainty to stockholders that this determination is representative of the tax attributes of our 2016 distributions to stockholders.We maintain an “opt out” dividend reinvestment plan that provides for reinvestment of our distribution on behalf of our stockholders, unless a stockholderelects to receive cash. As a result, if our Board of Directors authorizes, and we declare a cash dividend, then our stockholders who have not “opted out” of ourdividend reinvestment plan will have their cash dividend automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends.During 2015, 2014, and 2013, the Company issued approximately 199,894, 96,976 and 159,000 shares, respectively, of common stock to shareholders in connectionwith the dividend reinvestment plan.PERFORMANCE GRAPHThe following stock performance graph compares the cumulative stockholder return assuming that, on December 31, 2010, a person invested $100 in each ofour common stock, the NYSE Composite Index and the NASDAQ Financial 100 Index. The graph measures total shareholder return, which takes into account bothchanges in stock price and dividends. It assumes that dividends paid are reinvested in like securities.Copyright © 2016 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.This graph and other information furnished under Part II. Item 5 of the Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with theSEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the above graph is notnecessarily indicative of future stock price performance.63 Item 6.Selected Consolidated Financial DataSelected Consolidated Financial DataThe following consolidated financial data is derived from our audited consolidated financial statements. The selected consolidated financial data should beread in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements andrelated notes included elsewhere herein. Historical data is not necessarily indicative of results to be expected for any future period. For the Year Ended December 31, (in thousands, except per share amounts) 2015 2014 2013 2012 2011 Balance sheet data: Investments, at value $1,200,638 $1,020,737 $910,295 $906,300 $652,870 Cash and cash equivalents 95,196 227,116 268,368 182,994 64,474 Total assets 1,334,761 1,299,223 1,221,715 1,123,643 747,394 Total liabilities 617,627 640,359 571,708 607,675 316,353 Total net assets 717,134 658,864 650,007 515,968 431,041 Other Data: Total debt investments, at value 1,110,209 923,906 821,988 827,540 585,767 Total warrant investments, at value 22,987 25,098 35,637 29,550 30,045 Total equity investments, at value 67,442 71,733 52,670 49,210 37,058 Unfunded Commitments (2) 75,402 147,689 69,091 19,265 76,128 Net asset value per share (1) $9.94 $10.18 $10.51 $9.75 $9.83 (1)Based on common shares outstanding at period end(2)Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request by the portfolio company. For the Year Ended December 31, (in thousands, except per share amounts) 2015 2014 2013 2012 2011 Investment income: Interest $140,266 $126,618 $123,671 $87,603 $70,346 Fees 16,866 17,047 16,042 9,917 9,509 Total investment income 157,132 143,665 139,713 97,520 79,855 Operating expenses: Interest 30,834 28,041 30,334 19,835 13,252 Loan fees 6,055 5,919 4,807 3,917 2,635 General and administrative 16,658 10,209 9,354 8,108 7,992 Employee Compensation: Compensation and benefits 20,713 16,604 16,179 13,326 13,260 Stock-based compensation 9,370 9,561 5,974 4,227 3,128 Total employee compensation 30,083 26,165 22,153 17,553 16,388 Total operating expenses 83,630 70,334 66,648 49,413 40,267 Loss on debt extinguishment (Long-term Liabilities - Convertible Senior Notes) (1) (1,581) — — — Net investment income 73,501 71,750 73,065 48,107 39,588 Net realized gain on investments 5,147 20,112 14,836 3,168 2,741 Net change in unrealized appreciation (depreciation) on investments (35,732) (20,674) 11,545 (4,516) 4,607 Total net realized and unrealized gain (loss) (30,585) (562) 26,381 (1,348) 7,348 Net increase in net assets resulting from operations $42,916 $71,188 $99,446 $46,759 $46,936 Change in net assets per common share (basic) $0.60 $1.12 $1.67 $0.93 $1.08 Cash dividends declared per common share $1.24 $1.24 $1.11 $0.95 $0.88 64Item 7.M anagement’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOkING STATEMENTSThe matters discussed in this report, as well as in future oral and written statements by management of Hercules Capital, Inc. (formerly known as HerculesTechnology Growth Capital, Inc.) that are forward-looking statements are based on current management expectations that involve substantial risks and uncertaintieswhich could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relateto future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,”“plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of theseterms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, theavailability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection orforward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-lookingstatements contained in this report include statements as to: ·our future operating results; ·our business prospects and the prospects of our prospective portfolio companies; ·the impact of investments that we expect to make; ·our informal relationships with third parties including in the venture capital industry; ·the expected market for venture capital investments and our addressable market; ·the dependence of our future success on the general economy and its impact on the industries in which we invest; ·our ability to access debt markets and equity markets; ·the ability of our portfolio companies to achieve their objectives; ·our expected financings and investments; ·our regulatory structure and tax status; ·our ability to operate as a BDC, a SBIC and a RIC; ·the adequacy of our cash resources and working capital; ·the timing of cash flows, if any, from the operations of our portfolio companies; ·the timing, form and amount of any dividend distributions; ·the impact of fluctuations in interest rates on our business; ·the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and ·our ability to recover unrealized losses.For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this report, please see the discussionunder “Item 1A. Risk Factors.” You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relateonly to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events orcircumstances occurring after the date of this report.The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearingelsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information thatinvolves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussedunder “Item 1A—Risk Factors” and “Forward-Looking Statements” of this Item 7.65OverviewWe are a specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capital-backed companiesin a broadly diversified variety of technology, life sciences and sustainable and renewable technology industries. We source our investments through our principaloffice located in Palo Alto, CA, as well as through our additional offices in Boston, MA, New York, NY, McLean, VA, Santa Monica, CA and Hartford, CT.Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticatedand customized financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery anddevelopment, biotechnology, life sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We investprimarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We invest primarily in private companies but also haveinvestments in public companies.We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equitycomponent, including warrants, options or other rights to purchase common or preferred stock. Our structured debt with warrants investments typically are securedby some or all of the assets of the portfolio company.Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from ourwarrant and equity-related investments. Our primary business objectives are to increase our net income, net operating income and net asset value by investing instructured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential forequity appreciation and realized gains. Our equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, whichrepresents a controlling interest under the 1940 Act. In some cases, we receive the right to make additional equity investments in our portfolio companies inconnection with future equity financing rounds. Capital that we provide directly to venture capital-backed companies in technology-related industries is generallyused for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations.We also make investments in qualifying small businesses through our two wholly-owned SBICs. Our SBIC subsidiaries, HT II and HT III, holdapproximately $128.3 million and $310.8 million in assets, respectively, and accounted for approximately 7.6% and 18.5% of our total assets, respectively, prior toconsolidation at December 31, 2015. As of December 31, 2015, the maximum statutory limit on the dollar amount of combined outstanding SBA guaranteeddebentures is $350.0 million, subject to periodic adjustments by the SBA. In aggregate, at December 31, 2015, with our net investment of $118.5 million, HT II andHT III have the capacity to issue a total of $190.2 million of SBA-guaranteed debentures, subject to SBA approval. At December 31, 2015, we have issued $190.2million in SBA-guaranteed debentures in our SBIC subsidiaries.We have qualified as and have elected to be treated for tax purposes as a RIC under the Code. Pursuant to this election, we generally will not have to paycorporate-level taxes on any income and gains that we distribute as dividends to our stockholders. However, our qualification and election to be treated as a RICrequires that we comply with provisions contained in Subchapter M of the Code. For example, as a RIC we must earn 90% or more of our gross income for eachtaxable year from qualified earnings, typically referred to as “good income,” as well as satisfy certain quarterly asset diversification and annual income distributionrequirements.We are an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company under the1940 Act. As a business development company, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least70% of our total assets in “qualifying assets,” which includes securities of private U.S. companies, cash, cash equivalents and high-quality debt investments thatmature in one year or less.Our portfolio is comprised of, and we anticipate that our portfolio will continue to be comprised of, investments primarily in technology related companies atvarious stages of their development. Consistent with requirements under the 1940 Act, we invest primarily in United-States based companies and to a lesser extent inforeign companies.66We regularly engage in discussions with third parties with respect to various potential transaction s. We may acquire an investment or a portfolio ofinvestments or an entire company or sell a portion of our portfolio on an opportunistic basis. We, our subsidiaries or our affiliates may also agree to manage certainother funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other feesfor our services. We may also invest in the equity of these funds, along with other third parties, from which we would seek to ea rn a return and/or future incentiveallocations. Some of these transactions could be material to our business. Consummation of any such transaction will be subject to completion of due diligence,finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors and conditionsincluding, without limitation, the approval of our board of directors and required regulatory or third party consents and, in certain cases, the ap proval of ourstockholders. Accordingly, there can be no assurance that any such transaction would be consummated. Any of these transactions or funds may require significantmanagement resources either during the transaction phase or on an ongoing basis de pending on the terms of the transaction.Portfolio and Investment ActivityThe total fair value of our investment portfolio was $1.2 billion at December 31, 2015 as compared to $1.0 billion at December 31, 2014. The fair value ofour debt investment portfolio at December 31, 2015 was approximately $1.1 billion, compared to a fair value of approximately $923.9 million at December 31, 2014.The fair value of the equity portfolio at December 31, 2015 was approximately $67.4 million, compared to a fair value of approximately $71.7 million atDecember 31, 2014. The fair value of the warrant portfolio at December 31, 2015 was approximately $23.0 million, compared to a fair value of approximately $25.1million at December 31, 2014.Portfolio ActivityOur investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. From time to time,unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company,which is expected to affect our funding levels. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as the on-balancesheet financial instruments that we hold. Debt commitments generally fund over the two succeeding quarters from close. Not all debt commitments represent ourfuture cash requirements. Similarly, unfunded contractual commitments may expire without being drawn and do not represent our future cash requirements.Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company. Non-binding term sheets aresubject to completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with theprospective portfolio companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.67Our portfolio activity for the years ended December 31, 2015 and 2014 was comprised of the following: (in millions) December 31, 2015 December 31, 2014 Debt Commitments (1) New portfolio company $544.0 $776.9 Existing portfolio company 181.7 118.0 Total $725.7 $894.9 Funded and Restructured Debt Investments (3) New portfolio company $352.5 $434.0 Existing portfolio company 341.6 177.0 Total $694.1 $611.0 Funded Equity Investments New portfolio company $1.0 $7.2 Existing portfolio company 17.6 3.1 Total $18.6 $10.3 Unfunded Contractual Commitments (2) Total $75.4 $147.7 Non-Binding Term Sheets New portfolio company $81.0 $104.0 Existing portfolio company 5.0 4.2 Total $86.0 $108.2 (1)Includes restructured loans and renewals in addition to new commitments.(2)Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company and unencumbered by milestones.(3)Funded amounts include borrowings on revolving facilities.We receive payments in our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principalrepayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantlyfrom period to period. During the year ended December 31, 2015, we received approximately $503.6 million in aggregate principal repayments. Of theapproximately $503.6 million of aggregate principal repayments, approximately $115.1 million were scheduled principal payments, and approximately $388.5million were early principal repayments related to 45 portfolio companies. Of the approximately $388.5 million early principal repayments, approximately $70.7million were early repayments due to M&A transactions and IPOs related to six portfolio companies. Given the high level of early repayments during the year endedDecember 31, 2015, we anticipate that early repayment activity and our effective yields will normalize going forward. Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable, escrow receivables and Citigroup warrantparticipation) as of and for each of the years ended December 31, 2015 and 2014 was as follows: (in millions) December 31, 2015 December 31, 2014 Beginning portfolio $1,020.7 $910.3 New fundings and restructures 712.3 621.3 Warrants not related to current period fundings 0.1 0.8 Principal payments received on investments (115.1) (135.8)Early payoffs (388.5) (358.3)Accretion of loan discounts and paid-in-kind principal 31.7 24.5 Net acceleration of loan discounts and loan fees due to early payoff or restructure (1.7) (3.3)New loan fees (9.5) (9.2)Warrants converted to equity 0.4 2.0 Sale of investments (5.2) (9.1)Loss on investments due to write offs (7.5) (3.9)Net change in unrealized depreciation (37.1) (18.6)Ending portfolio $1,200.6 $1,020.7 68The following table shows the fair value of our portfolio of investments by asset class as of December 31, 2015 and December 31, 2014. December 31, 2015 December 31, 2014 (in thousands) Investments atFair Value Percentage ofTotal Portfolio Investments atFair Value Percentage ofTotal Portfolio Senior Secured Debt with Warrants $961,464 80.1% $740,659 72.6%Senior Secured Debt 171,732 14.3% 208,345 20.4%Preferred Stock 35,245 2.9% 57,548 5.6%Common Stock 32,197 2.7% 14,185 1.4%Total $1,200,638 100.0% $1,020,737 100.0% The increase in common stock and the decrease in preferred stock is primarily due to the IPO of Box, Inc. on January 23, 2015 in which all of our preferredshares were converted to common stock in the public portfolio company. Any potential future gain is subject to the price of the shares when we exit the investment. A summary of our investment portfolio at value by geographic location is as follows: December 31, 2015 December 31, 2014 (in thousands) Investments atFair Value Percentage ofTotal Portfolio Investments atFair Value Percentage ofTotal Portfolio United States $1,167,281 97.2% $967,803 94.8%Netherlands 20,112 1.7% 19,913 2.0%England 8,884 0.8% 34 0.0%Israel 3,764 0.3% 6,498 0.6%Canada 595 0.0% 2,314 0.2%India 2 0.0% 24,175 2.4%Total $1,200,638 100.0% $1,020,737 100.0% As of December 31, 2015, we held warrants or equity positions in three companies that had filed registration statements on Form S-1 with the SEC incontemplation of potential IPOs. All three companies filed confidentially under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. There can be noassurance that companies that have yet to complete their IPO will do so in a timely manner or at all.Changes in PortfolioWe generate revenue in the form of interest income, primarily from our investments in debt securities and commitment and facility fees. Fees generated inconnection with our debt investments are recognized over the life of the loan or, in some cases, recognized as earned. In addition, we generate revenue in the form ofcapital gains, if any, on warrants or other equity-related securities that we acquire from our portfolio companies. Our investments generally range from $12.0 millionto $25.0 million, although we may make investments in amounts above or below that range. As of December 31, 2015, our debt investments have a term of betweentwo and seven years and typically bear interest at a rate ranging from Prime or LIBOR to approximately 13.0%. In addition to the cash yields received on our debtinvestments, in some instances, our debt investments may also include any of the following: end-of-term payments, exit fees, balloon payment fees, commitmentfees, success fees, PIK provisions or prepayment fees which may be required to be included in income prior to receipt.Loan origination and commitment fees received in full at the inception of a loan are deferred and amortized into fee income as an enhancement to the relatedloan’s yield over the contractual life of the loan. We recognize nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating tospecific loan modifications. We had approximately $26.1 million of unamortized fees at December 31, 2015, of which approximately $23.6 million was included asan offset to the cost basis of our current debt investments and approximately $2.5 million was deferred contingent upon the occurrence of a funding or milestone. AtDecember 31, 2014 we had approximately $21.9 million of unamortized fees, of which approximately $17.4 million was included as an offset to the cost basis of ourcurrent debt investments and approximately $4.5 million was deferred contingent upon the occurrence of a funding or milestone.69Lo an exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan. At December 31, 2015 we hadapproximately $22.7 million in exit fees receivable, of which approximately $17.4 million was includ ed as an offset to the cost basis of our current debt investmentsand approximately $5.3 million was deferred related to expired commitments. At December 31, 2014 we had approximately $19.3 million in exit fees receivable, ofwhich approximately $8.4 milli on was included as an offset to the cost basis of our current debt investments and approximately $10.9 million was related to expiredcommitments.We have debt investments in our portfolio that contain a PIK provision. The PIK interest, computed at the contractual rate specified in each loan agreement, isrecorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our ability to be subject to tax as a RIC, thisnon-cash source of income must be paid out to stockholders with other sources of income in the form of dividends even though we have not yet collected the cash.Amounts necessary to pay these dividends may come from available cash or the liquidation of certain investments. We recorded approximately $4.7 million and $3.3million in PIK income in the years ended December 31, 2015 and December 31, 2014, respectively.In the majority of cases, we collateralize our investments by obtaining a first priority security interest in a portfolio company’s assets, which may include itsintellectual property. In other cases, we obtain a negative pledge covering a company’s intellectual property. At December 31, 2015, approximately 39.7% of ourportfolio company debt investments were secured by a first priority security in all of the assets of the portfolio company, including their intellectual property, 49.7%of the debt investments were to portfolio companies that were prohibited from pledging or encumbering their intellectual property, or subject to a negative pledge,7.9% of our portfolio company debt investments were secured by a second priority security interest in all of the portfolio company’s assets, other than intellectualproperty and 2.7% of our portfolio company debt investments were subordinated and secured by all of the portfolio company’s assets, including intellectual property.At December 31, 2015 we had no equipment only liens on any of our portfolio companies.Interest on debt securities is generally payable monthly, with amortization of principal typically occurring over the term of the investment. In addition, certainof our loans may include an interest-only period ranging from three to eighteen months or longer. In limited instances in which we choose to defer amortization ofthe loan for a period of time from the date of the initial investment, the principal amount of the debt securities and any accrued but unpaid interest become due at thematurity date.The core yield on our debt investments, which excludes any benefits from the fees and income related to early loan repayment acceleration of unamortizedfees and income as well as prepayment of fees, was 13.0% and 13.6% during the years ended December 31, 2015 and 2014, respectively. The effective yield on ourdebt investments, which includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time eventfees, was 14.3% and 16.8% for the years ended December 31, 2015 and 2014, respectively. The effective yield is derived by dividing total investment income by theweighted average earning investment portfolio assets outstanding during the year, excluding non-interest earning assets such as warrants and equity investments.Both the core yield and effective yield may be higher than what our common stockholders may realize as the core yield and effective yield do not reflect ourexpenses and any sales load paid by our common stockholders.The total return for our investors was approximately -9.7% and -1.8% during the years ended December 31, 2015 and 2014, respectively. The total returnequals the change in the ending market value over the beginning of the period price per share plus dividends paid per share during the period, divided by thebeginning price assuming the dividend is reinvested on the date of the distribution. The total return does not reflect any sales load that must be paid by investors. See“Note 9 – Financial Highlights.”Portfolio CompositionOur portfolio companies are primarily privately held companies and public companies which are active in the drug discovery and development, drug delivery,sustainable and renewable technology, software, media/content/info, medical devices and equipment, internet consumer and business services, specialtypharmaceuticals, communications and networking, consumer and business products, semiconductors, healthcare services, surgical devices, electronics and computerhardware, information services, biotechnology tools and diagnostic industry sectors. These sectors are characterized by high margins, high growth rates,consolidation and product and market extension opportunities. Value for companies in these sectors is often vested in intangible assets and intellectual property.As of December 31, 2015, approximately 63.0% of the fair value of our portfolio was composed of investments in four industries: 23.7% was composed ofinvestments in the drug discovery and development industry, 13.7% was composed of investments in the drug delivery industry, 13.3% was composed of investmentsin the sustainable and renewable technology industry and 12.3% was composed of investments in the software industry.70The following table shows the fair value of our portfolio by industry sector at December 31, 2015 and December 31, 2014: December 31, 2015 December 31, 2014 (in thousands) Investments atFair Value Percentage ofTotal Portfolio Investments atFair Value Percentage of Total Portfolio Drug Discovery & Development $284,266 23.7% $267,618 26.2%Drug Delivery 164,665 13.7% 88,491 8.7%Sustainable and Renewable Technology 159,487 13.3% 68,280 6.7%Software 147,237 12.3% 125,412 12.3%Media/Content/Info 95,488 7.9% 29,219 2.9%Medical Devices & Equipment 90,560 7.5% 138,046 13.5%Internet Consumer & Business Services 88,377 7.4% 69,655 6.8%Specialty Pharmaceuticals 52,088 4.3% 51,536 5.0%Communications & Networking 33,213 2.8% 61,433 6.0%Consumer & Business Products 26,611 2.2% 63,225 6.2%Semiconductors 22,705 1.9% 5,126 0.5%Healthcare Services, Other 15,131 1.3% 10,527 1.0%Surgical Devices 11,185 0.9% 9,915 1.0%Electronics & Computer Hardware 6,928 0.6% 692 0.1%Information Services 1,657 0.1% 27,016 2.6%Biotechnology Tools 719 0.1% 3,721 0.4%Diagnostic 321 0.0% 825 0.1%Total $1,200,638 100.0% $1,020,737 100.0% Industry and sector concentrations vary as new loans are recorded and loans pay off. Loan revenue, consisting of interest, fees, and recognition of gains onequity and warrants or other equity-related interests, can fluctuate materially when a loan is paid off or a related warrant or equity interest is sold. Revenuerecognition in any given year can be highly concentrated among several portfolio companies.For the years ended December 31, 2015 and 2014, our ten largest portfolio companies represented approximately 32.1% and 28.6% of the total fair value ofour investments in portfolio companies, respectively. At December 31, 2015 and December 31, 2014, we had two and three investments, respectively, thatrepresented 5% or more of our net assets. At December 31, 2015 and December 31, 2014, we had four and three equity investments representing approximately53.2% and 61.5%, respectively, of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments.As of December 31, 2015, 89.4% of our debt investments were in a senior secured first lien position, with the remaining 10.6% secured by a senior secondlien position or a subordinated lien on all of the portfolio company’s assets and approximately 93.7% of the debt investment portfolio was priced at floating interestrates or floating interest rates with a Prime or LIBOR based interest rate floor. As a result, we believe we are well positioned to benefit should market interest ratescontinue to rise.Our investments in senior secured debt with warrants have equity enhancement features, typically in the form of warrants or other equity-related securitiesdesigned to provide us with an opportunity for capital appreciation. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in aportfolio company, with a strike price generally equal to the most recent equity financing round. As of December 31, 2015, we held warrants in 129 portfoliocompanies, with a fair value of approximately $23.0 million. The fair value of our warrant portfolio decreased by approximately $2.0 million, as compared to a fairvalue of $25.1 million at December 31, 2014 primarily related to depreciation on our private warrant portfolio due to a decline in market comparable and portfoliocompany performance, offset by the addition of warrants in 21 new and 15 existing portfolio companies during the period.Our existing warrant holdings would require us to invest approximately $88.8 million to exercise such warrants as of December 31, 2015. Warrants mayappreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. Of the warrants that wehave monetized since inception, we have realized multiples in the range of approximately 1.02x to 14.93x based on the historical rate of return on our investments.However, our warrants may not appreciate in value and, in fact, may decline in value. Accordingly, we may experience losses from our warrant portfolio.71As required by the 1940 Act, we classify our investments by level of control. “Control investments” are defined in the 1940 Act as investments in thosecompanies that we are deemed to “control”, which, in general, includes a company in whi ch we own 25% or more of the voting securities of such company or havegreater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of ours, as defined in the1940 Act, which are n ot control investments. We are deemed to be an “affiliate” of a company in which we have invested if we own 5% or more, but less than 25%,of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither co ntrol investments nor affiliate investments.The following table summarizes our realized and unrealized gain and loss and changes in our unrealized appreciation and depreciation on affiliateinvestments for the years ended December 31, 2015, 2014, and 2013. We did not hold any control investments at December 31, 2015, 2014 or 2013. (in thousands) Year Ended December 31, 2015 Portfolio Company Type Fair Value atDecember 31, 2015 InvestmentIncome Net Change inUnrealizedAppreciation/(Depreciation) Reversal ofUnrealizedAppreciation/(Depreciation) RealizedGain/(Loss) Optiscan BioMedical, Corp. Affiliate $6,973 $— $901 $— $— Stion Corporation Affiliate 1,013 348 206 — — Total $7,986 $348 $1,107 $— $— (in thousands) Year Ended December 31, 2014 Portfolio Company Type Fair Value atDecember 31, 2014 InvestmentIncome Net Change inUnrealizedAppreciation/(Depreciation) Reversal ofUnrealizedAppreciation/(Depreciation) RealizedGain/(Loss) Gelesis, Inc. Affiliate $327 $— $(146) $— $— Optiscan BioMedical, Corp. Affiliate 6,072 — (24) — — Stion Corporation Affiliate 1,600 1,876 (3,112) — — Total $7,999 $1,876 $(3,282) $— $— (in thousands) Year Ended December 31, 2013 Portfolio Company Type Fair Value atDecember 31, 2013 InvestmentIncome Net Change inUnrealizedAppreciation/(Depreciation) Reversal ofUnrealizedAppreciation/(Depreciation) RealizedGain/(Loss) Gelesis, Inc. Affiliate $473 $— $(1,193) $— $— Optiscan BioMedical, Corp. Affiliate 4,784 1,933 (225) — — Stion Corporation Affiliate 5,724 462 593 — — Total $10,981 $2,395 $(825) $— $— During the year ended December 31, 2015, changes to the capitalization structure of our portfolio company Gelesis, Inc. reduced our investment below thethreshold for classification as an affiliate investment.Portfolio GradingWe use an investment grading system, which grades each debt investment on a scale of 1 to 5, to characterize and monitor our expected level of risk on thedebt investments in our portfolio with 1 being the highest quality. See “Item 1. Business—Investment Process—Loan and Compliance Administration.” Thefollowing table shows the distribution of our outstanding debt investments on the 1 to 5 investment grading scale at fair value as of December 31, 2015 and 2014,respectively: (in thousands) December 31, 2015 December 31, 2014 Investment Grading Number of Companies Debt Investments at Fair Value Percentage ofTotal Portfolio Number of Companies Debt Investments at Fair Value Percentage ofTotal Portfolio 1 18 $215,202 19.4% 19 $195,819 21.2%2 47 759,274 68.4% 45 479,037 51.8%3 6 44,837 4.0% 16 183,522 19.9%4 4 34,153 3.1% 6 39,852 4.3%5 10 56,743 5.1% 8 25,676 2.8% 85 $1,110,209 100.0% 94 $923,906 100.0% 72As of December 31, 2015, our debt investments had a weighted average investment grading of 2.16, as compared to 2 .24 at December 31, 2014. Our policyis to lower the grading on our portfolio companies as they approach the point in time when they will require additional equity capital. Additionally, we maydowngrade our portfolio companies if they are not meeting our financing criteria or are underperforming relative to their respective business plans. Variouscompanies in our portfolio will require additional funding in the near term or have not met their business plans and therefore have been downgraded until their funding is complete or their operations improve.The improvement in weighted average investment grading at December 31, 2015 from December 31, 2014 is primarily due to the increase in the average fairvalue of rated 2 portfolio companies between periods and the net reduction in the size of the portfolio by nine portfolio companies that were rated 3, 4, or 5 atDecember 31, 2014. This improvement is partially offset by the downgrade of five new portfolio companies to a 5 that were rated 3 or 4 at December 31, 2014 due toliquidity and portfolio company performance concerns during the year ended December 31, 2015.At December 31, 2015, we had five debt investments on non-accrual with cumulative investment cost and fair value of approximately $47.4 million and $23.2million, respectively. Comparatively, at December 31, 2014, we had four debt investments on non-accrual with a cumulative investment cost and fair value of $28.9million and $10.6 million, respectively. In addition, at December 31, 2015, we had one debt investment with an investment cost and fair value of approximately$20.1 million and $23.2 million, respectively, for which only the PIK interest is on non-accrual. The increase in the cumulative cost and fair value of debtinvestments on non-accrual between December 31, 2015 and December 31, 2014 is the result of placing three new debt investments on non-accrual status during theperiod, offset by the liquidation of two debt investments that were on non-accrual at December 31, 2014. During the year ended December 31, 2015, we recognized arealized loss of approximately $180,000 on the write off of one debt investment that was on non-accrual at December 31, 2014. In addition, we recognized a realizedloss of $1.2 million on the partial write off of one debt investment that is on non-accrual as of December 31, 2015. Results of OperationsComparison of periods ended December 31, 2015 and 2014Investment IncomeInterest IncomeTotal investment income for the year ended December 31, 2015 was approximately $157.1 million as compared to approximately $143.7 million for the yearended December 31, 2014.Interest income for the year ended December 31, 2015 totaled approximately $140.3 million as compared to approximately $126.6 million for the year endedDecember 31, 2014. The increase in interest income for the year ended December 31, 2015 as compared to the year ended December 31, 2014 is primarilyattributable to debt investment portfolio growth, specifically an increase in the weighted average principal outstanding between the periods.Of the $140.3 million in interest income for the year ended December 31, 2015, approximately $130.4 million represents recurring income from thecontractual servicing of our loan portfolio and approximately $9.9 million represents income related to the acceleration of income due to early loan repayments andother one-time events during the period. Income from recurring interest and the acceleration of interest income due to early loan repayments represented $106.8million and $19.8 million, respectively, of the $126.6 million interest income for the year ended December 31, 2014.The following table shows the PIK-related activity, for the years ended December 31, 2015 and 2014, at cost: Year Ended December 31, (in thousands) 2015 2014 Beginning PIk loan balance $6,250 $5,603 PIK interest income during the period 4,658 3,346 Payments received from PIK loans (5,483) (2,699)Realized loss (276) — Ending PIk loan balance $5,149 $6,250 The increase in payments received from PIK loans and the increase in PIK interest capitalized during the year ended December 31, 2015 as compared to theyear ended December 31, 2014 is due to an increase in the weighted average principal outstanding for loans which bear PIK interest and the number of PIK loanswhich paid-off during the period. 73Fee IncomeIncome from commitment, facility and loan related fees for the year ended December 31, 2015 totaled approximately $16.9 million as compared toapproximately $17.0 million for the year ended December 31, 2014. The decrease in fee income is primarily attributable to the acceleration of early loan repaymentsand restructures, slightly offset by an increase in normal fee amortization due to a higher weighted average debt investment portfolio outstanding during the period.Of the $16.9 million in income from commitment, facility and loan related fees for the year ended December 31, 2015, approximately $5.8 million representsincome from recurring fee amortization and approximately $11.1 million represents income related to the acceleration of unamortized fees for the period. Incomefrom recurring fee amortization and the acceleration of unamortized fees due to early loan repayments represented $5.2 million and $11.8 million, respectively, of the$17.0 million income for the year ended December 31, 2014.In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the years endedDecember 31, 2015 and 2014, respectively.Operating ExpensesOur operating expenses are comprised of interest and fees on our borrowings, general and administrative expenses and employee compensation and benefits.Operating expenses totaled approximately $83.6 million and $70.3 million during the years ended December 31, 2015 and 2014, respectively.Interest and Fees on our BorrowingsInterest and fees on our borrowings totaled approximately $36.9 million and $34.0 million for the years ended December 31, 2015 and 2014, respectively.Interest and fee expense for the year ended December 31, 2015 as compared to December 31, 2014 increased primarily due to higher weighted average principalbalances outstanding on our Asset Backed Notes, Credit Facilities, 2019 Notes and 2024 Notes (together with the 2019 Notes, the “Baby Bonds”), slightly offset by areduction in weighted average principal balances outstanding on our SBA debentures, Convertible Senior Notes and lower debt issuance cost amortization related toour Convertible Senior Notes and Asset Backed Notes.We had a weighted average cost of debt, comprised of interest and fees and loss on debt extinguishment (long-term liabilities – convertible senior notes), ofapproximately 6.0% and 6.6% for the years ended December 31, 2015 and 2014, respectively. The decrease between comparative periods was primarily driven by areduction in the weighted average principal outstanding on our higher yielding debt instruments and a reduction in non-cash acceleration of debt issuance costsrelated to our SBA Debentures, Convertible Senior Notes and Asset Backed Notes as compared to the prior period, slightly offset by non-cash accelerations of debtissuance costs due to early pay downs on our Baby Bonds.General and Administrative ExpensesGeneral and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with theworkout of underperforming investments and various other expenses. Our general and administrative expenses increased to $16.7 million from $10.2 million for theyears ended December 31, 2015 and 2014, respectively. This increase was primarily due to increased recruiting costs related to strategic hiring objectives, corporatelegal expenses and outside consulting services.Employee CompensationEmployee compensation and benefits totaled approximately $20.7 million for the year ended December 31, 2015 as compared to approximately $16.6 millionfor the year ended December 31, 2014. The increase between comparative periods was primarily due to changes in variable incentive compensation.Employee stock-based compensation totaled approximately $9.4 million for the year ended December 31, 2015 as compared to approximately $9.6 millionfor the year ended December 31, 2014. The decrease between comparative periods was primarily due to new grants issued related to incentive compensation andstrategic hiring objectives, slightly offset by vesting and forfeitures.74Loss on Extinguishment of Convertible Senior NotesUpon meeting the stock trading price conversion requirement during the three months ended June 30, 2014, September 30, 2014 and December 31, 2014, theConvertible Senior Notes became convertible on July 1, 2014 and continued to be convertible during each of the three months ended September 30, 2014, December31, 2014 and March 31, 2015, respectively. During this period and as of December 31, 2015, holders of approximately $57.4 million of our Convertible Senior Noteshave exercised their conversion rights and these Convertible Senior Notes were settled with a combination of cash equal to the outstanding principal amount of theConvertible Senior Notes and approximately 1.5 million shares of the Company’s common stock, or $24.3 million.We recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and original issue discount. The loss waspartially offset by a gain in the amount of the difference between the outstanding principal balance of the converted notes and the fair value of the debt instrument.The net loss on extinguishment of debt we recorded for the years ended December 31, 2015 and 2014 was approximately $1,000 and $1.6 million, respectively. Theloss on extinguishment of debt was classified as a component of net investment income in our Consolidated Statements of Operations.Net Investment Realized Gains and Losses and Net Unrealized Appreciation and DepreciationRealized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the cost basis of an investment withoutregard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period, net of recoveries. Net change inunrealized appreciation or depreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previouslyrecorded unrealized appreciation or depreciation when gains or losses are realized.A summary of realized gains and losses for the years ended December 31, 2015 and 2014 is as follows: Year Ended December 31, (in thousands) 2015 2014 Realized gains $12,677 $24,027 Realized losses (7,530) (3,915)Net realized gains $5,147 $20,112 During the year ended December 31, 2015, we recognized net realized gains of approximately $5.1 million on the portfolio. These net realized gains includedgross realized gains of approximately $12.6 million from the sale of investments in seven portfolio companies, including Box, Inc. ($3.2 million), Atrenta, Inc. ($2.6million), Cempra, Inc. ($2.0 million), Celladon Corporation ($1.4 million), Egalet Corporation ($652,000), Everyday Health, Inc. ($387,000) and Identiv, Inc.($304,000), and $1.5 million from subsequent recoveries received on two previously written-off debt investments. These gains were partially offset by gross realizedlosses of approximately $7.5 million primarily from the liquidation or write off of our investments in sixteen portfolio companies.During the year ended December 31, 2014, we recognized net realized gains of approximately $20.1 million on the portfolio. These net realized gainsincluded gross realized gains of approximately $24.0 million primarily from the sale of investments in seven portfolio companies including Acceleron Pharma, Inc.,($7.9 million), Merrimack Pharmaceuticals, Inc., ($4.3 million), Neuralstem, Inc., ($2.7 million), IPA Holdings, LLC., ($1.5 million), Cell Therapeutics, Inc., ($1.3million), Trulia, Inc. ($1.0 million), and Portola Pharmaceuticals, Inc. ($700,000). These gains were partially offset by gross realized losses of approximately $3.9million primarily from the liquidation of our investments in fifteen portfolio companies.The net unrealized appreciation and depreciation of our investments is based on the fair value of each investment determined in good faith by our Board ofDirectors. The following table summarizes the change in net unrealized appreciation/depreciation of investments for the years ended December 31, 2015 and 2014: Year Ended December 31, (in thousands) 2015 2014 Gross unrealized appreciation on portfolio investments $78,991 $72,968 Gross unrealized depreciation on portfolio investments (111,926) (79,412)Reversal of prior period net unrealized appreciation upon a realization event (8,707) (15,335)Reversal of prior period net unrealized depreciation upon a realization event 4,599 3,182 Net unrealized appreciation (depreciation) attributable to taxes payable 1,322 (1,882)Net unrealized depreciation on escrow receivables — (465)Citigroup warrant participation (11) 270 Net unrealized appreciation (depreciation) on portfolio investments $(35,732) $(20,674)75During the year ended December 31, 2015, we recorded approximately $35.7 million of net unrealized depreciation, of which $37.1 million is net unrealizeddepreciation from our debt, equity and warrant investments. Of the $37.1 million, approximately $14.0 million is attributed to net unrealized depreciation on our debtinvestments which primarily related to $20.4 million unrealize d depreciation for collateral based impairments on ten portfolio companies offset by the reversal ofcollateral based impairments of $5.6 on three portfolio companies. Approximately $19.1 million is attributed to net unrealized depreciation on our equity investments which primarily relates to approximately $11.4 million unrealized depreciation on our public equity portfolio with the largest concentration in ourinvestment in Box, Inc. and the reversal of $7.8 million of prior period net unrealized appreciat ion upon being realized as a gain for our sale of shares of Box, Inc.,Atrenta, Inc., Cempra, Inc. Celladon Corporation, Egalet Corporation, Everyday Health, and Identiv, Inc. as discussed above. Finally, approximately $4.0 million isattributed to net unr ealized depreciation on our warrant investments which primarily related to $6.0 million of unrealized depreciation on our private portfoliocompanies related to declining industry performance offset by the reversal of $3.2 million of prior period net unrea lized depreciation upon being realized as a loss onthe liquidation of our investments in thirteen portfolio companies. Net unrealized depreciation was offset by approximately $1.3 million as a result of decreased estimated taxes payable for the year ended December 31, 2015.Net unrealized depreciation increased by approximately $11,000 due to appreciation of fair value on the pool of warrants collateralized under the warrantparticipation agreement offset by a decrease in the liability for the acquisition proceeds we received on our Atrenta, Inc. equity investment, which had been exercisedfrom warrants that were included in the collateral pool.During the year ended December 31, 2014, we recorded approximately $20.7 million of net unrealized depreciation, of which $18.6 million is net unrealizeddepreciation from our debt, equity and warrant investments. Of the $18.6 million, approximately $14.2 million is attributed to net unrealized depreciation on our debtinvestments which primarily related to $23.2 million unrealized depreciation for collateral based impairments on 12 portfolio companies offset by the reversal ofcollateral based impairments of $4.1 on two portfolio companies. Approximately $15.8 million is attributed to net unrealized depreciation on our warrant investmentswhich primarily related to $8.3 million of net unrealized depreciation due to the exercise of our warrants in Box, Inc. to equity and $2.4 million of net unrealizeddepreciation due to the reversal of prior period net unrealized appreciation upon being realized as a gain. This unrealized depreciation was offset by approximately$11.4 million attributed to net unrealized appreciation on our equity investments, including approximately $13.0 million of net unrealized appreciation on Box, Inc.,including the exercise of our remaining warrants in Box, Inc. to equity and approximately $7.7 million of net unrealized appreciation on our public equity portfolio.This was offset by approximately $12.7 million unrealized depreciation due to reversal of prior period net unrealized appreciation upon being realized as a gain.Net unrealized appreciation decreased by approximately $1.9 million as a result of estimated taxes payable for the year ended December 31, 2014.Net unrealized appreciation further decreased by approximately $465,000 as a result of reducing escrow receivables for the year ended December 31, 2014related to merger and acquisition transactions closed on former portfolio companies.During the year ended December 31, 2014, net unrealized depreciation was offset by approximately $270,000 due to net depreciation of fair value on the poolof warrants collateralized under the Citigroup warrant participation agreement as a result of the sale of shares in Acceleron Pharma, Inc., MerrimackPharmaceuticals, Inc., Portola Pharmaceuticals, Inc. and Everyday Health, Inc. that were subject to the Citigroup warrant participation agreement.76The following table summarizes the change in net unrealized appreciation/ (depreciation) in the investment portfolio by investment type, excluding netunrealized appreciation (depreciati on) on taxes payable, escrow receivables and Citigroup warrant participation, for the years ended December 31, 2015 andDecember 31, 2014. Year Ended December 31, 2015 (in millions) Debt Equity Warrants Total Collateral based impairments $(20.4) $(0.2) $(0.4) $(21.0)Reversals of Prior Period Collateral based impairments 5.6 — 0.4 6.0 Reversals due to Debt Payoffs & Warrant/Equity sales 6.2 (7.8) 3.2 1.6 Fair Value Market/Yield Adjustments* Level 1 & 2 Assets (1.1) (11.4) (1.2) (13.7)Level 3 Assets (4.3) 0.3 (6.0) (10.0)Total Fair Value Market/Yield Adjustments (5.4) (11.1) (7.2) (23.7)Total Unrealized Appreciation/(Depreciation) $(14.0) $(19.1) $(4.0) $(37.1) Year Ended December 31, 2014 (in millions) Debt Equity Warrants Total Collateral based impairments $(23.2) $(1.2) $(3.3) (27.7)Reversals of Prior Period Collateral based impairments 4.1 0.6 — 4.7 Reversals due to Debt Payoffs & Warrant/Equity sales — (11.1) (9.7) (20.8)Fair Value Market/Yield Adjustments* Level 1 & 2 Assets — 7.6 (2.9) 4.7 Level 3 Assets 4.9 15.5 0.1 20.5 Total Fair Value Market/Yield Adjustments 4.9 23.1 (2.8) 25.2 Total Unrealized Appreciation/(Depreciation) $(14.2) $11.4 $(15.8) $(18.6) *Level 1 assets are generally equities listed in active markets and Level 2 assets are generally warrants held in a public company. Observable market prices are typically the primary inputin valuing Level 1 and 2 assets. Level 3 asset valuations require inputs that are both significant and unobservable. Generally, level 3 assets are debt investments and warrants and equitiesheld in a private company. See Note 2 to the financial statements discussing ASC 820.Income and Excise TaxesWe account for income taxes in accordance with the provisions of ASC Topic 740, Income Taxes, under which income taxes are provided for amountscurrently payable and for amounts deferred based upon the estimated future tax effects of differences between the financial statement and tax basis of assets andliabilities given the provisions of the enacted tax law. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. Based uponour qualification and election to be subject to taxation as a RIC, we are typically not subject to a material level of federal income taxes. We intend to distributeapproximately $8.2 million of spillover earnings from ordinary income for our taxable year ended December 31, 2015 to our shareholders in 2016.Net Increase in Net Assets Resulting from Operations and Earnings Per ShareFor the years ended December 31, 2015 and 2014, the net increase in net assets resulting from operations totaled approximately $42.9 million andapproximately $71.2 million, respectively. These changes are made up of the items previously described.The basic and fully diluted net change in net assets per common share for the year ended December 31, 2015 were $0.60 and $0.59, respectively, whereas thebasic and fully diluted net change in net assets per common share for the year ended December 31, 2014 was $1.12 and $1.10, respectively.For the purpose of calculating diluted earnings per share for years ended December 31, 2015 and 2014, the dilutive effect of the Convertible Senior Notesunder the treasury stock method is included in this calculation as our share price was greater than the conversion price of $11.03 in effect as of December 31, 2015and $11.36 as of December 31, 2014 for the Convertible Senior Notes for such periods. 77Comparison of periods ended December 31, 2014 and 2013Investment IncomeInterest IncomeTotal investment income for the year ended December 31, 2014 was approximately $143.7 million as compared to approximately $139.7 million for the yearended December 31, 2013.Interest income for the year ended December 31, 2014 totaled approximately $126.6 million as compared to approximately $123.7 million for the year endedDecember 31, 2013. The increase in interest income is primarily attributable to an increase in new loan originations during the year and an increase in accelerationsof original issue discounts related to early loan pay-offs and restructures in 2014.The following table shows the lending activity involving PIK interest arrangements, including PIK receivables, for the years ended December 31, 2014 and2013, at cost: Years Ended December 31, (in thousands) 2014 2013 Beginning PIk loan balance $5,603 $3,548 PIK interest capitalized during the period 3,346 3,515 Payments received from PIK loans (2,699) (1,153)Realized loss — (307)Ending PIk loan balance $6,250 $5,603 The increase in payments received from PIK loans and the decrease in PIK interest capitalized during the year ended December 31, 2014 is due to the payoffof seven PIK loans offset by additions of eight PIK loans which have incurred PIK capitalizations during the period ended December 31, 2014.Fee IncomeIncome from commitment, facility and loan related fees for the year ended December 31, 2014 totaled approximately $17.0 million as compared toapproximately $16.0 million for the year ended December 31, 2013. The increase in fee income is primarily attributable to additional fee accelerations and one timefees due to early pay-offs and restructures during the year ended December 31, 2014, as compared to the same period in 2013.In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the years endedDecember 31, 2014 and 2013, respectively.Operating ExpensesOur operating expenses are comprised of interest and fees on our borrowings, general and administrative expenses and employee compensation and benefits.Operating expenses totaled approximately $70.3 million and $66.6 million during the years ended December 31, 2014 and 2013, respectively.Interest and Fees on our BorrowingsInterest and fees on our borrowings totaled approximately $34.0 million and $35.1 million for the years ended December 31, 2014 and 2013, respectively.The decrease was primarily attributable to the lower weighted average balances outstanding on our SBA debentures, Convertible Senior Notes, and 2017 Asset-Backed Notes (as defined herein). During the year ended December 31, 2014, we paid off $34.8 million of SBA debentures in the first quarter of 2014, settled of$57.3 million of our Convertible Senior Notes, and had amortization of our 2017 Asset-Backed Notes from a balance of $89.6 million as of December 31, 2013 to$16.0 million as of December 31, 2014. In addition, interest expense decreased by approximately $1.7 million related to Convertible Senior Notes settled in theperiod. These decreases were partially offset by additional interest and fees of approximately $3.8 million on our 2024 Notes issued in the third quarter of 2014 andour 2017 Asset-Backed Notes issued in November 2014.During the year ended December 31, 2014, we recorded a net loss on extinguishment of our convertible senior notes of approximately $1.6 million. The netloss was classified as a component of net investment income in our Consolidated Statements of Operations. We did not incur a loss on extinguishment of debt duringthe twelve months ended December 31, 2013.78We had a weighted average cost of debt, comprised of interest and fees and loss on debt extinguishment (long-term liabilities – convertible senior notes), ofapproximately 6.6% and 6.1% for the years ended December 31, 2014 and 2013, respectively. The increase was primarily driven by the acceleration of fees related tothe early payoffs of SBA obligations and our Asset-Backed Notes as well as the loss on debt extinguishment (long-term liabilities – convertible senior notes) asdescribed above.General and Administrative ExpensesGeneral and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with theworkout of underperforming investments and various other expenses. Our general and administrative expenses increased to $10.2 million from $9.3 million for theyears ended December 31, 2014 and 2013, respectively. These increases were primarily due to increases in facility rent, marketing, corporate legal expenses andoutside consulting services partially offset by a decrease in accounting expenses.Employee CompensationEmployee compensation and benefits totaled approximately $16.6 million for the year ended December 31, 2014 as compared to approximately $16.2 millionfor the year ended December 31, 2013. The increase was primarily due to changes in variable compensation accrued during the periods.Stock-based compensation totaled approximately $9.6 million for the year ended December 31, 2014 as compared to approximately $6.0 million for the yearended December 31, 2013. The increase was primarily due to an increase in the number of restricted stock awards granted in April 2014 as compared March 2013.Loss on Extinguishment of Convertible Senior NotesUpon meeting the stock trading price conversion requirement as set forth in the Indenture, dated April 15, 2011, between us and U.S. Bank NationalAssociation, during the three months ended June 30, 2014, the Convertible Senior Notes became convertible on July 1, 2014 and continued to be convertible throughDecember 31, 2014. As of December 31, 2014, holders of approximately $57.3 million of our Convertible Senior Notes exercised their conversion rights and theseConvertible Senior Notes were settled with a combination of cash equal to the outstanding principal amount of the Convertible Senior Notes and approximately 1.5million shares of the Company’s common stock, or $24.3 million.We recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and original issue discount. The loss waspartially offset by a gain in the amount of the difference between the outstanding principal balance of the converted notes and the fair value of the debt instrument.The net loss on extinguishment of debt we recorded for the year ended December 31, 2014 was approximately $1.6 million and was classified as a component of netinvestment income in our Consolidated Statements of Operations.Net Investment Realized Gains and Losses and Net Unrealized Appreciation and DepreciationRealized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the cost basis of an investment withoutregard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period, net of recoveries. Net change inunrealized appreciation or depreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previouslyrecorded unrealized appreciation or depreciation when gains or losses are realized.A summary of realized gains and losses for the years ended December 31, 2014 and 2013 is as follows: Years Ended December 31, (in thousands) 2014 2013 Realized gains $24,027 $32,577 Realized losses (3,915) (17,741)Net realized gains $20,112 $14,836 During the year ended December 31, 2014, we recognized net realized gains of approximately $20.1 million on the portfolio. These net realized gainsincluded gross realized gains of approximately $24.0 million primarily from the sale of investments in seven portfolio companies including Acceleron Pharma, Inc.,($7.9 million), Merrimack Pharmaceuticals, Inc., ($4.3 million), Neuralstem, Inc., ($2.7 million), IPA Holdings, LLC., ($1.5 million), Cell Therapeutics, Inc., ($1.3million), Trulia, Inc. ($1.0 million), and Portola Pharmaceuticals, Inc. ($700,000). These gains were partially offset by gross realized losses of approximately $3.9million primarily from the liquidation of our investments in fifteen portfolio companies.79During the year ended December 31, 2013, we recognized net realized gains of approximately $14.8 million. These net realized gains include gross realizedgains of approximately $32.6 million primarily from the sale of equity and warrant invest ments in nine portfolio companies, including Virident Systems, Inc. ($7.5million), Anacor Pharmaceuticals, Inc. ($5.0 million), iWatt, Inc. ($4.7 million), Althea Technologies, Inc. ($4.3 million), WageWorks, Inc. ($2.0 million), Lanx,Inc. ($1.9 million) , InsMed, Inc. ($1.4 million), Pacira Pharmaceuticals, Inc. ($1.3 million) and AcelRx, Inc. ($1.1 million). These gains were partially offset bygross realized losses of approximately $17.8 million primarily from the liquidation of our debt and equity inve stments in five portfolio companies, includingBridgewave Communications ($4.4 million), E-Band Communications Corp ($3.3 million), Tethys Bioscience, Inc. ($2.5 million), Just.Me, Inc. ($1.3 million), andPointOne, Inc. ($1.1 million).The net unrealized appreciation and depreciation of our investments is based on the fair value of each investment determined in good faith by our Board ofDirectors. The following table summarizes the change in net unrealized appreciation/depreciation of investments for the years ended December 31, 2014 and 2013: Year Ended December 31, (in thousands) 2014 2013 Gross unrealized appreciation on portfolio investments $72,968 $80,616 Gross unrealized depreciation on portfolio investments (79,412) (63,855)Reversal of prior period net unrealized appreciation upon a realization event (15,335) (26,489)Reversal of prior period net unrealized depreciation upon a realization event 3,182 21,763 Net unrealized (depreciation) on taxes payable (1,882) (898)Net unrealized appreciation (depreciation) on escrow receivables (465) 465 Citigroup warrant participation 270 (57)Net unrealized appreciation (depreciation) on portfolio investments $(20,674) $11,545 During the year ended December 31, 2014, we recorded approximately $20.7 million of net unrealized depreciation, of which $18.6 million is net unrealizeddepreciation from our debt, equity and warrant investments. Of the $18.6 million, approximately $14.2 million is attributed to net unrealized depreciation on our debtinvestments which primarily related to $23.2 million unrealized depreciation for collateral based impairments on 12 portfolio companies offset by the reversal ofcollateral based impairments of $4.1 on two portfolio companies. Approximately $15.8 million is attributed to net unrealized depreciation on our warrant investmentswhich primarily related to $8.3 million of net unrealized depreciation due to the exercise of our warrants in Box, Inc. to equity and $2.4 million of net unrealizeddepreciation due to the reversal of prior period net unrealized appreciation upon being realized as a gain. This unrealized depreciation was offset by approximately$11.4 million attributed to net unrealized appreciation on our equity investments, including approximately $13.0 million of net unrealized appreciation on Box, Inc.,including the exercise of our remaining warrants in Box, Inc. to equity and approximately $7.7 million of net unrealized appreciation on our public equity portfolio.This was offset by approximately $12.7 million unrealized depreciation due to reversal of prior period net unrealized appreciation upon being realized as a gain.Net unrealized appreciation decreased by approximately $1.9 million as a result of estimated taxes payable for the year ended December 31, 2014.Net unrealized appreciation further decreased by approximately $465,000 as a result of reducing escrow receivables for the year ended December 31, 2014related to merger and acquisition transactions closed on former portfolio companies.During the year ended December 31, 2014, net unrealized depreciation was offset by approximately $270,000 due to net depreciation of fair value on the poolof warrants collateralized under the Citigroup warrant participation agreement as a result of the sale of shares in Acceleron Pharma, Inc., MerrimackPharmaceuticals, Inc., Portola Pharmaceuticals, Inc. and Everyday Health, Inc. that were subject to the Citigroup warrant participation agreement.During the year ended December 31, 2013, we recorded approximately $11.5 million of net unrealized appreciation, of which $12.0 million is net unrealizedappreciation from our debt, equity and warrant investments. Of the $12.0 million, approximately $15.7 million is attributed to net unrealized appreciation on equity,including approximately $5.6 million of net unrealized depreciation due to the reversal of prior period net unrealized appreciation upon being realized as a gain.Approximately $4.5 million is attributed to net unrealized appreciation on our warrant investments, including approximately $9.4 million of net unrealizeddepreciation due to the reversal of prior period net unrealized appreciation upon being realized as a gain. This unrealized appreciation was partially offset byapproximately $8.2 million of net unrealized depreciation on our debt investments, which primarily related to $21.2 million of unrealized depreciation for collateralbased impairments, offset by the reversal of approximately $13.0 million of prior period net unrealized depreciation upon being realized as a loss due to the write-offor early payoff of debt investments.Net unrealized appreciation decreased by approximately $898,000 as a result of estimated taxes payable for the year ended December 31, 2013.80Net unrealized appreciation further increas ed by approximately $465,000 as a result of escrow receivables related to merger and acquisition transactionsclosed during the year ended December 31, 2013.For the year ended December 31, 2013, net unrealized appreciation decreased by approximately $57,000 as a result of net appreciation of fair value on thepool of warrants collateralized under the Citigroup warrant participation agreement.The following table summarizes the change in net unrealized appreciation/ (depreciation) in the investment portfolio by investment type for the years endedDecember 31, 2014 and December 31, 2013. Year Ended December 31, 2014 (in millions) Debt Equity Warrants Total Collateral based impairments $(23.2) $(1.2) $(3.3) $(27.7)Reversals of Prior Period Collateral based impairments 4.1 0.6 — 4.7 Reversals due to Debt Payoffs & Warrant/Equity sales — (11.1) (9.7) (20.8)Fair Value Market/Yield Adjustments* Level 1 & 2 Assets — 7.6 (2.9) 4.7 Level 3 Assets 4.9 15.5 0.1 20.5 Total Fair Value Market/Yield Adjustments 4.9 23.1 (2.8) 25.2 Total Unrealized Appreciation/(Depreciation) $(14.2) $11.4 $(15.8) $(18.6) Year Ended December 31, 2013 (in millions) Debt Equity Warrants Total Collateral based impairments $(21.2) $— $(0.1) (21.3)Reversals of Prior Period Collateral based impairments — — — — Reversals due to Debt Payoffs & Warrant/Equity sales 13.0 (5.8) (10.6) (3.4)Fair Value Market/Yield Adjustments* Level 1 & 2 Assets — 7.6 3.5 11.1 Level 3 Assets — 13.9 11.7 25.6 Total Fair Value Market/Yield Adjustments — 21.5 15.2 36.7 Total Unrealized Appreciation/(Depreciation) $(8.2) $15.7 $4.5 $12.0 *Level 1 assets are generally equities listed in active markets and Level 2 assets are generally warrants held in a public company. Observable market prices are typically the primary inputin valuing Level 1 and 2 assets. Level 3 asset valuations require inputs that are both significant and unobservable. Generally, level 3 assets are debt investments and warrants and equitiesheld in a private company. See Note 2 to the financial statements discussing ASC 820.Income and Excise TaxesWe account for income taxes in accordance with the provisions of ASC Topic 740, Income Taxes, under which income taxes are provided for amountscurrently payable and for amounts deferred based upon the estimated future tax effects of differences between the financial statement and tax basis of assets andliabilities given the provisions of the enacted tax law. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. Based uponour qualification and election to be subject to taxation as a RIC, we are typically not subject to a material level of federal income taxes. We distributed 100% of ourspillover from long term capital gains for our taxable year ended December 31, 2014 to our shareholders during 2015.Net Increase in Net Assets Resulting from Operations and Earnings Per ShareFor the years ended December 31, 2014 and 2013, the net increase in net assets resulting from operations totaled approximately $71.2 million andapproximately $99.4 million, respectively. These changes are made up of the items previously described.The basic and fully diluted net change in net assets per common share for the year ended December 31, 2014 were $1.12 and $1.10, respectively, whereas thebasic and fully diluted net change in net assets per common share for the year ended December 31, 2013 were $1.67 and $1.63, respectively.For the purpose of calculating diluted earnings per share for years ended December 31, 2014 and 2013, the dilutive effect of the Convertible Senior Notesunder the treasury stock method is included in this calculation as our share price was greater than the conversion price of $11.36 in effect as of December 31, 2014and $11.63 as of December 31, 2013 for the Convertible Senior Notes for such periods.81Financial Condition, Liqui dity and Capital ResourcesOur liquidity and capital resources are derived from our Credit Facilities, SBA debentures, Convertible Senior Notes, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includesinvestments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our borrowings andthe proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives. We may raise additionalequity or debt capital through both registered offerings off a shelf registration, “At-The-Market”, or ATM, and private offerings of securities, by securitizing aportion of our investments or borrowing, including from the SBA through our SBIC subsidiaries.On August 16, 2013, we entered into an ATM equity distribution agreement (the “Equity Distribution Agreement”) with JMP Securities LLC, or JMP. TheEquity Distribution Agreement provides that we may offer and sell up to 8.0 million shares of our common stock from time to time through JMP, as our sales agent.Sales of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under theSecurities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, atprices related to the prevailing market prices or at negotiated prices.During the year ended December 31, 2014, we sold 650,000 shares of common stock for total accumulated net proceeds of approximately $9.5 million, all ofwhich is accretive to net asset value. We generally use the net proceeds from these offerings to make investments, to repurchase or pay down liabilities and forgeneral corporate purposes. As of December 31, 2015, approximately 7.35 million shares remained available for issuance and sale under the equity distributionagreement.On February 24, 2015, our Board of Directors authorized a stock repurchase plan permitting us to repurchase up to $50.0 million of our common stock. Thisplan expired on August 24, 2015. On August 27, 2015, our Board of Directors authorized a replacement stock repurchase plan permitting us to repurchase up to$50.0 million of our common stock. We may repurchase shares of our common stock in the open market, including block purchases, at prices that may be above orbelow the net asset value as reported in the most recently published financial statements. We expect that the share repurchase program will be in effect untilAugust 23, 2016, or until the approved dollar amount has been used to repurchase shares. During the year ended December 31, 2015, we repurchased 437,006 sharesof our common stock at an average price per share of $10.61 per share and a total cost of approximately $4.6 million. As of December 31, 2015, approximately $45.4million of common stock remains eligible for repurchase under the stock repurchase plan. See “Item 5. Market for Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities” for further information on the repurchases made during the period. See “— Subsequent Events.”On March 27, 2015, we raised approximately $100.1 million, after deducting offering expenses, in a public offering of 7,590,000 shares of our commonstock.At the 2015 Annual Meeting of Stockholders on July 7, 2015, our common stockholders approved a proposal to allow us to issue common stock at a discountfrom our then current net asset value (“NAV”) per share, which is effective for a period expiring on the earlier of July 7, 2016 or the 2016 annual meeting ofstockholders. In connection with the receipt of such stockholder approval, we will limit the number of shares that we issue at a price below NAV pursuant to thisauthorization so that the aggregate dilutive effect on our then outstanding shares will not exceed 20%. Our Board of Directors, subject to its fiduciary duties andregulatory requirements, has the discretion to determine the amount of the discount, and as a result, the discount could be up to 100% of NAV per share. During theyear ended December 31, 2015, we have not issued common stock at a discount to NAV.As of December 31, 2015, approximately $57.4 million of our Convertible Senior Notes had been converted and were settled with a combination of cashequal to the outstanding principal amount of the Convertible Senior Notes and approximately 1.5 million of our common stock, or $24.3 million. By not meeting thestock trading price conversion requirement during the three months ended March 31, 2015, June 30, 2015, or September 30, 2015 the Convertible Senior Notes arenot convertible for the period between April 1, 2015 and October 14, 2015. On or after October 15, 2015 until the close of business on the scheduled trading dayimmediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time.At December 31, 2015, we had $17.6 million of Convertible Senior Notes, $110.4 million of 2019 Notes, $103.0 million of 2024 Notes, $129.3 million of2021 Asset-Backed Notes, $190.2 million of SBA debentures payable and $50.0 million of borrowings outstanding on the Wells Facility. We had no borrowingsoutstanding under the Union Bank Facility.At December 31, 2015, we had $195.2 million in available liquidity, including $95.2 million in cash and cash equivalents. We had available borrowingcapacity of approximately $25.0 million under the Wells Facility and $75.0 million under the Union Bank Facility, subject to existing terms and advance rates andregulatory requirements. We primarily invest cash on hand in interest bearing deposit accounts.82At December 31, 2015, we had $118.5 million of cash in restricted accounts related to our SBIC that we may use to fund new investments in the SBIC. Withour net investments of $44.0 million and $74.5 million in HT II and HT III, respectively, we have the combined capa city to issue a total of $190.2 million of SBAguaranteed debentures, subject to SBA approval. At December 31, 2015, we have issued $190.2 million in SBA guaranteed debentures in our SBIC subsidiaries.At December 31, 2015, we had approximately $9.2 million of restricted cash, which consists of collections of interest and principal payments on assets thatare securitized. In accordance with the terms of the related securitized 2021 Asset-Backed Notes, based on current characteristics of the securitized debt investmentportfolios, the restricted funds may be used to pay monthly interest and principal on the securitized debt and are not distributed to us or available for our generaloperations. During the year ended December 31, 2015, we principally funded our operations from (i) cash receipts from interest, dividend and fee income from ourinvestment portfolio and (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equityinvestments.During the year ended December 31, 2015, our operating activities used $114.4 million of cash and cash equivalents, compared to $26.5 million used duringthe year ended December 31, 2014. This $87.9 million increase in cash used by operating activities resulted primarily from the increase in purchase of investments ofapproximately $89.5 million and the decrease in net assets resulting from operations of approximately $28.3 million, offset by increases in unrealized depreciation oninvestments of approximately $15.1 million and decreases in realized gains on investments of approximately $15.0 million.During the year ended December 31, 2015, our investing activities provided $3.3 million of cash, compared to approximately $6.6 million used during theyear ended December 31, 2014. This $9.9 million increase in cash provided by investing activities was primarily due to a decrease in cash classified as restricted cashon assets that are securitized.During the year ended December 31, 2015, our financing activities used $20.8 million of cash, compared to $8.2 million used during the year endedDecember 31, 2014. This $12.6 million increase in cash used was primarily due to the repayments of approximately $88.7 million on the Wells Facility and $60.0million of 2019 Notes. These increases were offset by increases in proceeds from issuance of common stock of $90.3 million as a result of a public offering of7,590,000 shares on March 27, 2015 and decreases in settlements of Convertible Senior Notes of $53.1 million.As of December 31, 2015, net assets totaled $717.1 million, with a NAV per share of $9.94. We intend to generate additional cash primarily from cash flowsfrom operations, including income earned from investments in our portfolio companies. Our primary use of funds will be investments in portfolio companies andcash distributions to holders of our common stock.As required by the 1940 Act, our asset coverage must be at least 200% after each issuance of senior securities. As of December 31, 2015 our asset coverageratio under our regulatory requirements as a business development company was 274.8%, excluding our SBA debentures as a result of our exemptive order from theSEC that allows us to exclude all SBA leverage from our asset coverage ratio. As a result of the SEC exemptive order, our ratio of total assets on a consolidated basisto outstanding indebtedness may be less than 200%, which while providing increased investment flexibility, also may increase our exposure to risks associated withleverage. Total leverage when including our SBA debentures was 219.4% at December 31, 2015.83Outstanding BorrowingsAt December 31, 2015 and December 31, 2014, we had the following available borrowings and outstanding amounts: December 31, 2015 December 31, 2014 (in thousands) Total Available Carrying Value (1) Total Available Carrying Value (1) SBA Debentures (2) $190,200 $190,200 $190,200 $190,200 2019 Notes 110,364 110,364 170,364 170,364 2024 Notes 103,000 103,000 103,000 103,000 2017 Asset-Backed Notes — — 16,049 16,049 2021 Asset-Backed Notes 129,300 129,300 129,300 129,300 Convertible Senior Notes (3) 17,604 17,522 17,674 17,345 Wells Facility (4) 75,000 50,000 75,000 — Union Bank Facility (4) 75,000 — 75,000 — Total $700,468 $600,386 $776,587 $626,258 (1)Except for the Convertible Senior Notes, all carrying values are the same as the principal amount outstanding.(2)At both December 31, 2015 and December 31, 2014, the total available borrowings under the SBA debentures were $190.2 million, of which $41.2 million was available in HT II and$149.0 million was available in HT III.(3)During the year ended December 31, 2015, holders of approximately $70,000 of our Convertible Senior Notes exercised their conversion rights. The balance at December 31, 2015represents the remaining aggregate principal amount outstanding of the Convertible Senior Notes less the remaining unaccreted discount initially recorded upon issuance of the ConvertibleSenior Notes. The total remaining unaccreted discount for the Convertible Senior Notes was approximately $82,000 at December 31, 2015 and $329,000 at December 31, 2014.(4)Availability subject to meeting the borrowing base requirements. Our net asset value may decline as a result of economic conditions in the United States. Our continued compliance with the covenants under our CreditFacilities, Convertible Senior Notes, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes and SBA debentures depend on many factors, some of which are beyond ourcontrol. Material net asset devaluation could have a material adverse effect on our operations and could require us to reduce our borrowings in order to comply withcertain covenants, including the ratio of total assets to total indebtedness. We believe that our current cash and cash equivalents, cash generated from operations, andfunds available from our Credit Facilities will be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months.Debt financing costs are fees and other direct incremental costs we incur in obtaining debt financing and are recognized as prepaid expenses and amortizedinto the Consolidated Statement of Operations as loan fees over the term of the related debt instrument. Prepaid financing costs, net of accumulated amortization, asof December 31, 2015 and December 31, 2014 were as follows: (in thousands) December 31, 2015 December 31, 2014 SBA Debentures $3,371 $4,038 2019 Notes 2,185 4,352 2024 Notes 2,872 3,205 2017 Asset-Backed Notes — 506 2021 Asset-Backed Notes 2,305 3,207 Convertible Senior Notes 44 175 Wells Facility 669 794 Union Bank Facility 229 156 Total $11,675 $16,433 CommitmentsIn the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded contractualcommitments to extend credit, in the form of loans, to our portfolio companies. Unfunded contractual commitments to provide funds to portfolio companies are notreflected on our balance sheet. Our unfunded contractual commitments may be significant from time to time. A portion of these unfunded contractual commitmentsare dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, our credit agreements containcustomary lending provisions which allow us relief from funding obligations for previously made commitments in instances where the underlying companyexperiences materially adverse events that affect the financial condition or business outlook for the company. These commitments will be subject to the sameunderwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without beingdrawn upon, the total commitment amount does not necessarily represent our future cash requirements. As such, our disclosure of unfunded contractual commitsincludes only those which are available at the request of the portfolio company and unencumbered by milestones.84At December 31, 2015, we had approximately $75.4 million of unfunded commitments, including undrawn revolving facilities, which were available at therequest of the portfolio company and unencumbered by milestones. In addition, we ha d approximately $40.5 million of unavailable commitments to portfoliocompanies due to milestone and other covenant restrictions. We intend to use cash flow from normal and early principal repayments, and proceeds from borrowingsand notes to fund these co mmitments.We also had approximately $86.0 million of non-binding term sheets outstanding to eight new and existing companies, which generally convert to contractualcommitments within approximately 90 days of signing. Non-binding outstanding term sheets are subject to completion of our due diligence and final investmentcommittee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. Not all non-binding term sheets areexpected to close and do not necessarily represent future cash requirements.The fair value of our unfunded commitments are considered to be immaterial as the yield determined at the time of underwriting is expected to be materiallyconsistent with the yield upon funding, given that interest rates are generally pegged to a market indices and given the existence of milestones, conditions and/orobligations imbedded in the borrowing agreements.As of December 31, 2015, our unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities,and unencumbered by milestones are as follows: (in thousands) Total Unfunded Portfolio Company Commitments Paratek Pharmaceuticals, Inc. $20,000 NewVoiceMedia Limited 15,000 Machine Zone, Inc. 10,000 Aquantia Corp. 6,499 Message Systems, Inc. 5,882 Genocea Biosciences, Inc. 5,000 Antenna79 (p.k.a. Pong Research Corporation) 4,692 Druva, Inc. 3,000 Flowonix Medical 2,000 Cranford Pharmaceuticals, LLC 1,900 Zoom Media Group, Inc. 940 Touchcommerce, Inc. 489 Total $75,402 Contractual ObligationsThe following table shows our contractual obligations as of December 31, 2015: Payments due by period (in thousands) Contractual Obligations (1)(2) Total Less than 1 year 1 - 3 years 3 - 5 years After 5 years Borrowings (3) (4) $600,386 $17,522 $129,300 $211,564 $242,000 Operating Lease Obligations (5) 4,843 1,624 2,924 295 — Total $605,229 $19,146 $132,224 $211,859 $242,000 (1)Excludes commitments to extend credit to our portfolio companies.(2)We also have a warrant participation agreement with Citigroup. See Note 4 to our consolidated financial statements.(3)Includes $190.2 million in borrowings under the SBA debentures, $110.4 million of the 2019 Notes, $103.0 million of the 2024 Notes, $129.3 million in aggregate principal amount of the2021 Asset-Backed Notes and $17.5 million of the Convertible Senior Notes and $50.0 million in outstanding borrowings on the Wells Facility as of December 31, 2015.(4)Except for the Convertible Senior Notes, all carrying values are the same as the principal amount outstanding. The aggregate principal amount outstanding of the Convertible Senior Notesis $17.6 million less the remaining unaccreted discount initially recorded upon issuance of the Convertible Senior Notes. The total remaining unaccreted discount for the ConvertibleSenior Notes was $82,000 at December 31, 2015.(5)Long-Term facility leases.Certain premises are leased under agreements which expire at various dates through March 2020. Total rent expense amounted to approximately $1.7 million,$1.6 million and $1.1 million during the years ended December 31, 2015, 2014, and 2013, respectively.85Indemnification AgreementsWe have entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximumindemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director who is a party to theagreement, or 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.We and our executives and directors are covered by Directors and Officers Insurance, with the directors and officers being indemnified by us to the maximumextent permitted by Maryland law, subject to the restrictions in the 1940 Act. BorrowingsLong-Term SBA DebenturesOn September 27, 2006, HT II received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligibleinvestments and additional contributions to regulatory capital. Under the Small Business Investment Company Act and current SBA policy applicable to SBICs, aSBIC can have outstanding at any time SBA guaranteed debentures up to twice the amount of its regulatory capital. With our net investment of $44.0 million in HTII as of December 31, 2015, HT II has the capacity to issue a total of $41.2 million of SBA guaranteed debentures, subject to SBA approval, of which $41.2 millionwas outstanding as of December 31, 2015. As of December 31, 2015, HT II has paid the SBA commitment fees and facility fees of approximately $1.5 million and$3.6 million, respectively. As of December 31, 2015 we held investments in HT II in 32 companies with a fair value of approximately $79.5 million, accounting forapproximately 6.6% of our total portfolio. HT II held approximately $128.3 million in assets and accounted for approximately 7.6% of our total assets prior toconsolidation at December 31, 2015. On May 26, 2010, HT III received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligibleinvestments and additional contributions to regulatory capital. With our net investment of $74.5 million in HT III as of December 31, 2015, HT III has the capacity toissue a total of $149.0 million of SBA guaranteed debentures, subject to SBA approval, of which $149.0 million was outstanding as of December 31, 2015. As ofDecember 31, 2015, HT III has paid commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of December 31, 2015, weheld investments in HT III in 44 companies with a fair value of approximately $255.9 million accounting for approximately 21.3% of our total portfolio. HT III heldapproximately $310.8 million in assets and accounted for approximately 18.5% of the Company’s total assets prior to consolidation at December 31, 2015.SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businessesinclude businesses that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the twomost recent fiscal years. In addition, SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is onethat has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscalyears. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and arebased on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in theequity securities of such businesses and provide them with consulting and advisory services. Through our wholly-owned subsidiaries HT II and HT III, we plan toprovide long-term loans to qualifying small businesses, and in connection therewith, make equity investments.HT II and HT III are periodically examined and audited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails tocomply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declareoutstanding debentures immediately due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited intheir ability to make distributions to us if they do not have sufficient capital in accordance with SBA regulations. Such actions by the SBA would, in turn, negativelyaffect us because HT II and HT III are our wholly owned subsidiaries. HT II and HT III were in compliance with the terms of the SBIC’s leverage as of December31, 2015 as a result of having sufficient capital as defined under the SBA regulations.86The rates of borrowings under various draws from the SBA beginning in March 2009 are set semiannually in March and Sept ember and range from 2.25% to4.62% excluding annual fees. Interest payments on SBA debentures are payable semiannually. There are no principal payments required on these issues prior tomaturity and no prepayment penalties. Debentures under the SBA genera lly mature ten years after being borrowed. Based on the initial draw down date of March2009, the initial maturity of SBA debentures will occur in March 2019. In addition, the SBA charges a fee that is set annually, depending on the Federal fiscal yearthe leverage commitment was delegated by the SBA, regardless of the date that the leverage was drawn by the SBIC. The annual fees related to HT II debentures thatpooled on September 22, 2010 were 0.406% and 0.285%, depending upon the year in which the underl ying commitment was closed. The annual fees on otherdebentures have been set at 0.906%. The annual fees related to HT III debentures that pooled on March 27, 2013 were 0.804%. The annual fees on other debentureshave been set at 0.515%. The rates of borro wings on the Company’s SBA debentures range from 3.05% to 5.53% when including these annual fees.The average amount of debentures outstanding for the year ended December 31, 2015 for HT II was approximately $41.2 million with an average interest rateof approximately 4.52%. The average amount of debentures outstanding for the year ended December 31, 2015 for HT III was approximately $149.0 million with anaverage interest rate of approximately 3.43%.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the SBAdebentures are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $6,969 $7,328 Amortization of debt issuance cost (loan fees) 667 1,036 Total interest expense and fees $7,636 $8,364 Cash paid for interest expense and fees $6,942 $8,042 As of December 31, 2015, the maximum statutory limit on the dollar amount of combined outstanding SBA guaranteed debentures is $350.0 million, subjectto periodic adjustments by the SBA. In aggregate, at December 31, 2015, with our net investment of $118.5 million, HT II and HT III have the capacity to issue atotal of $190.2 million of SBA-guaranteed debentures, subject to SBA approval. At December 31, 2015, we have issued $190.2 million in SBA-guaranteeddebentures in our SBIC subsidiaries.We reported the following SBA debentures outstanding on our Consolidated Statement of Assets and Liabilities as of December 31, 2015 and December 31,2014: (in thousands)Issuance/Pooling Date Maturity Date Interest Rate (1) December 31, 2015 December 31, 2014 SBA Debentures: March 25, 2009 March 1, 2019 5.53% $18,400 $18,400 September 23, 2009 September 1, 2019 4.64% 3,400 3,400 September 22, 2010 September 1, 2020 3.62% 6,500 6,500 September 22, 2010 September 1, 2020 3.50% 22,900 22,900 March 29, 2011 March 1, 2021 4.37% 28,750 28,750 September 21, 2011 September 1, 2021 3.16% 25,000 25,000 March 21, 2012 March 1, 2022 3.28% 25,000 25,000 March 21, 2012 March 1, 2022 3.05% 11,250 11,250 September 19, 2012 September 1, 2022 3.05% 24,250 24,250 March 27, 2013 March 1, 2023 3.16% 24,750 24,750 Total SBA Debentures $190,200 $190,200 (1)Interest rate includes annual charge872019 NotesOn March 6, 2012, we and U.S. Bank National Association (the “2019 Trustee”) entered into an indenture (the “Base Indenture”). On April 17, 2012, we andthe 2019 Trustee entered into the First Supplemental Indenture to the Base Indenture (the “First Supplemental Indenture”) , dated April 17, 2012, relating to ourissuance, offer and sale of $43.0 million aggregate principal amount of 7.00% notes due 2019 (“the April 2019 Notes”). The sale of the April 2019 Notes generatednet proceeds, before expenses, of approximately $41.7 million.In July 2012, we reopened our April 2019 Notes and issued an additional $41.5 million in aggregate principal amount of April 2019 Notes, which includedthe exercise of an over-allotment option, bringing the total amount of the April 2019 Notes issued to approximately $84.5 million in aggregate principal amount.On September 24, 2012, we and the 2019 Trustee, entered into the Second Supplemental Indenture to the Base Indenture (the “Second SupplementalIndenture”) , dated as of September 24, 2012, relating to our issuance, offer and sale of $75.0 million aggregate principal amount of 7.00% notes due 2019 (the“September 2019 Notes”). The sale of the September 2019 Notes generated net proceeds, before expenses, of approximately $72.75 million.In October 2012, the underwriters exercised their over-allotment option for an additional $10.9 million of the September 2019 Notes, bringing the totalamount of the September 2019 Notes issued to approximately $85.9 million in aggregate principal outstanding.In April 2015, we redeemed $20.0 million of the $84.5 million issued and outstanding aggregate principal amount of April 2019 Notes, as previouslyapproved by the Board of Directors. In December 2015, we redeemed $40.0 million of the $85.9 million issued and outstanding aggregate principal amount ofSeptember 2019 Notes, as previously approved by the Board of Directors.As of December 31, 2015 and December 31, 2014, the 2019 Notes payable is comprised of: (in thousands) December 31, 2015 December 31, 2014 April 2019 Notes $64,490 $84,490 September 2019 Notes 45,874 85,874 Carrying Value of 2019 Notes $110,364 $170,364 April 2019 NotesThe April 2019 Notes will mature on April 30, 2019 and may be redeemed in whole or in part at our option at any time or from time to time on or afterApril 30, 2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100%of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to butnot including the date fixed for redemption. The April 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on January 30, April 30, July 30 andOctober 30 of each year, commencing on July 30, 2012, and trade on the NYSE under the trading symbol “HTGZ.”The April 2019 Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness;(ii) senior to any of our future indebtedness that expressly provides it is subordinated to the April 2019 Notes; (iii) effectively subordinated to all our existing andfuture secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assetssecuring such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.The Base Indenture, as supplemented by the First Supplemental Indenture, contains certain covenants including covenants requiring our compliance with(regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940Act to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified bySection 61(a)(1) of the 1940 Act and to provide financial information to the holders of the April 2019 Notes and the 2019 Trustee if we should no longer be subjectto the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture,as supplemented by the First Supplemental Indenture. The Base Indenture provides for customary events of default and further provides that the 2019 Trustee or theholders of 25% in aggregate principal amount of the outstanding April 2019 Notes in a series may declare such April 2019 Notes immediately due and payable uponthe occurrence of any event of default after expiration of any applicable grace period.The April 2019 Notes were sold pursuant to an underwriting agreement dated April 11, 2012 among us and Stifel, Nicolaus & Company, Incorporated, asrepresentative of the several underwriters named in the underwriting agreement.88September 2019 NotesThe September 2019 Notes will mature on September 30, 2019 and may be redeemed in whole or in part at our option at any time or from time to time on orafter September 30, 2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemptionprice of 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest periodaccrued to but not including the date fixed for redemption. The September 2019 Notes bear interest at a rate of 7.00% per year payable quarterly onMarch 30, June 30, September 30 and December 30 of each year, commencing on December 30, 2012, and trade on the NYSE under the trading symbol “HTGY.”The September 2019 Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness;(ii) senior to any of our future indebtedness that expressly provides it is subordinated to the September 2019 Notes; (iii) effectively subordinated to all our existingand future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assetssecuring such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.The Base Indenture, as supplemented by the Second Supplemental Indenture, contains certain covenants including covenants requiring us to comply with(regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a) (1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940Act to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified bySection 61(a)(1) of the 1940 Act and to provide financial information to the holders of the September 2019 Notes and the 2019 Trustee if we should no longer besubject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the BaseIndenture, as supplemented by the Second Supplemental Indenture. The Base Indenture provides for customary events of default and further provides that the 2019Trustee or the holders of 25% in aggregate principal amount of the outstanding September 2019 Notes in a series may declare such September 2019 Notesimmediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period.The September 2019 Notes were sold pursuant to an underwriting agreement dated September 19, 2012 among us and Stifel, Nicolaus & Company,Incorporated, as representative of the several underwriters named in the underwriting agreementFor the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2019 Notesare as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $10,899 $11,926 Amortization of debt issuance cost (loan fees) 2,167 967 Total interest expense and fees $13,066 $12,893 Cash paid for interest expense and fees $11,132 $11,926 As of December 31, 2015, we were in compliance with the terms of the Base Indenture, and respective supplemental indentures thereto, governing the April2019 Notes and September 2019 Notes. See Note 4 to our consolidated financial statements for more detail on the 2019 Notes.2024 NotesOn July 14, 2014, we and U.S. Bank National Association (the “2024 Trustee”), entered into the Third Supplemental Indenture (the “Third SupplementalIndenture”) to the Base Indenture between us and the 2024 Trustee, dated July 14, 2014, relating to our issuance, offer and sale of $100.0 million aggregate principalamount of 2024 Notes. On August 6, 2014, the underwriters issued notification to exercise their over-allotment option for an additional $3.0 million in aggregateprincipal amount of the 2024 Notes. The sale of the 2024 Notes generated net proceeds of approximately $99.9 million.The 2024 Notes will mature on July 30, 2024 and may be redeemed in whole or in part at our option at any time or from time to time on or after July 30,2017, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of theoutstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but notincluding the date fixed for redemption. The 2024 Notes bear interest at a rate of 6.25% per year payable quarterly on January 30, April 30, July 30 and October 30of each year, commencing on July 30, 2014, and trade on the NYSE under the trading symbol “HTGX.”89The 2024 Notes are our direct unsecured obligations and rank: (i) pari passu with our other outstanding and future senior unsecured indebtedness; (ii) seniorto an y of our future indebtedness that expressly provides it is subordinated to the 2024 Notes; (iii) effectively subordinated to all of our existing and future securedindebtedness (including indebtedness that is initially unsecured to which we subsequently gr ant security), to the extent of the value of the assets securing suchindebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries.The Base Indenture, as supplemented by the Third Supplemental Indenture, contains certain covenants including covenants requiring us to comply with(regardless of whether it is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940Act and to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified bySection 61(a)(1) of the 1940 Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented bythe Third Supplemental Indenture. The Base Indenture, as supplemented by the Third Supplemental Indenture, also contains certain reporting requirements, includinga requirement that we provide financial information to the holders of the 2024 Notes and the 2024 Trustee if we should no longer be subject to the reportingrequirements under the Exchange Act. The Base Indenture provides for customary events of default and further provides that the 2024 Trustee or the holders of 25%in aggregate principal amount of the outstanding 2024 Notes in a series may declare such 2024 Notes immediately due and payable upon the occurrence of any eventof default after expiration of any applicable grace period. As of December 31, 2015, we were in compliance with the terms of the Base Indenture, as supplemented bythe Third Supplemental Indenture.At both December 31, 2015 and December 31, 2014, the 2024 Notes had an outstanding principal balance of $103.0 million.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2024 Notesare as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $6,437 $2,955 Amortization of debt issuance cost (loan fees) 333 153 Total interest expense and fees $6,770 $3,108 Cash paid for interest expense and fees $6,437 $1,887 2017 Asset-Backed NotesOn December 19, 2012, we completed a $230.7 million term debt securitization in connection with which an affiliate of ours made an offer of $129.3 millionin aggregate principal amount of fixed-rate asset-backed notes, (the “2017 Asset-Backed Notes”) which were rated A2(sf) by Moody’s Investors Service, Inc. The2017 Asset-Backed Notes were sold by the 2012 Securitization Issuer pursuant to a note purchase agreement, dated as of December 12, 2012, by and among us, the2012 Trust Depositor, the 2012 Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, and were backed by a pool of senior loans made tocertain of our portfolio companies and secured by certain assets of those portfolio companies and serviced by us.As part of this transaction, we entered into a sale and contribution agreement with the 2012 Trust Depositor under which we have agreed to sell or havecontributed to the 2012 Trust Depositor certain senior loans made to certain of our portfolio companies (the “2012 Loans”). We have made customaryrepresentations, warranties and covenants in the sale and contribution agreement with respect to the 2012 Loans as of the date of their transfer to the 2012 TrustDepositor.At December 31, 2014, the 2017 Asset-Backed Notes had an outstanding principal balance of $16.0 million. In February 2015, changes in the paymentschedule of obligors in the 2017 Asset-Backed Notes collateral pool triggered a rapid amortization event in accordance with the sale and servicing agreement for the2017 Asset-Backed Notes. Due to this event, the 2017 Asset-Backed Notes were fully repaid as of April 16, 2015.Interest on the 2017 Asset-Backed Notes was paid, to the extent of funds available, at a fixed rate of 3.32% per annum. For the years ended December 31,2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2017 Asset-Backed Notes are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $141 $1,628 Amortization of debt issuance cost (loan fees) 506 2,180 Total interest expense and fees $647 $3,808 Cash paid for interest expense and fees $— $— 90Under the terms of the 2017 Asset Backed Notes, we are required to maintain a reserve cash balance, funded through interest and principal collections fromthe underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2017Asset-Backed Notes. We segregated thesefunds and classified them as restricted cash. There was approximately $1.2 million of restricted cash as of December 31, 2014, funded through interest collections.As the 2017 Asset-Backed Notes were fully repaid as of April 16, 2015 there were no funds segregated as restricted cash related to the 2017 Asset-Backed Notes atDecember 31, 2015.2021 Asset-Backed NotesOn November 13, 2014, we completed a $237.4 million term debt securitization in connection with which an affiliate of ours made an offer of $129.3 millionin aggregate principal amount of fixed-rate asset-backed notes (the “2021 Asset-Backed Notes”), which were rated A(sf) by Kroll Bond Rating Agency, Inc.(KBRA). The 2021 Asset-Backed Notes were sold by the 2014 Securitization Issuer pursuant to a note purchase agreement, dated as of November 13, 2014, by andamong us, the 2014 Trust Depositor, the 2014 Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, and are backed by a pool of senior loansmade to certain of our portfolio companies and secured by certain assets of those portfolio companies and are to be serviced by us. The securitization has an 18-month reinvestment period during which time principal collections may be reinvested into additional eligible loans. Interest on the 2021 Asset-Backed Notes will bepaid, to the extent of funds available, at a fixed rate of 3.524% per annum. The 2021 Asset-Backed Notes have a stated maturity of April 16, 2021.As part of this transaction, we entered into a sale and contribution agreement with the 2014 Trust Depositor under which we have agreed to sell or havecontributed to the 2014 Trust Depositor certain senior loans made to certain of our portfolio companies. We have made customary representations, warranties andcovenants in the sale and contribution agreement with respect to the 2014 Loans as of the date of their transfer to the 2014 Trust Depositor.In connection with the issuance and sale of the 2021 Asset-Backed Notes, we have made customary representations, warranties and covenants in the notepurchase agreement. The 2021 Asset-Backed Notes are secured obligations of the 2014 Securitization Issuer and are non-recourse to us. The 2014 SecuritizationIssuer also entered into an indenture governing the 2021 Asset-Backed Notes, which includes customary representations, warranties and covenants. The 2021 Asset-Backed Notes were sold without being registered under the Securities Act (A) in the United States to “qualified institutional buyers” as defined in Rule 144A underthe Securities Act and to institutional “accredited investors” (as defined in Rules 501(A)(1), (2), (3) or (7) under the Securities Act) who in each case, are “qualifiedpurchasers” as defined in Sec. 2(a)(51) of the 1940 Act and pursuant to an exemption under the Securities Act and (B) to non-U.S. purchasers acquiring interest inthe 2021 Asset-Backed Notes outside the United States in accordance with Regulation S under the Securities Act. The 2014 Securitization Issuer is not registeredunder the 1940 Act in reliance on an exemption provide by Section 3(c)(7) thereof and Rule 3a-7 thereunder. In addition, the 2014 Trust Depositor entered into anamended and restated trust agreement in respect of the 2014 Securitization Issuer, which includes customary representation, warranties and covenants.The 2014 Loans are serviced by us pursuant to a sale and servicing agreement, which contains customary representations, warranties and covenants. Weperform certain servicing and administrative functions with respect to the 2014 Loans. We are entitled to receive a monthly fee from the 2014 Securitization Issuerfor servicing the 2014 Loans. This servicing fee is equal to the product of one-twelfth (or in the case of the first payment date, a fraction equal to the number of daysfrom and including October 5, 2014 through and including December 5, 2014 over 360) of 2.00% and the aggregate outstanding principal balance of the 2014 Loansplus collections on deposit in the 2014 Securitization Issuer’s collections account, as of the first day of the related collection period (the period from the 5th day ofthe immediately preceding calendar month through the 4th day of the calendar month in which a payment date occurs, and for the first payment date, the period fromand including October 5, 2014, to the close of business on December 5, 2014).We also serve as administrator to the 2014 Securitization Issuer under an administration agreement, which includes customary representations, warranties andcovenants.At both December 31, 2015 and December 31, 2014, the 2021 Asset-Backed Notes had an outstanding principal balance of $129.3 million.91For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2021 Asset-Backed Notes are as fol lows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $4,557 $608 Amortization of debt issuance cost (loan fees) 902 117 Total interest expense and fees $5,459 $725 Cash paid for interest expense and fees $4,557 $418 Under the terms of the 2021 Asset Backed Notes, we are required to maintain a reserve cash balance, funded through interest and principal collections fromthe underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2021 Asset-Backed Notes. We have segregatedthese funds and classified them as restricted cash. There was approximately $9.2 million and $11.5 million of restricted cash as of December 31, 2015 and December31, 2014, respectively, funded through interest collections. See Note 4 to our consolidated financial statements for more detail on the 2021 Asset-Backed Notes.Convertible Senior NotesIn April 2011, we issued $75.0 million in aggregate principal amount of 6.00% convertible senior notes due 2016. During the year ended December 31, 2015,holders of approximately $70,000 of our Convertible Senior Notes exercised their conversion rights. As of December 31, 2015, the carrying value of the ConvertibleSenior Notes, comprised of the aggregate principal amount outstanding less the remaining unaccreted discount initially recorded upon issuance of the ConvertibleSenior Notes, is approximately $17.5 million.The Convertible Senior Notes mature on April 15, 2016, unless previously converted or repurchased in accordance with their terms. The Convertible SeniorNotes bear interest at a rate of 6.00% per year payable semiannually in arrears on April 15 and October 15 of each year, commencing on October 15, 2011. TheConvertible Senior Notes are our senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expresslysubordinated in right of payment to the Convertible Senior Notes; equal in right of payment to our existing and future unsecured indebtedness that is not sosubordinated; effectively junior in right of payment to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of thevalue of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries,financing vehicles or similar facilities.Prior to the close of business on the business day immediately preceding October 15, 2015, holders could convert their Convertible Senior Notes only undercertain circumstances set forth in the indenture governing the Convertible Senior Notes. On or after October 15, 2015, until the close of business on the scheduledtrading day immediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time. Upon conversion, we will pay or deliver, as thecase may be, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock. The conversion rate was initially 84.0972shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initial conversion price of approximately $11.89 per share ofcommon stock). The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, if certaincorporate events occur prior to the maturity date, the conversion rate is increased for converting holders. As of December 31, 2015, the conversion rate was 90.6580shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an adjusted conversion price of approximately $11.03 per share ofcommon stock).We may not redeem the Convertible Senior Notes prior to maturity. No sinking fund is provided for the Convertible Senior Notes. In addition, if certaincorporate events occur, holders of the Convertible Senior Notes may require us to repurchase for cash all or part of their Convertible Senior Notes at a repurchaseprice equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the requiredrepurchase date.The Convertible Senior Notes are accounted for in accordance with ASC Subtopic 470-20 (previously the Financial Accounting Standards Board (“FASB”)Staff Position No. APB 14- 1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)”). Inaccounting for the Convertible Senior Notes, we estimated at the time of issuance that the values of the debt and the embedded conversion feature of the ConvertibleSenior Notes were approximately 92.8% and 7.2%, respectively. The original issue discount of 7.2% attributable to the conversion feature of the Convertible SeniorNotes was recorded in “capital in excess of par value” in the Consolidated Statement of Assets and Liabilities. As a result, we record interest expense comprised ofboth stated interest expense as well as accretion of the original issue discount resulting in an estimated effective interest rate of approximately 8.1%.92Upon meeting the stock trading price conversion requirement as set forth in the indenture governing the Convertible Senior Notes, dated April 15, 2011,between us and U.S. Bank National Association, during the three months ended June 30, 2014, September 30, 2014 and December 31, 2014, the Convertible SeniorNotes became convertible on July 1, 2014 and continued to be convertible during each of the three months ended September 30, 2014, December 31, 2014 andMarch 31, 2015, respectively. During this period and as of December 31, 2015, approximately $57.4 million of the Convertible Senio r Notes were converted andwere settled with a combination of cash equal to the outstanding principal amount of the Convertible Senior Notes and approximately 1.5 million shares of the ourcommon stock, or $24.3 million. By not meeting the stock trading pr ice conversion requirement during the three months ended March 31, 2015, June 30, 2015, orSeptember 30, 2015 the Convertible Senior Notes were not convertible for the period between April 1, 2015 and October 14, 2015. On or after October 15, 2015 untilth e close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time asdescribed above.We recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and original issue discount on Notes convertedduring the period. The loss was partially offset by a gain in the amount of the difference between the outstanding principal balance of the converted notes and the fairvalue of the debt instrument. The net loss on extinguishment of debt we recorded for the years ended December 31, 2015 and 2014 was approximately $1,000 and$1.6 million, respectively. The loss on extinguishment of debt was classified as a component of net investment income in the Company’s Consolidated Statement ofOperations.As of December 31, 2015 and December 31, 2014, the components of the carrying value of the Convertible Senior Notes were as follows: (in thousands) December 31, 2015 December 31, 2014 Principal amount of debt $17,604 $17,674 Original issue discount, net of accretion (82) (329)Carrying value of Convertible Senior Debt $17,522 $17,345 For the years ended December 31, 2015 and 2014, the components of interest expense, fees and cash paid for interest expense for the Convertible Senior Notes wereas follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $1,007 $2,753 Accretion of original issue discount 246 843 Amortization of debt issuance cost (loan fees) 131 450 Total interest expense and fees $1,384 $4,046 Cash paid for interest expense and fees $1,057 $3,465 The estimated effective interest rate of the debt component of the Convertible Senior Notes, equal to the stated interest of 6.0% plus the accretion of theoriginal issue discount, was approximately 8.1% for the years ended December 31, 2015 and December 31, 2014. I nterest expense decreased by approximately $1.7million during the year ended December 31, 2015 from the year ended December 31, 2014, due to Convertible Senior Notes settled in the period. As of December31, 2015, we are in compliance with the terms of the indentures governing the Convertible Senior Notes. See Note 4 to our consolidated financial statements formore detail on the Convertible Senior Notes.Wells FacilityOn June 29, 2015, we, through a special purpose wholly-owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into an Amended andRestated Loan and Security Agreement (the “Wells Facility”) with Wells Fargo Capital Finance, LLC, as a lender and as the arranger and the administrative agent,and the lenders party thereto from time to time. The Wells Facility amends, restates, and otherwise replaces the Loan and Security Agreement, which was originallyentered into on August 25, 2008, with Wells Fargo Capital Finance, LLC, and had been amended from time to time. The Wells Facility was amended and restated to,among other things, consolidate prior amendments and update certain provisions to reflect our current operations and personnel and those of Hercules Funding II.Many other terms and provisions of the Wells Facility remain the same or substantially similar to the terms and provisions of the original Wells Facility.On December 16, 2015, we entered into an amendment to the Wells Facility that extended the revolving credit availability period and maturity date of thefacility. As amended, the revolving credit availability period ends on August 1, 2018 and the Wells Facility matures on August 2, 2019, unless terminated sooner inaccordance with its terms.93Under the Wells Facility, Wells Fargo Capital Finance, LLC has made commitments of $75.0 million. The Wel ls Facility contains an accordion feature, inwhich we can increase the credit line up to an aggregate of $300.0 million, funded by additional lenders and with the agreement of Wells Fargo Capital Finance, LLCand subject to other customary conditions. We expect to continue discussions with various other potential lenders to join the facility; however, there can be noassurances that additional lenders will join the Wells Facility. Borrowings under the Wells Facility generally bear interest at a rate per an num equal to LIBOR plus3.25%, and the Wells Facility has an advance rate of 50% against eligible debt investments. The Wells Facility is secured by all of the assets of Hercules Funding II.The Wells Facility requires payment of a non-use fee on a scale o f 0.0% to 0.50% depending on the average monthly outstanding balance under the facility relativeto the maximum amount of commitments at such time. For the years ended December 31, 2015 and 2014, this non-use fee was approximately $294,000 and$380,000, re spectively.The Wells Facility also includes various financial and other covenants applicable to us and our subsidiaries, in addition to those applicable to HerculesFunding II, including covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, these covenants also require usto maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimumtangible net worth in an amount, when added to outstanding subordinated indebtedness, that is in excess of $500.0 million plus 90% of the cumulative amount ofequity raised after June 30, 2014. As of December 31, 2015, the minimum tangible net worth covenant has increased to $590.4 million as a result of the March 2015follow-on public offering of 7.6 million shares of common stock for total net proceeds of approximately $100.1 million. The Wells Facility provides for customaryevents of default, including, without limitation, with respect to payment defaults, breach of representations and covenants, certain key person provisions, crossacceleration provisions to certain other debt, lien and judgment limitations, and bankruptcy.On June 20, 2011 we paid $1.1 million in structuring fees in connection with the original Wells Facility. In connection with an amendment to the originalWells Facility in August 2014, we paid an additional $750,000 in structuring fees and in connection with the amendment in December 2015, we paid an additional$188,000 in structuring fees. These fees are being amortized through the end of the term of the Wells Facility.We had aggregate draws of $138.7 million on the available facility during the year ended December 31, 2015 offset by repayments of $88.7 million. AtDecember 31, 2015 there was $50.0 million of borrowings outstanding on this facility. At December 31, 2014 there were no borrowings outstanding on this facility.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the WellsFacility are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $578 $— Amortization of debt issuance cost (loan fees) 361 198 Total interest expense and fees $939 $198 Cash paid for interest expense and fees $402 $— See Note 4 to our consolidated financial statements for more detail on the Wells Facility.Union Bank FacilityWe have a $75.0 million revolving senior secured credit facility with MUFG Union Bank, N.A. (“MUFG Union Bank”). We originally entered into the UnionBank Facility on February 10, 2010 but, following several amendments, amended and restated the Union Bank Facility on August 14, 2014. The amendment andrestatement extends the maturity date of the Union Bank Facility to August 1, 2017, increases the size of the Union Bank Facility to $75.0 million from $30.0million, and adjusts the interest rate for LIBOR borrowings under the Union Bank Facility. We further amended the Union Bank Facility in November 2015 but theamendment did not result in any material changes to the facility.LIBOR-based borrowings under the Union Bank Facility will bear interest at a rate per annum equal to LIBOR plus 2.25% with no floor, whereas previouslywe paid a per annum interest rate on such borrowings equal to LIBOR plus 2.50% with a floor of 4.00%. Other borrowings under the Union Bank Facility, which arebased on a reference rate instead of LIBOR, will continue to bear interest at a rate per annum equal to the reference rate (which is the greater of the federal funds rateplus 1.00% and a periodically announced MUFG Union Bank index rate) plus the greater of (i) 4.00% minus the reference rate and (ii) 1.00%. We continue to havethe option of determining which type of borrowing to request under the Union Bank Facility. Subject to certain conditions, the amendment also removes a previousceiling on the amount of certain unsecured indebtedness that we may incur.94The Union Bank Facility contains an accordion feature, pursuant to which we may increase the size of the Union Bank Facility to an aggregate principalamount of $300.0 million by bringing in additional lenders, subject to the approval of MUFG Union Ba nk and other customary conditions. There can be noassurances that additional lenders will join the Union Bank Facility to increase available borrowings.The Union Bank Facility requires the payment of a non-use fee of 0.50% annually. For the years ended December 31, 2015 and 2014, this non-use fee wasapproximately $380,000 and $240,000, respectively. The amount that we may borrow under the Union Bank Facility is determined by applying an advance rate toeligible loans. The Union Bank Facility generally requires payment of monthly interest on loans based on a reference rate and at the end of a one, two, or three-month period, as applicable, for loans based on LIBOR. All outstanding principal is due upon maturity.The Union Bank Facility is collateralized by debt investments in our portfolio companies, and includes an advance rate equal to 50.0% of eligible debtinvestments placed in the collateral pool.We have various financial and operating covenants required by the Union Bank Facility. These covenants require, among other things, that we maintaincertain financial ratios, including liquidity, asset coverage, and debt service coverage, and a minimum tangible net worth in an amount, when added to outstandingsubordinated indebtedness, that is in excess of $550.0 million plus 90% of the amount of net cash proceeds received from the sale of common stock after June 30,2014. As of December 31, 2015, the minimum tangible net worth covenant has increased to $640.1 million as a result of the March 2015 follow-on public offering of7.6 million shares of common stock for total net proceeds of approximately $100.1 million. The Union Bank Facility provides for customary events of default,including, but not limited to, payment defaults, breach of representations or covenants, bankruptcy events and change of control.At December 31, 2015 there were no borrowings outstanding on the Union Bank Facility. See Note 4 to our consolidated financial statements for more detailon the Union Bank Facility.Citibank Credit FacilityWe, through Hercules Funding Trust I, an affiliated statutory trust, had a securitized credit facility with Citigroup which expired under normal terms. Duringthe first quarter of 2009, we paid off all principal and interest owed under the Citibank Credit Facility. Citigroup has an equity participation right through a warrantparticipation agreement on the pool of debt investments and warrants collateralized under the Citibank Credit Facility. Pursuant to the warrant participationagreement, we granted to Citigroup a 10% participation in all warrants held as collateral. However, no additional warrants were included in collateral subsequent tothe facility amendment on May 2, 2007. As a result, Citigroup is entitled to 10% of the realized gains on the warrants until the realized gains paid to Citigrouppursuant to the agreement equal the Maximum Participation Limit. The obligations under the warrant participation agreement continue even after the Citibank CreditFacility is terminated until the Maximum Participation Limit has been reached.During the year ended December 31, 2015, we reduced our realized gain by approximately $143,000 for Citigroup’s participation in the realized gain fromthe acquisition proceeds we received on equity exercised from warrants that were included in the collateral pool. We recorded an increase in participation liabilityand a decrease in unrealized appreciation by a net amount of approximately $11,000 primarily due to appreciation of fair value on the pool of warrants collateralizedunder the warrant participation agreement offset by the acquisition proceeds we received on our Atrenta, Inc. equity investment. The remaining value of theirparticipation right on unrealized gains in the related equity investments is approximately $111,000 as of December 31, 2015 and is included in accruedliabilities. There can be no assurances that the unrealized appreciation of the warrants will not be higher or lower in future periods due to fluctuations in the value ofthe warrants, thereby increasing or reducing the effect on the cost of borrowing. Since inception of the agreement, we have paid Citigroup approximately $2.2 millionunder the warrant participation agreement thereby reducing realized gains by this amount. We will continue to pay Citigroup under the warrant participationagreement until the Maximum Participation Limit is reached or the warrants expire. Warrants subject to the warrant participation agreement are set to expire betweenFebruary 2016 and January 2017.95DividendsThe following table summarizes our dividends declared and paid, to be paid or reinvested on all shares, including restricted stock, to date: Date Declared Record Date Payment Date Amount Per Share October 27, 2005 November 1, 2005 November 17, 2005 $0.03 December 9, 2005 January 6, 2006 January 27, 2006 0.30 April 3, 2006 April 10, 2006 May 5, 2006 0.30 July 19, 2006 July 31, 2006 August 28, 2006 0.30 October 16, 2006 November 6, 2006 December 1, 2006 0.30 February 7, 2007 February 19, 2007 March 19, 2007 0.30 May 3, 2007 May 16, 2007 June 18, 2007 0.30 August 2, 2007 August 16, 2007 September 17, 2007 0.30 November 1, 2007 November 16, 2007 December 17, 2007 0.30 February 7, 2008 February 15, 2008 March 17, 2008 0.30 May 8, 2008 May 16, 2008 June 16, 2008 0.34 August 7, 2008 August 15, 2008 September 19, 2008 0.34 November 6, 2008 November 14, 2008 December 15, 2008 0.34 February 12, 2009 February 23, 2009 March 30, 2009 0.32 *May 7, 2009 May 15, 2009 June 15, 2009 0.30 August 6, 2009 August 14, 2009 September 14, 2009 0.30 October 15, 2009 October 20, 2009 November 23, 2009 0.30 December 16, 2009 December 24, 2009 December 30, 2009 0.04 February 11, 2010 February 19, 2010 March 19, 2010 0.20 May 3, 2010 May 12, 2010 June 18, 2010 0.20 August 2, 2010 August 12, 2010 September 17,2010 0.20 November 4, 2010 November 10, 2010 December 17, 2010 0.20 March 1, 2011 March 10, 2011 March 24, 2011 0.22 May 5, 2011 May 11, 2011 June 23, 2011 0.22 August 4, 2011 August 15, 2011 September 15, 2011 0.22 November 3, 2011 November 14, 2011 November 29, 2011 0.22 February 27, 2012 March 12, 2012 March 15, 2012 0.23 April 30, 2012 May 18, 2012 May 25, 2012 0.24 July 30, 2012 August 17, 2012 August 24, 2012 0.24 October 26, 2012 November 14, 2012 November 21, 2012 0.24 February 26, 2013 March 11, 2013 March 19, 2013 0.25 April 29, 2013 May 14, 2013 May 21, 2013 0.27 July 29, 2013 August 13, 2013 August 20, 2013 0.28 November 4, 2013 November 18, 2013 November 25, 2013 0.31 February 24, 2014 March 10, 2014 March 17, 2014 0.31 April 28, 2014 May 12, 2014 May 19, 2014 0.31 July 28, 2014 August 18, 2014 August 25, 2014 0.31 October 29, 2014 November 17, 2014 November 24, 2014 0.31 February 24, 2015 March 12, 2015 March 19, 2015 0.31 May 4, 2015 May 18, 2015 May 25, 2015 0.31 July 29, 2015 August 17, 2015 August 24, 2015 0.31 October 28, 2015 November 16, 2015 November 23, 2015 0.31 February 17, 2016 March 7, 2016 March 14, 2016 0.31 $11.54 *Dividend paid in cash and stock.On February 17, 2016 the Board of Directors declared a cash dividend of $0.31 per share to be paid on March 14, 2016 to shareholders of record as of March7, 2016. This dividend will represent our forty-second consecutive dividend declaration since our initial public offering, bringing the total cumulative dividenddeclared to date to $11.54 per share.96Our Board of Directors maintains a variable dividend policy with the objective of distributing four quarterly distributions in an amount that approximates 90—100% of our taxable quarterly income or potential annual income for a particular year. In addition, at the end of the year, our Board of Directors may choose to payan additional special dividend, or fifth dividend, so that we may distribute approximately all of our annual taxable income in the year it was earned, or may elect tomaintain the option to spill over our excess taxable income into the coming year for future dividend payments.Distributions in excess of our current and accumulated earnings and profits would generally be treated first as a return of capital to the extent of thestockholder’s tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions is madeannually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. Of the dividends declared during theyears ended December 31, 2015, 2014 and 2013, 100% were distributions derived from our current and accumulated earnings and profits. There can be no certaintyto stockholders that this determination is representative of the tax attributes of our 2016 distributions to stockholders.Shortly after the close of each calendar year, a statement on Form 1099-DIV identifying the source of the distribution (i.e., paid from ordinary income, paidfrom net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution) is mailed to our stockholders subject toinformation reporting. To the extent our taxable earnings fall below the total amount of our distributions for any taxable year, a portion of those distributions may bedeemed a tax return of capital to our stockholders.We expect to qualify to be taxed as a RIC under the Code. Generally, a RIC is entitled to deduct dividends it pays to its shareholders in determining “taxableincome.” Taxable income includes our taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net capital gains. Taxable incomegenerally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, andgenerally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized.As a RIC, we will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income and gains unless we distribute dividends in respectof each calendar year in a timely manner to our shareholders of an amount at least equal to the Excise Tax Avoidance Requirements. We will not be subject to excisetax on amounts on which we are required to pay corporate income tax (such as retained net capital gains). Depending on the level of taxable income earned in ataxable year, we may choose to carry over taxable income in excess of current taxable year dividend distributions from such taxable income into the next taxable yearand pay a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution as dividendsin the next taxable year under the Code is the total amount of dividends paid in the following taxable year, subject to certain declaration and payment guidelines. Tothe extent we choose to carry over taxable income into the next taxable year, dividends declared and paid by us in a taxable year may differ from taxable income forthat taxable year as such dividends may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carriedover into and distributed in the current taxable year, or returns of capital.We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will beprohibited 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 theterms of any of our borrowings. Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.We intend to distribute approximately $8.2 million of spillover earnings from ordinary income for the year ended December 31, 2015 to our shareholders in2016.We maintain an “opt-out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, cash dividends will beautomatically reinvested in additional shares of our common stock unless the stockholder specifically “opts out” of the dividend reinvestment plan and chooses toreceive cash dividends. Critical Accounting PoliciesThe preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements, and revenues and expenses during the period reported. On an ongoing basis, our management evaluates its estimates and assumptions, which arebased on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from thoseestimates. Changes in our estimates and assumptions could materially impact our results of operations and financial condition.97ReclassificationCertain balances from prior years have been reclassified in order to conform to the current year presentation.Valuation of InvestmentsThe most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts ofunrealized appreciation and depreciation of investments recorded.At December 31, 2015, approximately 90.0% of our total assets represented investments in portfolio companies whose fair value is determined in good faithby the Board of Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readilyavailable and (ii) for all other securities and assets, fair value is as determined in good faith by the Board of Directors. Our investments are carried at fair value inaccordance with the 1940 Act and ASC 946 and measured in accordance with ASC 820. Our debt securities are primarily invested in venture capital-backedcompanies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable andrenewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of our investments in these portfoliocompanies are considered Level 3 assets under ASC 820 because there is no known or accessible market or market indexes for these investment securities to betraded or exchanged. As such, we value substantially all of our investments at fair value as determined in good faith pursuant to a consistent valuation policy by ourBoard of Directors in accordance with the provisions of ASC 820 and the 1940 Act. Due to the inherent uncertainty in determining the fair value of investments thatdo not have a readily available market value, the fair value of our investments determined in good faith by our Board of Directors may differ significantly from thevalue that would have been used had a readily available market existed for such investments, and the differences could be material.See “Determination of Net Asset Value” for a discussion of our investment valuation process.Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations asof December 31, 2015 and as of December 31, 2014. We transfer investments in and out of Level 1, 2 and 3 securities as of the beginning balance sheet date, basedon changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the year ended December 31, 2015, there wereno transfers between Levels 1 or 2. Quoted Prices In Balance Active Markets For Significant Other Significant (in thousands) December 31, Identical Assets Observable Inputs Unobservable Inputs Description 2015 (Level 1) (Level 2) (Level 3) Senior Secured Debt $1,110,209 $— $7,813 $1,102,396 Preferred Stock 35,245 — — 35,245 Common Stock 32,197 30,670 — 1,527 Warrants 22,987 — 4,422 18,565 Escrow Receivable (1) 2,967 — — 2,967 Total $1,203,605 $30,670 $12,235 $1,160,700 Quoted Prices In Balance Active Markets For Significant Other Significant (in thousands) December 31, Identical Assets Observable Inputs Unobservable Inputs Description 2014 (Level 1) (Level 2) (Level 3) Senior Secured Debt $923,906 $— $— $923,906 Preferred Stock 57,548 — — 57,548 Common Stock 14,185 12,798 — 1,387 Warrants 25,098 — 3,175 21,923 Total $1,020,737 $12,798 $3,175 $1,004,764 (1)Note that escrow receivable has been added to the fair value leveling disclosure as of December 31, 2015. We had $3.6 million of escrow receivable as of December 31, 2014.98The table below presents a reconciliation for all financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interestcomponents, using significant unobservable inputs (Level 3) for the years ended December 31, 2015 and December 31, 2014. (in thousands) BalanceJanuary 1, 2015 Net RealizedGains(Losses) (1) Net Change inUnrealizedAppreciation(Depreciation) (2) Purchases (5) Sales Repayments (6) GrossTransfersintoLevel 3 (3) GrossTransfersout ofLevel 3 (3) BalanceDecember 31, 2015 Senior Debt $923,906 $(2,295) $(12,930) $699,555 $— $(505,274) $— $(566) $1,102,396 Preferred Stock 57,548 2,598 (1,539) 15,076 (4,542) — 685 (34,581) 35,245 Common Stock 1,387 (298) 743 — (305) — — — 1,527 Warrants 21,923 (3,849) (4,749) 5,311 1,220 — — (1,291) 18,565 Escrow Receivable 3,598 71 — 511 (1,032) (181) — — 2,967 Total $1,008,362 $(3,773) $(18,475) $720,453 $(4,659) $(505,455) $685 $(36,438) $1,160,700 (in thousands) BalanceJanuary 1, 2014 Net RealizedGains(Losses) (1) Net Change inUnrealizedAppreciation(Depreciation) (2) Purchases (5) Sales Repayments (6) GrossTransfersintoLevel 3 (4) GrossTransfersout ofLevel 3 (4) BalanceDecember 31, 2014 Senior Debt $821,988 $— $(14,182) $615,596 $— $(497,258) $— $(2,238) $923,906 Preferred Stock 35,554 (750) 15,779 7,097 (503) — 2,007 (1,636) 57,548 Common Stock 2,107 (130) 601 — (1,189) — — (2) 1,387 Warrants 28,707 (48) (10,553) 8,596 (2,503) — — (2,276) 21,923 Total $888,356 $(928) $(8,355) $631,289 $(4,195) $(497,258) $2,007 $(6,152) $1,004,764 (1)Included in net realized gains or losses in the accompanying Consolidated Statement of Operations.(2)Included in change in net unrealized appreciation (depreciation) in the accompanying Consolidated Statement of Operations.(3)Transfers out of Level 3 during the year ended December 31, 2015 relate to the initial public offerings of Box, Inc., ZP Opco, Inc. (p.k.a. Zosano Pharma, Inc), Neos Therapeutics, EdgeTherapeutics Inc., ViewRay, Inc., and Cerecor, Inc. in addition to the exercise of warrants in both Forescout, Inc. and Atrenta, Inc. to preferred stock. Transfers into Level 3 during the yearended December 31, 2015 relate to the acquisition of preferred stock as a result of the exercise of warrants in both Forescout, Inc. and Atrenta, Inc and the conversion of debt to equity inHome Dialysis Plus and Gynesonics.(4)Transfers in/out of Level 3 during the year ended December 31, 2014 relate to the conversion of Paratek Pharmaceuticals, Inc., SCI Energy, Inc., Oraya Therapeutics, Inc., and Neuralstem,Inc. debt to equity, the exercise of warrants in Box, Inc and WildTangent, Inc. to equity, the conversion of warrants in Glori Energy, Inc. to equity in the company’s reverse public merger,the public merger of Paratek Pharmaceuticals, Inc. with Transcept Pharmaceuticals, Inc. and the initial public offerings of Concert Pharmaceuticals, Inc., Dicerna Pharmaceuticals, Inc.,Everyday Health, Inc., Neothetics, Inc., Revance Therapeutics, Inc., and UniQure BV.(5)Amounts listed above are inclusive of loan origination fees received at the inception of the loan which are deferred and amortized into fee income as well as the accretion of existing loandiscounts and fees during the period.(6)Amounts listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures.For the year ended December 31, 2015, approximately $179,000 in net unrealized depreciation and $745,000 in net unrealized appreciation was recorded forpreferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $13.7million and $5.9 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at thereporting date.For the year ended December 31, 2014, approximately $15.0 million and $555,000 in net unrealized appreciation was recorded for preferred stock andcommon stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $14.2 million and $2.8 millionin net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.99The following tables provide quantitative information about our Level 3 fair value measurements of our investments as of December 31, 2015 and December31, 2014. In addition to the techniques and inputs noted in the table below, according to our valuation pol icy we may also use other valuation techniques andmethodologies when determining our fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significantLevel 3 inputs as they relate to our fai r value measurements.The significant unobservable input used in the fair value measurement of our escrow receivables is the amount recoverable at the contractual maturity date ofthe escrow receivable. Investment Type – LevelThree Debt Investments Fair Value atDecember 31, 2015(in thousands) Valuation Techniques/ Methodologies Unobservable Input (a) Range WeightedAverage (b) Pharmaceuticals $72,981 Originated Within 6 Months Origination Yield 10.35% - 16.16% 12.29% 406,590 Market Comparable Companies Hypothetical Market Yield 9.55% - 16.75% 12.67% Premium/(Discount) (0.75%) - 0.00% Technology 6,873 Originated Within 6 Months Origination Yield 15.19% 15.19% 283,045 Market Comparable Companies Hypothetical Market Yield 6.57% - 23.26% 13.22% Premium/(Discount) (0.25%) - 0.50% 36,815 Liquidation (c) Probability weighting of alternative outcomes 10.00% - 100.00% Sustainable and RenewableTechnology 11,045 Originated Within 6 Months Origination Yield 19.74% 19.74% 105,382 Market Comparable Companies Hypothetical Market Yield 10.62% - 27.31% 15.91% Premium/(Discount) 0.00% 1,013 Liquidation (c) Probability weighting of alternative outcomes 100.00% Medical Devices 80,530 Market Comparable Companies Hypothetical Market Yield 11.65% - 19.90% 15.26% Premium/(Discount) 0.00% - 0.50% 3,764 Liquidation (c) Probability weighting of alternative outcomes 50.00% Lower Middle Market 17,811 Originated Within 6 Months Origination Yield 12.70% - 14.50% 13.00% 15,151 Liquidation (c) Probability weighting of alternative outcomes 25.00% - 75.00% Debt Investments Where Fair Value Approximates Cost 12,434 Imminent Payoffs (d) 48,962 Debt Investments Maturing in Less than One Year $1,102,396 Total Level Three Debt Investments (a)The significant unobservable inputs used in the fair value measurement of our debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield isdefined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums (discounts) relate tocompany specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs inisolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industries noted in our ConsolidatedSchedule of Investments are included in the industries note above as follows: ·Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development, and Drug Delivery industries in the ConsolidatedSchedule of Investments. ·Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products,Information Services, and Communications and Networking industries in the Consolidated Schedule of Investments. ·Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. ·Medical Devices, above, is comprised of debt investments in the Surgical Devices and Medical Devices and Equipment industries in the Consolidated Schedule of Investments. ·Lower Middle Market, above, is comprised of d e bt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other,Information Services, Internet Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.(b)The weighted averages are calculated based on the fair market value of each investment.(c)The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.(d)Imminent payoffs represent debt investments that we expect to be fully repaid within the next three months, prior to their scheduled maturity date.100 Investment Type - LevelThree Debt Investments Fair Value atDecember 31, 2014(in thousands) Valuation Techniques/ Methodologies Unobservable Input (a) Range WeightedAverage (b) Pharmaceuticals $117,229 Originated Within 6 Months Origination Yield 10.34% - 16.52% 11.76% 237,595 Market Comparable Companies Hypothetical Market Yield 9.75% - 17.73% 10.62% Premium/(Discount) (0.50%) - 1.00% Medical Devices 60,332 Originated Within 6 Months Origination Yield 12.14% - 16.56% 13.69% 60,658 Market Comparable Companies Hypothetical Market Yield 11.64% - 22.22% 12.19% Premium/(Discount) 0.00% - 1.00% 12,970 Liquidation (c) Probability weighting of alternative outcomes 50.00% Technology 152,645 Originated Within 6 Months Origination Yield 10.54% - 20.02% 14.08% 80,835 Market Comparable Companies Hypothetical Market Yield 6.95% - 15.50% 13.01% Premium/(Discount) 0.00% - 0.50% 27,159 Liquidation (c) Probability weighting of alternative outcomes 10.00% - 90.00% Sustainable and RenewableTechnology 4,437 Originated Within 6 Months Origination Yield 13.85% - 21.57% 19.00% 52,949 Market Comparable Companies Hypothetical Market Yield 13.20% - 16.62% 15.41% Premium/(Discount) 0.00% - 1.50% 1,600 Liquidation (c) Probability weighting of alternative outcomes 100.00% Lower Middle Market 2,962 Originated Within 6 Months Origination Yield 14.04% 14.04% 59,254 Market Comparable Companies Hypothetical Market Yield 11.91% - 15.33% 13.98% Premium/(Discount) 0.00% - 0.50% 4,096 Liquidation (c) Probability weighting of alternative outcomes 45.00% - 55.00% Debt Investments Where Fair Value Approximates Amortized Cost 9,318 Imminent Payoffs (d) 39,867 Debt Investments Maturing in Less than One Year $923,906 Total Level Three Debt Investments (a)The significant unobservable inputs used in the fair value measurement of our securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is definedas the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums (discounts) relate tocompany specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs inisolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industries noted in our ConsolidatedSchedule of Investments are included in the industries note above as follows: ·Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development, Drug Delivery, Diagnostic and BiotechnologyTools industries in the Consolidated Schedule of Investments. ·Medical Devices, above, is comprised of debt investments in the Surgical Devices, Medical Devices and Equipment and Biotechnology Tools industries in the ConsolidatedSchedule of Investments. ·Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products,Information Services, and Communications and Networking industries in the Consolidated Schedule of Investments. ·Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. In our quarterlyand annual reports filed with the commission prior to this Annual Report on Form 10-K for the year ended December 31, 2014, we referred to this industry sector as “EnergyTechnology.” ·Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other,Information Services, Internet Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.(b)The weighted averages are calculated based on the fair market value of each investment.(c)The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.(d)Imminent payoffs represent debt investments that we expect to be fully repaid within the next three months, prior to their scheduled maturity date.101 Investment Type - Level ThreeEquity and Warrant Investments Fair Value atDecember 31, 2015(in thousands) Valuation Techniques/Methodologies Unobservable Input (a) Range WeightedAverage (e) Equity Investments $5,898 Market Comparable Companies EBITDA Multiple (b) 3.3x - 19.5x 7.6x Revenue Multiple (b) 0.7x - 3.7x 2.1x Discount for Lack of Marketability (c) 14.31% - 25.11% 18.05% Average Industry Volatility (d) 37.72% - 109.64% 60.27% Risk-Free Interest Rate 0.61% - 1.09% 0.74% Estimated Time to Exit (in months) 10 - 26 15 30,874 Market Adjusted OPM Backsolve Average Industry Volatility (d) 28.52% - 86.41% 65.40% Risk-Free Interest Rate 0.36% - 1.51% 0.80% Estimated Time to Exit (in months) 10 - 47 17 Warrant Investments 7,904 Market Comparable Companies EBITDA Multiple (b) 5.1x - 57.9x 16.0x Revenue Multiple (b) 0.4x - 9.6x 3.0x Discount for Lack of Marketability (c) 10.09% - 31.37% 23.11% Average Industry Volatility (d) 39.51% - 73.36% 41.19% Risk-Free Interest Rate 0.32% - 1.51% 0.87% Estimated Time to Exit (in months) 4 - 47 23 10,661 Market Adjusted OPM Backsolve Average Industry Volatility (d) 28.52% - 109.64% 64.31% Risk-Free Interest Rate 0.36% - 1.45% 0.85% Estimated Time to Exit (in months) 10 - 44 20 Total Level Three Warrant and EquityInvestments $55,337 (a)The significant unobservable inputs used in the fair value measurement of our warrant and equity-related securities are revenue and/or EBITDA multiples and discounts for lack ofmarketability. Additional inputs used in the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. Significant increases(decreases) in the inputs in isolation may result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments, additionalconsideration may be given to data from the last round of financing or merger/acquisition events near the measurement date.(b)Represents amounts used when we have determined that market participants would use such multiples when pricing the investments.(c)Represents amounts used when we have determined market participants would take into account these discounts when pricing the investments.(d)Represents the range of industry volatility used by market participants when pricing the investment.(e)Weighted averages are calculated based on the fair market value of each investment. Investment Type - Level ThreeEquity and Warrant Investments Fair Value atDecember 31, 2014(in thousands) Valuation Techniques/Methodologies Unobservable Input (a) Range WeightedAverage (e) Equity Investments $12,249 Market Comparable Companies EBITDA Multiple (b) 5.2x - 23.4x 8.5x Revenue Multiple (b) 0.9x - 3.6x 2.6x Discount for Lack of Marketability (c) 5.67% - 35.45% 15.95% Average Industry Volatility (d) 48.10% - 95.18% 62.78% Risk-Free Interest Rate 0.22% - 0.83% 0.24% Estimated Time to Exit (in months) 10 - 28 11 46,686 Market Adjusted OPM Backsolve Average Industry Volatility (d) 38.95% - 84.30% 55.04% Risk-Free Interest Rate 0.10% - 1.32% 0.24% Estimated Time to Exit (in months) 6 - 43 10 Warrant Investments 9,725 Market Comparable Companies EBITDA Multiple (b) 0.0x - 98.9x 16.6x Revenue Multiple (b) 0.3x - 15.7x 4.3x Discount for Lack of Marketability (c) 12.12% - 35.50% 22.14% Average Industry Volatility (d) 37.70% - 108.86% 67.23% Risk-Free Interest Rate 0.22% - 1.34% 0.75% Estimated Time to Exit (in months) 10 - 47 27 12,198 Market Adjusted OPM Backsolve Average Industry Volatility (d) 32.85% - 99.81% 67.58% Risk-Free Interest Rate 0.21% - 2.95% 0.87% Estimated Time to Exit (in months) 10 - 48 28 Total Level Three Warrant andEquity Investments $80,858 (a)The significant unobservable inputs used in the fair value measurement of our warrant and equity-related securities are revenue and/or EBITDA multiples and discounts for lack ofmarketability. Additional inputs used in the Black Scholes OPM include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputsin isolation may result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may begiven to data from the last round of financing or merger/acquisition events near the measurement date.(b)Represents amounts used when we have determined that market participants would use such multiples when pricing the investments.(c)Represents amounts used when we have determined market participants would take into account these discounts when pricing the investments.(d)Represents the range of industry volatility used by market participants when pricing the investment.(e)Weighted averages are calculated based on the fair market value of each investment.102Income RecognitionWe record interest income on an accrual basis and we recognize it as earned in accordance with the contractual terms of the loan agreement, to the extent thatsuch amounts are expected to be collected. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition of debtsecurities and is accreted into interest income over the term of the loan as a yield enhancement. When a loan becomes 90 days or more past due, or if managementotherwise does not expect that principal, interest, and other obligations due will be collected in full, we will generally place the loan on non-accrual status and ceaserecognizing interest income on that loan until all principal and interest due has been paid or we believe the portfolio company has demonstrated the ability to repayour current and future contractual obligations. Any uncollected interest related to prior periods is reversed from income in the period that collection of the interestreceivable is determined to be doubtful. However, we may make exceptions to this policy if the investment has sufficient collateral value and is in the process ofcollection.At December 31, 2015, we had five debt investments on non-accrual with a cumulative investment cost and fair value of approximately $47.4 million and$23.2 million, respectively, compared to four debt investments on non-accrual at December 31, 2014 with a cumulative investment cost and fair value ofapproximately $28.9 million and $10.6 million, respectively. In addition, at December 31, 2015, we had one debt investment with an investment cost and fair valueof approximately $20.1 million and $14.9 million, respectively, for which only the PIK interest is on non-accrual. The increase in the cumulative cost and fair valueof debt investments on non-accrual between December 31, 2015 and December 31, 2014 is the result of placing three new debt investments on non-accrual statusduring the period, offset by the liquidation of two debt investments that were on non-accrual at December 31, 2014. During the year ended December 31, 2015, werecognized a realized loss of approximately $180,000 on the write off of one debt investment that was on non-accrual at December 31, 2014. In addition, werecognized a realized loss of $1.2 million on the partial write off of one debt investment that is on non-accrual as of December 31, 2015.Paid-In-Kind and End of Term IncomeContractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, isgenerally recorded on the accrual basis to the extent such amounts are expected to be collected. We will generally cease accruing PIK interest if there is insufficientvalue to support the accrual or we do not expect the portfolio company to be able to pay all principal and interest due. In addition, we may also be entitled to an end-of-term payment that we amortize into income over the life of the loan. To maintain our ability to be subject to tax as a RIC, PIK and end-of-term income must bepaid out to stockholders in the form of dividends even though we have not yet collected the cash. Amounts necessary to pay these dividends may come fromavailable cash or the liquidation of certain investments. We recorded approximately $4.7 million and $3.3 million in PIK income during the years ended December31, 2015 and 2014, respectively.Fee IncomeFee income, generally collected in advance, includes loan commitment and facility fees for due diligence and deal structuring, as well as fees for transactionservices and management services rendered by us to portfolio companies and other third parties. Loan and commitment fees are amortized into income over thecontractual life of the loan. Management fees are generally recognized as income when the services are rendered. Loan origination fees are capitalized and thenamortized into interest income using the effective interest rate method. In certain loan arrangements, warrants or other equity interests are received from the borroweras additional origination fees.We recognize nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications. Certain feesmay still be recognized as one-time fees, including prepayment penalties, fees related to select covenant default waiver fees and acceleration of previously deferredloan fees and OID related to early loan pay-off or material modification of the specific debt outstanding.Equity Offering ExpensesOur offering costs are charged against the proceeds from equity offerings when received.103Debt Issuance CostsDebt issuance costs are fees and other direct incremental costs incurred by us in obtaining debt financing. Debt issuance costs are recognized as prepaidexpenses and amortized over the life of the related debt instrument using the straight line method, which closely approximates the effective yield method.Cash and Cash EquivalentsCash and cash equivalents consists solely of funds deposited with financial institutions and short-term liquid investments in money market deposit accounts.Cash and cash equivalents are carried at cost, which approximates fair value.Other AssetsOther Assets generally consists of prepaid expenses, deferred financing costs net of accumulated amortization, fixed assets net of accumulated depreciation,deferred revenues and deposits and other assets, including escrow receivable. The escrow receivable balance as of December 31, 2015 was approximately $3.0million and was fair valued and held in accordance with ASC 820.Stock Based CompensationWe have issued and may, from time to time, issue additional stock options and restricted stock to employees under our 2004 Equity Incentive Plan and Boardmembers under our 2006 Equity Incentive Plan. We follow ASC 718, formally known as FAS 123R “ Share-Based Payments ” to account for stock options granted.Under ASC 718, compensation expense associated with stock based compensation is measured at the grant date based on the fair value of the award and isrecognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requiresjudgment, including estimating stock price volatility, forfeiture rate and expected option life.Income TaxesWe operate to qualify to be taxed as a RIC under the Code. Generally, a RIC is entitled to deduct dividends it pays to its shareholders in determining its“taxable income.” Taxable income includes our taxable interest, dividend and fee income, reduced by deductible expenses, as well as taxable net capital gains.Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income andexpenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized.As a RIC, we will be subject to a 4% U.S. nondeductible federal excise tax on certain undistributed income and gains unless we distribute dividends in atimely manner an amount at least equal to the Excise Tax Avoidance Requirements. We will not be subject to excise taxes on amounts on which we are required topay corporate income tax (such as retained net capital gains). Depending on the level of taxable income earned in a taxable year, we may choose to carry over taxableincome in excess of current taxable year dividend distributions from such taxable income into the next taxable year and pay a 4% excise tax on such taxable income,as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount ofdividends paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent we choose to carry over taxable income into thenext taxable year, dividends declared and paid by us in a taxable year may differ from taxable income for that taxable year as such dividends may include thedistribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year,or returns of capital.We intend to distribute approximately $8.2 million of spillover earnings from ordinary income for the year ended December 31, 2015 to our shareholders in2016. We distributed 100% of our spillover from long term capital gains for the taxable year ended December 31, 2014 to our shareholders during 2015.Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with taxregulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary.Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may alsoresult from the classification of certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arise whencertain items of income, expense, gain or loss are recognized at some time in the future.104Recent Accounting PronouncementsIn February 2015, the FASB issued Accounting Standards Updated (“ASU”) 2015-02, “ Consolidation (Topic 810) – Amendments to the ConsolidationAnalysis” . The new guidance applies to entities in all industries and provides a new scope exception to registered money market funds and similar unregisteredmoney market funds. It makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying thevariable interest entities (“VIE”) guidance. We currently consolidate all VIEs of which we are the primary beneficiary, thus we do not anticipate a material impactfrom adopting this standard on our financial statements. ASU 2015-02 is effective for public business entities for annual reporting periods beginning after December15, 2015.In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires debt issuance costs to be presented inthe balance sheet as a direct deduction from the associated debt liability and in August 2015, the FASB issued ASU 2015-15 “Presentation and SubsequentMeasurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”, which clarifies the application of ASU 2015-03 to debt issuance costsassociated with line-of-credit arrangements and allows presentation of debt issuance costs on these instruments as assets that are amortized over the term of theinstrument. Adoption of these standards will result in the presentation of our SBA Debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and ConvertibleSenior Notes net of the associated debt issuance costs for each instrument in the liabilities section on the Consolidated Statement of Assets and Liabilities. There willbe no changes to the accounting or presentation of the Wells Facility as debt issuance costs are amortized over the term of the line of credit. ASU 2015-03 and ASU2015-15 are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. Subsequent EventsDividend DeclarationOn February 17, 2016 the Board of Directors declared a cash dividend of $0.31 per share to be paid on March 14, 2016 to shareholders of record as of March7, 2016.This dividend would represent our forty-second consecutive dividend declaration since our initial public offering, bringing the total cumulative dividenddeclared to date to $11.54 per share.Corporate RebrandingOn February 25, 2016, we changed our name to “Hercules Capital, Inc.”, from “Hercules Technology Growth Capital, Inc.” We will continue to trade on theNew York Stock Exchange under the “HTGC” ticker symbol.Share Repurchase ProgramOn February 24, 2015, the Board of Directors approved a $50.0 million open market share repurchase program and on February 17, 2016, the Board ofDirectors extended the program until August 23, 2016. The Company may repurchase shares of its common stock in the open market, including block purchases, atprices that may be above or below the net asset value as reported in our then most recently published financial statements. The Company expects that the sharerepurchase program will be in effect until August 23, 2016, or until the approved dollar amount has been used to repurchase shares. Subsequent to December 31,2015 and as of February 22, 2016, the Company repurchased 449,588 shares of its common stock at an average price per share of $10.64 per share and a total cost ofapproximately $4.8 million. As of February 22, 2016, approximately $40.6 million of common stock remains eligible for repurchase under the stock repurchase plan.Restricted Stock Award GrantsIn January 2016, the Company granted approximately 536,250 restricted stock awards pursuant to the Plans.105Closed and Pending CommitmentsAs of February 22, 2016, we have: ·Closed debt and equity commitments of approximately $126.4 million to new and existing portfolio companies and funded approximately $98.4million since the close of the fourth quarter. ·Pending commitments (signed non-binding term sheets) of approximately $143.5 million.The table below summarizes our year-to-date closed and pending commitments as follows: Closed Commitments and Pending Commitments (in millions) Q1-16 Closed Commitments (as of February 22, 2016) (a) $126.4 Pending Commitments (as of February 22, 2016) (b) 143.5 Year to date 2016 Closed and Pending Commitments $269.9 a.Closed Commitments may include renewals of existing credit facilities. Not all Closed Commitments result in future cash requirements. Commitments generally fund over the twosucceeding quarters from close. b.Not all pending commitments (signed non-binding term sheets) are expected to close and do not necessarily represent any future cash requirements.Portfolio Company DevelopmentsAs of February 22, 2016, we held warrants or equity positions in three companies that have filed registration statements on Form S-1 with the SEC incontemplation of potential initial public offerings. All three companies filed confidentially under the JOBS Act. There can be no assurance that these companies willcomplete their initial public offerings in a timely manner or at all. 106 Item 7A.Quantitative and Qualitative Disclosure About Market RiskWe are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings tointerest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates mayhave on our cash flows. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalentsand idle funds investments. Our investment income will be affected by changes in various interest rates, including LIBOR and Prime rates, to the extent our debtinvestments include variable interest rates. As of December 31, 2015, approximately 93.7% of the loans in our portfolio had variable rates based on floating Prime orLIBOR rates with a floor. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of ourinvestment portfolio.Based on our Consolidated Statement of Assets and Liabilities as of December 31, 2015, the following table shows the approximate annualized increase(decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investments andborrowings. (in thousands) Basis Point Change Interest Income Interest Expense Net Income (100) $ (2,677) $ (200) $ (2,477)100 $ 8,640 $ 313 $ 8,328 200 $ 19,186 $ 625 $ 18,561 300 $ 30,668 $ 938 $ 29,730 400 $ 42,357 $ 1,250 $ 41,107 500 $ 54,197 $ 1,563 $ 52,634 We do not currently engage in any hedging activities. However, we may, in the future, hedge against interest rate fluctuations (and foreign currency) by usingstandard hedging instruments such as futures, options, and forward contracts. While hedging activities may insulate us against changes in interest rates (and foreigncurrencies), they may also limit our ability to participate in the benefits of lower interest rates (and foreign currencies) with respect to our borrowed funds and higherinterest rates with respect to our portfolio of investments. During the year ended December 31, 2015, we did not engage in interest rate (or foreign currency) hedgingactivities.Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the creditmarket, credit quality, size and composition of the assets in our portfolio. It also does not adjust for other business developments, including borrowings under ourCredit Facilities, SBA debentures, Convertible Senior Notes, 2019 Notes, 2024 Notes and 2021 Asset-Backed Notes that could affect the net increase in net assetsresulting from operations, or net income. It also does not assume any repayments from borrowers. Accordingly, no assurances can be given that actual results wouldnot differ materially from the statement above.Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the differencebetween the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change inmarket interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, whichcould reduce our net investment income if there is not a corresponding increase in interest income generated by variable rate assets in our investment portfolio.For additional information regarding the interest rate associated with each of our Credit Facilities, SBA debentures, Convertible Senior Notes, 2019 Notes,2024 Notes and 2021 Asset-Backed Notes please refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Outstanding Borrowings” in this report on Form 10-K. 107 Item 8.Financial Statements and Supplementary DataINDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm109Consolidated Statements of Assets and Liabilities as of December 31, 2015 and 2014110Consolidated Statements of Operations for the three years ended December 31, 2015112Consolidated Statements of Changes in Net Assets for the three years ended December 31, 2015113Consolidated Statements of Cash Flows for the three years ended December 31, 2015114Consolidated Schedule of Investments as of December 31, 2015115Consolidated Schedule of Investments as of December 31, 2014130Notes to Consolidated Financial Statements144Schedule of Investments in and Advances to Affiliates182 108 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo Board of Directors and Shareholders ofHercules Capital, Inc.In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the relatedconsolidated statements of operations, of changes in net assets, and of cash flows present fairly, in all material respects, the financial position of Hercules Capital,Inc. (formerly known as Hercules Technology Growth Capital, Inc.) and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and theircash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information setforth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework 2013 issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). The Company’s management is responsible for these financial statementsand financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to expressopinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integratedaudits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal controlover financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control basedon the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. Our procedures includedconfirmation of securities at December 31, 2015 by correspondence with the custodian, borrowers and brokers, and where replies were not received, we performedother auditing procedures. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate./s/ PricewaterhouseCoopers LLPSan Francisco, CaliforniaFebruary 25, 2016 109HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES(in thousands, except per share data) December 31, 2015 December 31, 2014 Assets Investments: Non-control/Non affiliate investments: Debt investments (cost of $1,150,103 and $948,989 , respectively) $1,109,196 $922,306 Equity investments (cost of $50,305 and $34,626 , respectively) 60,781 65,554 Warrant investments (cost of $38,131 and $36,184, respectively) 22,675 24,878 Total Non-control/Non-affiliate investments (cost of $1,238,539 and $1,019,799, respectively) 1,192,652 1,012,738 Affiliate investments: Debt investments (cost of $2,200 and $2,993 , respectively) 1,013 1,600 Equity investments (cost of $8,912 and $9,837 , respectively) 6,661 6,179 Warrant investments (cost of $2,630 and $2,708 , respectively) 312 220 Total Affiliate investments (cost of $13,742 and $15,538, respectively) 7,986 7,999 Total investments, at value (cost of $1,252,281 and $1,035,337, respectively) 1,200,638 1,020,737 Cash and cash equivalents 95,196 227,116 Restricted cash 9,191 12,660 Interest receivable 9,239 9,453 Other assets 20,497 29,257 Total assets $1,334,761 $1,299,223 Liabilities Accounts payable and accrued liabilities $17,241 $14,101 Long-term Liabilities (Convertible Senior Notes) 17,522 17,345 Wells Facility 50,000 — 2017 Asset-Backed Notes — 16,049 2021 Asset-Backed Notes 129,300 129,300 2019 Notes 110,364 170,364 2024 Notes 103,000 103,000 Long-Term SBA Debentures 190,200 190,200 Total liabilities $617,627 $640,359 Commitments and Contingencies (Note 10) Net assets consist of: Common stock, par value 73 65 Capital in excess of par value 752,244 657,233 Unrealized depreciation on investments (1) (52,808) (17,076)Accumulated realized gains on investments 27,993 14,079 Undistributed net investment income (Distributions in excess of net investment income) (10,368) 4,563 Total net assets $717,134 $658,864 Total liabilities and net assets $1,334,761 $1,299,223 Shares of common stock outstanding ($0.001 par value, 200,000,000 and 100,000,000 authorized, respectively) 72,118 64,715 Net asset value per share $9.94 $10.18 (1)Amounts includes $1.2 million in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, estimated taxes payable and Citigroup warrantparticipation agreement liabilities. See notes to consolidated financial statements. 110 The following table presents the assets and liabilities of our consolidated securitization trusts for the asset-backed notes (see Note 4), which are variableinterest entities (“VIE”). The assets of our securitization VIEs can only be used to settle obligations of our consolidated securitization VIEs, these liabilities are onlythe obligations of our consolidated securitization VIEs, and the creditors (or beneficial interest holders) do not have recourse to our general credit. These assets a ndliabilities are included in the Consolidated Statements of Assets and Liabilities above. (Dollars in thousands) December 31, 2015 December 31, 2014 Assets Restricted Cash $9,191 $12,660 Total investments, at value (cost of $258,748 and $296,314, respectively) 257,657 291,464 Total assets $266,848 $304,124 Liabilities Asset-Backed Notes $129,300 $145,349 Total liabilities $129,300 $145,349 See notes to consolidated financial statements. 111HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) For the Year Ended December 31, 2015 2014 2013 Investment income: Interest income Non-Control/Non-Affiliate investments $139,919 $124,776 $121,302 Affiliate investments 347 1,842 2,369 Total interest income 140,266 126,618 123,671 Fees Non-Control/Non-Affiliate investments 16,865 17,013 16,016 Affiliate investments 1 34 26 Total fees 16,866 17,047 16,042 Total investment income 157,132 143,665 139,713 Operating expenses: Interest 30,834 28,041 30,334 Loan fees 6,055 5,919 4,807 General and administrative 16,658 10,209 9,354 Employee Compensation: Compensation and benefits 20,713 16,604 16,179 Stock-based compensation 9,370 9,561 5,974 Total employee compensation 30,083 26,165 22,153 Total operating expenses 83,630 70,334 66,648 Loss on debt extinguishment (Long-term Liabilities - Convertible Senior Notes) (1) (1,581) — Net investment income 73,501 71,750 73,065 Net realized gain on investments Non-Control/Non-Affiliate investments 5,147 20,112 14,836 Total net realized gain on investments 5,147 20,112 14,836 Net change in unrealized appreciation (depreciation) on investments Non-Control/Non-Affiliate investments (36,839) (17,392) 12,370 Affiliate investments 1,107 (3,282) (825)Total net unrealized appreciation (depreciation) on investments (35,732) (20,674) 11,545 Total net realized and unrealized gain (loss) (30,585) (562) 26,381 Net increase in net assets resulting from operations $42,916 $71,188 $99,446 Net investment income before investment gains and losses per common share: Basic $1.04 $1.13 $1.22 Change in net assets resulting from operations per common share: Basic $0.60 $1.12 $1.67 Diluted $0.59 $1.10 $1.63 Weighted average shares outstanding Basic 69,479 61,862 58,838 Diluted 69,663 63,225 60,292 Dividends declared per common share: Basic $1.24 $1.24 $1.11 See notes to consolidated financial statements. 112HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS(dollars and shares in thousands) Undistributed Net Investment Income/ Unrealized Accumulated (Distributions Provision for Capital in Appreciation Realized in Excess of Income Taxes Common Stock excess (Depreciation) Gains (Losses) Investment on Investment Net Shares Par Value of par value on Investments on Investments Income) Gains Assets Balance at December 31, 2012 52,925 $53 $564,508 $(7,947) $(36,916) $(3,388) $(342) $515,968 Net increase (decrease) in net assets resulting fromoperations — — — 11,545 14,836 73,065 — 99,446 Public offering, net of offering expenses 8,050 8 95,529 — — — — 95,537 Issuance of common stock due to stock option exercises 2,019 2 25,245 — — — — 25,247 Retired shares from net issuance (1,739) (2) (26,112) — — — — (26,114)Issuance of common stock under restricted stock plan 606 1 (1) — — — — — Retired shares for restricted stock vesting (183) — (1,878) — — — — (1,878)Issuance of common stock as stock dividend 159 — 2,201 — — — — 2,201 Dividends distributed — — — — — (66,454) — (66,454)Stock-based compensation — — 6,054 — — — — 6,054 Tax reclassification of stockholders' equity in accordancewith generally accepted accounting principles — — (8,952) — 6,840 2,112 — — Balance at December 31, 2013 61,837 $62 $656,594 $3,598 $(15,240) $5,335 $(342) $650,007 Net increase (decrease) in net assets resulting fromoperations — $— $— $(20,674) $20,112 $71,750 $— $71,188 Public offering, net of offering expenses 2,111 2 9,007 — — — — 9,009 Issuance of common stock due to stock option exercises 354 — 3,955 — — — — 3,955 Retired shares from net issuance (277) — (4,564) — — — — (4,564)Issuance of common stock under restricted stock plan 990 1 (1) — — — — — Retired shares for restricted stock vesting (397) — (3,292) — — — — (3,292)Issuance of common stock as stock dividend 97 — 1,485 — — — — 1,485 Dividends distributed — — — — — (78,562) — (78,562)Stock-based compensation — — 9,638 — — — — 9,638 Tax reclassification of stockholders' equity inaccordance with generally accepted accounting principles — — (15,589) — 9,207 6,382 — — Balance at December 31, 2014 64,715 $65 $657,233 $(17,076) $14,079 $4,905 $(342) $658,864 Net increase (decrease) in net assets resulting fromoperations — $— $— $(35,732) $5,147 $73,501 $— $42,916 Public offering, net of offering expenses 7,591 8 100,084 — — — — 100,092 Acquisition of common stock under repurchase plan (437) — (4,644) (4,644)Issuance of common stock due to stock option exercises 64 — 427 — — — — 427 Retired shares from net issuance (29) — (423) — — — — (423)Issuance of common stock under restricted stock plan 676 1 (1) — — — — — Retired shares for restricted stock vesting (662) (1) (4,566) — — — — (4,567)Issuance of common stock as stock dividend 200 — 2,446 — — — — 2,446 Dividends distributed — — — — — (87,438) — (87,438)Stock-based compensation — — 9,461 — — — — 9,461 Tax reclassification of stockholders' equity inaccordance with generally accepted accounting principles — — (7,773) — 8,767 (994) — — Balance at December 31, 2015 72,118 $73 $752,244 $(52,808) $27,993 $(10,026) $(342) $717,134 See notes to consolidated financial statements. 113HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) For the Year Ended December 31, 2015 2014 2013 Cash flows from operating activities: Net increase in net assets resulting from operations $42,916 $71,188 $99,446 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in)operating activities: Purchase of investments (712,701) (623,232) (487,558)Principal and fee payments received on investments 509,593 503,003 477,535 Proceeds from the sale of investments 17,892 33,432 44,832 Net unrealized depreciation (appreciation) on investments 35,732 20,674 (11,545)Net realized gain on investments (5,147) (20,112) (14,836)Accretion of paid-in-kind principal (4,037) (2,549) (3,103)Accretion of loan discounts (8,049) (9,792) (6,652)Accretion of loan discount on Convertible Senior Notes 246 843 1,083 Loss on debt extinguishment (Long-term Liabilities - Convertible Senior Notes) 1 1,581 — Payment of loan discount on Convertible Senior Notes (5) (4,195) — Accretion of loan exit fees (14,947) (11,541) (9,251)Change in deferred loan origination revenue 1,904 (281) 1,409 Unearned fees related to unfunded commitments (2,064) (259) (1,525)Amortization of debt fees and issuance costs 5,161 5,256 4,044 Depreciation 193 266 252 Stock-based compensation and amortization of restricted stock grants 9,461 9,638 6,054 Change in operating assets and liabilities: Interest and fees receivable 213 (490) 672 Prepaid expenses and other assets 4,826 1,351 926 Accounts payable (639) 271 54 Accrued liabilities 5,090 (1,583) 1,757 Net cash provided by (used in) operating activities (114,361) (26,531) 103,594 Cash flows from investing activities: Purchases of capital equipment (187) (190) (311)Reduction of (investment in) restricted cash 3,469 (6,389) (6,271)Other long-term assets — 25 — Net cash provided by (used in) investing activities 3,282 (6,554) (6,582) Cash flows from financing activities: Issuance of common stock, net 100,092 9,837 95,120 Repurchase of common stock, net (4,645) — — Retirement of employee shares (4,562) (3,901) (2,744)Dividends paid (84,992) (77,076) (64,252)Issuance of 2024 Notes Payable — 103,000 — Issuance of 2021 Asset-Backed Notes — 129,300 — Repayments of 2017 Asset-Backed Notes (16,049) (73,508) (39,743)Repayments of Long-Term SBA Debentures — (34,800) — Repayments of 2019 Notes (60,000) — — Borrowings of credit facilities 138,689 — — Repayments of credit facilities (88,689) — — Cash paid for debt issuance costs — (6,669) — Cash paid for redemption of Convertible Senior Notes (65) (53,131) — Fees paid for credit facilities and debentures (620) (1,219) (19)Net cash used in financing activities (20,841) (8,167) (11,638)Net increase (decrease) in cash and cash equivalents (131,920) (41,252) 85,374 Cash and cash equivalents at beginning of period 227,116 268,368 182,994 Cash and cash equivalents at end of period $95,196 $227,116 $268,368 Supplemental non-cash investing and financing activities: Interest paid $30,527 $25,738 $25,245 Income taxes paid $973 $133 $85 Dividends Reinvested $2,446 $1,485 $2,201 See notes to consolidated financial statements.114HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Debt Investments Communications & Networking 1-5 Years Maturity Avanti Communications Group (4)(9) Communications & Networking Senior Secured October 2019 Interest rate FIXED 10.00% $10,000 $8,900 $7,812 OpenPeak, Inc. (7) Communications & Networking Senior Secured April 2017 Interest rate PRIME + 8.75%or Floor rate of 12.00% $12,370 9,134 2,444 SkyCross, Inc. (7)(12)(13)(14) Communications & Networking Senior Secured January 2018 Interest rate PRIME + 7.70%or Floor rate of 10.95%,PIK Interest 5.00% $19,649 20,080 14,859 Spring Mobile Solutions, Inc. (13) Communications & Networking Senior Secured January 2019 Interest rate PRIME + 6.70%or Floor rate of 9.95% $3,000 2,935 2,935 Subtotal: 1-5 Years Maturity 41,049 28,050 Subtotal: Communications & Networking (3.91%)* 41,049 28,050 Consumer & Business Products Under 1 Year Maturity Antenna79 (p.k.a. Pong ResearchCorporation) (12)(14) Consumer & Business Products Senior Secured June 2016 Interest rate PRIME + 8.75%or Floor rate of 12.00% $308 308 308 Subtotal: Under 1 Year Maturity 308 308 1-5 Years Maturity Antenna79 (p.k.a. Pong ResearchCorporation) (12)(13)(14) Consumer & Business Products Senior Secured December 2017 Interest rate PRIME + 6.75%or Floor rate of 10.00%,PIK Interest 2.50% $4,955 4,785 4,783 Miles, Inc. (p.k.a. Fluc, Inc.) (8) Consumer & Business Products Convertible Debt March 2017 Interest rate FIXED 4.00% $100 100 — Nasty Gal (13)(14) Consumer & Business Products Senior Secured May 2019 Interest rate PRIME + 5.45%or Floor rate of 8.95% $15,000 14,876 14,876 The Neat Company (7)(12)(13)(14) Consumer & Business Products Senior Secured September 2017 Interest rate PRIME + 7.75%or Floor rate of 11.00%,PIK Interest 1.00% $15,936 15,545 5,527 Subtotal: 1-5 Years Maturity 35,306 25,186 Subtotal: Consumer & Business Products (3.55%)* 35,614 25,494 See notes to consolidated financial statements.115HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Drug Delivery 1-5 Years Maturity AcelRx Pharmaceuticals, Inc. (9)(10)(13)(14) Drug Delivery Senior Secured October 2017 Interest rate PRIME + 3.85%or Floor rate of 9.10% $20,466 $20,772 $20,678 Agile Therapeutics, Inc. (10)(13) Drug Delivery Senior Secured December 2018 Interest rate PRIME + 4.75%or Floor rate of 9.00% $16,500 16,231 16,107 BIND Therapeutics, Inc. (13)(14) Drug Delivery Senior Secured July 2018 Interest rate PRIME + 5.10%or Floor rate of 8.35% $15,000 15,119 15,044 BioQ Pharma Incorporated (10)(13) Drug Delivery Senior Secured May 2018 Interest rate PRIME + 8.00%or Floor rate of 11.25% $10,000 10,180 10,066 Drug Delivery Senior Secured May 2018 Interest rate PRIME + 7.00%or Floor rate of 10.50% $3,000 2,962 2,962 Total BioQ Pharma Incorporated $13,000 13,142 13,028 Celator Pharmaceuticals, Inc. (10)(13) Drug Delivery Senior Secured June 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $14,573 14,594 14,609 Celsion Corporation (10)(13) Drug Delivery Senior Secured June 2017 Interest rate PRIME + 8.00%or Floor rate of 11.25% $6,346 6,501 6,544 Dance Biopharm, Inc. (13)(14) Drug Delivery Senior Secured November 2017 Interest rate PRIME + 7.40%or Floor rate of 10.65% $2,705 2,776 2,757 Edge Therapeutics, Inc. (10)(13) Drug Delivery Senior Secured March 2018 Interest rate PRIME + 6.45%or Floor rate of 9.95% $5,466 5,431 5,455 Egalet Corporation (11)(13) Drug Delivery Senior Secured July 2018 Interest rate PRIME + 6.15%or Floor rate of 9.40% $15,000 14,967 15,036 Neos Therapeutics, Inc. (10)(13)(14) Drug Delivery Senior Secured October 2017 Interest rate PRIME + 5.75%or Floor rate of 9.00% $10,000 10,000 10,007 Drug Delivery Senior Secured October 2017 Interest rate PRIME + 7.25%or Floor rate of 10.50% $10,000 10,043 9,998 Drug Delivery Senior Secured October 2017 Interest rate PRIME + 5.75%or Floor rate of 9.00% $5,000 4,977 4,957 Total Neos Therapeutics, Inc. $25,000 25,020 24,962 Pulmatrix Inc. (8)(10)(13) Drug Delivery Senior Secured July 2018 Interest rate PRIME + 6.25%or Floor rate of 9.50% $7,000 6,877 6,856 ZP Opco, Inc (p.k.a. ZosanoPharma) (10)(13) Drug Delivery Senior Secured December 2018 Interest rate PRIME + 2.70%or Floor rate of 7.95% $15,000 14,925 14,781 Subtotal: 1-5 Years Maturity 156,355 155,857 Subtotal: Drug Delivery (21.73%)* 156,355 155,857 See notes to consolidated financial statements.116HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Drug Discovery & Development 1-5 Years Maturity Aveo Pharmaceuticals, Inc. (9)(13) Drug Discovery & Development Senior Secured January 2018 Interest rate PRIME + 6.65%or Floor rate of 11.90% $10,000 $10,076 $9,944 Cerecor, Inc. (13) Drug Discovery & Development Senior Secured August 2017 Interest rate PRIME + 4.70%or Floor rate of 7.95% $5,688 5,705 5,740 Cerulean Pharma, Inc. (11)(13) Drug Discovery & Development Senior Secured July 2018 Interest rate PRIME + 1.55%or Floor rate of 7.30% $21,000 21,132 21,109 CTI BioPharma Corp. (p.k.a. CellTherapeutics, Inc.) (10)(13) Drug Discovery & Development Senior Secured December 2018 Interest rate PRIME + 7.70%or Floor rate of 10.95% $25,000 25,507 25,550 Epirus Biopharmaceuticals, Inc. (11)(13) Drug Discovery & Development Senior Secured April 2018 Interest rate PRIME + 4.70%or Floor rate of 7.95% $15,000 14,852 14,924 Genocea Biosciences, Inc. (10)(13) Drug Discovery & Development Senior Secured January 2019 Interest rate PRIME + 3.75%or Floor rate of 7.25% $17,000 17,008 16,948 Immune Pharmaceuticals (10)(13) Drug Discovery & Development Senior Secured September 2018 Interest rate PRIME + 6.50%or Floor rate of 10.00% $4,500 4,374 4,374 Insmed, Incorporated (10)(13) Drug Discovery & Development Senior Secured January 2018 Interest rate PRIME + 4.75%or Floor rate of 9.25% $25,000 25,128 24,991 Mast Therapeutics, Inc. (13)(14) Drug Discovery & Development Senior Secured January 2019 Interest rate PRIME + 5.70%or Floor rate of 8.95% $15,000 14,808 14,808 Melinta Therapeutics (11)(13) Drug Discovery & Development Senior Secured June 2018 Interest rate PRIME + 3.75%or Floor rate of 8.25% $30,000 29,843 29,703 Merrimack Pharmaceuticals, Inc.(9) Drug Discovery & Development Senior Secured December 2022 Interest rate FIXED 11.50% $25,000 25,000 25,000 Neothetics, Inc. (p.k.a. Lithera,Inc) (13)(14) Drug Discovery & Development Senior Secured January 2018 Interest rate PRIME + 5.75%or Floor rate of 9.00% $10,000 9,966 9,940 Neuralstem, Inc. (13)(14) Drug Discovery & Development Senior Secured April 2017 Interest rate PRIME + 6.75%or Floor rate of 10.00% $8,335 8,418 8,397 Paratek Pharmaceutcals, Inc. (p.k.a.Transcept Pharmaceuticals, Inc.)(13)(14) Drug Discovery & Development Senior Secured September 2020 Interest rate PRIME + 2.75%or Floor rate of 8.50% $20,000 19,828 19,828 uniQure B.V. (4)(9)(10)(13) Drug Discovery & Development Senior Secured June 2018 Interest rate PRIME + 5.00%or Floor rate of 10.25% $20,000 19,956 19,929 XOMA Corporation (9)(13)(14) Drug Discovery & Development Senior Secured September 2018 Interest rate PRIME + 2.15%or Floor rate of 9.40% $20,000 19,974 19,815 Subtotal: 1-5 Years Maturity 271,575 271,000 Subtotal: Drug Discovery & Development (37.79%)* 271,575 271,000 See notes to consolidated financial statements.117HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Electronics & Computer Hardware 1-5 Years Maturity Persimmon Technologies (13) Electronics & Computer Hardware Senior Secured June 2019 Interest rate PRIME + 7.50%or Floor rate of 11.00% $7,000 $6,873 $6,873 Subtotal: 1-5 Years Maturity 6,873 6,873 Subtotal: Electronics & Computer Hardware (0.96%)* 6,873 6,873 Sustainable and Renewable Technology Under 1 Year Maturity Agrivida, Inc. (13)(14) Sustainable and Renewable Technology Senior Secured December 2016 Interest rate PRIME + 6.75%or Floor rate of 10.00% $4,362 4,587 4,587 American SuperconductorCorporation (10)(13) Sustainable and Renewable Technology Senior Secured November 2016 Interest rate PRIME + 7.25%or Floor rate of 11.00% $3,667 4,106 4,106 Fluidic, Inc. (10)(13) Sustainable and Renewable Technology Senior Secured March 2016 Interest rate PRIME + 8.00%or Floor rate of 11.25% $784 931 931 Polyera Corporation (13)(14) Sustainable and Renewable Technology Senior Secured April 2016 Interest rate PRIME + 6.75%or Floor rate of 10.00% $637 890 890 Stion Corporation (5)(13) Sustainable and Renewable Technology Senior Secured March 2016 Interest rate PRIME + 8.75%or Floor rate of 12.00% $2,200 2,200 1,013 Sungevity, Inc. (11) Sustainable and Renewable Technology Senior Secured April 2016 Interest rate PRIME + 3.70%or Floor rate of 6.95% $20,000 20,000 20,000 Subtotal: Under 1 Year Maturity 32,714 31,527 1-5 Years Maturity American SuperconductorCorporation (10)(13) Sustainable and Renewable Technology Senior Secured June 2017 Interest rate PRIME + 7.25%or Floor rate of 11.00% $1,500 1,496 1,484 Amyris, Inc. (9)(11)(13) Sustainable and Renewable Technology Senior Secured February 2017 Interest rate PRIME + 6.25%or Floor rate of 9.50% $17,543 17,543 17,499 Sustainable and Renewable Technology Senior Secured February 2017 Interest rate PRIME + 5.25%or Floor rate of 8.50% $3,497 3,497 3,488 Sustainable and Renewable Technology Senior Secured February 2017 Interest rate PRIME + 6.25%or Floor rate of 9.50% $10,960 11,045 11,045 Total Amyris, Inc. $32,000 32,085 32,032 Modumetal, Inc. (13) Sustainable and Renewable Technology Senior Secured March 2017 Interest rate PRIME + 8.70%or Floor rate of 11.95% $1,759 2,062 2,032 Sustainable and Renewable Technology Senior Secured October 2017 Interest rate PRIME + 6.00%or Floor rate of 9.25% $7,061 7,101 7,080 Total Modumetal, Inc. $8,820 9,163 9,112 Polyera Corporation (13) Sustainable and Renewable Technology Senior Secured January 2017 Interest rate PRIME + 6.70%or Floor rate of 9.95% $1,254 1,455 1,455 Proterra, Inc. (10)(13) Sustainable and Renewable Technology Senior Secured December 2018 Interest rate PRIME + 6.95%or Floor rate of 10.20% $25,000 24,995 24,550 Sungevity, Inc. (11)(13) Sustainable and Renewable Technology Senior Secured October 2017 Interest rate PRIME + 3.70%or Floor rate of 6.95% $35,000 34,733 34,773 Tendril Networks (13) Sustainable and Renewable Technology Senior Secured June 2019 Interest rate FIXED 7.25% $15,000 14,735 14,477 Subtotal: 1-5 Years Maturity 118,662 117,883 Subtotal: Sustainable and Renewable Technology (20.83%)* 151,376 149,410 Healthcare Services, Other 1-5 Years Maturity Chromadex Corporation (13)(14) Healthcare Services, Other Senior Secured April 2018 Interest rate PRIME + 6.10%or Floor rate of 9.35% $5,000 4,907 4,918 InstaMed Communications, LLC (13)(14) Healthcare Services, Other Senior Secured February 2019 Interest rate PRIME + 6.75%or Floor rate of 10.00% $10,000 10,048 10,049 Subtotal: 1-5 Years Maturity 14,955 14,967 Subtotal: Healthcare Services, Other (2.09%)* 14,955 14,967 See notes to consolidated financial statements.118HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Information Services Under 1 Year Maturity Eccentex Corporation (13)(16) Information Services Senior Secured May 2015 Interest rate PRIME + 7.00%or Floor rate of 10.25% $13 $28 $28 InXpo, Inc. (13)(14) Information Services Senior Secured October 2016 Interest rate PRIME + 7.50%or Floor rate of 10.75% $1,589 1,624 1,624 Subtotal: Under 1 Year Maturity 1,652 1,652 Subtotal: Information Services (0.23%)* 1,652 1,652 Internet Consumer & Business Services Under 1 Year Maturity NetPlenish (7)(8)(14) Internet Consumer & Business Services Convertible Debt September 2016 Interest rate FIXED 10.00% $381 373 — Internet Consumer & Business Services Senior Secured April 2016 Interest rate FIXED 10.00% $45 45 — Total NetPlenish $426 418 — Subtotal: Under 1 Year Maturity 418 — 1-5 Years Maturity Aria Systems, Inc. (10)(12) Internet Consumer & Business Services Senior Secured June 2019 Interest rate PRIME + 5.20%or Floor rate of 8.95%,PIK Interest 1.95% $18,101 17,850 17,673 Internet Consumer & Business Services Senior Secured June 2019 Interest rate PRIME + 3.20%or Floor rate of 6.95%,PIK Interest 1.95% $2,021 1,995 1,972 Total Aria Systems, Inc. $20,122 19,845 19,645 One Planet Ops Inc. (p.k.a. Reply!Inc.) (7)(12) Internet Consumer & Business Services Senior Secured March 2019 Interest rate PRIME + 4.25%or Floor rate of 7.50% $6,321 5,811 5,811 Internet Consumer & Business Services Senior Secured March 2019 PIK Interest 2.00% $2,129 2,129 55 Total One Planet Ops Inc. (p.k.a. Reply! Inc.) $8,450 7,940 5,866 ReachLocal (13) Internet Consumer & Business Services Senior Secured April 2018 Interest rate PRIME + 8.50%or Floor rate of 11.75% $25,000 24,868 24,769 Tapjoy, Inc. (11)(13) Internet Consumer & Business Services Senior Secured July 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $20,000 19,598 19,514 Tectura Corporation (7)(12)(15) Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 10.00%or Floor rate of 13.00% $6,468 6,468 4,851 Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 8.00%or Floor rate of 11.00%,PIK Interest 1.00% $8,170 8,170 6,128 Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 10.00%or Floor rate of 13.00% $563 563 422 Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 10.00%or Floor rate of 13.00% $5,000 5,000 3,750 Total Tectura Corporation $20,201 20,201 15,151 Subtotal: 1-5 Years Maturity 92,452 84,945 Subtotal: Internet Consumer & Business Services (11.85%)* 92,870 84,945 Media/Content/Info Under 1 Year Maturity Zoom Media Group, Inc. Media/Content/Info Senior Secured January 2016 Interest rate PRIME + 5.25%or Floor rate of 8.50% $5,060 5,060 5,060 Subtotal: Under 1 Year Maturity 5,060 5,060 1-5 Years Maturity Machine Zone, Inc. (12) Media/Content/Info Senior Secured May 2018 Interest rate PRIME + 2.50%or Floor rate of 6.75%,PIK Interest 3.00% $90,729 88,730 88,101 Subtotal: 1-5 Years Maturity 88,730 88,101 Subtotal: Media/Content/Info (12.99%)* 93,790 93,161 See notes to consolidated financial statements.119HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Medical Devices & Equipment Under 1 Year Maturity Medrobotics Corporation (13)(14) Medical Devices & Equipment Senior Secured March 2016 Interest rate PRIME + 7.85%or Floor rate of 11.10% $576 $735 $735 SonaCare Medical, LLC (p.k.a. USHIFU, LLC) (13) Medical Devices & Equipment Senior Secured April 2016 Interest rate PRIME + 7.75%or Floor rate of 11.00% $292 700 700 Subtotal: Under 1 Year Maturity 1,435 1,435 1-5 Years Maturity Amedica Corporation (8)(13)(14) Medical Devices & Equipment Senior Secured January 2018 Interest rate PRIME + 9.20%or Floor rate of 12.45% $17,051 17,642 17,350 Aspire Bariatrics, Inc. (13)(14) Medical Devices & Equipment Senior Secured October 2018 Interest rate PRIME + 4.00%or Floor rate of 9.25% $7,000 6,771 6,739 Avedro, Inc. (13)(14) Medical Devices & Equipment Senior Secured June 2018 Interest rate PRIME + 6.00%or Floor rate of 9.25% $12,500 12,391 12,201 Flowonix Medical Incorporated (11)(13) Medical Devices & Equipment Senior Secured May 2018 Interest rate PRIME + 6.50%or Floor rate of 10.00% $15,000 15,071 14,974 Gamma Medica, Inc. (10)(13) Medical Devices & Equipment Senior Secured January 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $4,000 4,009 3,989 InspireMD, Inc. (4)(9)(13) Medical Devices & Equipment Senior Secured February 2017 Interest rate PRIME + 5.00%or Floor rate of 10.50% $5,009 5,380 3,764 Quanterix Corporation (10)(13) Medical Devices & Equipment Senior Secured February 2018 Interest rate PRIME + 2.75%or Floor rate of 8.00% $9,661 9,718 9,659 SynergEyes, Inc. (13)(14) Medical Devices & Equipment Senior Secured January 2018 Interest rate PRIME + 7.75%or Floor rate of 11.00% $4,263 4,516 4,464 Subtotal: 1-5 Years Maturity 75,498 73,140 Subtotal: Medical Devices & Equipment (10.40%)* 76,933 74,575 Semiconductors Under 1 Year Maturity Achronix SemiconductorCorporation (14) Semiconductors Senior Secured July 2016 Interest rate PRIME + 4.75%or Floor rate of 8.00% $5,000 5,000 5,000 Subtotal: Under 1 Year Maturity 5,000 5,000 1-5 Years Maturity Achronix SemiconductorCorporation (13)(14) Semiconductors Senior Secured July 2018 Interest rate PRIME + 8.25%or Floor rate of 11.50% $5,000 5,027 4,999 Aquantia Corporation Semiconductors Senior Secured February 2017 Interest rate PRIME + 2.95%or Floor rate of 6.20% $5,001 5,001 5,001 Avnera Corporation (10)(13) Semiconductors Senior Secured April 2018 Interest rate PRIME + 5.25%or Floor rate of 8.50% $7,500 7,498 7,568 Subtotal: 1-5 Years Maturity 17,526 17,568 Subtotal: Semiconductors (3.15%)* 22,526 22,568 See notes to consolidated financial statements.120HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Software Under 1 Year Maturity Clickfox, Inc. (13)(14)(16) Software Senior Secured December 2015 Interest rate PRIME + 8.75%or Floor rate of 12.00% $3,300 $3,465 $3,465 JumpStart Games, Inc. (p.k.a.Knowledge Adventure, Inc.) (12)(13)(14) Software Senior Secured October 2016 Interest rate FIXED 5.75%,PIK Interest 10.75% $1,335 1,350 875 Neos, Inc. (13)(14) Software Senior Secured May 2016 Interest rate PRIME + 6.75%or Floor rate of 10.50% $729 895 895 Touchcommerce, Inc. (14) Software Senior Secured August 2016 Interest rate PRIME + 2.25%or Floor rate of 6.50% $5,511 5,511 5,511 Subtotal: Under 1 Year Maturity 11,221 10,746 1-5 Years Maturity Actifio, Inc. (12) Software Senior Secured January 2019 Interest rate PRIME + 4.25%or Floor rate of 8.25%,PIK Interest 2.25% $30,263 30,019 29,712 Clickfox, Inc. (13)(14) Software Senior Secured March 2018 Interest rate PRIME + 8.25%or Floor rate of 11.50% $5,475 5,490 5,490 Druva, Inc. (10)(13) Software Senior Secured March 2018 Interest rate PRIME + 4.60%or Floor rate of 7.85% $12,000 12,080 12,034 JumpStart Games, Inc. (p.k.a.Knowledge Adventure, Inc.) (12)(13)(14) Software Senior Secured March 2018 Interest rate FIXED 5.75%,PIK Interest 10.75% $11,082 11,174 7,245 Message Systems, Inc. (14) Software Senior Secured February 2019 Interest rate PRIME + 7.25%or Floor rate of 10.50% $17,500 17,103 17,013 Software Senior Secured February 2017 Interest rate PRIME + 2.75%or Floor rate of 6.00% $1,618 1,618 1,616 Total Message Systems, Inc. $19,118 18,721 18,629 RedSeal Inc. (13)(14) Software Senior Secured June 2017 Interest rate PRIME + 3.25%or Floor rate of 6.50% $3,000 3,000 2,987 Software Senior Secured June 2018 Interest rate PRIME + 7.75%or Floor rate of 11.00% $5,000 5,006 4,979 Total RedSeal Inc. $8,000 8,006 7,966 Soasta, Inc. (13)(14) Software Senior Secured February 2018 Interest rate PRIME + 2.25%or Floor rate of 5.50% $3,500 3,432 3,419 Software Senior Secured February 2018 Interest rate PRIME + 4.75%or Floor rate of 8.00% $15,000 14,699 14,646 Total Soasta, Inc. $18,500 18,131 18,065 Touchcommerce, Inc. (13)(14) Software Senior Secured February 2018 Interest rate PRIME + 6.00%or Floor rate of 10.25% $12,000 11,853 11,721 Subtotal: 1-5 Years Maturity 115,474 110,862 Subtotal: Software (16.96%)* 126,695 121,608 See notes to consolidated financial statements.121HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Specialty Pharmaceuticals Under 1 Year Maturity Cranford Pharmaceuticals, LLC (10)(12) Specialty Pharmaceuticals Senior Secured August 2016 Interest rate LIBOR + 8.25%or Floor rate of 9.50% $1,100 $1,100 $1,100 Subtotal: Under 1 Year Maturity 1,100 1,100 1-5 Years Maturity Alimera Sciences, Inc. (10)(13) Specialty Pharmaceuticals Senior Secured May 2018 Interest rate PRIME + 7.65%or Floor rate of 10.90% $35,000 34,296 34,309 Cranford Pharmaceuticals, LLC (10)(12)(13)(14) Specialty Pharmaceuticals Senior Secured August 2017 Interest rate LIBOR + 9.55%or Floor rate of 10.80%,PIK Interest 1.35% $10,041 10,164 10,235 Jaguar Animal Health, Inc. (10)(13) Specialty Pharmaceuticals Senior Secured August 2018 Interest rate PRIME + 5.65%or Floor rate of 9.90% $6,000 6,009 6,009 Subtotal: 1-5 Years Maturity 50,469 50,553 Subtotal: Specialty Pharmaceuticals (7.20%)* 51,569 51,653 Surgical Devices 1-5 Years Maturity Transmedics, Inc. (13) Surgical Devices Senior Secured March 2019 Interest rate PRIME + 5.30%or Floor rate of 9.55% $8,500 8,471 8,396 Subtotal: 1-5 Years Maturity 8,471 8,396 Subtotal: Surgical Devices (1.17%)* 8,471 8,396 Total Debt Investments (154.81%)* 1,152,303 1,110,209 See notes to consolidated financial statements. 122HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Equity Investments Biotechnology Tools NuGEN Technologies, Inc. (14) Biotechnology Tools Equity Preferred Series C 189,394 $500 $532 Subtotal: Biotechnology Tools (0.07%)* 500 532 Communications & Networking GlowPoint, Inc. (3) Communications & Networking Equity Common Stock 114,192 102 57 Peerless Network, Inc. Communications & Networking Equity Preferred Series A 1,000,000 1,000 4,380 Subtotal: Communications & Networking (0.62%)* 1,102 4,437 Consumer & Business Products Market Force Information, Inc. Consumer & Business Products Equity Common Stock 480,261 — 217 Consumer & Business Products Equity Preferred Series B-1 187,970 500 3 Total Market Force Information, Inc. 668,231 500 220 Subtotal: Consumer & Business Products (0.03%)* 500 220 Diagnostic Singulex, Inc. Diagnostic Equity Common Stock 937,998 750 304 Subtotal: Diagnostic (0.04%)* 750 304 Drug Delivery AcelRx Pharmaceuticals, Inc. (3)(9) Drug Delivery Equity Common Stock 54,240 108 209 BioQ Pharma Incorporated (14) Drug Delivery Equity Preferred Series D 165,000 500 660 Edge Therapeutics, Inc. (3) Drug Delivery Equity Common Stock 157,190 1,000 1,965 Merrion Pharmaceuticals, Plc (3)(4)(9) Drug Delivery Equity Common Stock 20,000 9 — Neos Therapeutics, Inc. (3)(14) Drug Delivery Equity Common Stock 125,000 1,500 1,790 Revance Therapeutics, Inc. (3) Drug Delivery Equity Common Stock 22,765 557 778 Subtotal: Drug Delivery (0.75%)* 3,674 5,402 Drug Discovery & Development Aveo Pharmaceuticals, Inc. (3)(9)(14) Drug Discovery & Development Equity Common Stock 167,864 842 212 Cerecor, Inc. (3) Drug Discovery & Development Equity Common Stock 119,087 1,000 399 Cerulean Pharma, Inc. (3) Drug Discovery & Development Equity Common Stock 135,501 1,000 379 Dicerna Pharmaceuticals, Inc. (3)(14) Drug Discovery & Development Equity Common Stock 142,858 1,000 1,695 Dynavax Technologies (3)(9) Drug Discovery & Development Equity Common Stock 20,000 550 483 Epirus Biopharmaceuticals, Inc. (3) Drug Discovery & Development Equity Common Stock 200,000 1,000 618 Genocea Biosciences, Inc. (3) Drug Discovery & Development Equity Common Stock 223,463 2,000 1,178 Inotek Pharmaceuticals Corporation (3) Drug Discovery & Development Equity Common Stock 3,778 1,500 43 Insmed, Incorporated (3) Drug Discovery & Development Equity Common Stock 70,771 1,000 1,284 Melinta Therapeutics Drug Discovery & Development Equity Preferred Series 4 1,914,448 2,000 2,026 Paratek Pharmaceutcals, Inc. (p.k.a. TransceptPharmaceuticals, Inc.) (3) Drug Discovery & Development Equity Common Stock 76,362 2,743 1,450 Subtotal: Drug Discovery & Development (1.36%)* 14,635 9,767 Electronics & Computer Hardware Identiv, Inc. (3) Electronics & Computer Hardware Equity Common Stock 6,700 34 13 Subtotal: Electronics & Computer Hardware (0.00%)* 34 13 Sustainable and Renewable Technology Glori Energy, Inc. (3) Sustainable and Renewable Technology Equity Common Stock 18,208 165 6 Modumetal, Inc. Sustainable and Renewable Technology Equity Preferred Series C 3,107,520 500 455 SCIEnergy, Inc. Sustainable and Renewable Technology Equity Preferred Series 1 385,000 761 — Sungevity, Inc. (14) Sustainable and Renewable Technology Equity Preferred Series D 68,807,339 6,750 6,912 Subtotal: Sustainable and Renewable Technology (1.03%)* 8,176 7,373 See notes to consolidated financial statements.123HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Internet Consumer & Business Services Blurb, Inc. (14) Internet Consumer & Business Services Equity Preferred Series B 220,653 $175 $244 Lightspeed POS, Inc. (4)(9) Internet Consumer & Business Services Equity Preferred Series C 230,030 250 264 Internet Consumer & Business Services Equity Preferred Series D 198,677 250 249 Total Lightspeed POS, Inc. 428,707 500 513 Oportun (p.k.a. Progress Financial) Internet Consumer & Business Services Equity Preferred Series G 218,351 250 349 Internet Consumer & Business Services Equity Preferred Series H 87,802 250 248 Total Oportun (p.k.a. Progress Financial) 306,153 500 597 Philotic, Inc. Internet Consumer & Business Services Equity Common Stock 9,023 93 — RazorGator Interactive Group, Inc. Internet Consumer & Business Services Equity Preferred Series AA 34,783 15 28 Taptera, Inc. Internet Consumer & Business Services Equity Preferred Series B 454,545 150 99 Subtotal: Internet Consumer & Business Services (0.21%)* 1,433 1,481 Medical Devices & Equipment AtriCure, Inc. (3)(14) Medical Devices & Equipment Equity Common Stock 7,536 266 155 Flowonix Medical Incorporated Medical Devices & Equipment Equity Preferred Series E 221,893 1,500 1,953 Gelesis, Inc. (14) Medical Devices & Equipment Equity Common Stock 198,202 — 1,005 Medical Devices & Equipment Equity Preferred Series A-1 191,210 425 1,051 Medical Devices & Equipment Equity Preferred Series A-2 191,626 500 1,012 Total Gelesis, Inc. 581,038 925 3,068 Medrobotics Corporation (14) Medical Devices & Equipment Equity Preferred Series E 136,798 250 208 Medical Devices & Equipment Equity Preferred Series F 73,971 155 189 Medical Devices & Equipment Equity Preferred Series G 163,934 500 500 Total Medrobotics Corporation 374,703 905 897 Novasys Medical, Inc. Medical Devices & Equipment Equity Preferred Series D-1 4,118,444 1,000 — Optiscan Biomedical, Corp. (5)(14) Medical Devices & Equipment Equity Preferred Series B 6,185,567 3,000 565 Medical Devices & Equipment Equity Preferred Series C 1,927,309 655 169 Medical Devices & Equipment Equity Preferred Series D 55,103,923 5,257 5,927 Total Optiscan Biomedical, Corp. 63,216,799 8,912 6,661 Oraya Therapeutics, Inc. Medical Devices & Equipment Equity Preferred Series 1 1,086,969 500 266 Outset Medical, Inc. (p.k.a. Home Dialysis Plus,Inc.) Medical Devices & Equipment Equity Preferred Series B 232,061 527 543 Subtotal: Medical Devices & Equipment (1.89%)* 14,535 13,543 Software Box, Inc. (3)(14) Software Equity Common Stock 1,287,347 5,653 17,957 CapLinked, Inc. Software Equity Preferred Series A-3 53,614 51 79 Druva, Inc. Software Equity Preferred Series 2 458,841 1,000 1,031 ForeScout Technologies, Inc. Software Equity Preferred Series D 319,099 398 1,368 Software Equity Preferred Series E 80,587 131 350 Total ForeScout Technologies, Inc. 399,686 529 1,718 HighRoads, Inc. Software Equity Preferred Series B 190,170 307 — NewVoiceMedia Limited (4)(9) Software Equity Preferred Series E 669,173 963 1,016 WildTangent, Inc. (14) Software Equity Preferred Series 3 100,000 402 190 Subtotal: Software (3.07%)* 8,905 21,991 Specialty Pharmaceuticals QuatRx Pharmaceuticals Company Specialty Pharmaceuticals Equity Preferred Series E 241,829 750 — Specialty Pharmaceuticals Equity Preferred Series E-1 26,955 — — Specialty Pharmaceuticals Equity Preferred Series G 4,667,636 — — Total QuatRx Pharmaceuticals Company 4,936,420 750 — Subtotal: Specialty Pharmaceuticals (0.00%)* 750 — Surgical Devices Gynesonics, Inc. (14) Surgical Devices Equity Preferred Series B 219,298 250 32 Surgical Devices Equity Preferred Series C 656,538 282 46 Surgical Devices Equity Preferred Series D 1,991,157 712 637 Surgical Devices Equity Preferred Series E 2,785,402 429 422 Total Gynesonics, Inc. 5,652,395 1,673 1,137 Transmedics, Inc. Surgical Devices Equity Preferred Series B 88,961 1,100 154 Surgical Devices Equity Preferred Series C 119,999 300 96 Surgical Devices Equity Preferred Series D 260,000 650 521 Surgical Devices Equity Preferred Series F 100,200 500 471 Total Transmedics, Inc. 569,160 2,550 1,242 Subtotal: Surgical Devices (0.33%)* 4,223 2,379 Total: Equity Investments (9.40%)* 59,217 67,442 See notes to consolidated financial statements.124HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Warrant Investments Biotechnology Tools Labcyte, Inc. (14) Biotechnology Tools Warrant Preferred Series C 1,127,624 $323 $187 Subtotal: Biotechnology Tools (0.03%)* 323 187 Communications & Networking Intelepeer, Inc. (14) Communications & Networking Warrant Common Stock 117,958 102 — OpenPeak, Inc. Communications & Networking Warrant Common Stock 108,982 149 — PeerApp, Inc. Communications & Networking Warrant Preferred Series B 298,779 61 62 Peerless Network, Inc. Communications & Networking Warrant Preferred Series A 135,000 95 375 Ping Identity Corporation Communications & Networking Warrant Preferred Series B 1,136,277 52 236 SkyCross, Inc. (14) Communications & Networking Warrant Preferred Series F 9,762,777 394 — Spring Mobile Solutions, Inc. Communications & Networking Warrant Preferred Series D 2,834,375 418 53 Subtotal: Communications & Networking (0.10%)* 1,271 726 Consumer & Business Products Antenna79 (p.k.a. Pong Research Corporation) (14) Consumer & Business Products Warrant Preferred Series A 1,662,441 228 2 Intelligent Beauty, Inc. (14) Consumer & Business Products Warrant Preferred Series B 190,234 230 214 IronPlanet, Inc. Consumer & Business Products Warrant Preferred Series D 1,155,821 1,076 651 Market Force Information, Inc. Consumer & Business Products Warrant Preferred Series A-1 150,212 24 10 Nasty Gal (14) Consumer & Business Products Warrant Preferred Series C 845,194 23 20 The Neat Company (14) Consumer & Business Products Warrant Preferred Series C-1 540,540 365 — Subtotal: Consumer & Business Products (0.13%)* 1,946 897 Diagnostic Navidea Biopharmaceuticals, Inc. (p.k.a.Neoprobe) (3)(14) Diagnostic Warrant Common Stock 333,333 244 17 Subtotal: Diagnostic (0.00%)* 244 17 Drug Delivery AcelRx Pharmaceuticals, Inc. (3)(9)(14) Drug Delivery Warrant Common Stock 176,730 786 238 Agile Therapeutics, Inc. (3) Drug Delivery Warrant Common Stock 180,274 730 680 BIND Therapeutics, Inc. (3)(14) Drug Delivery Warrant Common Stock 152,586 488 6 BioQ Pharma Incorporated Drug Delivery Warrant Common Stock 459,183 1 423 Celator Pharmaceuticals, Inc. (3) Drug Delivery Warrant Common Stock 210,675 138 59 Celsion Corporation (3) Drug Delivery Warrant Common Stock 194,986 428 20 Dance Biopharm, Inc. (14) Drug Delivery Warrant Common Stock 43,813 74 55 Edge Therapeutics, Inc. (3) Drug Delivery Warrant Common Stock 78,595 390 417 Kaleo, Inc. (p.k.a. Intelliject, Inc.) Drug Delivery Warrant Preferred Series B 82,500 594 1,217 Neos Therapeutics, Inc. (3)(14) Drug Delivery Warrant Common Stock 70,833 285 275 Pulmatrix Inc. (3) Drug Delivery Warrant Common Stock 25,150 116 12 ZP Opco, Inc (p.k.a. Zosano Pharma) (3) Drug Delivery Warrant Common Stock 72,379 266 4 Subtotal: Drug Delivery (0.47%)* 4,296 3,406 See notes to consolidated financial statements.125HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Drug Discovery & Development ADMA Biologics, Inc. (3) Drug Discovery & Development Warrant Common Stock 89,750 $295 $98 Anthera Pharmaceuticals, Inc. (3)(14) Drug Discovery & Development Warrant Common Stock 40,178 984 — Aveo Pharmaceuticals, Inc. (3)(9) Drug Discovery & Development Warrant Common Stock 608,696 194 216 Cerecor, Inc. (3) Drug Discovery & Development Warrant Common Stock 22,328 70 10 Cerulean Pharma, Inc. (3) Drug Discovery & Development Warrant Common Stock 171,901 369 90 Chroma Therapeutics, Ltd. (4)(9) Drug Discovery & Development Warrant Preferred Series D 325,261 490 — Cleveland BioLabs, Inc. (3)(14) Drug Discovery & Development Warrant Common Stock 7,813 105 5 Concert Pharmaceuticals, Inc. (3) Drug Discovery & Development Warrant Common Stock 70,796 367 368 CTI BioPharma Corp. (p.k.a. Cell Therapeutics,Inc.) (3) Drug Discovery & Development Warrant Common Stock 292,398 165 59 Dicerna Pharmaceuticals, Inc. (3)(14) Drug Discovery & Development Warrant Common Stock 200 28 — Epirus Biopharmaceuticals, Inc. (3) Drug Discovery & Development Warrant Common Stock 64,194 276 55 Fortress Biotech, Inc. (p.k.a. CoronadoBiosciences, Inc.) (3) Drug Discovery & Development Warrant Common Stock 73,009 142 11 Genocea Biosciences, Inc. (3) Drug Discovery & Development Warrant Common Stock 73,725 266 92 Immune Pharmaceuticals (3) Drug Discovery & Development Warrant Common Stock 214,853 164 40 Mast Therapeutics, Inc. (3)(14) Drug Discovery & Development Warrant Common Stock 1,524,389 203 215 Melinta Therapeutics Drug Discovery & Development Warrant Preferred Series 3 1,382,323 626 130 Nanotherapeutics, Inc. (14) Drug Discovery & Development Warrant Common Stock 171,389 838 1,762 Neothetics, Inc. (p.k.a. Lithera, Inc) (3)(14) Drug Discovery & Development Warrant Common Stock 46,838 266 2 Neuralstem, Inc. (3)(14) Drug Discovery & Development Warrant Common Stock 75,187 77 12 Paratek Pharmaceutcals, Inc. (p.k.a. TransceptPharmaceuticals, Inc.) (3)(14) Drug Discovery & Development Warrant Common Stock 21,467 129 36 uniQure B.V. (3)(4)(9) Drug Discovery & Development Warrant Common Stock 37,174 218 183 XOMA Corporation (3)(9)(14) Drug Discovery & Development Warrant Common Stock 181,268 279 115 Subtotal: Drug Discovery & Development (0.49%)* 6,551 3,499 Electronics & Computer Hardware Clustrix, Inc. Electronics & Computer Hardware Warrant Common Stock 50,000 12 — Persimmon Technologies Electronics & Computer Hardware Warrant Preferred Series C 43,076 40 42 Subtotal: Electronics & Computer Hardware (0.01%)* 52 42 Sustainable and Renewable Technology Agrivida, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series D 471,327 120 38 Alphabet Energy, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series A 86,329 82 159 American Superconductor Corporation (3) Sustainable and Renewable Technology Warrant Common Stock 58,823 39 82 Brightsource Energy, Inc. Sustainable and Renewable Technology Warrant Preferred Series 1 116,667 104 6 Calera, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series C 44,529 513 — EcoMotors, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series B 437,500 308 176 Fluidic, Inc. Sustainable and Renewable Technology Warrant Preferred Series D 61,804 102 43 Fulcrum Bioenergy, Inc. Sustainable and Renewable Technology Warrant Preferred Series C-1 280,897 275 152 GreatPoint Energy, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series D-1 393,212 548 — Polyera Corporation (14) Sustainable and Renewable Technology Warrant Preferred Series C 311,609 338 10 Proterra, Inc. Sustainable and Renewable Technology Warrant Preferred Series 4 397,931 37 50 SCIEnergy, Inc. Sustainable and Renewable Technology Warrant Common Stock 530,811 181 — Sustainable and Renewable Technology Warrant Preferred Series 1 145,811 50 — Total SCIEnergy, Inc. 676,622 231 — Scifiniti (p.k.a. Integrated Photovoltaics, Inc.) (14) Sustainable and Renewable Technology Warrant Preferred Series A-1 390,000 82 48 Solexel, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series C 1,171,625 1,162 466 Stion Corporation (5) Sustainable and Renewable Technology Warrant Preferred Series Seed 2,154 1,378 — Sungevity, Inc. Sustainable and Renewable Technology Warrant Common Stock 20,000,000 543 569 Sustainable and Renewable Technology Warrant Preferred Series C 32,472,222 902 525 Total Sungevity, Inc. 52,472,222 1,445 1,094 TAS Energy, Inc. Sustainable and Renewable Technology Warrant Preferred Series AA 428,571 299 — Tendril Networks Sustainable and Renewable Technology Warrant Preferred Series 3-A 1,019,793 188 242 TPI Composites, Inc. Sustainable and Renewable Technology Warrant Preferred Series B 160 273 85 Trilliant, Inc. (14) Sustainable and Renewable Technology Warrant Preferred Series A 320,000 162 53 Subtotal: Sustainable and Renewable Technology (0.38%)* 7,686 2,704 Healthcare Services, Other Chromadex Corporation (3)(14) Healthcare Services, Other Warrant Common Stock 419,020 157 164 Subtotal: Healthcare Services, Other (0.02%)* 157 164 See notes to consolidated financial statements.126HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Information Services Cha Cha Search, Inc. (14) Information Services Warrant Preferred Series G 48,232 $58 $— INMOBI Inc. (4)(9) Information Services Warrant Common Stock 46,874 82 3 InXpo, Inc. (14) Information Services Warrant Preferred Series C 648,400 98 2 Information Services Warrant Preferred Series C-1 1,032,416 74 — Total InXpo, Inc. 1,680,816 172 2 RichRelevance, Inc. (14) Information Services Warrant Preferred Series E 112,612 98 — Subtotal: Information Services (0.00%)* 410 5 Internet Consumer & Business Services Aria Systems, Inc. Internet Consumer & Business Services Warrant Preferred Series E 239,692 73 88 Blurb, Inc. (14) Internet Consumer & Business Services Warrant Preferred Series C 234,280 636 148 CashStar, Inc. (14) Internet Consumer & Business Services Warrant Preferred Series C-2 727,272 130 34 Just Fabulous, Inc. Internet Consumer & Business Services Warrant Preferred Series B 206,184 1,102 1,104 Lightspeed POS, Inc. (4)(9) Internet Consumer & Business Services Warrant Preferred Series C 245,610 20 82 Oportun (p.k.a. Progress Financial) Internet Consumer & Business Services Warrant Preferred Series G 174,562 78 104 Prism Education Group, Inc. (14) Internet Consumer & Business Services Warrant Preferred Series B 200,000 43 — ReachLocal (3) Internet Consumer & Business Services Warrant Common Stock 300,000 155 290 ShareThis, Inc. (14) Internet Consumer & Business Services Warrant Preferred Series C 493,502 547 93 Tapjoy, Inc. Internet Consumer & Business Services Warrant Preferred Series D 748,670 316 8 Tectura Corporation Internet Consumer & Business Services Warrant Preferred Series B-1 253,378 51 — Subtotal: Internet Consumer & Business Services (0.27%)* 3,151 1,951 Media/Content/Info Machine Zone, Inc. Media/Content/Info Warrant Common Stock 143,626 1,802 2,086 Rhapsody International, Inc. (14) Media/Content/Info Warrant Common Stock 715,755 384 218 Zoom Media Group, Inc. Media/Content/Info Warrant Preferred Series A 1,204 348 23 Subtotal: Media/Content/Info (0.32%)* 2,534 2,327 Medical Devices & Equipment Amedica Corporation (3)(14) Medical Devices & Equipment Warrant Common Stock 1,548,387 459 31 Aspire Bariatrics, Inc. (14) Medical Devices & Equipment Warrant Preferred Series D 395,000 455 236 Avedro, Inc. (14) Medical Devices & Equipment Warrant Preferred Series AA 300,000 401 142 Flowonix Medical Incorporated Medical Devices & Equipment Warrant Preferred Series E 110,947 203 428 Gamma Medica, Inc. Medical Devices & Equipment Warrant Preferred Series A 357,500 170 144 Gelesis, Inc. (14) Medical Devices & Equipment Warrant Preferred Series A-1 74,784 78 262 InspireMD, Inc. (3)(4)(9) Medical Devices & Equipment Warrant Common Stock 16,835 242 — Medrobotics Corporation (14) Medical Devices & Equipment Warrant Preferred Series E 455,539 370 244 NetBio, Inc. Medical Devices & Equipment Warrant Common Stock 2,568 408 19 NinePoint Medical, Inc. (14) Medical Devices & Equipment Warrant Preferred Series A-1 587,840 170 119 Novasys Medical, Inc. Medical Devices & Equipment Warrant Common Stock 109,449 2 — Medical Devices & Equipment Warrant Preferred Series D 526,840 125 — Medical Devices & Equipment Warrant Preferred Series D-1 53,607 6 — Total Novasys Medical, Inc. 689,896 133 — Optiscan Biomedical, Corp. (5)(14) Medical Devices & Equipment Warrant Preferred Series D 10,535,275 1,252 312 Oraya Therapeutics, Inc. Medical Devices & Equipment Warrant Common Stock 954 66 — Medical Devices & Equipment Warrant Preferred Series 1 1,632,084 676 63 Total Oraya Therapeutics, Inc. 1,633,038 742 63 Outset Medical, Inc. (p.k.a. Home Dialysis Plus,Inc.) Medical Devices & Equipment Warrant Preferred Series A 500,000 402 298 Quanterix Corporation Medical Devices & Equipment Warrant Preferred Series C 115,618 156 60 SonaCare Medical, LLC (p.k.a. US HIFU, LLC) Medical Devices & Equipment Warrant Preferred Series A 6,464 188 — Strata Skin Sciences, Inc. (p.k.a. MELA Sciences,Inc.) (3) Medical Devices & Equipment Warrant Common Stock 69,320 402 — ViewRay, Inc. (3)(14) Medical Devices & Equipment Warrant Common Stock 128,231 333 84 Subtotal: Medical Devices & Equipment (0.34%)* 6,564 2,442 See notes to consolidated financial statements.127HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Semiconductors Achronix Semiconductor Corporation (14) Semiconductors Warrant Preferred Series C 360,000 $160 $27 Semiconductors Warrant Preferred Series D-1 500,000 6 6 Total Achronix Semiconductor Corporation 860,000 166 33 Aquantia Corp. Semiconductors Warrant Preferred Series G 196,831 4 39 Avnera Corporation Semiconductors Warrant Preferred Series E 141,567 47 65 Subtotal: Semiconductors (0.02%)* 217 137 Software Actifio, Inc. Software Warrant Common Stock 73,584 249 210 Braxton Technologies, LLC Software Warrant Preferred Series A 168,750 188 — CareCloud Corporation (14) Software Warrant Preferred Series B 413,433 258 625 Clickfox, Inc. (14) Software Warrant Preferred Series B 1,038,563 330 362 Software Warrant Preferred Series C 592,019 730 272 Software Warrant Preferred Series C-A 46,109 13 16 Total Clickfox, Inc. 1,676,691 1,073 650 Hillcrest Laboratories, Inc. (14) Software Warrant Preferred Series E 1,865,650 55 138 JumpStart Games, Inc. (p.k.a Knowledge Holdings,Inc.) (14) Software Warrant Preferred Series E 614,333 16 — Message Systems, Inc. (14) Software Warrant Preferred Series B 408,011 334 497 Mobile Posse, Inc. (14) Software Warrant Preferred Series C 396,430 130 59 Neos, Inc. (14) Software Warrant Common Stock 221,150 22 113 NewVoiceMedia Limited (4)(9) Software Warrant Preferred Series E 225,586 33 55 Poplicus, Inc. (14) Software Warrant Preferred Series C 2,595,230 — 110 Soasta, Inc. (14) Software Warrant Preferred Series E 410,800 691 561 Sonian, Inc. (14) Software Warrant Preferred Series C 185,949 106 39 Touchcommerce, Inc. (14) Software Warrant Preferred Series E 2,282,968 446 581 Subtotal: Software (0.51%)* 3,601 3,638 Specialty Pharmaceuticals Alimera Sciences, Inc. (3) Specialty Pharmaceuticals Warrant Common Stock 660,377 729 435 QuatRx Pharmaceuticals Company Specialty Pharmaceuticals Warrant Preferred Series E 155,324 307 — Subtotal: Specialty Pharmaceuticals (0.06%)* 1,036 435 See notes to consolidated financial statements. 128HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2015(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Series Shares Cost (2) Value (3) Surgical Devices Gynesonics, Inc. (14) Surgical Devices Warrant Preferred Series C 180,480 $75 $12 Surgical Devices Warrant Preferred Series D 1,575,965 320 223 Total Gynesonics, Inc. 1,756,445 395 235 Transmedics, Inc. Surgical Devices Warrant Preferred Series B 40,436 224 2 Surgical Devices Warrant Preferred Series D 175,000 100 170 Surgical Devices Warrant Preferred Series F 16,476 3 3 Total Transmedics, Inc. 231,912 327 175 Subtotal: Surgical Devices (0.06%)* 722 410 Total: Warrant Investments (3.21%)* 40,761 22,987 Total Investments (167.42%)* $1,252,281 $1,200,638 *Value as a percent of net assets(1)Preferred and common stock, warrants, and equity interests are generally non-income producing.(2)Gross unrealized appreciation, gross unrealized depreciation, and net depreciation for federal income tax purposes totaled $29.3 million, $81.4 million and $52.1 million respectively. The tax cost ofinvestments is $1.3 billion.(3)Except for warrants in 37 publicly traded companies and common stock in 20 publicly traded companies, all investments are restricted at December 31, 2015 and were valued at fair value as determined ingood faith by the Board of Directors. No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfoliocompanies.(4)Non-U.S. company or the company’s principal place of business is outside the United States.(5)Affiliate investment as defined under the Investment Company Act of 1940, as amended, in which Hercules owns at least 5% but not more than 25% of the company’s voting securities.(6)Control investment as defined under the Investment Company Act of 1940, as amended, in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation onits board. There were no control investments at December 31, 2015.(7)Debt is on non-accrual status at December 31, 2015, and is therefore considered non-income producing. Note that at December 31, 2015, only the PIK interest is on non-accrual for the Company’s debtinvestment in Skycross, Inc and only the $2.1 million PIK loan is on non-accrual for the Company’s debt investment in One Planet Ops Inc. (p.k.a. Reply! Inc.).(8)Denotes that all or a portion of the debt investment is convertible debt.( 9)Indicates assets that the Company deems not “qualifying assets” under section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’stotal assets at the time of acquisition of any additional non-qualifying assets.(10)Denotes that all or a portion of the debt investment secures the notes offered in the Debt Securitization (as defined in Note 4).(11)Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility.(12)Denotes that all or a portion of the debt investment principal includes accumulated PIK, or payment-in-kind, interest and is net of repayments.(13)Denotes that all or a portion of the debt investment includes an exit fee receivable. This fee ranges from 0.8% to 17.1% of the total debt commitment based on the contractual terms of our loan servicingagreements.(14)Denotes that all or a portion of the investment in this portfolio company is held by HT II or HT III, the Company’s wholly-owned SBIC subsidiaries.(15)The stated ‘Maturity Date’ for the Tectura assets reflects the last extension of the forbearance period on these loans. The borrower loans remain outstanding and management is continuing to work with theborrower to satisfy the obligations. The Company’s investment team and Investment Committee continue to closely monitor developments at the borrower company.(16)Repayment of debt investment is delinquent of the contractual maturity date as of December 31, 2015.See notes to consolidated financial statements.129 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value(3) Debt Investments Biotechnology Tools 1-5 Years Maturity Labcyte, Inc. (10)(12)(13) Biotechnology Tools Senior Secured June 2016 Interest rate PRIME + 6.70%or Floor rate of 9.95% $2,695 $2,869 $2,869 Subtotal: 1-5 Years Maturity 2,869 2,869 Subtotal: Biotechnology Tools (0.44%)* 2,869 2,869 Communications & Networking 1-5 Years Maturity OpenPeak, Inc. (10)(12) Communications & Networking Senior Secured April 2017 Interest rate PRIME + 8.75%or Floor rate of 12.00% $12,889 13,193 13,193 SkyCross, Inc. (12)(13) Communications & Networking Senior Secured January 2018 Interest rate PRIME + 9.70%or Floor rate of 12.95% $22,000 21,580 20,149 Spring Mobile Solutions, Inc. (10)(12) Communications & Networking Senior Secured November 2016 Interest rate PRIME + 8.00%or Floor rate of 11.25% $18,840 18,928 19,116 Subtotal: 1-5 Years Maturity 53,701 52,458 Subtotal: Communications & Networking (7.96%)* 53,701 52,458 Consumer & Business Products 1-5 Years Maturity Antenna79 (p.k.a. Pong ResearchCorporation) (12)(13) Consumer & Business Products Senior Secured December 2017 Interest rate PRIME + 6.75%or Floor rate of 10.00% $5,000 4,912 4,884 Consumer & Business Products Senior Secured June 2016 Interest rate PRIME + 6.75%or Floor rate of 10.00% $216 89 89 Total Antenna79 (p.k.a. Pong Research Corporation) $5,216 5,001 4,973 Fluc, Inc. (8) Consumer & Business Products Convertible SeniorNote March 2017 Interest rate FIXED 4.00% $100 100 100 IronPlanet, Inc. (12) Consumer & Business Products Senior Secured November 2017 Interest rate PRIME + 6.20%or Floor rate of 9.45% $37,500 36,345 36,345 The Neat Company (11)(12)(13) Consumer & Business Products Senior Secured September 2017 Interest rate PRIME + 7.75% or Floor rate of 11.00%, PIK Interest 1.00% $20,061 19,422 19,422 Subtotal: 1-5 Years Maturity 60,868 60,840 Subtotal: Consumer & Business Products (9.23%)* 60,868 60,840 See notes to consolidated financial statements.130 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value(3) Drug Delivery Under 1 Year Maturity Revance Therapeutics, Inc. (10)(12) Drug Delivery Senior Secured March 2015 Interest rate PRIME + 6.60%or Floor rate of 9.85% $2,098 $2,458 $2,458 Drug Delivery Senior Secured March 2015 Interest rate PRIME + 6.60%or Floor rate of 9.85% $210 246 246 Total Revance Therapeutics, Inc. $2,308 2,704 2,704 Subtotal: Under 1 Year Maturity 2,704 2,704 1-5 Years Maturity AcelRx Pharmaceuticals, Inc. (9)(10)(12)(13) Drug Delivery Senior Secured October 2017 Interest rate PRIME + 3.85%or Floor rate of 9.10% $25,000 24,831 24,969 BIND Therapeutics, Inc. (12)(13) Drug Delivery Senior Secured September 2016 Interest rate PRIME + 7.00%or Floor rate of 10.25% $3,274 3,343 3,228 BioQuiddity Incorporated (12) Drug Delivery Senior Secured May 2018 Interest rate PRIME + 8.00%or Floor rate of 11.25% $7,500 7,439 7,439 Celator Pharmaceuticals, Inc. (10)(12) Drug Delivery Senior Secured June 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $10,000 9,927 9,899 Celsion Corporation (10)(12) Drug Delivery Senior Secured June 2017 Interest rate PRIME + 8.00%or Floor rate of 11.25% $10,000 9,858 10,027 Dance Biopharm, Inc. (12)(13) Drug Delivery Senior Secured November 2017 Interest rate PRIME + 7.40%or Floor rate of 10.65% $3,905 3,871 3,864 Edge Therapeutics, Inc. (12) Drug Delivery Senior Secured March 2018 Interest rate PRIME + 5.95%or Floor rate of 10.45% $3,000 2,847 2,847 Neos Therapeutics, Inc. (12)(13) Drug Delivery Senior Secured October 2017 Interest rate PRIME + 7.25%or Floor rate of 10.50% $5,000 4,916 4,916 Drug Delivery Senior Secured October 2017 Interest rate FIXED 9.00% $10,000 10,010 10,063 Total Neos Therapeutics, Inc. $15,000 14,926 14,979 Zosano Pharma, Inc. (10)(12) Drug Delivery Senior Secured June 2017 Interest rate PRIME + 6.80%or Floor rate of 12.05% $4,000 3,894 3,881 Subtotal: 1-5 Years Maturity 80,936 81,133 Subtotal: Drug Delivery (12.72%)* 83,640 83,837 See notes to consolidated financial statements.131 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Drug Discovery & Development Under 1 Year Maturity Aveo Pharmaceuticals, Inc. (9)(10)(12)(13) Drug Discovery & Development Senior Secured December 2015 Interest rate PRIME + 7.15%or Floor rate of 11.90% $11,611 $11,611 $11,611 Concert Pharmaceuticals, Inc. (10) Drug Discovery & Development Senior Secured October 2015 Interest rate PRIME + 3.25%or Floor rate of 8.50% $7,175 7,142 7,142 Subtotal: Under 1 Year Maturity 18,753 18,753 1-5 Years Maturity ADMA Biologics, Inc. (10)(11)(12) Drug Discovery & Development Senior Secured December 2017 Interest rate PRIME + 5.5%or Floor rate of 8.75%,PIK Interest 1.95% $5,000 4,879 4,933 Drug Discovery & Development Senior Secured December 2017 Interest rate PRIME + 3.00% or Floor rate of 8.75%, PIK Interest 1.95% $10,153 10,032 10,144 Total ADMA Biologics, Inc. $15,153 14,911 15,077 Aveo Pharmaceuticals, Inc. (9)(10)(12)(13) Drug Discovery & Development Senior Secured January 2018 Interest rate PRIME + 6.65%or Floor rate of 11.90% $10,000 9,766 9,766 Celladon Corporation (12)(13) Drug Discovery & Development Senior Secured February 2018 Interest rate PRIME + 5.00%or Floor rate of 8.25% $10,000 10,022 10,022 Cempra, Inc. (10)(12) Drug Discovery & Development Senior Secured April 2018 Interest rate PRIME + 6.30%or Floor rate of 9.55% $18,000 18,020 18,560 Cerecor Inc. (12) Drug Discovery & Development Senior Secured August 2017 Interest rate PRIME + 6.30%or Floor rate of 9.55% $7,500 7,374 7,374 Cleveland BioLabs, Inc. (12)(13) Drug Discovery & Development Senior Secured January 2017 Interest rate PRIME + 6.10%or Floor rate of 9.35% $1,883 1,883 1,920 CTI BioPharma Corp. (pka CellTherapeutics, Inc.) (10)(12) Drug Discovery & Development Senior Secured October 2016 Interest rate PRIME + 6.75%or Floor rate of 10.00% $4,584 4,584 4,712 Drug Discovery & Development Senior Secured October 2016 Interest rate PRIME + 9.00%or Floor rate of 12.25% $13,890 13,890 14,279 Total CTI BioPharma Corp. (pka Cell Therapeutics, Inc.) $18,474 18,474 18,991 Dynavax Technologies (9)(12) Drug Discovery & Development Senior Secured July 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $10,000 9,897 9,897 Epirus Biopharmaceuticals, Inc. (12) Drug Discovery & Development Senior Secured April 2018 Interest rate PRIME + 4.70%or Floor rate of 7.95% $7,500 7,308 7,308 Genocea Biosciences, Inc. (12) Drug Discovery & Development Senior Secured July 2018 Interest rate PRIME + 2.25%or Floor rate of 7.25% $12,000 11,814 11,814 Insmed, Incorporated (10)(12) Drug Discovery & Development Senior Secured January 2018 Interest rate PRIME + 4.75%or Floor rate of 9.25% $25,000 24,854 24,854 Melinta Therapeutics (12) Drug Discovery & Development Senior Secured June 2018 Interest rate PRIME + 5.00%or Floor rate of 8.25% $20,000 19,272 19,272 Merrimack Pharmaceuticals, Inc.(12) Drug Discovery & Development Senior Secured November 2016 Interest rate PRIME + 5.30%or Floor rate of 10.55% $40,000 40,578 40,677 Neothetics, Inc. (pka Lithera, Inc)(12)(13) Drug Discovery & Development Senior Secured January 2018 Interest rate PRIME + 5.75%or Floor rate of 9.00% $10,000 9,751 9,697 Neuralstem, Inc. (12)(13) Drug Discovery & Development Senior Secured April 2017 Interest rate PRIME + 6.75%or Floor rate of 10.00% $9,489 9,333 9,333 uniQure B.V. (4)(9)(10)(12) Drug Discovery & Development Senior Secured June 2018 Interest rate PRIME + 5.00%or Floor rate of 10.25% $15,000 14,890 14,798 Drug Discovery & Development Senior Secured June 2018 Interest rate PRIME + 5.25%or Floor rate of 10.25% $5,000 4,962 4,931 Total Uniqure B.V. $20,000 19,852 19,729 Subtotal: 1-5 Years Maturity 233,109 234,291 Subtotal: Drug Discovery & Development (38.41%)* 251,862 253,044 See notes to consolidated financial statements.132 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Electronics & Computer Hardware 1-5 Years Maturity Plures Technologies, Inc. (7)(11) Electronics & Computer Hardware Senior Secured October 2016 Interest rate LIBOR + 8.75%or Floor rate of 12.00%, PIK Interest 4.00% $267 $180 $— Subtotal: 1-5 Years Maturity 180 — Subtotal: Electronics & Computer Hardware (0.00%)* 180 — Sustainable and Renewable Technology (16) Under 1 Year Maturity Glori Energy, Inc. (10)(12) Sustainable and Renewable Technology Senior Secured June 2015 Interest rate PRIME + 6.75%or Floor rate of 10.00% $1,778 2,042 2,042 Scifiniti (pka IntegratedPhotovoltaics, Inc.) (13) Sustainable and Renewable Technology Senior Secured February 2015 Interest rate PRIME + 7.38%or Floor rate of 10.63% $227 227 227 Stion Corporation (5)(12) Sustainable and Renewable Technology Senior Secured February 2015 Interest rate PRIME + 8.75%or Floor rate of 12.00% $2,954 2,993 1,600 TAS Energy, Inc. (10)(12) Sustainable and Renewable Technology Senior Secured December 2015 Interest rate PRIME + 7.75%or Floor rate of 11.00% $6,901 7,091 7,091 Subtotal: Under 1 Year Maturity 12,353 10,960 1-5 Years Maturity Agrivida, Inc. (12)(13) Sustainable and Renewable Technology Senior Secured December 2016 Interest rate PRIME + 6.75%or Floor rate of 10.00% $4,921 5,013 4,923 American SuperconductorCorporation (10)(12) Sustainable and Renewable Technology Senior Secured March 2017 Interest rate PRIME + 7.75%or Floor rate of 11.00% $1,500 1,446 1,446 Sustainable and Renewable Technology Senior Secured November 2016 Interest rate PRIME + 7.25%or Floor rate of 11.00% $7,667 7,847 7,847 Total American Superconductor Corporation $9,167 9,293 9,293 Amyris, Inc. (9)(12) Sustainable and Renewable Technology Senior Secured February 2017 Interest rate PRIME + 6.25%or Floor rate of 9.50% $25,000 25,000 25,170 Sustainable and Renewable Technology Senior Secured February 2017 Interest rate PRIME + 5.25%or Floor rate of 8.50% $5,000 5,000 5,034 Total Amyris, Inc. $30,000 30,000 30,204 Fluidic, Inc. (10)(12) Sustainable and Renewable Technology Senior Secured March 2016 Interest rate PRIME + 8.00%or Floor rate of 11.25% $3,674 3,747 3,721 Modumetal, Inc. (12) Sustainable and Renewable Technology Senior Secured March 2017 Interest rate PRIME + 8.70%or Floor rate of 11.95% $3,000 2,991 2,991 Polyera Corporation (12)(13) Sustainable and Renewable Technology Senior Secured June 2016 Interest rate PRIME + 6.75%or Floor rate of 10.00% $3,654 3,818 3,810 Subtotal: 1-5 Years Maturity 54,862 54,942 Subtotal: Sustainable and Renewable Technology (16) (10.00%)* 67,215 65,902 Healthcare Services, Other 1-5 Years Maturity Chromadex Corporation (12)(13) Healthcare Services, Other Senior Secured April 2018 Interest rate PRIME + 4.70%or Floor rate of 7.95% $2,500 2,407 2,407 InstaMed Communications, LLC(13) Healthcare Services, Other Senior Secured March 2018 Interest rate PRIME + 6.75%or Floor rate of 10.00% $5,000 5,041 5,041 MDEverywhere, Inc. (10)(12) Healthcare Services, Other Senior Secured January 2018 Interest rate LIBOR + 9.50%or Floor rate of 10.75% $3,000 2,962 2,962 Subtotal: 1-5 Years Maturity 10,410 10,410 Subtotal: Healthcare Services, Other (1.58%)* 10,410 10,410 See notes to consolidated financial statements.133 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value(3) Information Services Under 1 Year Maturity Eccentex Corporation (10)(12) Information Services Senior Secured May 2015 Interest rate PRIME + 7.00%or Floor rate of 10.25% $204 $218 $184 Subtotal: Under 1 Year Maturity 218 184 1-5 Years Maturity INMOBI Inc. (4)(9)(11)(12) Information Services Senior Secured December 2016 Interest rate PRIME + 7.00%or Floor rate of 10.25% $9,612 9,283 9,283 Information Services Senior Secured December 2017 Interest rate PRIME + 5.75%or Floor rate of 9.00%,PIK Interest 2.50% $15,013 14,820 14,820 Total INMOBI Inc. $24,625 24,103 24,103 InXpo, Inc. (12)(13) Information Services Senior Secured July 2016 Interest rate PRIME + 7.75%or Floor rate of 10.75% $2,057 2,073 1,976 Subtotal: 1-5 Years Maturity 26,176 26,079 Subtotal: Information Services (3.99%)* 26,394 26,263 Internet Consumer & Business Services Under 1 Year Maturity Gazelle, Inc. (11)(13) Internet Consumer & Business Services Senior Secured December 2015 Interest rate PRIME + 6.50%or Floor rate of 9.75% $1,231 1,231 1,231 NetPlenish (7)(8)(13) Internet Consumer & Business Services Convertible SeniorNote April 2015 Interest rate FIXED 10.00% $89 89 — Internet Consumer & Business Services Senior Secured September 2015 Interest rate FIXED 10.00% $381 373 — Total NetPlenish $470 462 — Reply! Inc. (10)(11)(12) Internet Consumer & Business Services Senior Secured September 2015 Interest rate PRIME + 6.88%or Floor rate of 10.13%,PIK Interest 2.00% $7,615 7,757 4,322 Internet Consumer & Business Services Senior Secured September 2015 Interest rate PRIME + 7.25%or Floor rate of 11.00%,PIK Interest 2.00% $1,680 1,749 955 Total Reply! Inc. $9,295 9,506 5,277 Tectura Corporation (7)(11)(15) Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 10.00%or Floor rate of 13.00% $563 563 121 Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 8.00%or Floor rate of 11.00%,PIK Interest 1.00% $9,070 9,070 1,511 Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 10.00%or Floor rate of 13.00% $5,000 5,000 1,074 Internet Consumer & Business Services Senior Secured May 2014 Interest rate LIBOR + 10.00%or Floor rate of 13.00% $6,468 6,468 1,390 Total Tectura Corporation $21,101 21,101 4,096 Subtotal: Under 1 Year Maturity 32,300 10,604 1-5 Years Maturity Education Dynamics, LLC (11)(13) Internet Consumer & Business Services Senior Secured March 2016 Interest rate LIBOR + 12.5%or Floor rate of 12.50%,PIK Interest 1.50% $20,563 20,546 20,559 Gazelle, Inc. (11)(13) Internet Consumer & Business Services Senior Secured July 2017 Interest rate PRIME + 7.00%or Floor rate of 10.25%, PIK Interest 2.50% $13,712 13,498 13,498 Just Fabulous, Inc. (10)(12) Internet Consumer & Business Services Senior Secured February 2017 Interest rate PRIME + 8.25%or Floor rate of 11.50% $15,000 14,468 14,768 Lightspeed POS, Inc. (4)(9)(10) Internet Consumer & Business Services Senior Secured May 2018 Interest rate PRIME + 3.25%or Floor rate of 6.50% $2,000 1,985 1,994 Reply! Inc. (10)(11)(12) Internet Consumer & Business Services Senior Secured February 2016 Interest rate PRIME + 7.25%or Floor rate of 10.50%,PIK Interest 2.00% $2,721 2,658 1,548 Tapjoy, Inc. (12) Internet Consumer & Business Services Senior Secured July 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $3,000 2,921 2,921 WaveMarket, Inc. (12) Internet Consumer & Business Services Senior Secured March 2017 Interest rate PRIME + 6.50%or Floor rate of 9.75% $300 303 303 Subtotal: 1-5 Years Maturity 56,379 55,591 Subtotal: Internet Consumer & Business Services (10.05%)* 88,679 66,195 See notes to consolidated financial statements.134 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Media/Content/Info Under 1 Year Maturity Zoom Media Group, Inc. (10)(11) Media/Content/Info Senior Secured December 2015 Interest rate PRIME + 7.25%or Floor rate of 10.50%,PIK Interest 3.75% $2,510 $2,466 $2,466 Media/Content/Info Senior Secured December 2015 Interest rate PRIME + 5.25%or Floor rate of 8.50% $5,060 5,002 5,002 Total Zoom Media Group, Inc. $7,570 7,468 7,468 Subtotal: Under 1 Year Maturity 7,468 7,468 1-5 Years Maturity Rhapsody International, Inc. (10)(11)(13) Media/Content/Info Senior Secured April 2018 Interest rate PRIME + 5.25%or Floor rate of 9.00%,PIK interest of 1.50% $20,206 19,750 19,579 Subtotal: 1-5 Years Maturity 19,750 19,579 Subtotal: Media/Content/Info (4.11%)* 27,218 27,047 Medical Devices & Equipment Under 1 Year Maturity Baxano Surgical, Inc. (7)(12) Medical Devices & Equipment Senior Secured February 2015 Interest rate FIXED 12.50% $100 86 80 Home Dialysis Plus, Inc. (10)(12) Medical Devices & Equipment Senior Secured September 2015 Interest rate FIXED 8.00% $500 500 500 Oraya Therapeutics, Inc. (10)(11)(12) Medical Devices & Equipment Senior Secured September 2015 Interest rate PRIME + 5.50%or Floor rate of 10.25%, PIK Interest 1.00% $6,174 6,146 6,146 Subtotal: Under 1 Year Maturity 6,732 6,726 1-5 Years Maturity Amedica Corporation (8)(12)(13) Medical Devices & Equipment Senior Secured January 2018 Interest rate PRIME + 7.70%or Floor rate of 10.95% $20,000 19,704 19,902 Avedro, Inc. (12)(13) Medical Devices & Equipment Senior Secured December 2017 Interest rate PRIME + 8.25%or Floor rate of 11.50% $7,500 7,247 7,247 Baxano Surgical, Inc. (7)(12) Medical Devices & Equipment Senior Secured March 2017 Interest rate PRIME + 7.75%or Floor rate of 12.50% $7,113 7,040 6,405 Flowonix Medical Incorporated(12) Medical Devices & Equipment Senior Secured May 2018 Interest rate PRIME + 5.25%or Floor rate of 10.00% $15,000 14,675 14,675 Gamma Medica, Inc. (12) Medical Devices & Equipment Senior Secured January 2018 Interest rate PRIME + 6.50%or Floor rate of 9.75% $4,000 3,874 3,874 Home Dialysis Plus, Inc. (10)(12) Medical Devices & Equipment Senior Secured October 2017 Interest rate PRIME + 6.35%or Floor rate of 9.60% $15,000 14,780 14,780 InspireMD, Inc. (4)(9)(10)(12) Medical Devices & Equipment Senior Secured February 2017 Interest rate PRIME +7.25%or Floor rate of 10.50% $8,818 8,897 6,486 Medrobotics Corporation (12)(13) Medical Devices & Equipment Senior Secured March 2016 Interest rate PRIME + 7.85%or Floor rate of 11.10% $2,680 2,765 2,755 nContact Surgical, Inc (12) Medical Devices & Equipment Senior Secured November 2018 Interest rate PRIME + 9.25%or Floor rate of 9.25% $10,000 9,735 9,735 NetBio, Inc. (10) Medical Devices & Equipment Senior Secured August 2017 Interest rate PRIME + 5.00%or Floor rate of 11.00% $4,870 4,669 4,718 NinePoint Medical, Inc. (12)(13) Medical Devices & Equipment Senior Secured January 2016 Interest rate PRIME + 5.85%or Floor rate of 9.10% $3,241 3,357 3,342 Quanterix Corporation (10)(12) Medical Devices & Equipment Senior Secured November 2017 Interest rate PRIME + 2.75%or Floor rate of 8.00% $5,000 4,930 4,911 SonaCare Medical, LLC (pka USHIFU, LLC) (10)(12) Medical Devices & Equipment Senior Secured April 2016 Interest rate PRIME + 7.75%or Floor rate of 11.00% $875 1,200 1,209 SynergEyes, Inc. (12)(13) Medical Devices & Equipment Senior Secured January 2018 Interest rate PRIME + 7.75%or Floor rate of 11.00% $5,000 5,034 4,983 ViewRay, Inc. (11)(13) Medical Devices & Equipment Senior Secured June 2017 Interest rate PRIME + 7.00%or Floor rate of 10.25%,PIK Interest 1.50% $15,220 14,920 14,973 Subtotal: 1-5 Years Maturity 122,827 119,995 Subtotal: Medical Devices & Equipment (19.23%)* 129,559 126,721 See notes to consolidated financial statements.135 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value(3) Semiconductors Under 1 Year Maturity Achronix SemiconductorCorporation Semiconductors Senior Secured January 2015 Interest rate PRIME + 10.60%or Floor rate of 13.85% $95 $95 $95 Subtotal: Under 1 Year Maturity 95 95 1-5 Years Maturity Avnera Corporation (10)(12) Semiconductors Senior Secured April 2017 Interest rate PRIME + 5.75%or Floor rate of 9.00% $5,000 4,983 4,990 Subtotal: 1-5 Years Maturity 4,983 4,990 Subtotal: Semiconductors (0.77%)* 5,078 5,085 Software Under 1 Year Maturity CareCloud Corporation (12)(13) Software Senior Secured July 2015 Interest rate PRIME + 1.40%or Floor rate of 4.65% $3,000 2,968 2,968 Clickfox, Inc. (12)(13) Software Senior Secured July 2015 Interest rate PRIME + 6.75%or Floor rate of 10.00% $2,000 2,000 2,000 Mobile Posse, Inc. (12)(13) Software Senior Secured June 2015 Interest rate PRIME + 2.00%or Floor rate of 5.25% $1,000 993 988 Touchcommerce, Inc. (12)(13) Software Senior Secured January 2015 Interest rate PRIME + 2.25%or Floor rate of 6.50% $3,811 3,811 3,805 Subtotal: Under 1 Year Maturity 9,772 9,761 1-5 Years Maturity CareCloud Corporation (12)(13) Software Senior Secured December 2017 Interest rate PRIME + 3.25%or Floor rate of 6.50% $208 204 201 Software Senior Secured July 2017 Interest rate PRIME + 5.50%or Floor rate of 8.75% $10,000 9,839 9,740 Software Senior Secured January 2018 Interest rate PRIME + 1.70%or Floor rate of 4.95% $3,000 2,929 2,884 Total CareCloud Corporation $13,208 12,972 12,825 Clickfox, Inc. (12)(13) Software Senior Secured December 2017 Interest rate PRIME + 8.25%or Floor rate of 11.50% $6,000 6,010 5,948 JumpStart Games, Inc. (p.k.aKnowledge Adventure, Inc.) (12)(13) Software Senior Secured March 2018 Interest rate PRIME + 8.25%or Floor rate of 11.50% $11,750 11,771 11,709 Software Senior Secured October 2016 Interest rate PRIME + 8.25%or Floor rate of 11.50% $1,356 1,332 1,332 Total JumpStart Games, Inc. (p.k.a Knowledge Adventure, Inc.) $13,106 13,103 13,041 Mobile Posse, Inc. (12)(13) Software Senior Secured December 2016 Interest rate PRIME + 7.50%or Floor rate of 10.75% $2,950 2,943 2,972 Neos Geosolutions, Inc. (12)(13) Software Senior Secured May 2016 Interest rate PRIME + 5.75%or Floor rate of 10.50% $2,332 2,454 2,444 Poplicus, Inc. (12)(13) Software Senior Secured June 2017 Interest rate PRIME + 5.25%or Floor rate of 8.50% $1,500 1,504 1,487 Soasta, Inc. (12)(13) Software Senior Secured February 2018 Interest rate PRIME + 4.75%or Floor rate of 8.00% $15,000 14,367 14,367 Software Senior Secured February 2018 Interest rate PRIME + 2.25%or Floor rate of 5.50% $3,500 3,353 3,353 Total Soasta, Inc. $18,500 17,720 17,720 Sonian, Inc. (12)(13) Software Senior Secured July 2017 Interest rate PRIME + 7.00%or Floor rate of 10.25% $5,500 5,450 5,436 StrongView Systems, Inc. (12) Software Senior Secured December 2017 Interest rate PRIME + 6.00%or Floor rate of 9.25%,PIK Interest 3.00% $10,000 9,779 9,779 Touchcommerce, Inc. (12)(13) Software Senior Secured June 2017 Interest rate PRIME + 6.00%or Floor rate of 10.25% $5,000 4,903 4,953 Subtotal: 1-5 Years Maturity 76,838 76,605 Subtotal: Software (13.11%)* 86,610 86,366 See notes to consolidated financial statements.136 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type ofInvestment (1) Maturity Date Interest Rate and Floor PrincipalAmount Cost (2) Value (3) Specialty Pharmaceuticals Under 1 Year Maturity Cranford Pharmaceuticals, LLC(11)(12)(13) Specialty Pharmaceuticals Senior Secured August 2015 Interest rate LIBOR + 8.25%or Floor rate of 9.50% $2,000 $1,977 $1,986 Subtotal: Under 1 Year Maturity 1,977 1,986 1-5 Years Maturity Alimera Sciences, Inc. (10) Specialty Pharmaceuticals Senior Secured May 2018 Interest rate PRIME + 7.65%or Floor rate of 10.90% $35,000 34,138 33,429 Cranford Pharmaceuticals, LLC(11)(12)(13) Specialty Pharmaceuticals Senior Secured February 2017 Interest rate LIBOR + 9.55% or Floor rate of 10.80%, PIK Interest 1.35% $15,644 15,595 15,465 Subtotal: 1-5 Years Maturity 49,733 48,894 Subtotal: Specialty Pharmaceuticals (7.72%)* 51,710 50,880 Surgical Devices Under 1 Year Maturity Transmedics, Inc. (10)(12) Surgical Devices Senior Secured November 2015 Interest rate FIXED 12.95% $6,061 5,989 5,989 Subtotal: Under 1 Year Maturity 5,989 5,989 Subtotal: Surgical Devices (0.91%)* 5,989 5,989 Total Debt Investments (140.23%)* 951,982 923,906 See notes to consolidated financial statements.137 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type of Investment(1) Series Shares Cost (2) Value (3) Equity Investments Biotechnology Tools NuGEN Technologies, Inc. (13) Biotechnology Tools Equity Preferred Series C 189,394 $500 $498 Subtotal: Biotechnology Tools (0.08%)* 500 498 Communications & Networking GlowPoint, Inc. (3) Communications & Networking Equity Common Stock 114,192 102 126 Peerless Network, Inc. Communications & Networking Equity Preferred Series A 1,000,000 1,000 7,229 Subtotal: Communications & Networking (1.12%)* 1,102 7,355 Consumer & Business Products Market Force Information, Inc. Consumer & Business Products Equity Preferred Series B 187,970 500 317 Subtotal: Consumer & Business Products (0.05%)* 500 317 Diagnostic Singulex, Inc. Diagnostic Equity Common Stock 937,998 750 750 Subtotal: Diagnostic (0.11%)* 750 750 Drug Delivery AcelRx Pharmaceuticals, Inc. (3)(9)(13) Drug Delivery Equity Common Stock 54,240 109 365 Merrion Pharmaceuticals, Plc (3)(4)(9) Drug Delivery Equity Common Stock 20,000 9 — Neos Therapeutics, Inc. (13) Drug Delivery Equity Preferred Series C 300,000 1,500 1,635 Subtotal: Drug Delivery (0.30%)* 1,618 2,000 Drug Discovery & Development Aveo Pharmaceuticals, Inc. (3)(9)(13) Drug Discovery & Development Equity Common Stock 167,864 842 141 Celladon Corporation (3)(13) Drug Discovery & Development Equity Common Stock 105,263 1,000 2,056 Cempra, Inc. (3) Drug Discovery & Development Equity Common Stock 97,931 458 2,303 Cerecor Inc. Drug Discovery & Development Equity Preferred Series B 3,334,445 1,000 922 Dicerna Pharmaceuticals, Inc. (3)(13) Drug Discovery & Development Equity Common Stock 142,858 1,000 2,353 Genocea Biosciences, Inc. (3) Drug Discovery & Development Equity Common Stock 223,463 2,000 1,262 Inotek Pharmaceuticals Corporation (14) Drug Discovery & Development Equity Common Stock 4,523 1,500 — Insmed, Incorporated (3) Drug Discovery & Development Equity Common Stock 70,771 1,000 845 Paratek Pharmaceuticals, Inc. (p.k.a TransceptPharmaceuticals, Inc.) (3) Drug Discovery & Development Equity Common Stock 31,580 1,743 1,158 Subtotal: Drug Discovery & Development (1.68%)* 10,543 11,040 Electronics & Computer Hardware Identiv, Inc. (3) Electronics & Computer Hardware Equity Common Stock 49,097 247 682 Subtotal: Electronics & Computer Hardware (0.10%)* 247 682 Sustainable and Renewable Technology (16) Glori Energy, Inc. (3) Sustainable and Renewable Technology Equity Common Stock 18,208 165 76 SCIEnergy, Inc. Sustainable and Renewable Technology Equity Preferred Series 1 385,000 761 22 Subtotal: Sustainable and Renewable Technology (16) (0.01%)* 926 98 Information Services Good Technology Corporation (pka VistoCorporation) (13) Information Services Equity Common Stock 500,000 603 605 Subtotal: Information Services (0.09%)* 603 605 Internet Consumer & Business Services Blurb, Inc. (13) Internet Consumer & Business Services Equity Preferred Series B 220,653 175 265 Lightspeed POS, Inc. (4)(9) Internet Consumer & Business Services Equity Preferred Series C 23,003 250 260 Philotic, Inc. Internet Consumer & Business Services Equity Common Stock 9,023 93 — Progress Financial Internet Consumer & Business Services Equity Preferred Series G 218,351 250 233 Taptera, Inc. Internet Consumer & Business Services Equity Preferred Series B 454,545 150 162 Subtotal: Internet Consumer & Business Services (0.14%)* 918 920 See notes to consolidated financial statements.138 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type of Investment(1) Series Shares Cost (2) Value (3) Media/Content/Info Everyday Health, Inc. (pka Waterfront Media, Inc.)(3) Media/Content/Info Equity Common Stock 97,060 $1,000 $1,432 Subtotal: Media/Content/Info (0.22%)* 1,000 1,432 Medical Devices & Equipment Flowonix Medical Incorporated Medical Devices & Equipment Equity Preferred Series E 221,893 1,500 1,614 Gelesis, Inc. (5)(13) Medical Devices & Equipment Equity LLC Interest 674,208 425 181 Medical Devices & Equipment Equity LLC Interest 675,676 500 114 Medical Devices & Equipment Equity LLC interests (Common) 674,208 — 31 Total Gelesis, Inc. 2,024,092 925 326 Medrobotics Corporation (13) Medical Devices & Equipment Equity Preferred Series E 136,798 250 149 Medical Devices & Equipment Equity Preferred Series F 73,971 155 167 Total Medrobotics Corporation 210,769 405 316 Novasys Medical, Inc. Medical Devices & Equipment Equity Preferred Series D-1 4,118,444 1,000 — Optiscan Biomedical, Corp. (5)(13) Medical Devices & Equipment Equity Preferred Series B 6,185,567 3,000 455 Medical Devices & Equipment Equity Preferred Series C 1,927,309 655 138 Medical Devices & Equipment Equity Preferred Series D 55,103,923 5,257 5,260 Total Optiscan Biomedical, Corp 63,216,799 8,912 5,853 Oraya Therapeutics, Inc. Medical Devices & Equipment Equity Preferred Series 1 1,086,969 500 — Subtotal: Medical Devices & Equipment (1.23%)* 13,242 8,109 Software Atrenta, Inc. Software Equity Preferred Series C 1,196,845 986 1,745 Software Equity Preferred Series D 635,513 508 1,109 Total Atrenta, Inc 1,832,358 1,494 2,854 Box, Inc. (13)(14) Software Equity Preferred Series B 271,070 251 5,747 Software Equity Preferred Series C 589,844 872 12,506 Software Equity Preferred Series D 158,133 500 3,352 Software Equity Preferred Series D-1 186,766 1,694 3,960 Software Equity Preferred Series D-2 220,751 2,001 4,680 Software Equity Preferred Series E 38,183 500 810 Total Box, Inc 1,464,747 5,818 31,055 CapLinked, Inc. Software Equity Preferred Series A-3 53,614 51 79 ForeScout Technologies, Inc. Software Equity Preferred Series D 319,099 398 519 HighRoads, Inc. Software Equity Preferred Series B 190,170 307 228 WildTangent, Inc. (13) Software Equity Preferred Series 3 100,000 402 228 Subtotal: Software (5.31%)* 8,470 34,963 Specialty Pharmaceuticals QuatRx Pharmaceuticals Company Specialty Pharmaceuticals Equity Preferred Series E 241,829 750 — Specialty Pharmaceuticals Equity Preferred Series E-1 26,955 — — Specialty Pharmaceuticals Equity Preferred Series G 4,667,636 — — Total QuatRx Pharmaceuticals Company 4,936,420 750 — Subtotal: Specialty Pharmaceuticals (0.00%)* 750 — Surgical Devices Gynesonics, Inc. (13) Surgical Devices Equity Preferred Series B 219,298 250 101 Surgical Devices Equity Preferred Series C 656,538 282 186 Surgical Devices Equity Preferred Series D 1,991,157 712 1,073 Total Gynesonics, Inc. 2,866,993 1,244 1,360 Transmedics, Inc. Surgical Devices Equity Preferred Series B 88,961 1,100 353 Surgical Devices Equity Preferred Series C 119,999 300 180 Surgical Devices Equity Preferred Series D 260,000 650 1,071 Total Transmedics, Inc. 468,960 2,050 1,604 Subtotal: Surgical Devices (0.45%)* 3,294 2,964 Total: Equity Investments (10.89%)* 44,463 71,733 See notes to consolidated financial statements.139 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type of Investment(1) Series Shares Cost (2) Value (3) Warrant Investments Biotechnology Tools Labcyte, Inc. (13) Biotechnology Tools Warrant Preferred Series C 1,127,624 $323 $354 Subtotal: Biotechnology Tools (0.05%)* 323 354 Communications & Networking Intelepeer, Inc. (13) Communications & Networking Warrant Preferred Series C 117,958 102 18 OpenPeak, Inc. Communications & Networking Warrant Common Stock 108,982 149 104 PeerApp, Inc. Communications & Networking Warrant Preferred Series B 298,779 61 45 Peerless Network, Inc. Communications & Networking Warrant Preferred Series A 135,000 95 844 Ping Identity Corporation Communications & Networking Warrant Preferred Series B 1,136,277 52 183 SkyCross, Inc. (13) Communications & Networking Warrant Preferred Series F 9,762,777 394 — Spring Mobile Solutions, Inc. Communications & Networking Warrant Preferred Series D 2,834,375 418 426 Subtotal: Communications & Networking (0.25%)* 1,271 1,620 Consumer & Business Products Antenna79 (p.k.a. Pong Research Corporation) (13) Consumer & Business Products Warrant Preferred Series A 1,662,441 228 202 Intelligent Beauty, Inc. (13) Consumer & Business Products Warrant Preferred Series B 190,234 230 327 IronPlanet, Inc. Consumer & Business Products Warrant Preferred Series D 1,155,821 1,077 1,067 Market Force Information, Inc. Consumer & Business Products Warrant Preferred Series A 99,286 24 21 The Neat Company (13) Consumer & Business Products Warrant Preferred Series C-1 540,540 365 451 Subtotal: Consumer & Business Products (0.31%)* 1,924 2,068 Diagnostic Navidea Biopharmaceuticals, Inc. (pka Neoprobe)(3)(13) Diagnostic Warrant Common Stock 333,333 244 75 Subtotal: Diagnostic (0.01%)* 244 75 Drug Delivery AcelRx Pharmaceuticals, Inc. (3)(9)(13) Drug Delivery Warrant Common Stock 176,730 786 420 Alexza Pharmaceuticals, Inc. (3) Drug Delivery Warrant Common Stock 37,639 645 — BIND Therapeutics, Inc. (3)(13) Drug Delivery Warrant Common Stock 71,359 367 6 BioQuiddity Incorporated Drug Delivery Warrant Common Stock 459,183 1 1 Celator Pharmaceuticals, Inc. (3) Drug Delivery Warrant Common Stock 158,006 107 67 Celsion Corporation (3) Drug Delivery Warrant Common Stock 194,986 428 248 Dance Biopharm, Inc. (13) Drug Delivery Warrant Preferred Series A 97,701 74 109 Edge Therapeutics, Inc. Drug Delivery Warrant Preferred Series C-1 107,526 390 217 Kaleo, Inc. (p.k.a. Intelliject, Inc.) Drug Delivery Warrant Preferred Series B 82,500 594 1,108 Neos Therapeutics, Inc. (13) Drug Delivery Warrant Preferred Series C 170,000 285 235 Revance Therapeutics, Inc. (3) Drug Delivery Warrant Common Stock 53,511 557 64 Zosano Pharma, Inc. (14) Drug Delivery Warrant Common Stock 31,674 164 179 Subtotal: Drug Delivery (0.40%)* 4,398 2,654 See notes to consolidated financial statements.140 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type of Investment(1) Series Shares Cost (2) Value (3) Drug Discovery & Development ADMA Biologics, Inc. (3) Drug Discovery & Development Warrant Common Stock 89,750 $295 $366 Anthera Pharmaceuticals, Inc. (3)(13) Drug Discovery & Development Warrant Common Stock 40,178 984 — Aveo Pharmaceuticals, Inc. (3)(9)(13) Drug Discovery & Development Warrant Common Stock 608,696 194 107 Cerecor Inc. Drug Discovery & Development Warrant Preferred Series B 625,208 70 47 Chroma Therapeutics, Ltd. (4)(9) Drug Discovery & Development Warrant Preferred Series D 325,261 490 — Cleveland BioLabs, Inc. (3)(13) Drug Discovery & Development Warrant Common Stock 156,250 105 10 Concert Pharmaceuticals, Inc. (3) Drug Discovery & Development Warrant Common Stock 70,796 367 164 Coronado Biosciences, Inc. (3) Drug Discovery & Development Warrant Common Stock 73,009 142 43 Dicerna Pharmaceuticals, Inc. (3)(13) Drug Discovery & Development Warrant Common Stock 200 28 — Epirus Biopharmaceuticals, Inc. (3) Drug Discovery & Development Warrant Common Stock 64,194 276 207 Genocea Biosciences, Inc. (3) Drug Discovery & Development Warrant Common Stock 73,725 266 188 Horizon Pharma, Inc. (3) Drug Discovery & Development Warrant Common Stock 3,735 52 4 Melinta Therapeutics Drug Discovery & Development Warrant Preferred Series 3 1,151,936 604 590 Nanotherapeutics, Inc. (13) Drug Discovery & Development Warrant Common Stock 171,389 838 1,421 Neothetics, Inc. (pka Lithera, Inc) (3)(13) Drug Discovery & Development Warrant Common Stock 46,838 266 122 Neuralstem, Inc. (3)(13) Drug Discovery & Development Warrant Common Stock 75,187 77 71 Paratek Pharmaceutcals, Inc. (p.k.a TransceptPharmaceuticals, Inc) (3) Drug Discovery & Development Warrant Common Stock 5,121 87 10 uniQure B.V. (3)(4)(9) Drug Discovery & Development Warrant Common Stock 37,174 218 184 Subtotal: Drug Discovery & Development (0.54%)* 5,359 3,534 Electronics & Computer Hardware Clustrix, Inc. Electronics & Computer Hardware Warrant Common Stock 50,000 12 10 Subtotal: Electronics & Computer Hardware (0.00%)* 12 10 Sustainable and Renewable Technology (16) Agrivida, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series D 471,327 120 186 Alphabet Energy, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series A 86,329 81 135 American Superconductor Corporation (3) Sustainable and Renewable Technology Warrant Common Stock 588,235 39 40 Brightsource Energy, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series 1 174,999 780 213 Calera, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series C 44,529 513 — EcoMotors, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series B 437,500 308 256 Fluidic, Inc. Sustainable and Renewable Technology Warrant Preferred Series C 59,665 102 60 Fulcrum Bioenergy, Inc. Sustainable and Renewable Technology Warrant Preferred Series C-1 280,897 275 135 GreatPoint Energy, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series D-1 393,212 548 — Polyera Corporation (13) Sustainable and Renewable Technology Warrant Preferred Series C 161,575 69 228 SCIEnergy, Inc. Sustainable and Renewable Technology Warrant Common Stock 530,811 181 — Sustainable and Renewable Technology Warrant Preferred Series 1 145,811 50 — Total SCIEnergy, Inc. Sustainable and Renewable Technology 676,622 231 — Scifiniti (pka Integrated Photovoltaics, Inc.) (13) Sustainable and Renewable Technology Warrant Preferred Series A-1 390,000 82 65 Solexel, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series C 1,171,625 1,162 666 Stion Corporation (5) Sustainable and Renewable Technology Warrant Preferred Series Seed 2154 1,378 — TAS Energy, Inc. Sustainable and Renewable Technology Warrant Preferred Series F 428,571 299 157 TPI Composites, Inc. Sustainable and Renewable Technology Warrant Preferred Series B 160 273 107 Trilliant, Inc. (13) Sustainable and Renewable Technology Warrant Preferred Series A 320,000 161 32 Subtotal: Sustainable and Renewable Technology (16) (0.35%)* 6,421 2,280 Healthcare Services, Other Chromadex Corporation (3)(13) Healthcare Services, Other Warrant Common Stock 419,020 156 106 MDEverywhere, Inc. Healthcare Services, Other Warrant Common Stock 129 94 11 Subtotal: Healthcare Services, Other (0.02%)* 250 117 Information Services Cha Cha Search, Inc. (13) Information Services Warrant Preferred Series G 48,232 58 20 INMOBI Inc. (4)(9) Information Services Warrant Common Stock 42,187 74 72 InXpo, Inc. (13) Information Services Warrant Preferred Series C 648,400 98 26 Information Services Warrant Preferred Series C-1 740,832 58 30 Total InXpo, Inc. 1,389,232 156 56 RichRelevance, Inc. (13) Information Services Warrant Preferred Series E 112,612 98 — Subtotal: Information Services (0.02%)* 386 148 See notes to consolidated financial statements.141 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type of Investment(1) Series Shares Cost (2) Value (3) Internet Consumer & Business Services Blurb, Inc. (13) Internet Consumer & Business Services Warrant Preferred Series B 218,684 $299 $79 Internet Consumer & Business Services Warrant Preferred Series C 234,280 636 173 Total Blurb, Inc. 452,964 935 252 CashStar, Inc. (13) Internet Consumer & Business Services Warrant Preferred Series C-2 727,272 130 83 Gazelle, Inc. (13) Internet Consumer & Business Services Warrant Preferred Series A-1 991,288 158 185 Just Fabulous, Inc. Internet Consumer & Business Services Warrant Preferred Series B 206,184 1,101 1,490 Lightspeed POS, Inc. (4)(9) Internet Consumer & Business Services Warrant Preferred Series C 24,561 20 60 Prism Education Group, Inc. (13) Internet Consumer & Business Services Warrant Preferred Series B 200,000 43 — Progress Financial Internet Consumer & Business Services Warrant Preferred Series G 174,562 78 63 Reply! Inc. Internet Consumer & Business Services Warrant Preferred Series B 137,225 320 — ShareThis, Inc. (13) Internet Consumer & Business Services Warrant Preferred Series C 493,502 547 282 Tapjoy, Inc. Internet Consumer & Business Services Warrant Preferred Series D 430,485 263 125 Tectura Corporation Internet Consumer & Business Services Warrant Preferred Series B-1 253,378 51 Subtotal: Internet Consumer & Business Services (0.39%)* 3,646 2,540 Media/Content/Info Mode Media Corporation (13) Media/Content/Info Warrant Preferred Series D 407,457 482 — Rhapsody International, Inc. (13) Media/Content/Info Warrant Common Stock 715,755 385 358 Zoom Media Group, Inc. Media/Content/Info Warrant Preferred Series A 1,204 348 382 Subtotal: Media/Content/Info (0.11%)* 1,215 740 Medical Devices & Equipment Amedica Corporation (3)(13) Medical Devices & Equipment Warrant Common Stock 516,129 459 — Avedro, Inc. (13) Medical Devices & Equipment Warrant Preferred Series D 1,308,451 401 553 Baxano Surgical, Inc. (3) Medical Devices & Equipment Warrant Common Stock 882,353 439 — Flowonix Medical Incorporated Medical Devices & Equipment Warrant Preferred Series E 66,568 203 228 Gamma Medica, Inc. Medical Devices & Equipment Warrant Preferred Series A 357,500 170 196 Gelesis, Inc. (5)(13) Medical Devices & Equipment Warrant LLC Interest 263,688 78 1 Home Dialysis Plus, Inc. Medical Devices & Equipment Warrant Preferred Series A 500,000 402 587 InspireMD, Inc. (3)(4)(9) Medical Devices & Equipment Warrant Common Stock 168,351 242 12 Medrobotics Corporation (13) Medical Devices & Equipment Warrant Preferred Series E 455,539 370 182 MELA Sciences, Inc. (3) Medical Devices & Equipment Warrant Common Stock 69,320 401 1 nContact Surgical, Inc Medical Devices & Equipment Warrant Preferred Series D-1 201,439 266 450 NetBio, Inc. Medical Devices & Equipment Warrant Common Stock 2,568 408 60 NinePoint Medical, Inc. (13) Medical Devices & Equipment Warrant Preferred Series A-1 587,840 170 204 Novasys Medical, Inc. Medical Devices & Equipment Warrant Common Stock 109,449 2 — Medical Devices & Equipment Warrant Preferred Series D 526,840 125 — Medical Devices & Equipment Warrant Preferred Series D-1 53,607 6 — Total Novasys Medical, Inc. 689,896 133 — Optiscan Biomedical, Corp. (5)(13) Medical Devices & Equipment Warrant Preferred Series D 10,535,275 1,252 219 Oraya Therapeutics, Inc. Medical Devices & Equipment Warrant Common Stock 954 66 — Medical Devices & Equipment Warrant Preferred Series 1 1,632,084 676 — Total Oraya Therapeutics, Inc. 1,633,038 742 — Quanterix Corporation Medical Devices & Equipment Warrant Preferred Series C 69,371 104 164 SonaCare Medical, LLC (pka US HIFU, LLC) Medical Devices & Equipment Warrant Preferred Series A 6,464 188 — ViewRay, Inc. (13) Medical Devices & Equipment Warrant Preferred Series C 312,500 333 359 Subtotal: Medical Devices & Equipment (0.49%)* 6,761 3,216 Semiconductors Achronix Semiconductor Corporation Semiconductors Warrant Preferred Series C 360,000 160 9 Avnera Corporation Semiconductors Warrant Preferred Series E 102,958 14 32 Subtotal: Semiconductors (0.01%)* 174 41 See notes to consolidated financial statements.142 HERCULES CAPITAL, INC.(FORMERLY kNOWN AS HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)CONSOLIDATED SCHEDULE OF INVESTMENTSDecember 31, 2014(dollars in thousands) Portfolio Company Sub-Industry Type of Investment(1) Series Shares Cost (2) Value (3) Software Atrenta, Inc. Software Warrant Preferred Series D 392,670 $120 $359 Braxton Technologies, LLC Software Warrant Preferred Series A 168,750 188 — CareCloud Corporation (13) Software Warrant Preferred Series B 413,433 258 482 Clickfox, Inc. (13) Software Warrant Preferred Series B 1,038,563 330 783 Software Warrant Preferred Series C 592,019 730 555 Software Warrant Preferred Series C-A 46,109 14 35 Total Clickfox, Inc. 1,676,691 1,074 1,373 Daegis Inc. (pka Unify Corporation) (3)(13) Software Warrant Common Stock 718,860 1,434 5 ForeScout Technologies, Inc. Software Warrant Preferred Series E 80,587 41 74 Hillcrest Laboratories, Inc. (13) Software Warrant Preferred Series E 1,865,650 54 106 JumpStart Games, Inc. (p.k.a Knowledge Holdings,Inc.) (13) Software Warrant Preferred Series E 614,333 15 8 Mobile Posse, Inc. (13) Software Warrant Preferred Series C 396,430 130 66 Neos Geosolutions, Inc. (13) Software Warrant Preferred Series 3 221,150 22 — NewVoiceMedia Limited (4)(9) Software Warrant Preferred Series E 225,586 33 34 Soasta, Inc. (13) Software Warrant Preferred Series E 410,800 691 1,014 Sonian, Inc. (13) Software Warrant Preferred Series C 185,949 106 72 StrongView Systems, Inc. Software Warrant Preferred Series C 551,470 169 218 SugarSync, Inc. (13) Software Warrant Preferred Series CC 332,726 78 78 Software Warrant Preferred Series DD 107,526 34 26 Total SugarSync, Inc. 440,252 112 104 Touchcommerce, Inc. (13) Software Warrant Preferred Series E 992,595 252 164 White Sky, Inc. (13) Software Warrant Preferred Series B-2 124,295 54 4 Subtotal: Software (0.62%)* 4,753 4,083 Specialty Pharmaceuticals Alimera Sciences, Inc. (3) Specialty Pharmaceuticals Warrant Common Stock 285,016 728 656 QuatRx Pharmaceuticals Company Specialty Pharmaceuticals Warrant Preferred Series E 155,324 308 — Subtotal: Specialty Pharmaceuticals (0.10%)* 1,036 656 Surgical Devices Gynesonics, Inc. (13) Surgical Devices Warrant Preferred Series C 180,480 74 48 Surgical Devices Warrant Preferred Series D 1,575,965 320 562 Total Gynesonics, Inc. 1,756,445 394 610 Transmedics, Inc. Surgical Devices Warrant Preferred Series B 40,436 225 — Surgical Devices Warrant Preferred Series D 175,000 100 352 Total Transmedics, Inc. 215,436 325 352 Subtotal: Surgical Devices (0.15%)* 719 962 Total Warrant Investments (3.81%)* 38,892 25,098 Total Investments (154.92%)* $1,035,337 $1,020,737 *Value as a percent of net assets(1)Preferred and common stock, warrants, and equity interests are generally non-income producing.(2)Gross unrealized appreciation, gross unrealized depreciation, and net depreciation for federal income tax purposes totaled $46.1 million, $63.4 million and $17.3 million respectively. The tax cost ofinvestments is $1.0 billion.(3)Except for warrants in twenty-nine publicly traded companies and common stock in thirteen publicly traded companies, all investments are restricted at December 31, 2014 and were valued at fair value asdetermined in good faith by the Audit Committee of the Board of Directors. No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying theindustry grouping of its portfolio companies.(4)Non-U.S. company or the company’s principal place of business is outside the United States.(5)Affiliate investment as defined under the Investment Company Act of 1940, as amended, in which Hercules owns at least 5% but not more than 25% of the company’s voting securities.(6)Control investment as defined under the Investment Company Act of 1940, as amended, in which Hercules owns at least 25% of the voting securities of the company or has greater than 50% representationon its board. There were no control investments at December 31, 2014.(7)Debt is on non-accrual status at December 31, 2014, and is therefore considered non-income producing.(8)Denotes that all or a portion of the debt investment is convertible senior debt.(9)Indicates assets that the Company deems not “qualifying assets” under section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’stotal assets at the time of acquisition of any additional non-qualifying assets.(10)Denotes that all or a portion of the debt investment secures the notes offered in the Debt Securitizations (as defined in Note 4).(11)Denotes that all or a portion of the debt investment principal includes accumulated PIK, or paid-in-kind, interest and is net of repayments.(12)Denotes that all or a portion of the debt investment includes an exit fee receivable.(13)Denotes that all or a portion of the investment in this portfolio company is held by HT II or HT III, the Company’s wholly-owned SBIC subsidiaries.(14)Subsequent to December 31, 2014, this company completed an initial public offering. Note that the December 31, 2014 fair value does not reflect any potential impact of the conversion of our preferredshares to common shares which may include reverse splits associated with the offering.(15)The stated ‘Maturity Date’ for the Tectura assets reflects the last extension of the forbearance period on these loans. The borrower loans remain outstanding and management is continuing to work with theborrower to satisfy the obligations. The Company’s investment team and Investment Committee continue to closely monitor developments at the borrower company.(16)In the Company’s quarterly and annual reports filed with the commission prior to this Annual Report on Form 10-K for the year ended December 31, 2014, the Company referred to this industry sector as“Energy Technology.”See notes to consolidated financial statements. 143 N OTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Description of Business and Basis of PresentationHercules Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.; the “Company”) is a specialty finance company focused on providing seniorsecured venture growth loans to high-growth, innovative venture capital-backed companies in a broadly diversified variety of technology, life sciences andsustainable and renewable technology industries. The Company sources its investments through its principal office located in Palo Alto, CA, as well as through itsadditional offices in Boston, MA, New York, NY, McLean, VA, Santa Monica, CA, and Hartford, CT. The Company was incorporated under the GeneralCorporation Law of the State of Maryland in December 2003.The Company is an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company(“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). From incorporation through December 31, 2005, the Company was taxed as acorporation under Subchapter C of the Internal Revenue Code of 1986, as amended (the “Code”). Effective January 1, 2006, the Company elected to be treated fortax purposes as a regulated investment company, or RIC, under Subchapter M of the Code (see Note 5). As an investment company, the Company follows accountingand reporting guidance as set forth in Topic 946 of the Accounting Standards Codification, as amended (“ASC”).Hercules Technology II, L.P. (“HT II”), Hercules Technology III, L.P. (“HT III”), and Hercules Technology IV, L.P. (“HT IV”), are Delaware limitedpartnerships that were formed in January 2005, September 2009 and December 2010, respectively. HT II and HT III were licensed to operate as small businessinvestment companies (“SBICs”) under the authority of the Small Business Administration (“SBA”) on September 27, 2006 and May 26, 2010, respectively. AsSBICs, HT II and HT III are subject to a variety of regulations concerning, among other things, the size and nature of the companies in which they may invest and thestructure of those investments. HT IV was formed in anticipation of receiving an additional SBIC license; however, the Company has not yet applied for suchlicense, and HT IV currently has no material assets or liabilities. The Company also formed Hercules Technology SBIC Management, LLC, or (“HTM”), a limitedliability company in November 2003. HTM is a wholly owned subsidiary of the Company and serves as the limited partner and general partner of HT II and HT III(see Note 4 to the Company’s consolidated financial statements).HT II and HT III hold approximately $128.3 million and $310.8 million in assets, respectively, and they accounted for approximately 7.6% and 18.5% of theCompany’s total assets, respectively, prior to consolidation at December 31, 2015.The Company also established wholly owned subsidiaries, all of which are structured as Delaware corporations and limited liability companies, to holdportfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). By investing through these wholly ownedsubsidiaries, the Company is able to benefit from the tax treatment of these entities and create a tax structure that is more advantageous with respect to theCompany’s RIC status.The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ofAmerica (“GAAP”). The consolidated financial statements include the accounts of the Company, its subsidiaries and its consolidated securitization VIEs. All inter-company accounts and transactions have been eliminated in consolidation. In accordance with Articles 6 and 10 of Regulation S-X under the Securities Act of 1933,as amended (the “Securities Act”), the Company does not consolidate portfolio company investments. It is not appropriate for an investment company to consolidatean investee that is not an investment company, rather an investment company’s interest in non-investment company investees should be measured at fair value inaccordance with ASC 946.Financial statements prepared on a GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported inthe consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known,which could impact the amounts reported and disclosed herein. 144 2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all VIEs of which the Company is the primarybeneficiary. All intercompany accounts and transactions have been eliminated in consolidation.A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) hasequity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct theactivities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that couldpotentially be significant to the VIE.To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Companyconsiders all the facts and circumstances including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying theactivities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the partythat makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of a VIE. To assess whether the Company has theobligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests,including debt and equity interests, servicing rights and fee arrangements, and any other variable interests in the VIE. If the Company determines that it is the partywith the power to make the most significant decisions affecting the VIE, and the Company has a potentially significant interest in the VIE, then it consolidates theVIE.The Company performs periodic reassessments, usually quarterly, of whether it is the primary beneficiary of a VIE. The reassessment process considerswhether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. TheCompany also reconsiders whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are subject to the VIEconsolidation framework.As of the date of this report, the VIE consolidated by the Company is its securitization VIE formed in conjunction with the issuance of the Asset-BackedNotes (as defined herein) (See Note 4).ReclassificationCertain balances from prior years have been reclassified in order to conform to the current year presentation.Valuation of InvestmentsThe most significant estimate inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments and the relatedamounts of unrealized appreciation and depreciation of investments recorded.At December 31, 2015, approximately 90.0% of the Company’s total assets represented investments in portfolio companies whose fair value is determined ingood faith by the Board of Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation isreadily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board of Directors. The Company’s investments arecarried at fair value in accordance with the 1940 Act and ASC 946 and measured in accordance with ASC 820. The Company’s debt securities are primarily investedin venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare,and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’sinvestments in these portfolio companies are considered Level 3 assets under ASC 820 because there is no known or accessible market or market indexes for theseinvestment securities to be traded or exchanged. As such, the Company values substantially all of its investments at fair value as determined in good faith pursuant toa consistent valuation policy by the Company’s Board of Directors in accordance with the provisions of ASC 820 and the 1940 Act. Due to the inherent uncertaintyin determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments determined in good faithby its Board of Directors may differ significantly from the value that would have been used had a readily available market existed for such investments, and thedifferences could be material.145 The Company may from time to ti me engage an independent valuation firm to provide the Company with valuation assistance with respect to certainportfolio investments on a quarterly basis. The Company engages independent valuation firms on a discretionary basis. Specifically, on a quarte rly basis, theCompany will identify portfolio investments with respect to which an independent valuation firm will assist in valuing. The Company selects these portfolioinvestments based on a number of factors, including, but not limited to, the potentia l for material fluctuations in valuation results, credit quality and the time lapsesince the last valuation of the portfolio investment by an independent valuation firm.The Company intends to continue to engage an independent valuation firm to provide management with assistance regarding the Company’s determination ofthe fair value of selected portfolio investments each quarter unless directed by the Board of Directors to cancel such valuation services. The scope of servicesrendered by an independent valuation firm is at the discretion of the Board of Directors. The Company’s Board of Directors is ultimately and solely responsible fordetermining the fair value of the Company’s investments in good faith.With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, theCompany’s Board of Directors has approved a multi-step valuation process each quarter, as described below:(1) the Company’s quarterly valuation process begins with each portfolio company being initially valued by the investment professionals responsible for theportfolio investment;(2) preliminary valuation conclusions are then documented and business based assumptions are discussed with the Company’s investment committee;(3) the Audit Committee of the Board of Directors reviews the preliminary valuation of the investments in the portfolio as provided by the investmentcommittee which incorporates the results of the independent valuation firm as appropriate; and(4) the Board of Directors, upon the recommendation of the Audit Committee, discusses valuations and determines the fair value of each investment in theCompany’s portfolio in good faith based on the input of, where applicable, the respective independent valuation firm and the investment committee.ASC 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy which prioritizes the inputs used tomeasure fair value and the effect of fair value measures on earnings. ASC 820 also requires disclosure for fair value measurements based on the level within thehierarchy of the information used in the valuation. ASC 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value.ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date.The Company has categorized all investments recorded at fair value in accordance with ASC 820 based upon the level of judgment associated with the inputsused to measure their fair value. Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuationof these assets and liabilities, are as follows:Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date. The types of assets carried at Level 1 fair valuegenerally are equities listed in active markets.Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset in connection with market data at themeasurement date and for the extent of the instrument’s anticipated life. Fair valued assets that are generally included in this category are publicly held debtinvestments and warrants held in a public company.Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset at the measurement date. It includes prices orvaluations that require inputs that are both significant to the fair value measurement and unobservable. Generally, assets carried at fair value and included inthis category are the debt investments and warrants and equities held in a private company. 146 Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuation sas of December 31, 2015 and as of December 31, 2014. The Company transfers investments in and out of Level 1, 2 and 3 securities as of the beginning balancesheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the year ended December 31,2015, there were no transfers between Levels 1 or 2. Quoted Prices In Balance Active Markets For Significant Other Significant (in thousands) December 31, Identical Assets Observable Inputs Unobservable Inputs Description 2015 (Level 1) (Level 2) (Level 3) Senior Secured Debt $1,110,209 $— $7,813 $1,102,396 Preferred Stock 35,245 — — 35,245 Common Stock 32,197 30,670 — 1,527 Warrants 22,987 — 4,422 18,565 Escrow Receivable (1) 2,967 — — 2,967 Total $1,203,605 $30,670 $12,235 $1,160,700 Quoted Prices In Balance Active Markets For Significant Other Significant (in thousands) December 31, Identical Assets Observable Inputs Unobservable Inputs Description 2014 (Level 1) (Level 2) (Level 3) Senior Secured Debt $923,906 $— $— $923,906 Preferred Stock 57,548 — — 57,548 Common Stock 14,185 12,798 — 1,387 Warrants 25,098 — 3,175 21,923 Total $1,020,737 $12,798 $3,175 $1,004,764 (1)Note that escrow receivable has been added to the fair value leveling disclosure as of December 31, 2015. The Company had $3.6 million of escrow receivable as of December 31, 2014. The table below presents a reconciliation for all financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interestcomponents, using significant unobservable inputs (Level 3) for the years ended December 31, 2015 and December 31, 2014. (in thousands) BalanceJanuary 1, 2015 Net RealizedGains (Losses)(1) Net Change inUnrealizedAppreciation(Depreciation) (2) Purchases (5) Sales Repayments (6) GrossTransfersintoLevel 3 (3) GrossTransfersout ofLevel 3 (3) BalanceDecember 31, 2015 Senior Debt $923,906 $(2,295) $(12,930) $699,555 $— $(505,274) $— $(566) $1,102,396 Preferred Stock 57,548 2,598 (1,539) 15,076 (4,542) — 685 (34,581) 35,245 Common Stock 1,387 (298) 743 — (305) — — — 1,527 Warrants 21,923 (3,849) (4,749) 5,311 1,220 — — (1,291) 18,565 Escrow Receivable 3,598 71 — 511 (1,032) (181) — — 2,967 Total $1,008,362 $(3,773) $(18,475) $720,453 $(4,659) $(505,455) $685 $(36,438) $1,160,700 (in thousands) BalanceJanuary 1, 2014 Net RealizedGains (Losses)(1) Net Change inUnrealizedAppreciation(Depreciation) (2) Purchases (5) Sales Repayments (6) GrossTransfersintoLevel 3 (4) GrossTransfersout ofLevel 3 (4) BalanceDecember 31, 2014 Senior Debt $821,988 $— $(14,182) $615,596 $— $(497,258) $— $(2,238) $923,906 Preferred Stock 35,554 (750) 15,779 7,097 (503) — 2,007 (1,636) 57,548 Common Stock 2,107 (130) 601 — (1,189) — — (2) 1,387 Warrants 28,707 (48) (10,553) 8,596 (2,503) — — (2,276) 21,923 Total $888,356 $(928) $(8,355) $631,289 $(4,195) $(497,258) $2,007 $(6,152) $1,004,764 (1)Included in net realized gains or losses in the accompanying Consolidated Statement of Operations.(2)Included in change in net unrealized appreciation (depreciation) in the accompanying Consolidated Statement of Operations.(3)Transfers out of Level 3 during the year ended December 31, 2015 relate to the initial public offerings of Box, Inc, ZP Opco, Inc. (p.k.a. Zosano Pharma, Inc), Neos Therapeutics, EdgeTherapeutics Inc., ViewRay, Inc., and Cerecor, Inc. in addition to the exercise of warrants in both Forescout, Inc. and Atrenta, Inc. to preferred stock. Transfers into Level 3 during the yearended December 31, 2015 relate to the acquisition of preferred stock as a result of the exercise of warrants in both Forescout, Inc. and Atrenta, Inc and the conversion of debt to equity inHome Dialysis Plus and Gynesonics.(4)Transfers in/out of Level 3 during the year ended December 31, 2014 relate to the conversion of Paratek Pharmaceuticals, Inc., SCI Energy, Inc., Oraya Therapeutics, Inc., and Neuralstem,Inc. debt to equity, the exercise of warrants in Box, Inc and WildTangent, Inc. to equity, the conversion of warrants in Glori Energy, Inc. to equity in the company’s reverse public merger,the public merger of Paratek Pharmaceuticals, Inc. with Transcept Pharmaceuticals, Inc. and the initial public offerings of Concert Pharmaceuticals, Inc., Dicerna Pharmaceuticals, Inc.,Everyday Health, Inc., Neothetics, Inc., Revance Therapeutics, Inc., and UniQure BV.(5)Amounts listed above are inclusive of loan origination fees received at the inception of the loan which are deferred and amortized into fee income as well as the accretion of existing loandiscounts and fees during the period.(6)Amounts listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures.147 For the year ended December 31, 2015, approximately $179,000 in net unrealized depreciation and $745,000 in net unrealized appreciation was recorded forpreferred stock and common stock Level 3 inve stments, respectively, relating to assets still held at the reporting date. For the same period, approximately $13.7million and $5.9 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to as sets still held at thereporting date.For the year ended December 31, 2014, approximately $15.0 million and $555,000 in net unrealized appreciation was recorded for preferred stock andcommon stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $14.2 million and $2.8 millionin net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.The following tables provide quantitative information about the Company’s Level 3 fair value measurements of the Company’s investments as ofDecember 31, 2015 and December 31, 2014. In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy theCompany may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The below table is not intended tobe all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements.The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractualmaturity date of the escrow receivable. Investment Type - Level ThreeDebt Investments Fair Value atDecember 31, 2015(in thousands) Valuation Techniques/ Methodologies Unobservable Input (a) Range WeightedAverage (b) Pharmaceuticals $72,981 Originated Within 6 Months Origination Yield 10.35% - 16.16% 12.29% 406,590 Market Comparable Companies Hypothetical Market Yield 9.55% - 16.75% 12.67% Premium/(Discount) (0.75%) - 0.00% Technology 6,873 Originated Within 6 Months Origination Yield 15.19% 15.19% 283,045 Market Comparable Companies Hypothetical Market Yield 6.57% - 23.26% 13.22% Premium/(Discount) (0.25%) - 0.50% 36,815 Liquidation (c) Probability weighting of alternative outcomes 10.00% - 100.00% Sustainable and RenewableTechnology 11,045 Originated Within 6 Months Origination Yield 19.74% 19.74% 105,382 Market Comparable Companies Hypothetical Market Yield 10.62% - 27.31% 15.91% Premium/(Discount) 0.00% 1,013 Liquidation (c) Probability weighting of alternative outcomes 100.00% Medical Devices 80,530 Market Comparable Companies Hypothetical Market Yield 11.65% - 19.90% 15.26% Premium/(Discount) 0.00% - 0.50% 3,764 Liquidation (c) Probability weighting of alternative outcomes 50.00% Lower Middle Market 17,811 Originated Within 6 Months Origination Yield 12.70% - 14.50% 13.00% 15,151 Liquidation (c) Probability weighting of alternative outcomes 25.00% - 75.00% Debt Investments Where Fair Value Approximates Cost 12,434 Imminent Payoffs (d) 48,962 Debt Investments Maturing in Less than One Year $1,102,396 Total Level Three Debt Investments (a)The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypotheticalmarket yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums(discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases(decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industriesnoted in the Company’s Consolidated Schedule of Investments are included in the industries note above as follows: ·Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development and Drug Delivery industries in the ConsolidatedSchedule of Investments. ·Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products,Information Services, and Communications and Networking industries in the Consolidated Schedule of Investments. ·Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. ·Medical Devices, above, is comprised of debt investments in the Surgical Devices and Medical Devices and Equipment industries in the Consolidated Schedule of Investments. ·Lower Middle Market, above, is comprised of d e bt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other,Information Services, Internet Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.(b)The weighted averages are calculated based on the fair market value of each investment.(c)The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.(d)Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.148 Investment Type - LevelThree Debt Investments Fair Value atDecember 31, 2014(in thousands) Valuation Techniques/Methodologies Unobservable Input (a) Range WeightedAverage (b) Pharmaceuticals $117,229 Originated Within 6 Months Origination Yield 10.34% - 16.52% 11.76% 237,595 Market Comparable Companies Hypothetical Market Yield 9.75% - 17.73% 10.62% Premium/(Discount) (0.50%) - 1.00% Medical Devices 60,332 Originated Within 6 Months Origination Yield 12.14% - 16.56% 13.69% 60,658 Market Comparable Companies Hypothetical Market Yield 11.64% - 22.22% 12.19% Premium/(Discount) 0.00% - 1.00% 12,970 Liquidation (c) Probability weighting of alternative outcomes 50.00% Technology 152,645 Originated Within 6 Months Origination Yield 10.54% - 20.02% 14.08% 80,835 Market Comparable Companies Hypothetical Market Yield 6.95% - 15.50% 13.01% Premium/(Discount) 0.00% - 0.50% 27,159 Liquidation (c) Probability weighting of alternative outcomes 10.00% - 90.00% Sustainable and RenewableTechnology 4,437 Originated Within 6 Months Origination Yield 13.85% - 21.57% 19.00% 52,949 Market Comparable Companies Hypothetical Market Yield 13.20% - 16.62% 15.41% Premium/(Discount) 0.00% - 1.50% 1,600 Liquidation (c) Probability weighting of alternative outcomes 100.00% Lower Middle Market 2,962 Originated Within 6 Months Origination Yield 14.04% 14.04% 59,254 Market Comparable Companies Hypothetical Market Yield 11.91% - 15.33% 13.98% Premium/(Discount) 0.00% - 0.50% 4,096 Liquidation (c) Probability weighting of alternative outcomes 45.00% - 55.00% Debt Investments Where Fair Value Approximates Amortized Cost 9,318 Imminent Payoffs (d) 39,867 Debt Investments Maturing in Less than One Year $923,906 Total Level Three Debt Investments (a)The significant unobservable inputs used in the fair value measurement of the Company’s securities are hypothetical market yields and premiums/(discounts). The hypothetical marketyield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums (discounts)relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in theinputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industries noted in theCompany’s Consolidated Schedule of Investments are included in the industries note above as follows: ·Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development, Drug Delivery, Diagnostic and BiotechnologyTools industries in the Consolidated Schedule of Investments. ·Medical Devices, above, is comprised of debt investments in the Surgical Devices, Medical Devices and Equipment and Biotechnology Tools industries in the ConsolidatedSchedule of Investments. ·Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products,Information Services, and Communications and Networking industries in the Consolidated Schedule of Investments. ·Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments. In theCompany’s quarterly and annual reports filed with the commission prior to this Annual Report on Form 10-K for the year ended December 31, 2014, the Company referred tothis industry sector as “Energy Technology.” ·Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other,Information Services, Internet Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.(b)The weighted averages are calculated based on the fair market value of each investment.(c)The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.(d)Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date. 149 Investment Type - Level Three Equityand Warrant Investments Fair Value atDecember 31, 2015(in thousands) Valuation Techniques/Methodologies Unobservable Input (a) Range WeightedAverage (e) Equity Investments $5,898 Market Comparable Companies EBITDA Multiple (b) 3.3x - 19.5x 7.6x Revenue Multiple (b) 0.7x - 3.7x 2.1x Discount for Lack of Marketability (c) 14.31% - 25.11% 18.05% Average Industry Volatility (d) 37.72% - 109.64% 60.27% Risk-Free Interest Rate 0.61% - 1.09% 0.74% Estimated Time to Exit (in months) 10 - 26 15 30,874 Market Adjusted OPM Backsolve Average Industry Volatility (d) 28.52% - 86.41% 65.40% Risk-Free Interest Rate 0.36% - 1.51% 0.80% Estimated Time to Exit (in months) 10 - 47 17 Warrant Investments 7,904 Market Comparable Companies EBITDA Multiple (b) 5.1x - 57.9x 16.0x Revenue Multiple (b) 0.4x - 9.6x 3.0x Discount for Lack of Marketability (c) 10.09% - 31.37% 23.11% Average Industry Volatility (d) 39.51% - 73.36% 41.19% Risk-Free Interest Rate 0.32% - 1.51% 0.87% Estimated Time to Exit (in months) 4 - 47 23 10,661 Market Adjusted OPM Backsolve Average Industry Volatility (d) 28.52% - 109.64% 64.31% Risk-Free Interest Rate 0.36% - 1.45% 0.85% Estimated Time to Exit (in months) 10 - 44 20 Total Level Three Warrant and EquityInvestments $55,337 (a)The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples and discounts forlack of marketability. Additional inputs used in the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. Significantincreases (decreases) in the inputs in isolation may result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments,additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date.(b)Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.(c)Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.(d)Represents the range of industry volatility used by market participants when pricing the investment.(e)Weighted averages are calculated based on the fair market value of each investment. Investment Type - Level Three Equityand Warrant Investments Fair Value atDecember 31, 2014(in thousands) Valuation Techniques/Methodologies Unobservable Input (a) Range WeightedAverage (e) Equity Investments $12,249 Market Comparable Companies EBITDA Multiple (b) 5.2x - 23.4x 8.5x Revenue Multiple (b) 0.9x - 3.6x 2.6x Discount for Lack of Marketability (c) 5.67% - 35.45% 15.95% Average Industry Volatility (d) 48.10% - 95.18% 62.78% Risk-Free Interest Rate 0.22% - 0.83% 0.24% Estimated Time to Exit (in months) 10 - 28 11 46,686 Market Adjusted OPM Backsolve Average Industry Volatility (d) 38.95% - 84.30% 55.04% Risk-Free Interest Rate 0.10% - 1.32% 0.24% Estimated Time to Exit (in months) 6 - 43 10 Warrant Investments 9,725 Market Comparable Companies EBITDA Multiple (b) 0.0x - 98.9x 16.6x Revenue Multiple (b) 0.3x - 15.7x 4.3x Discount for Lack of Marketability (c) 12.12% - 35.50% 22.14% Average Industry Volatility (d) 37.70% - 108.86% 67.23% Risk-Free Interest Rate 0.22% - 1.34% 0.75% Estimated Time to Exit (in months) 10 - 47 27 12,198 Market Adjusted OPM Backsolve Average Industry Volatility (d) 32.85% - 99.81% 67.58% Risk-Free Interest Rate 0.21% - 2.95% 0.87% Estimated Time to Exit (in months) 10 - 48 28 Total Level Three Warrant andEquity Investments $80,858 (a)The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples and discounts forlack of marketability. Additional inputs used in the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. Significantincreases (decreases) in the inputs in isolation may result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments,additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date.(b)Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.(c)Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.(d)Represents the range of industry volatility used by market participants when pricing the investment.(e)Weighted averages are calculated based on the fair market value of each investment.150 Debt InvestmentsThe Company follows the guidance set forth in ASC 820 which establishes a framework for measuring the fair value of assets and liabilities and outlines afair value hierarchy which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. The Company’s debt securities areprimarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, lifesciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially allof the Company’s investments in these portfolio companies are considered Level 3 assets under ASC 820 because there is no known or accessible market or marketindexes for debt instruments for these investment securities to be traded or exchanged. In addition, the Company may, from time to time, invest in public debt ofcompanies that meet the Company’s investment objectives. These investments are considered Level 2 assets.In making a good faith determination of the value of the Company’s investments, the Company generally starts with the cost basis of the investment, whichincludes the value attributed to the original issue discount (“OID”), if any, and payment-in-kind (“PIK’) interest or other receivables which have been accrued toprincipal as earned. The Company then applies the valuation methods as set forth below.The Company applies a procedure for debt investments that assumes the sale of each investment in a hypothetical market to a hypothetical market participantwhere buyers and sellers are willing participants. The hypothetical market does not include scenarios where the underlying security was simply repaid orextinguished, but includes an exit concept. The Company determines the yield at inception for each debt investment. The Company then uses senior secured,leveraged loan yields provided by third party providers to determine the change in market yields between inception of the debt security and the measurement date.Industry specific indices and other relevant market data are used to benchmark/assess market based movements.Under this process, the Company also evaluates the collateral for recoverability of the debt investments. The Company considers each portfolio company’scredit rating, security liens and other characteristics of the investment to adjust the baseline yield to derive a credit adjusted hypothetical yield for each investment asof the measurement date. The anticipated future cash flows from each investment are then discounted at the hypothetical yield to estimate each investment’s fairvalue as of the measurement date.The Company’s process includes, among other things, the underlying investment performance, the current portfolio company’s financial condition andmarket changing events that impact valuation, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurementdate. The Company values its syndicated debt investments using broker quotes and bond indices amongst other factors. If there is a significant deterioration of thecredit quality of a debt investment, the Company may consider other factors to estimate fair value, including the proceeds that would be received in a liquidationanalysis.The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a debtinvestment is doubtful or, if under the in-exchange premise, when the value of a debt security is less than amortized cost of the investment. Conversely, whereappropriate, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, that itsinvestment has also appreciated in value or, if under the in-exchange premise, the value of a debt security is greater than amortized cost.When originating a debt instrument, the Company generally receives warrants or other equity-related securities from the borrower. The Company determinesthe cost basis of the warrants or other equity-related securities received based upon their respective fair values on the date of receipt in proportion to the total fairvalue of the debt and warrants or other equity-related securities received. Any resulting discount on the debt investments from recordation of the warrant or otherequity instruments is accreted into interest income over the life of the debt investment.Debt investments that are traded on a public exchange will be valued at the prevailing market price at period end.151 Equity-Related Securities and WarrantsSecurities that are traded in the over-the-counter markets or on a stock exchange will be valued at the prevailing bid price at period end. The Company has alimited amount of equity securities in public companies. In accordance with the 1940 Act, unrestricted publicly traded securities for which market quotations arereadily available are valued at the closing market quote on the measurement date.The Company estimates the fair value of warrants using a Black Scholes OPM. At each reporting date, privately held warrant and equity-related securities arevalued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition and generalmarket conditions, price to enterprise value or price to equity ratios, discounted cash flow, valuation comparisons to comparable public companies or other industrybenchmarks. When an external event occurs, such as a purchase transaction, public offering, or subsequent equity sale, the pricing indicated by that external event isutilized to corroborate the Company’s valuation of the warrant and equity-related securities. The Company periodically reviews the valuation of its portfoliocompanies that have not been involved in a qualifying external event to determine if the enterprise value of the portfolio company may have increased or decreasedsince the last valuation measurement date.Portfolio CompositionAs required by the 1940 Act, the Company classifies its investments by level of control. “Control investments” are defined in the 1940 Act as investments inthose companies that the Company is deemed to “control”. Generally, under the 1940 Act, the Company is deemed to “control” a company in which it has invested ifit owns 25% or more of the voting securities of such company or has greater than 50% representation on its board. “Affiliate investments” are investments in thosecompanies that are “affiliated companies” of the Company, as defined in the 1940 Act, which are not control investments. The Company is deemed to be an“affiliate” of a company in which it has invested if it owns 5% or more but less than 25% of the voting securities of such company. “Non-control/non-affiliateinvestments” are investments that are neither control investments nor affiliate investments.The following table summarizes the Company’s realized and unrealized gain and loss and changes in the Company’s unrealized appreciation and depreciationon affiliate investments for the years ended December 31, 2015, 2014, and 2013. The Company did not hold any Control investments at December 31, 2015, 2014 or2013. (in thousands) Year Ended December 31, 2015 Portfolio Company Type Fair Value atDecember 31, 2015 InvestmentIncome Net Change inUnrealizedAppreciation/(Depreciation) Reversal ofUnrealizedAppreciation/(Depreciation) RealizedGain/(Loss) Optiscan BioMedical, Corp. Affiliate $6,973 $— $901 $— $— Stion Corporation Affiliate 1,013 348 206 — — Total $7,986 $348 $1,107 $— $— (in thousands) Year Ended December 31, 2014 Portfolio Company Type Fair Value atDecember 31, 2014 InvestmentIncome Net Change inUnrealizedAppreciation/(Depreciation) Reversal ofUnrealizedAppreciation/(Depreciation) RealizedGain/(Loss) Gelesis, Inc. Affiliate $327 $— $(146) $— $— Optiscan BioMedical, Corp. Affiliate 6,072 — (24) — — Stion Corporation Affiliate 1,600 1,876 (3,112) — — Total $7,999 $1,876 $(3,282) $— $— (in thousands) Year Ended December 31, 2013 Portfolio Company Type Fair Value atDecember 31, 2013 InvestmentIncome Net Change inUnrealizedAppreciation/(Depreciation) Reversal ofUnrealizedAppreciation/(Depreciation) RealizedGain/(Loss) Gelesis, Inc. Affiliate $473 $— $(1,193) $— $— Optiscan BioMedical, Corp. Affiliate 4,784 1,933 (225) — — Stion Corporation Affiliate 5,724 462 593 — — Total $10,981 $2,395 $(825) $— $— During the year ended December 31, 2015, changes to the capitalization structure of the portfolio company Gelesis, Inc. reduced the Company’s investmentbelow the threshold for classification as an affiliate investment.152 A summary of the composition of the Company’s investment portfolio as of December 31, 2015 and December 31, 2014 at fair value is shown as follows: December 31, 2015 December 31, 2014 (in thousands) Investments atFair Value Percentage ofTotal Portfolio Investments atFair Value Percentage ofTotal Portfolio Senior Secured Debt with Warrants $961,464 80.1% $740,659 72.6%Senior Secured Debt 171,732 14.3% 208,345 20.4%Preferred Stock 35,245 2.9% 57,548 5.6%Common Stock 32,197 2.7% 14,185 1.4%Total $1,200,638 100.0% $1,020,737 100.0% The increase in common stock and the decrease in preferred stock is primarily due to the IPO of Box, Inc. on January 23, 2015 in which all of the Company’spreferred shares were converted to common stock in the public portfolio company. Any potential future gain is subject to the price of the shares when the Companyexits the investment. A summary of the Company’s investment portfolio, at value, by geographic location as of December 31, 2015 and December 31, 2014 is shown as follows: December 31, 2015 December 31, 2014 (in thousands) Investments atFair Value Percentage ofTotal Portfolio Investments atFair Value Percentage ofTotal Portfolio United States $1,167,281 97.2% $967,803 94.8%Netherlands 20,112 1.7% 19,913 2.0%England 8,884 0.8% 34 0.0%Israel 3,764 0.3% 6,498 0.6%Canada 595 0.0% 2,314 0.2%India 2 0.0% 24,175 2.4%Total $1,200,638 100.0% $1,020,737 100.0% The following table shows the fair value the Company’s portfolio by industry sector at December 31, 2015 and December 31, 2014: December 31, 2015 December 31, 2014 (in thousands) Investments atFair Value Percentage of TotalPortfolio Investments atFair Value Percentage of Total Portfolio Drug Discovery & Development $284,266 23.7% $267,618 26.2%Drug Delivery 164,665 13.7% 88,491 8.7%Sustainable and Renewable Technology 159,487 13.3% 68,280 6.7%Software 147,237 12.3% 125,412 12.3%Media/Content/Info 95,488 7.9% 29,219 2.9%Medical Devices & Equipment 90,560 7.5% 138,046 13.5%Internet Consumer & Business Services 88,377 7.4% 69,655 6.8%Specialty Pharmaceuticals 52,088 4.3% 51,536 5.0%Communications & Networking 33,213 2.8% 61,433 6.0%Consumer & Business Products 26,611 2.2% 63,225 6.2%Semiconductors 22,705 1.9% 5,126 0.5%Healthcare Services, Other 15,131 1.3% 10,527 1.0%Surgical Devices 11,185 0.9% 9,915 1.0%Electronics & Computer Hardware 6,928 0.6% 692 0.1%Information Services 1,657 0.1% 27,016 2.6%Biotechnology Tools 719 0.1% 3,721 0.4%Diagnostic 321 0.0% 825 0.1%Total $1,200,638 100.0% $1,020,737 100.0%No single portfolio investment represents more than 10% of the fair value of the investments as of December 31, 2015 and December 31, 2014.153 Portfolio ActivityDuring the year ended December 31, 2015, the Company funded investments in debt securities and equity investments totaling approximately $694.1 millionand $18.6 million, respectively. During the year ended December 31, 2015, the Company converted approximately $566,000 of debt to equity in two portfoliocompanies. During the year ended December 31, 2015, the Company converted approximately $330,000 of warrants to equity in three portfolio companies.During the year ended December 31, 2014, the Company funded investments in debt securities and equity investments totaling approximately $611.0 millionand $10.3 million, respectively. The Company converted approximately $2.2 million of debt to equity in four portfolio companies in the year ended December 31,2014.During the year ended December 31, 2015, the Company recognized net realized gains of approximately $5.1 million on the portfolio. These net realizedgains included gross realized gains of approximately $12.6 million primarily from the sale of investments in seven portfolio companies, including Box, Inc. ($3.2million), Atrenta, Inc. ($2.6 million), Cempra, Inc. ($2.0 million), Celladon Corporation ($1.4 million), Egalet Corporation ($652,000), Everyday Health, Inc.($387,000) and Identiv, Inc. ($304,000), and $1.5 million from subsequent recoveries received on two previously written-off debt investments. These gains werepartially offset by gross realized losses of approximately $7.5 million primarily from the liquidation or write off of the Company’s investments in sixteen portfoliocompanies.During the year ended December 31, 2014, the Company recognized net realized gains of approximately $20.1 million on the portfolio. These net realizedgains included gross realized gains of approximately $24.0 million primarily from the sale of investments in seven portfolio companies including Acceleron Pharma,Inc., ($7.9 million), Merrimack Pharmaceuticals, Inc., ($4.3 million), Neuralstem, Inc., ($2.7 million), IPA Holdings, LLC., ($1.5 million), Cell Therapeutics, Inc.,($1.3 million), Trulia, Inc. ($1.0 million), and Portola Pharmaceuticals, Inc. ($700,000). These gains were partially offset by gross realized losses of approximately$3.9 million primarily from the liquidation of the Company’s investments in fifteen portfolio companies.Investment CollateralIn the majority of cases, the Company collateralizes its investments by obtaining a first priority security interest in a portfolio company’s assets, which mayinclude its intellectual property. In other cases, the Company may obtain a negative pledge covering a company’s intellectual property. At December 31, 2015,approximately 39.7% of the Company’s portfolio company debt investments were secured by a first priority security in all of the assets of the portfolio company,including their intellectual property, 49.7% of the Company’s portfolio company debt investments were to portfolio companies that were prohibited from pledging orencumbering their intellectual property, or subject to a negative pledge, 7.9% of the Company’s portfolio company debt investments were secured by a secondpriority security interest in all of the portfolio company’s assets, other than intellectual property and 2.7% of the Company’s portfolio company debt investmentswere subordinated secured by all of the portfolio company’s assets, including intellectual property. At December 31, 2015 the Company had no equipment only lienson any of the Company’s portfolio companies.Income RecognitionThe Company records interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement, to theextent that such amounts are expected to be collected. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition ofdebt securities and is accreted into interest income over the term of the loan as a yield enhancement. When a loan becomes 90 days or more past due, or ifmanagement otherwise does not expect that principal, interest, and other obligations due will be collected in full, management will generally place the loan on non-accrual status and cease recognizing interest income on that loan until all principal and interest due has been paid or management believes the portfolio company hasdemonstrated the ability to repay the Company’s current and future contractual obligations. Any uncollected interest related to prior periods is reversed from incomein the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment hassufficient collateral value and is in the process of collection.154 At December 31, 2015, the Company had five debt investments on non-accrual with a cumulative investment cost and fair value of approximately $47.4million and $23.2 million, respectively, compared to four debt investments on non-accrual at December 31, 2014 with a cumulative investment cost and fair value ofapproximately $28.9 m illion and $10.6 million, respectively. In addition, at December 31, 2015, the Company had one debt investment with an investment cost andfair value of approximately $20.1 million and $14.9 million, respectively, for which only the PIK interest is on non- accrual. The increase in the cumulative cost andfair value of debt investments on non-accrual between December 31, 2015 and December 31, 2014 is the result of placing three new debt investments on non-accrualstatus during the period, offset by the liquid ation of two debt investments that were on non-accrual at December 31, 2014. During the year ended December 31,2015, the Company recognized a realized loss of approximately $180,000 on the write off of one debt investment that was on non-accrual at Decemb er 31, 2014. Inaddition, the Company recognized a realized loss of $1.2 million on the partial write off of one debt investment that is on non-accrual as of December 31, 2015.In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists tosubstantiate fair value, income is recognized as earned, which is generally when the investment transaction closes. The Company had no income from advisoryservices in the years ended December 31, 2015 and December 31, 2014.Paid-In-Kind and End of Term IncomeContractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, isgenerally recorded on the accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there isinsufficient value to support the accrual or management does not expect the portfolio company to be able to pay all principal and interest due. The Company recordedapproximately $4.7 million and $3.3 million in PIK income in the years ended December 31, 2015 and 2014, respectively.In addition, the Company may also be entitled to an end-of-term payment that is amortized into income over the life of the loan. Loan exit fees to be paid atthe termination of the loan are accreted into interest income over the contractual life of the loan. At December 31, 2015, the Company had approximately $22.7million in exit fees receivable, of which approximately $17.4 million was included as an offset to the cost basis of our current debt investments and approximately$5.3 million was deferred related to expired commitments. At December 31, 2014 the Company had approximately $19.3 million in exit fees receivable, of whichapproximately $8.4 million was included as an offset to the cost basis of our current debt investments and approximately $10.9 million was related to expiredcommitments.To maintain the Company’s status as a RIC, PIK and end-of-term income must be paid out to stockholders in the form of dividends even though the cash hasnot yet been collected. Amounts necessary to pay these dividends may come from available cash or the liquidation of certain investments.Fee IncomeFee income, generally collected in advance, includes loan commitment and facility fees for due diligence and structuring, as well as fees for transactionservices and management services rendered by us to portfolio companies and other third parties. Loan and commitment fees are amortized into income over thecontractual life of the loan. Management fees are generally recognized as income when the services are rendered. Loan origination fees are capitalized and thenamortized into interest income using the effective interest rate method. In certain loan arrangements, warrants or other equity interests are received from the borroweras additional origination fees. The Company had approximately $26.1 million of unamortized fees at December 31, 2015, of which approximately $23.6 million wasincluded as an offset to the cost basis of our current debt investments and approximately $2.5 million was deferred contingent upon the occurrence of a funding ormilestone. At December 31, 2014 the Company had approximately $21.9 million of unamortized fees, of which approximately $17.4 million was included as anoffset to the cost basis of our current debt investments and approximately $4.5 million was deferred contingent upon the occurrence of a funding or milestone.The Company recognizes nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications.Certain fees may still be recognized as one-time fees, including prepayment penalties, fees related to select covenant default waiver fees and acceleration ofpreviously deferred loan fees and OID related to early loan pay-off or material modification of the specific debt outstanding.Equity Offering ExpensesThe Company’s offering costs are charged against the proceeds from equity offerings when received.155 Debt Issuance CostsDebt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing. Debt issuance costs are recognized asprepaid expenses and amortized over the life of the related debt instrument using the straight line method, which closely approximates the effective yield method.Prepaid financing costs, net of accumulated amortization, were as follows as of December 31, 2015 and December 31, 2014. (in thousands) December 31, 2015 December 31, 2014 SBA Debentures $3,371 $4,038 2019 Notes 2,185 4,352 2024 Notes 2,872 3,205 2017 Asset-Backed Notes — 506 2021 Asset-Backed Notes 2,305 3,207 Convertible Senior Notes 44 175 Wells Facility 669 794 Union Bank Facility 229 156 Total $11,675 $16,433 Cash and Cash EquivalentsCash and cash equivalents consists solely of funds deposited with financial institutions and short-term liquid investments in money market deposit accounts.Cash and cash equivalents are carried at cost, which approximates fair value.Other AssetsOther Assets generally consists of prepaid expenses, deferred financing costs net of accumulated amortization, fixed assets net of accumulated depreciation,deferred revenues and deposits and other assets, including escrow receivable. The escrow receivable balance as of December 31, 2015 was approximately $3.0million and was fair valued and held in accordance with ASC 820.Stock Based CompensationThe Company has issued and may, from time to time, issue additional stock options and restricted stock to employees under the Company’s 2004 EquityIncentive Plan and Board members under the Company’s 2006 Equity Incentive Plan. Management follows the guidelines set forth under ASC Topic 718, formallyknown as FAS 123R “ Share-Based Payments ” to account for stock options granted. Under ASC Topic 718, compensation expense associated with stock-basedcompensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair valuemodel and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility, forfeiture rate and expectedoption life.Income TaxesThe Company operates to qualify to be taxed as a RIC under the Code. Generally, a RIC is entitled to deduct dividends it pays to its shareholders indetermining “taxable income.” Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by deductible expenses, as well as taxablenet capital gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition ofincome and expenses, and generally excludes net unrealized appreciation or depreciation, as gains or losses are not included in taxable income until they are realized.As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company distributesdividends in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of the Company’s ordinary income(taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of the Company’s capital gain net income (adjusted for certain ordinary losses)for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, inpreceding years (the “Excise Tax Avoidance Requirements”). The Company will not be subject to excise taxes on amounts on which the Company is required to paycorporate income tax (such as retained net capital gains).156 Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current ta xable yeardistributions from such taxable income into the next taxable year and pay a 4% excise tax on such taxable income, as required. The maximum amount of excesstaxable income that may be carried over for distribution in the next taxable year under t he Code is the total amount of dividends paid in the following taxable year,subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, dividends declaredand paid by th e Company in a taxable year may differ from taxable income for that taxable year as such dividends may include the distribution of current taxableyear taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.The Company intends to distribute approximately $8.2 million of spillover earnings from ordinary income for the taxable year ended December 31, 2015 tothe Company’s shareholders in 2016. The Company distributed 100% of its spillover from long term capital gains for the taxable year ended December 31, 2014 tothe Company’s shareholders in 2015.Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with taxregulations may differ from net investment income and net realized securities gains recognized for financial reporting purposes. Differences may be permanent ortemporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differencesmay also result from the classification of certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arisewhen certain items of income, expense, gain or loss are recognized at some time in the future.Earnings Per Share (“EPS”)Basic EPS is calculated by dividing net earnings applicable to common shareholders by the weighted average number of common shares outstanding.Common shares outstanding includes common stock and restricted stock for which no future service is required as a condition to the delivery of the underlyingcommon stock. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable pursuant to stockoptions and to restricted stock for which future service is required as a condition to the delivery of the underlying common stock.Comprehensive IncomeThe Company reports all changes in comprehensive income in the Consolidated Statement of Operations. Comprehensive income is equal to net increase innet assets resulting from operations.DividendsDividends and distributions to common stockholders are approved by the Board of Directors on a quarterly basis and the dividend payable is recorded on theex-dividend date.The Company maintains an “opt out” dividend reinvestment plan that provides for reinvestment of the Company’s distribution on behalf of the Company’sstockholders, unless a stockholder elects to receive cash. As a result, if the Company’s Board of Directors authorizes, and the Company declares a cash dividend,then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash dividend automatically reinvested inadditional shares of the Company’s common stock, rather than receiving the cash dividends. During 2015, 2014, and 2013, the Company issued approximately199,894, 96,976, and 159,000 shares, respectively, of common stock to shareholders in connection with the dividend reinvestment plan.SegmentsThe Company lends to and invests in portfolio companies in various technology-related industries, including technology, drug discovery and development,biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. The Company separately evaluates the performanceof each of its lending and investment relationships. However, because each of these loan and investment relationships has similar business and economiccharacteristics, they have been aggregated into a single lending and investment segment.157 Recent Accounting PronouncementsIn February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, “Consolidation (Topic 810) – Amendments to the ConsolidationAnalysis”. The new guidance applies to entities in all industries and provides a new scope exception to registered money market funds and similar unregisteredmoney market funds. It makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying theVIE guidance. The Company currently consolidates all VIEs of which it is the primary beneficiary, thus the Company does not anticipates a material impact fromadopting this standard on its financial statements. ASU 2015-02 is effective for public business entities for annual reporting periods beginning after December 15,2015.In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires debt issuance costs to be presented inthe balance sheet as a direct deduction from the associated debt liability and in August 2015, the FASB issued ASU 2015-15 “Presentation and SubsequentMeasurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”, which clarifies the application of ASU 2015-03 to debt issuance costsassociated with line-of-credit arrangements and allows presentation of debt issuance costs on these instruments as assets that are amortized over the term of theinstrument. Adoption of these standards will result in the presentation of the Company’s SBA Debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, andConvertible Senior Notes net of the associated debt issuance costs for each instrument in the liabilities section on the Consolidated Statement of Assets andLiabilities. There will be no changes to the accounting or presentation of the Wells Facility as debt issuance costs are amortized over the term of the line of credit.ASU 2015-03 and ASU 2015-15 are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. 158 3. Fair Value of Financial InstrumentsFair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertaintiesand matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financialinstruments, consisting of cash and cash equivalents, receivables including escrow receivables, accounts payable and accrued liabilities, approximate the fair valuesof such items due to the short maturity of such instruments. The Convertible Senior Notes, the April 2019 Notes, the September 2019 Notes (together with the April2019 Notes, the “2019 Notes”), the 2024 Notes, 2021 Asset-Backed Notes, and the SBA debentures, as each term is defined herein, as sources of liquidity remain astrategic advantage due to their flexible structure, long-term duration, and low fixed interest rates. At December 31, 2015, the April 2019 Notes were trading on theNew York Stock Exchange (“NYSE”) for $25.42 per share at par value, the September 2019 Notes were trading on the NYSE for $25.23 per share at par value andthe 2024 Notes were trading on the NYSE for $25.34 per share at par value. The par value at underwriting for each of these notes was $25.00 per share. Based onmarket quotations on or around December 31, 2015, the Convertible Senior Notes were quoted for 1.110 per dollar at par value and the 2021 Asset-Backed Noteswere quoted for 0.996 per dollar at par value. Calculated based on the net present value of payments over the term of the notes using estimated market rates forsimilar notes and remaining terms, the fair value of the SBA debentures would be approximately $194.1 million, compared to the carrying amount of $190.2 millionas of December 31, 2015. The fair value of the outstanding borrowings under the Wells Facility at December 31, 2015 is equal to its transaction price as theCompany renegotiated the terms of the agreement with Wells Fargo Capital Finance, LLC in December 2015.See the accompanying Consolidated Schedule of Investments for the fair value of the Company’s investments. The methodology for the determination of thefair value of the Company’s investments is discussed in Note 2.The liabilities of the Company are recorded at amortized cost and not at fair value on the Consolidated Statement of Assets and Liabilities. The followingtables provide additional information about the fair value and level in the fair value hierarchy of the Company’s liabilities at December 31, 2015 and December 31,2014. (in thousands) Identical Assets Observable Inputs UnobservableInputs Description (1) December 31, 2015 (Level 1) (Level 2) (Level 3) Convertible Senior Notes $19,540 $— $19,540 $— Wells Facility 50,000 — — 50,000 2021 Asset-Backed Notes 128,775 — 128,775 — April 2019 Notes 65,573 — 65,573 — September 2019 Notes 46,297 — 46,297 — 2024 Notes 104,401 — 104,401 — SBA Debentures 194,121 — — 194,121 Total $608,707 $— $364,586 $244,121 (in thousands) Identical Assets Observable Inputs UnobservableInputs Description December 31, 2014 (Level 1) (Level 2) (Level 3) Convertible Senior Notes $22,799 $— $22,799 $— 2017 Asset-Backed Notes 22,068 — — 22,068 2021 Asset-Backed Notes 129,300 — 129,300 — April 2019 Notes 86,450 — 86,450 — September 2019 Notes 88,073 — 88,073 — 2024 Notes 104,071 — 104,071 — SBA Debentures 191,779 — — 191,779 Total $644,540 $— $430,693 $213,847 (1)As of April 16, 2015, the 2017 Asset-Backed Notes were fully repaid. 159 4. BorrowingsOutstanding BorrowingsAt December 31, 2015 and December 31, 2014, the Company had the following available borrowings and outstanding borrowings: December 31, 2015 December 31, 2014 (in thousands) Total Available Carrying Value (1) Total Available Carrying Value (1) SBA Debentures (2) $190,200 $190,200 $190,200 $190,200 2019 Notes 110,364 110,364 170,364 170,364 2024 Notes 103,000 103,000 103,000 103,000 2017 Asset-Backed Notes — — 16,049 16,049 2021 Asset-Backed Notes 129,300 129,300 129,300 129,300 Convertible Senior Notes (3) 17,604 17,522 17,674 17,345 Wells Facility (4) 75,000 50,000 75,000 — Union Bank Facility (4) 75,000 — 75,000 — Total $700,468 $600,386 $776,587 $626,258 (1)Except for the Convertible Senior Notes, all carrying values are the same as the principal amount outstanding.(2)At both December 31, 2015 and December 31, 2014, the total available borrowings under the SBA debentures were $190.2 million, of which $41.2 million was available in HT II and$149.0 million was available in HT III.(3)During the year ended December 31, 2015, holders of approximately $70,000 of the Company’s Convertible Senior Notes exercised their conversion rights. The balance at December 31,2015 represents the remaining aggregate principal amount outstanding of the Convertible Senior Notes less the remaining unaccreted discount initially recorded upon issuance of theConvertible Senior Notes. The total remaining unaccreted discount for the Convertible Senior Notes was approximately $82,000 at December 31, 2015 and $329,000 at December 31,2014.(4)Availability subject to the Company meeting the borrowing base requirements.Long-Term SBA DebenturesOn September 27, 2006, HT II received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligibleinvestments and additional contributions to regulatory capital. Under the Small Business Investment Company Act and current SBA policy applicable to SBICs, aSBIC can have outstanding at any time SBA guaranteed debentures up to twice the amount of its regulatory capital. With the Company’s net investment of $44.0million in HT II as of December 31, 2015, HT II has the capacity to issue a total of $41.2 million of SBA guaranteed debentures, subject to SBA approval, of which$41.2 million was outstanding as of December 31, 2015. As of December 31, 2015, HT II has paid the SBA commitment fees and facility fees of approximately $1.5million and $3.6 million, respectively. As of December 31, 2015, the Company held investments in HT II in 32 companies with a fair value of approximately $79.5million, accounting for approximately 6.6% of the Company’s total portfolio. HT II held approximately $128.3 million in assets and accounted for approximately7.6% of the Company’s total assets prior to consolidation at December 31, 2015.On May 26, 2010, HT III received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligibleinvestments and additional contributions to regulatory capital. With the Company’s net investment of $74.5 million in HT III as of December 31, 2015, HT III hasthe capacity to issue a total of $149.0 million of SBA guaranteed debentures, subject to SBA approval, of which $149.0 million was outstanding as of December 31,2015. As of December 31, 2015, HT III has paid the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As ofDecember 31, 2015, the Company held investments in HT III in 44 companies with a fair value of approximately $255.9 million, accounting for approximately21.3% of the Company’s total portfolio. HT III held approximately $310.8 million in assets and accounted for approximately 18.5% of the Company’s total assetsprior to consolidation at December 31, 2015.SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businessesinclude businesses that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the twomost recent fiscal years. In addition, SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is onethat has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscalyears. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and arebased on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in theequity securities of such businesses and provide them with consulting and advisory services. Through the Company’s wholly-owned subsidiaries HT II and HT III,the Company plans to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments.160 HT II and HT III are periodically examined and a udited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails tocomply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debent ures, declareoutstanding debentures immediately due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited intheir ability to make distributions to the Company if they do not have sufficien t capital in accordance with SBA regulations. Such actions by the SBA would, in turn,negatively affect the Company because HT II and HT III are the Company’s wholly owned subsidiaries. HT II and HT III were in compliance with the terms of theSBIC’s lever age as of December 31, 2015 as a result of having sufficient capital as defined under the SBA regulations.The rates of borrowings under various draws from the SBA beginning in March 2009 are set semiannually in March and September and range from 2.25% to4.62% excluding annual fees. Interest payments on SBA debentures are payable semiannually. There are no principal payments required on these issues prior tomaturity and no prepayment penalties. Debentures under the SBA generally mature ten years after being borrowed. Based on the initial draw down date of March2009, the initial maturity of SBA debentures will occur in March 2019. In addition, the SBA charges a fee that is set annually, depending on the Federal fiscal yearthe leverage commitment was delegated by the SBA, regardless of the date that the leverage was drawn by the SBIC. The annual fees related to HT II debentures thatpooled on September 22, 2010 were 0.406% and 0.285%, depending upon the year in which the underlying commitment was closed. The annual fees on otherdebentures have been set at 0.906%. The annual fees related to HT III debentures that pooled on March 27, 2013 were 0.804%. The annual fees on other debentureshave been set at 0.515%. The rates of borrowings on the Company’s SBA debentures range from 3.05% to 5.53% when including these annual fees.The average amount of debentures outstanding for the year ended December 31, 2015 for HT II was approximately $41.2 million with an average interest rateof approximately 4.52%. The average amount of debentures outstanding for the year ended December 31, 2015 for HT III was approximately $149.0 million with anaverage interest rate of approximately 3.43%.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the SBAdebentures are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $6,969 $7,328 Amortization of debt issuance cost (loan fees) 667 1,036 Total interest expense and fees $7,636 $8,364 Cash paid for interest expense and fees $6,942 $8,042 As of December 31, 2015, the maximum statutory limit on the dollar amount of combined outstanding SBA guaranteed debentures is $350.0 million, subjectto periodic adjustments by the SBA. In aggregate, at December 31, 2015, with the Company’s net investment of $118.5 million, HT II and HT III have the capacityto issue a total of $190.2 million of SBA-guaranteed debentures, subject to SBA approval. At December 31, 2015, the Company has issued $190.2 million in SBA-guaranteed debentures in the Company’s SBIC subsidiaries.The Company reported the following SBA debentures outstanding on its Consolidated Statement of Assets and Liabilities as of December 31, 2015 andDecember 31, 2014: (in thousands)Issuance/Pooling Date Maturity Date Interest Rate (1) December 31, 2015 December 31, 2014 SBA Debentures: March 25, 2009 March 1, 2019 5.53% $18,400 $18,400 September 23, 2009 September 1, 2019 4.64% 3,400 3,400 September 22, 2010 September 1, 2020 3.62% 6,500 6,500 September 22, 2010 September 1, 2020 3.50% 22,900 22,900 March 29, 2011 March 1, 2021 4.37% 28,750 28,750 September 21, 2011 September 1, 2021 3.16% 25,000 25,000 March 21, 2012 March 1, 2022 3.28% 25,000 25,000 March 21, 2012 March 1, 2022 3.05% 11,250 11,250 September 19, 2012 September 1, 2022 3.05% 24,250 24,250 March 27, 2013 March 1, 2023 3.16% 24,750 24,750 Total SBA Debentures $190,200 $190,200 (1)Interest rate includes annual charge 161 2019 NotesOn March 6, 2012, the Company and U.S. Bank National Association (the “2019 Trustee”) entered into an indenture (the “Base Indenture”). On April 17,2012, the Company and the 2019 Trustee entered into the First Supplemental Indenture to the Base Indenture (the “First Supplemental Indenture”), dated April 17,2012, relating to the Company’s issuance, offer and sale of $43.0 million aggregate principal amount of 7.00% notes due 2019 (the “April 2019 Notes”). The sale ofthe April 2019 Notes generated net proceeds, before expenses, of approximately $41.7 million.In July 2012, the Company reopened the Company’s April 2019 Notes and issued an additional $41.5 million in aggregate principal amount of April 2019Notes, which included the exercise of an over-allotment option, bringing the total amount of the April 2019 Notes issued to approximately $84.5 million in aggregateprincipal amount.On September 24, 2012, the Company and the 2019 Trustee, entered into the Second Supplemental Indenture to the Base Indenture (the “SecondSupplemental Indenture”), dated as of September 24, 2012, relating to the Company’s issuance, offer and sale of $75.0 million aggregate principal amount of 7.00%notes due 2019 (the “September 2019 Notes”). The sale of the September 2019 Notes generated net proceeds, before expenses, of approximately $72.75 million.In October 2012, the underwriters exercised their over-allotment option for an additional $10.9 million of the September 2019 Notes, bringing the totalamount of the September 2019 Notes issued to approximately $85.9 million in aggregate principal outstanding.In April 2015, the Company redeemed $20.0 million of the $84.5 million issued and outstanding aggregate principal amount of April 2019 Notes, aspreviously approved by the Board of Directors. In December 2015, the Company redeemed $40.0 million of the $85.9 million issued and outstanding aggregateprincipal amount of September 2019 Notes, as previously approved by the Board of Directors.As of December 31, 2015 and December 31, 2014, the 2019 Notes payable is comprised of: (in thousands) December 31, 2015 December 31, 2014 April 2019 Notes $64,490 $84,490 September 2019 Notes 45,874 85,874 Carrying Value of 2019 Notes $110,364 $170,364 April 2019 NotesThe April 2019 Notes will mature on April 30, 2019 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on orafter April 30, 2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accruedto but not including the date fixed for redemption. The April 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on January 30, April 30, July 30and October 30 of each year, commencing on July 30, 2012, and trade on the NYSE under the trading symbol “HTGZ.”The April 2019 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future seniorunsecured indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the April 2019 Notes; (iii) effectivelysubordinated to all the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequentlygrant security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and otherobligations of any of the Company’s subsidiaries.The Base Indenture, as supplemented by the First Supplemental Indenture, contains certain covenants including covenants requiring the Company’scompliance with (regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act asmodified by Section 61(a)(1) of the 1940 Act and to provide financial information to the holders of the April 2019 Notes and the 2019 Trustee if the Company shouldno longer be subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These covenants are subject toimportant limitations and exceptions that are described in the Base Indenture, as supplemented by the First Supplemental Indenture. The Base Indenture provides forcustomary events of default and further provides that the 2019 Trustee or the holders of 25% in aggregate principal amount of the outstanding April 2019 Notes in aseries may declare such April 2019 Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period.162 The April 2019 Notes were sold pursuant to an underwriting agreement dat ed April 11, 2012 among the Company and Stifel, Nicolaus & Company,Incorporated, as representative of the several underwriters named in the underwriting agreement.September 2019 NotesThe September 2019 Notes will mature on September 30, 2019 and may be redeemed in whole or in part at the Company’s option at any time or from time totime on or after September 30, 2015, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at aredemption price of 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterlyinterest period accrued to but not including the date fixed for redemption. The September 2019 Notes bear interest at a rate of 7.00% per year payable quarterly onMarch 30, June 30, September 30 and December 30 of each year, commencing on December 30, 2012, and trade on the NYSE under the trading symbol “HTGY.”The September 2019 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future seniorunsecured indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the September 2019 Notes;(iii) effectively subordinated to all the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Companysubsequently grants security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtednessand other obligations of any of the Company’s subsidiaries.The Base Indenture, as supplemented by the Second Supplemental Indenture, contains certain covenants including covenants requiring the Company tocomply with (regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1)of the 1940 Act to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modifiedby Section 61(a)(1) of the 1940 Act and to provide financial information to the holders of the September 2019 Notes and the 2019 Trustee if the Company should nolonger be subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in theBase Indenture, as supplemented by the Second Supplemental Indenture. The Base Indenture provides for customary events of default and further provides that the2019 Trustee or the holders of 25% in aggregate principal amount of the outstanding September 2019 Notes in a series may declare such September 2019 Notesimmediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period.The September 2019 Notes were sold pursuant to an underwriting agreement dated September 19, 2012 among the Company and Stifel, Nicolaus &Company, Incorporated, as representative of the several underwriters named in the underwriting agreement.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2019 Notesare as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $10,899 $11,926 Amortization of debt issuance cost (loan fees) 2,167 967 Total interest expense and fees $13,066 $12,893 Cash paid for interest expense and fees $11,132 $11,926 As of December 31, 2015, the Company was in compliance with the terms of the Base Indenture, and respective supplemental indentures thereto, governingthe April 2019 Notes and September 2019 Notes.2024 NotesOn July 14, 2014, the Company and U.S. Bank, N.A. (the “2024 Trustee”), entered into the Third Supplemental Indenture (the “Third SupplementalIndenture”) to the Base Indenture between the Company and the 2024 Trustee, dated July 14, 2014, relating to the Company’s issuance, offer and sale of $100.0million aggregate principal amount of 2024 Notes. On August 6, 2014, the underwriters issued notification to exercise their over-allotment option for an additional$3.0 million in aggregate principal amount of the 2024 Notes. The sale of the 2024 Notes generated net proceeds of approximately $99.9 million.163 The 2024 Notes will mature on July 30, 2024 and may be redeemed in whole or in part at the Company’s option at any time or from time to tim e on or afterJuly 30, 2017, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100%of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to butnot including the date fixed for redemption. The 2024 Notes bear interest at a rate of 6.25% per year payable quarterly on January 30, April 30, July 30 andOctober 30 of each year, commencing on July 30, 2014, and trade on the NYSE under the trading symbol “HTGX.”The 2024 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future senior unsecuredindebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2024 Notes; (iii) effectively subordinated to allthe Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), tothe extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any ofthe Company’s subsidiaries.The Base Indenture, as supplemented by the Third Supplemental Indenture, contains certain covenants including covenants requiring the Company to complywith (regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the1940 Act and to comply with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified bySection 61(a)(1) of the 1940 Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented bythe Third Supplemental Indenture. The Base Indenture, as supplemented by the Third Supplemental Indenture, also contains certain reporting requirements, includinga requirement that the Company provide financial information to the holders of the 2024 Notes and the 2024 Trustee if the Company should no longer be subject tothe reporting requirements under the Exchange Act. The Base Indenture provides for customary events of default and further provides that the 2024 Trustee or theholders of 25% in aggregate principal amount of the outstanding 2024 Notes in a series may declare such 2024 Notes immediately due and payable upon theoccurrence of any event of default after expiration of any applicable grace period. As of December 31, 2015, the Company was in compliance with the terms of theBase Indenture as supplemented by the Third Supplemental Indenture.At both December 31, 2015 and December 31, 2014, the 2024 Notes had an outstanding principal balance of $103.0 million.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2024 Notesare as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $6,437 $2,955 Amortization of debt issuance cost (loan fees) 333 153 Total interest expense and fees $6,770 $3,108 Cash paid for interest expense and fees $6,437 $1,887 2017 Asset-Backed NotesOn December 19, 2012, the Company completed a $230.7 million term debt securitization in connection with which an affiliate of the Company made anoffer of $129.3 million in aggregate principal amount of fixed-rate asset-backed notes (the “2017 Asset-Backed Notes”), which were rated A2(sf) by Moody’sInvestors Service, Inc. The 2017 Asset-Backed Notes were sold by Hercules Capital Funding Trust 2012-1 pursuant to a note purchase agreement, dated as ofDecember 12, 2012, by and among the Company, Hercules Capital Funding 2012-1, LLC as trust depositor (the “2012 Trust Depositor”), Hercules Capital FundingTrust 2012-1 as issuer (the “2012 Securitization Issuer”), and Guggenheim Securities, LLC, as initial purchaser, and were backed by a pool of senior loans made tocertain of the Company’s portfolio companies and secured by certain assets of those portfolio companies and serviced by the Company.As part of this transaction, the Company entered into a sale and contribution agreement with the 2012 Trust Depositor under which the Company has agreedto sell or have contributed to the 2012 Trust Depositor certain senior loans made to certain of the Company’s portfolio companies (the “2012 Loans”). The Companymade customary representations, warranties and covenants in the sale and contribution agreement with respect to the 2012 Loans as of the date of their transfer to the2012 Trust Depositor.At December 31, 2014, the 2017 Asset-Backed Notes had an outstanding principal balance of $16.0 million. In February 2015, changes in the paymentschedule of obligors in the 2017 Asset-Backed Notes collateral pool triggered a rapid amortization event in accordance with the sale and servicing agreement for the2017 Asset-Backed Notes. Due to this event, the 2017 Asset-Backed Notes were fully repaid as of April 16, 2015.164 Interest on the 2017 Asset-Backed Notes was paid, to the extent of funds available, at a fix ed rate of 3.32% per annum. For the years ended December 31,2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2017 Asset-Backed Notes are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $141 $1,628 Amortization of debt issuance cost (loan fees) 506 2,180 Total interest expense and fees $647 $3,808 Cash paid for interest expense and fees $— $— Under the terms of the 2017 Asset Backed Notes, the Company is required to maintain a reserve cash balance, funded through interest and principalcollections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2017Asset-Backed Notes. TheCompany segregated these funds and classified them as restricted cash. There was approximately $1.2 million of restricted cash as of December 31, 2014, fundedthrough interest collections. As the 2017 Asset-Backed Notes were fully repaid as of April 16, 2015 there were no funds segregated as restricted cash related to the2017 Asset-Backed Notes at December 31, 2015.2021 Asset-Backed NotesOn November 13, 2014, the Company completed a $237.4 million term debt securitization in connection with which an affiliate of the Company made anoffer of $129.3 million in aggregate principal amount of fixed-rate asset-backed notes (the “2021 Asset-Backed Notes”), which were rated A(sf) by Kroll BondRating Agency, Inc. (“KBRA”). The 2021 Asset-Backed Notes were sold by Hercules Capital Funding Trust 2014-1 pursuant to a note purchase agreement, dated asof November 13, 2014, by and among the Company, Hercules Capital Funding 2014-1, LLC as trust depositor (the “2014 Trust Depositor”), Hercules CapitalFunding Trust 2014-1 as issuer (the “2014 Securitization Issuer”), and Guggenheim Securities, LLC, as initial purchaser, and are backed by a pool of senior loansmade to certain of the Company’s portfolio companies and secured by certain assets of those portfolio companies and are to be serviced by the Company. Thesecuritization has an 18-month reinvestment period during which time principal collections may be reinvested into additional eligible loans. Interest on the 2021Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 3.524% per annum. The 2021 Asset-Backed Notes have a stated maturity ofApril 16, 2021.As part of this transaction, the Company entered into a sale and contribution agreement with the 2014 Trust Depositor under which the Company has agreedto sell or have contributed to the 2014 Trust Depositor certain senior loans made to certain of the Company’s portfolio companies (the “2014 Loans”). The Companyhas made customary representations, warranties and covenants in the sale and contribution agreement with respect to the 2014 Loans as of the date of their transfer tothe 2014 Trust Depositor.In connection with the issuance and sale of the 2021 Asset-Backed Notes, the Company has made customary representations, warranties and covenants in thenote purchase agreement. The 2021 Asset-Backed Notes are secured obligations of the 2014 Securitization Issuer and are non-recourse to the Company. The 2014Securitization Issuer also entered into an indenture governing the 2021 Asset-Backed Notes, which includes customary representations, warranties and covenants.The 2021 Asset-Backed Notes were sold without being registered under the Securities Act (A) in the United States to “qualified institutional buyers” as defined inRule 144A under the Securities Act and to institutional “accredited investors” (as defined in Rules 501(A)(1), (2), (3) or (7) under the Securities Act) who in eachcase, are “qualified purchasers” as defined in Sec. 2(a)(51) of the 1940 Act and pursuant to an exemption under the Securities Act and (B) to non-U.S. purchasersacquiring interest in the 2021 Asset-Backed Notes outside the United States in accordance with Regulation S under the Securities Act. The 2014 Securitization Issueris not registered under the 1940 Act in reliance on an exemption provide by Section 3(c)(7) thereof and Rule 3a-7 thereunder. In addition, the 2014 Trust Depositorentered into an amended and restated trust agreement in respect of the 2014 Securitization Issuer, which includes customary representation, warranties and covenants.The 2014 Loans are serviced by the Company pursuant to a sale and servicing agreement, which contains customary representations, warranties andcovenants. The Company performs certain servicing and administrative functions with respect to the 2014 Loans. The Company is entitled to receive a monthly feefrom the 2014 Securitization Issuer for servicing the 2014 Loans. This servicing fee is equal to the product of one-twelfth (or in the case of the first payment date, afraction equal to the number of days from and including October 5, 2014 through and including December 5, 2014 over 360) of 2.00% and the aggregate outstandingprincipal balance of the 2014 Loans plus collections on deposit in the 2014 Securitization Issuer’s collections account, as of the first day of the related collectionperiod (the period from the 5th day of the immediately preceding calendar month through the 4th day of the calendar month in which a payment date occurs, and forthe first payment date, the period from and including October 5, 2014, to the close of business on December 5, 2014).165 The Company also serves as administrator to the 2014 Securitization Issuer under an administration agreement, which includes customary representations,warranties and covenants.At both December 31, 2015 and December 31, 2014, the 2021 Asset-Backed Notes had an outstanding principal balance of $129.3 million.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the 2021 Asset-Backed Notes are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $4,557 $608 Amortization of debt issuance cost (loan fees) 902 117 Total interest expense and fees $5,459 $725 Cash paid for interest expense and fees $4,557 $418 Under the terms of the 2021 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through interest and principalcollections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2021 Asset-Backed Notes. TheCompany has segregated these funds and classified them as restricted cash. There was approximately $9.2 million and $11.5 million of restricted cash as ofDecember 31, 2015 and December 31, 2014, respectively, funded through interest collections.Convertible Senior NotesIn April 2011, the Company issued $75.0 million in aggregate principal amount of 6.00% convertible senior notes due 2016 (the “Convertible Senior Notes”).During the year ended December 31, 2015, holders of approximately $70,000 of the Company’s Convertible Senior Notes exercised their conversion rights. As ofDecember 31, 2015, the carrying value of the Convertible Senior Notes, comprised of the aggregate principal amount outstanding less the remaining unaccreteddiscount initially recorded upon issuance of the Convertible Senior Notes, is approximately $17.5 million.The Convertible Senior Notes mature on April 15, 2016, unless previously converted or repurchased in accordance with their terms. The Convertible SeniorNotes bear interest at a rate of 6.00% per year payable semiannually in arrears on April 15 and October 15 of each year, commencing on October 15, 2011. TheConvertible Senior Notes are the Company’s senior unsecured obligations and rank senior in right of payment to the Company’s existing and future indebtedness thatis expressly subordinated in right of payment to the Convertible Senior Notes; equal in right of payment to the Company’s existing and future unsecuredindebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including unsecured indebtedness thatthe Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness(including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.Prior to the close of business on the business day immediately preceding October 15, 2015, holders could convert their Convertible Senior Notes only undercertain circumstances set forth in the indenture governing the Convertible Senior Notes. On or after October 15, 2015, until the close of business on the scheduledtrading day immediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time. Upon conversion, the Company will pay ordeliver, as the case may be, at the Company’s election, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s commonstock. The conversion rate was initially 84.0972 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initialconversion price of approximately $11.89 per share of common stock). The conversion rate is subject to adjustment in some events but will not be adjusted for anyaccrued and unpaid interest. In addition, if certain corporate events occur prior to the maturity date, the conversion rate is increased for converting holders. As ofDecember 31, 2015, the conversion rate was 90.6580 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an adjustedconversion price of approximately $11.03 per share of common stock).The Company may not redeem the Convertible Senior Notes prior to maturity. No sinking fund is provided for the Convertible Senior Notes. In addition, ifcertain corporate events occur, holders of the Convertible Senior Notes may require the Company to repurchase for cash all or part of their Convertible Senior Notesat a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest through, butexcluding, the required repurchase date.166 The Convertible Senior Notes are accounted for in accordance with ASC Subtopic 470-20 (previously FASB Staff Position No. APB 14- 1, “Accounting forConvertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settl ement)”). In accounting for the Convertible Senior Notes,the Company estimated at the time of issuance that the values of the debt and the embedded conversion feature of the Convertible Senior Notes were approximately92.8% and 7.2%, respectively. The ori ginal issue discount of 7.2% attributable to the conversion feature of the Convertible Senior Notes was recorded in “capital inexcess of par value” in the Consolidated Statement of Assets and Liabilities. As a result, the Company records interest expense comprised of both stated interestexpense as well as accretion of the original issue discount resulting in an estimated effective interest rate of approximately 8.1%.Upon meeting the stock trading price conversion requirement as set forth in the indenture governing the Convertible Senior Notes, dated April 15, 2011,between the Company and U.S. Bank National Association, during the three months ended June 30, 2014, September 30, 2014 and December 31, 2014, theConvertible Senior Notes became convertible on July 1, 2014 and continued to be convertible during each of the three months ended September 30, 2014, December31, 2014 and March 31, 2015, respectively. During this period and as of December 31, 2015, approximately $57.4 million of the Convertible Senior Notes wereconverted and were settled with a combination of cash equal to the outstanding principal amount of the Convertible Senior Notes and approximately 1.5 millionshares of the Company’s common stock, or $24.3 million. By not meeting the stock trading price conversion requirement during the three months ended March 31,2015, June 30, 2015, or September 30, 2015 the Convertible Senior Notes were not convertible for the period between April 1, 2015 and October 14, 2015. On orafter October 15, 2015 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their ConvertibleSenior Notes at any time as described above.The Company recorded a loss on extinguishment of debt for the proportionate amount of unamortized debt issuance costs and original issue discount onNotes converted during the period. The loss was partially offset by a gain in the amount of the difference between the outstanding principal balance of the convertednotes and the fair value of the debt instrument. The net loss on extinguishment of debt the Company recorded for the years ended December 31, 2015 and 2014 wasapproximately $1,000 and $1.6 million, respectively. The loss on extinguishment of debt was classified as a component of net investment income in the Company’sConsolidated Statement of Operations.As of December 31, 2015 and December 31, 2014, the components of the carrying value of the Convertible Senior Notes were as follows: (in thousands) December 31, 2015 December 31, 2014 Principal amount of debt $17,604 $17,674 Original issue discount, net of accretion (82) (329)Carrying value of Convertible Senior Debt $17,522 $17,345 For the years ended December 31, 2015 and 2014, the components of interest expense, fees and cash paid for interest expense for the Convertible SeniorNotes were as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $1,007 $2,753 Accretion of original issue discount 246 843 Amortization of debt issuance cost (loan fees) 131 450 Total interest expense and fees $1,384 $4,046 Cash paid for interest expense and fees $1,057 $3,465 The estimated effective interest rate of the debt component of the Convertible Senior Notes, equal to the stated interest of 6.0% plus the accretion of theoriginal issue discount, was approximately 8.1% for the years ended December 31, 2015 and December 31, 2014. Interest expense decreased by approximately $1.7million during the year ended December 31, 2015 from the year ended December 31, 2014, due to Convertible Senior Notes settled in the period. As ofDecember 31, 2015, the Company is in compliance with the terms of the indentures governing the Convertible Senior Notes.167 Wells FacilityOn June 29, 2015, the Company, through a special purpose wholly-owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into anAmended and Restated Loan and Security Agreement (the “Wells Facility”) with Wells Fargo Capital Finance, LLC, as a lender and as the arranger and theadministrative agent, and the lenders party thereto from time to time. The Wells Facility amends, restates, and otherwise replaces the Loan and Security Agreement,which was originally entered into on August 25, 2008, with Wells Fargo Capital Finance, LLC, and had been amended from time to time. The Wells Facility wasamended and restated to, among other things, consolidate prior amendments and update certain provisions to reflect current operations and personnel of the Companyand Hercules Funding II. Many other terms and provisions of the Wells Facility remain the same or substantially similar to the terms and provisions of the originalWells Facility.On December 16, 2015, the Company entered into an amendment to the Wells Facility that extended the revolving credit availability period and maturity dateof the facility. As amended, t he revolving credit availability period ends on August 1, 2018 and the Wells Facility matures on August 2, 2019, unless terminatedsooner in accordance with its terms.Under the Wells Facility, Wells Fargo Capital Finance, LLC has made commitments of $75.0 million. The Wells Facility contains an accordion feature, inwhich the Company can increase the credit line up to an aggregate of $300.0 million, funded by additional lenders and with the agreement of Wells Fargo and subjectto other customary conditions. The Company expects to continue discussions with various other potential lenders to join the facility; however, there can be noassurances that additional lenders will join the Wells Facility. Borrowings under the Wells Facility generally bear interest at a rate per annum equal to LIBOR plus3.25%, and the Wells Facility has an advance rate of 50% against eligible debt investments. The Wells Facility is secured by all of the assets of Hercules Funding II.The Wells Facility requires payment of a non-use fee on a scale of 0.0% to 0.50% depending on the average monthly outstanding balance under the facility relativeto the maximum amount of commitments at such time. For the years ended December 31, 2015 and 2014, this non-use fee was approximately $294,000 and$380,000, respectively.The Wells Facility also includes various financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to thoseapplicable to Hercules Funding II, including covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, thesecovenants also require the Company to maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimumportfolio funding liquidity, and a minimum tangible net worth in an amount, when added to outstanding subordinated indebtedness, that is in excess of $500.0 millionplus 90% of the cumulative amount of equity raised after June 30, 2014. As of December 31, 2015, the minimum tangible net worth covenant has increased to $590.4million as a result of the March 2015 follow-on public offering of 7.6 million shares of common stock for total net proceeds of approximately $100.1 million. TheWells Facility provides for customary events of default, including, without limitation, with respect to payment defaults, breach of representations and covenants,certain key person provisions, cross acceleration provisions to certain other debt, lien and judgment limitations, and bankruptcy.On June 20, 2011 the Company paid $1.1 million in structuring fees in connection with the original Wells Facility. In connection with an amendment to theoriginal Wells Facility in August 2014, the Company paid an additional $750,000 in structuring fees and in connection with the amendment in December 2015, theCompany paid an additional $188,000 in structuring fees. These fees are being amortized through the end of the term of the Wells Facility.The Company had aggregate draws of $138.7 million on the available facility during the year ended December 31, 2015 offset by repayments of $88.7million. At December 31, 2015 there was $50.0 million of borrowings outstanding on this facility. At December 31, 2014 there were no borrowings outstanding onthis facility.For the years ended December 31, 2015 and 2014, the components of interest expense and related fees and cash paid for interest expense for the WellsFacility are as follows: Year Ended December 31, (in thousands) 2015 2014 Interest expense $578 $— Amortization of debt issuance cost (loan fees) 361 198 Total interest expense and fees $939 $198 Cash paid for interest expense and fees $402 $— 168 Union Bank FacilityThe Company has a $75.0 million revolving senior secured credit facility (the “Union Bank Facility”) with MUFG Union Bank, N.A. (“MUFG UnionBank”). The Company originally entered into the Union Bank Facility on February 10, 2010 but, following several amendments, amended and restated the UnionBank Facility on August 14, 2014. The amendment and restatement extends the maturity date of the Union Bank Facility to August 1, 2017, increases the size of theUnion Bank Facility to $75.0 million from $30.0 million, and adjusts the interest rate for LIBOR borrowings under the Union Bank Facility. The Company furtheramended the Union Bank Facility in November 2015 but the amendment did not result in any material changes to the facility.LIBOR-based borrowings by the Company under the Union Bank Facility will bear interest at a rate per annum equal to LIBOR plus 2.25% with no floor,whereas previously the Company paid a per annum interest rate on such borrowings equal to LIBOR plus 2.50% with a floor of 4.00%. Other borrowings by theCompany under the Union Bank Facility, which are based on a reference rate instead of LIBOR, will continue to bear interest at a rate per annum equal to thereference rate (which is the greater of the federal funds rate plus 1.00% and a periodically announced MUFG Union Bank index rate) plus the greater of (i) 4.00%minus the reference rate and (ii) 1.00%. The Company continues to have the option of determining which type of borrowing to request under the Union BankFacility. Subject to certain conditions, the amendment also removes a previous ceiling on the amount of certain unsecured indebtedness that the Company may incur.The Union Bank Facility contains an accordion feature, pursuant to which the Company may increase the size of the Union Bank Facility to an aggregateprincipal amount of $300.0 million by bringing in additional lenders, subject to the approval of MUFG Union Bank and other customary conditions. There can be noassurances that additional lenders will join the Union Bank Facility to increase available borrowings.The Union Bank Facility requires the payment of a non-use fee of 0.50% annually. For the years ended December 31, 2015 and 2014, this non-use fee wasapproximately $380,000 and $240,000, respectively. The amount that the Company may borrow under the Union Bank Facility is determined by applying an advancerate to eligible loans. The Union Bank Facility generally requires payment of monthly interest on loans based on a reference rate and at the end of a one, two, orthree-month period, as applicable, for loans based on LIBOR. All outstanding principal is due upon maturity.The Union Bank Facility is collateralized by debt investments in the Company’s portfolio companies, and includes an advance rate equal to 50.0% of eligibledebt investments placed in the collateral pool.The Company has various financial and operating covenants required by the Union Bank Facility. These covenants require, among other things, that theCompany maintain certain financial ratios, including liquidity, asset coverage, and debt service coverage, and a minimum tangible net worth in an amount, whenadded to outstanding subordinated indebtedness, that is in excess of $550.0 million plus 90% of the amount of net cash proceeds received from the sale of commonstock after June 30, 2014. As of December 31, 2015, the minimum tangible net worth covenant has increased to $640.1 million as a result of the March 2015 follow-on public offering of 7.6 million shares of common stock for total net proceeds of approximately $100.1 million. The Union Bank Facility provides for customaryevents of default, including, but not limited to, payment defaults, breach of representations or covenants, bankruptcy events and change of control.At December 31, 2015 there were no borrowings outstanding on the Union Bank Facility.169 Citibank Credit FacilityThe Company, through Hercules Funding Trust I, an affiliated statutory trust, had a securitized credit facility (the “Citibank Credit Facility”) with CitigroupGlobal Markets Realty Corp. (“Citigroup”), which expired under normal terms. During the first quarter of 2009, the Company paid off all principal and interest owedunder the Citibank Credit Facility. Citigroup has an equity participation right through a warrant participation agreement on the pool of debt investments and warrantscollateralized under the Citibank Credit Facility. Pursuant to the warrant participation agreement, the Company granted to Citigroup a 10% participation in allwarrants held as collateral. However, no additional warrants were included in collateral subsequent to the facility amendment on May 2, 2007. As a result, Citigroupis entitled to 10% of the realized gains on the warrants until the realized gains paid to Citigroup pursuant to the agreement equal $3,750,000 (the “MaximumParticipation Limit”). The obligations under the warrant participation agreement continue even after the Citibank Credit Facility is terminated until the MaximumParticipation Limit has been reached.During the year ended December 31, 2015, the Company reduced its realized gain by approximately $143,000 for Citigroup’s participation in the realizedgain from the acquisition proceeds the Company received on equity exercised from warrants that were included in the collateral pool. The Company recorded anincrease in participation liability and a decrease in unrealized appreciation by a net amount of approximately $11,000 primarily due to appreciation of fair value onthe pool of warrants collateralized under the warrant participation agreement offset by the acquisition proceeds the Company received on its Atrenta, Inc. equityinvestment. The remaining value of their participation right on unrealized gains in the related equity investments is approximately $111,000 as of December 31, 2015and is included in accrued liabilities. There can be no assurances that the unrealized appreciation of the warrants will not be higher or lower in future periods due tofluctuations in the value of the warrants, thereby increasing or reducing the effect on the cost of borrowing. Since inception of the agreement, the Company has paidCitigroup approximately $2.2 million under the warrant participation agreement thereby reducing realized gains by this amount. The Company will continue to payCitigroup under the warrant participation agreement until the Maximum Participation Limit is reached or the warrants expire. Warrants subject to the Citigroupparticipation agreement are set to expire between February 2016 and January 2017. 5. Income TaxesThe Company intends to operate so as to qualify to be taxed as a RIC under Subchapter M of the Code and, as such, will not be subject to federal income taxon the portion of taxable income and gains distributed to stockholders.To qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing dividendsof an amount at least equal 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for dividendspaid, to its stockholders. We, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which will generallyrelieve us from U.S. federal income taxes. However, depending on the level of taxable income earned in a taxable year, we may choose to carry forward taxableincome in excess of current taxable year dividend distributions into the next taxable year and pay a 4% excise tax on such taxable income, as required. To the extentthat we determine that our estimated current year annual taxable income will be in excess of estimated current taxable year distributions, we will accrue excise tax, ifany, on estimated excess taxable income as taxable income is earned.Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with taxregulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary innature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences mayalso result from the classification of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gainor loss are recognized at some time in the future. During the year ended December 31, 2015 and 2014, the Company reclassified for book purposes amounts arisingfrom permanent book/tax differences primarily related to accelerated revenue recognition for income tax purposes, respectively, as follows: Year Ended December 31, (in thousands) 2015 2014 Undistributed net investment income (distributions in excess of investment income) $(994) $6,382 Accumulated realized gains $8,767 $9,207 Additional paid-in capital $(7,773) $(15,589) For income tax purposes, distributions paid to shareholders are reported as ordinary income, return of capital, long-term capital gains or a combinationthereof. The tax character of distributions paid for the year ended December 31, 2015 was ordinary income in the amount of $70.6 million and long term capital gainsin the amount of $15.3 million. The tax character of distributions paid for the year ended December 31, 2014 was ordinary income in the amount of $73.2 million.170 The aggregate gross unrealized appreciation of the Company’s investments over cost for federal income tax purposes was $29.3 million and $46.1 million asof December 31, 2015 and 2014, respectively. The aggregate gross unrealized depreciation of the Compan y’s investments under cost for federal income tax purposeswas $81.4 million and $63.4 million as of December 31, 2015 and 2014, respectively. The net unrealized depreciation over cost for federal income tax purposes was$52.1 million and $17.3 million as of December 31, 2015 and 2014, respectively. The aggregate cost of securities for federal income tax purposes was $1.3 billionand $1.0 billion as of December 31, 2015 and 2014, respectively.At December 31, 2015 and 2014, the components of distributable earnings on a tax basis detailed below differ from the amounts reflected in the Company’sConsolidated Statements of Assets and Liabilities by temporary book/tax differences primarily arising from the treatment of loan related yield enhancements. Year Ended December 31, (in thousands) 2015 2014 Accumulated Capital Gains $7,962 $16,663 Other Temporary Differences 4,117 1,795 Undistributed Ordinary Income 236 — Unrealized Depreciation (47,498) (16,891)Components of Distributable Earnings $(35,183) $1,567 The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions,would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties, if any, related to unrecognized taxbenefits as a component of provision for income taxes.Based on an analysis of the Company’s tax position, there are no uncertain tax positions that met the recognition or measurement criteria. The Company iscurrently not undergoing any tax examinations. The Company does not anticipate any significant increase or decrease in unrecognized tax benefits for the nexttwelve months. The 2012- 2014 federal tax years for the Company remain subject to examination by the IRS. The 2011-2014 state tax years for the Company remainsubject to examination by the state taxing authorities. 6. Shareholders’ EquityOn August 16, 2013, the Company entered into an “At-The-Market” (“ATM”) equity distribution agreement (the “Equity Distribution Agreement”) with JMPSecurities LLC (“JMP”). The Equity Distribution Agreement provides that the Company may offer and sell up to 8.0 million shares of its common stock from time totime through JMP, as its sales agent. Sales of the Company’s common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “atthe market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through amarket maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.During the year ended December 31, 2014, the Company sold 650,000 shares of common stock for total accumulated net proceeds of approximately $9.5million, all of which is accretive to net asset value. The Company has not sold any shares of common stock under this agreement during the year ended December 31,2015. The Company generally uses net proceeds from these offerings to make investments, to repurchase or pay down liabilities and for general corporate purposes.As of December 31, 2015, approximately 7.35 million shares remain available for issuance and sale under the equity distribution agreement.On February 24, 2015, the Board of Directors authorized a stock repurchase plan permitting the Company to repurchase up to $50.0 million of its commonstock. This plan expired on August 24, 2015. On August 27, 2015, the Board of Directors authorized a replacement stock repurchase plan permitting the Company torepurchase up to $50.0 million of its common stock. The Company may repurchase shares of its common stock in the open market, including block purchases, atprices that may be above or below the net asset value as reported in the most recently published financial statements. The Company expects that the share repurchaseprogram will be in effect until August 23, 2016, or until the approved dollar amount has been used to repurchase shares. During the year ended December 31, 2015,the Company repurchased 437,006 shares of its common stock at an average price per share of $10.61 per share and a total cost of approximately $4.6 million. As ofDecember 31, 2015, approximately $45.4 million of common stock remains eligible for repurchase under the stock repurchase plan. See “Item 5. Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further information on the repurchases made during theperiod. See “Note 14 — Subsequent Events.”171 The Company anticipates that the manner, timing, and amount of any share purchases will be determined by management based upon the evaluat ion ofmarket conditions, stock price, and additional factors in accordance with regulatory requirements. Pursuant to the 1940 Act, the Company is required to notifyshareholders when such a program is initiated or implemented. The repurchase program does not require the Company to acquire any specific number of shares andmay be extended, modified, or discontinued at any time.On March 27, 2015, the Company raised approximately $100.1 million, after deducting offering expenses, in a public offering of 7,590,000 shares of itscommon stock.At the 2015 Annual Meeting of Stockholders on July 7, 2015, the Company’s common stockholders approved a proposal to allow the Company to issuecommon stock at a discount from its then current net asset value (“NAV”) per share, which is effective for a period expiring on the earlier of July 7, 2016 or the 2016annual meeting of stockholders. In connection with the receipt of such stockholder approval, the Company will limit the number of shares that it issues at a pricebelow NAV pursuant to this authorization so that the aggregate dilutive effect on the Company’s then outstanding shares will not exceed 20%. The Company’s Boardof Directors, subject to its fiduciary duties and regulatory requirements, has the discretion to determine the amount of the discount, and as a result, the discount couldbe up to 100% of NAV per share. During the year ended December 31, 2015, the Company has not issued common stock at a discount to NAV.The Company has issued stock options for common stock subject to future issuance, of which 622,171 and 695,672 were outstanding at December 31, 2015and December 31, 2014, respectively. 7. Equity Incentive PlanThe Company and its stockholders have authorized and adopted the 2004 Equity Incentive Plan (the “2004 Plan”) for purposes of attracting and retaining theservices of its executive officers and key employees. Under the 2004 Plan, the Company is authorized to issue 7.0 million shares of common stock. On June 1, 2011,stockholders approved an amended and restated plan and provided an increase of 1.0 million shares, authorizing the Company to issue 8.0 million shares of commonstock under the 2004 Plan. At the Company’s 2015 Annual Meeting of stockholders on July 7, 2015, the Company’s stockholders voted to approve an amendment tothe 2004 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder by 4.0 million shares.The Company and its stockholders have authorized and adopted the 2006 Non-Employee Director Plan (the “2006 Plan” and, together with the 2004 Plan, the“Plans”) for purposes of attracting and retaining the services of its Board of Directors. Under the 2006 Plan, the Company is authorized to issue 1.0 million shares ofcommon stock. The Company filed an exemptive relief request with the Securities and Exchange Commission (“SEC”) to allow options to be issued under the 2006Plan which was approved on October 10, 2007.On June 21, 2007, the stockholders approved amendments to the 2004 Plan and the 2006 Plan allowing for the grant of restricted stock. The amended Planslimit the combined maximum amount of restricted stock that may be issued under both Plans to 10% of the outstanding shares of the Company’s stock on theeffective date of the Plans plus 10% of the number of shares of stock issued or delivered by the Company during the terms of the Plans. The amendments furtherspecify that no one person shall be granted awards of restricted stock relating to more than 25% of the shares available for issuance under the 2004 Plan. Further, theamount of voting securities that would result from the exercise of all of the Company’s outstanding warrants, options and rights, together with any restricted stockissued pursuant to the Plans, at the time of issuance shall not exceed 25% of its outstanding voting securities, except that if the amount of voting securities that wouldresult from such exercise of all of the Company’s outstanding warrants, options and rights issued to the Company’s directors, officers and employees, together withany restricted stock issued pursuant to the Plans, would exceed 15% of the Company’s outstanding voting securities, then the total amount of voting securities thatwould result from the exercise of all outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, at the time of issuanceshall not exceed 20% of the Company’s outstanding voting securities.172 A summary of the restricted stock activity under the Company’s 2006 and 200 4 Plans for each of the three periods ended December 31 2015, 2014, and 2013is as follows: 2006 Plan 2004 Plan Outstanding at December 31, 2012 36,668 1,819,041 Granted — 607,001 Cancelled — (30,264)Outstanding at December 31, 2013 36,668 2,395,778 Granted 8,333 981,550 Cancelled — (152,277)Outstanding at December 31, 2014 45,001 3,225,051 Granted 19,999 656,341 Cancelled — (312,564)Outstanding at December 31, 2015 65,000 3,568,828 In 2015, 2014, and 2013, the Company granted approximately 676,340, 989,883 and 607,001 shares, respectively, of restricted stock pursuant to the Plans.All restricted stock grants under the 2004 Plan made prior to March 4, 2013 will continue to vest on a monthly basis following their one year anniversary over thesucceeding 36 months. During 2012, the Compensation Committee adopted a policy that provided for awards with different vesting schedules for short and long-termawards. Under the 2004 Plan, restricted stock awarded subsequent to March 3, 2013 will vest subject to continued employment based on two vesting schedules:short-term awards vest one-half on the one year anniversary of the date of the grant and quarterly over the succeeding 12 months, and long-term awards vest one-fourth on the one year anniversary of the date of grant and quarterly over the succeeding 36 months. No restricted stock was granted pursuant to the 2004 Plan priorto 2009. See “Note 14 —Subsequent Events.”The Company determined that the fair value of restricted stock granted under the 2006 and 2004 Plans during the years ended December 31, 2015, 2014, and2013 was approximately $9.2 million, $13.7 million and $7.7 million, respectively based on the grant date close price and vesting period of each grant. During theyears ended December 31, 2015, 2014, and 2013 the Company expensed approximately $9.2 million, $9.2 million and $5.6 million of compensation expense relatedto restricted stock, respectively. As of December 31, 2015, there was approximately $8.4 million of total unrecognized compensation costs related to restricted stock.These costs are expected to be recognized over a weighted average period of 1.77 years.The following table summarizes the activities for the Company’s unvested restricted stock for the years ended December 31, 2015, 2014, and 2013: Unvested Restricted Stock Awards Restricted Weighted Average Stock Awards Grant Date Fair Value Unvested at December 31, 2012 899,789 $10.73 Granted 607,001 $12.72 Vested (440,629) $10.59 Forfeited (30,264) $11.24 Unvested at December 31, 2013 1,035,897 $11.94 Granted 989,883 $13.82 Vested (570,723) $12.00 Forfeited (152,277) $12.82 Unvested at December 31, 2014 1,302,780 $13.23 Granted 676,340 $13.67 Vested (816,484) $13.26 Forfeited (312,564) $13.16 Unvested at December 31, 2015 850,072 $13.59 The SEC, through an exemptive order granted on June 22, 2010, approved amendments to the Plans which allow participants to elect to have the Companywithhold shares of the Company’s common stock to pay for the exercise price and applicable taxes with respect to an option exercise (“net issuance exercise”). Theexemptive order also permits the holders of restricted stock to elect to have the Company withhold shares of the Company’s stock to pay the applicable taxes due onrestricted stock at the time of vesting. Each individual can make a cash payment at the time of option exercise or to pay taxes on restricted stock.173 The following table summarizes the common stock options activities under the Company’s 2006 and 2004 Plans for each of the three periods endedDecember 31 2015, 2014, and 2013: Common StockOptions Weighted AverageExercise Price Shares Outstanding at December 31, 2012 2,574,749 $12.00 Granted 443,500 $14.51 Exercised (2,003,988) $12.38 Forfeited (115,338) $10.38 Expired (65,000) $13.30 Shares Outstanding at December 31, 2013 833,923 $12.53 Granted 426,000 $15.54 Exercised (353,547) $10.76 Forfeited (208,344) $14.80 Expired (2,360) $13.78 Shares Outstanding at December 31, 2014 695,672 $14.58 Granted 163,500 $12.68 Exercised (36,331) $10.81 Forfeited (190,006) $14.83 Expired (10,664) $13.21 Shares Outstanding at December 31, 2015 622,171 $14.25 Shares Expected to Vest at December 31, 2015 471,057 $14.25 The following table summarizes stock options outstanding and exercisable at December 31, 2015: (Dollars in thousands,except exercise price) Options outstanding Options exercisable Range of exercise prices Number ofshares WeightedAverageRemainingContractual Life AggregateIntrinsicValue WeightedAverageExercisePrice Numberof shares WeightedAverageRemainingContractual Life AggregateIntrinsicValue WeightedAverageExercisePrice $9.25 - $14.02 213,644 6.36 $151,114 $12.06 59,643 3.81 $86,279 $10.76 $14.60 - $16.34 408,527 5.44 — $15.40 230,874 5.11 — $15.36 $9.25 - $16.34 622,171 5.76 $151,114 $14.25 290,517 4.84 $86,279 $14.42 Options generally vest 33% one year after the date of grant and ratably over the succeeding 24 months. All options may be exercised for a period endingseven years after the date of grant. At December 31, 2015, options for approximately 290,517 shares were exercisable at a weighted average exercise price ofapproximately $14.42 per share with weighted average of remaining contractual term of 4.84 years.The Company determined that the fair value of options granted under the 2006 and 2004 Plans during the years ended December 31, 2015, 2014, and 2013was approximately $57,000, $211,000 and $1.1 million, respectively. During the years ended December 31, 2015, 2014, and 2013, approximately $265,000,$395,000 and $422,000, of share-based cost due to stock option grants was expensed, respectively. As of December 31, 2015, there was $232,000 of totalunrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.25 years.The fair value of options granted is based upon a Black Scholes option pricing model using the assumptions in the following table for each of the threeperiods ended December 31, 2015, 2014, and 2013 is as follows: Year Ended December 31, 2015 2014 2013 Expected Volatility 18.94% 19.90% 46.90%Expected Dividends 10% 10% 10%Expected term (in years) 4.5 4.5 4.5 Risk-free rate1.08% - 1.70% 1.21% - 1.66% 0.56% - 1.63% 174 8. Earnings Per ShareShares used in the computation of the Company’s basic and diluted earnings per share are as follows: Year Ended December 31, (in thousands, except per share data) 2015 2014 2013 Numerator Net increase in net assets resulting from operations $42,916 $71,188 $99,446 Less: Dividends declared-common and restricted shares (87,438) (78,562) (66,454)Undistributed earnings (44,522) (7,374) 32,992 Undistributed earnings-common shares (44,522) (7,374) 32,992 Add: Dividend declared-common shares 85,959 76,953 65,123 Numerator for basic and diluted change in net assets per common share $41,437 $69,579 $98,115 Denominator Basic weighted average common shares outstanding 69,479 61,862 58,838 Common shares issuable 184 1,363 1,454 Weighted average common shares outstanding assuming dilution 69,663 63,225 60,292 Change in net assets per common share Basic $0.60 $1.12 $1.67 Diluted $0.59 $1.10 $1.63 In the table above, unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents are treated as participatingsecurities for calculating earnings per share.For the purpose of calculating diluted earnings per share for year ended December 31, 2015, the dilutive effect of the Convertible Senior Notes under thetreasury stock method is included in this calculation because the Company’s share price was greater than the conversion price in effect ($11.03 as of December 31,2015 and $11.36 as of December 31, 2014) for the Convertible Senior Notes for such period.The calculation of change in net assets resulting from operations per common share—assuming dilution, excludes all anti-dilutive shares. For the years endedDecember 31, 2015, 2014, and 2013, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stockfor the periods, was approximately 627,483, 727,733 and 1,835,880 shares, respectively.Effective as of April 6, 2015, the Company amended its charter to increase the number of shares of common stock it is authorized to issue from 100 million to200 million. The Company effected the increase in authorized shares by filing Articles of Amendment with the State Department of Assessments and Taxation ofMaryland. At December 31, 2015, the Company was authorized to issue 200 million shares of common stock with a par value of $0.001. Each share of commonstock entitles the holder to one vote. 175 9. Financial HighlightsFollowing is a schedule of financial highlights for the three years ended December 31, 2015. Year Ended December 31, 2015 2014 2013 Per share data (1) : Net asset value at beginning of period $10.18 $10.51 $9.75 Net investment income 1.06 1.16 1.24 Net realized gain on investments 0.07 0.32 0.25 Net unrealized appreciation (depreciation) on investments (0.51) (0.33) 0.20 Total from investment operations 0.62 1.15 1.69 Net increase (decrease) in net assets from capital share transactions (1) 0.26 (0.37) 0.10 Distributions of net investment income (6) (1.26) (1.27) (1.13)Stock-based compensation expense included in investment income (2) 0.14 0.16 0.10 Net asset value at end of period $9.94 $10.18 $10.51 Ratios and supplemental data: Per share market value at end of period $12.19 $14.88 $16.40 Total return (3) (9.70%) (1.75%) 58.49%Shares outstanding at end of period 72,118 64,715 61,837 Weighted average number of common shares outstanding 69,479 61,862 58,838 Net assets at end of period $717,134 $658,864 $650,007 Ratio of total expense to average net assets (4) 11.55% 10.97% 11.06%Ratio of net investment income before investment gains and losses to average net assets (4) 10.15% 10.94% 12.12%Portfolio turnover rate (5) 46.34% 56.15% 56.05%Average debt outstanding $615,198 $535,127 $580,053 Weighted average debt per common share $8.85 $8.65 $9.86 (1)All per share activity is calculated based on the weighted average shares outstanding for the relevant period, except net increase (decrease) in net assets from capital share transactions,which is based on the common shares outstanding as of the relevant balance sheet date.(2)Stock option expense is a non-cash expense that has no effect on net asset value. Pursuant to ASC 718, net investment income includes the expense associated with the granting of stockoptions which is offset by a corresponding increase in paid-in capital.(3)The total return for the years ended December 31, 2015, 2014 and 2013 equals the change in the ending market value over the beginning of the period price per share plus dividends paidper share during the period, divided by the beginning price assuming the dividend is reinvested on the date of the distribution.(4)All ratios are calculated based on weighted average net assets for the relevant period.(5)The portfolio turnover rate for the years ended December 31, 2015, 2014 and 2013 equals the lesser of investment portfolio purchases or sales during the period, divided by the averageinvestment portfolio value during the period.(6)Includes dividends on unvested shares. 10. Commitments and ContingenciesThe Company’s commitments and contingencies consist primarily of unused commitments to extend credit in the form of loans to the Company’s portfoliocompanies. A portion of these unfunded contractual commitments as of December 31, 2015 are dependent upon the portfolio company reaching certain milestonesbefore the debt commitment becomes available. Furthermore, our credit agreements contain customary lending provisions which allow us relief from fundingobligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition orbusiness outlook for the Company. Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarilyrepresent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the requestof the portfolio company and unencumbered by milestones.At December 31, 2015, the Company had approximately $75.4 million of unfunded commitments, including undrawn revolving facilities, which wereavailable at the request of the portfolio company and unencumbered by milestones. In addition, the Company had approximately $40.5 million of unavailablecommitments to portfolio companies due to milestone and other covenant restrictions.The Company also had approximately $86.0 million of non-binding term sheets outstanding at December 31, 2015. Non-binding outstanding term sheets aresubject to completion of the Company’s due diligence and final investment committee approval process, as well as the negotiation of definitive documentation withthe prospective portfolio companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not allnon-binding term sheets are expected to close and do not necessarily represent the Company’s future cash requirements.The fair value of the Company’s unfunded commitments are considered to be immaterial as the yield determined at the time of underwriting is expected to bematerially consistent with the yield upon funding, given that interest rates are generally pegged to a market indices and given the existence of milestones, conditionsand/or obligations imbedded in the borrowing agreements.176 C ertain premises are leased under agreements which expire at various dates through March 2020. Total rent expense amounted to approximately $1.7million, $1.6 million and $1.1 million, during the years ended December 31, 2015, 2014, and 2013, respectively. The following table shows the Company’scontractual obligations as of December 31, 2015: Payments due by period (in thousands) Contractual Obligations (1)(2) Total Less than 1 year 1 - 3 years 3 - 5 years After 5 years Borrowings (3) (4) $600,386 $17,522 $129,300 $211,564 $242,000 Operating Lease Obligations (5) 4,843 1,624 2,924 295 — Total $605,229 $19,146 $132,224 $211,859 $242,000 (1)Excludes commitments to extend credit to the Company’s portfolio companies.(2)The Company also has a warrant participation agreement with Citigroup. See Note 4 to the Company’s consolidated financial statements.(3)Includes $190.2 million in borrowings under the SBA debentures, $110.4 million of the 2019 Notes, $103.0 million of the 2024 Notes, $129.3 million in aggregate principal amount of the2021 Asset-Backed Notes, $17.5 million of the Convertible Senior Notes and $50.0 million in outstanding borrowings on the Wells Facility as of December 31, 2015.(4)Except for the Convertible Senior Notes, all carrying values are the same as the principal amount outstanding. The aggregate principal amount outstanding of the Convertible Senior Notesis $17.6 million less the remaining unaccreted discount initially recorded upon issuance of the Convertible Senior Notes. The total remaining unaccreted discount for the ConvertibleSenior Notes was $82,000 at December 31, 2015.(5)Long-Term facility leases.The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, thirdparties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any current legalproceedings cannot at this time be predicted with certainty, the Company does not expect any current matters will materially affect the Company’s financialcondition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on the Company’sfinancial condition or results of operations in any future reporting period.11. IndemnificationThe Company has entered into indemnification agreements with its directors. The indemnification agr eements are intended to provide the Company’sdirectors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Company shallindemnify the director who is a party to the agreement, or 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 byMaryland law and the 1940 Act.The Company and its executives and directors are covered by Directors and Officers Insurance, with the directors and officers being indemnified by theCompany to the maximum extent permitted by Maryland law subject to the restrictions in the 1940 Act.12. Concentrations of Credit RiskThe Company’s customers are primarily privately held companies and public companies which are active in the drug discovery and development, sustainableand renewable technology, internet consumer and business services, medical devices and equipment, software, drug delivery, information services, communicationsand networking, healthcare services, specialty pharmaceuticals, surgical devices, electronics and computer hardware, media/content/info, biotechnology tools,semiconductors, consumer and business products and diagnostic industry sectors. These sectors are characterized by high margins, high growth rates, consolidationand product and market extension opportunities. Value for companies in these sectors is often vested in intangible assets and intellectual property.Industry and sector concentrations vary as new loans are recorded and loans pay off. Loan revenue, consisting of interest, fees, and recognition of gains onequity and warrant or other equity-related interests, can fluctuate materially when a loan is paid off or a related warrant or equity interest is sold. Revenue recognitionin any given year can be highly concentrated among several portfolio companies.For the years ended December 31, 2015 and December 31, 2014, the Company’s ten largest portfolio companies represented approximately 32.1% and 28.6%of the total fair value of the Company’s investments in portfolio companies, respectively. At December 31, 2015 and December 31, 2014, the Company had two andthree investments, respectively, that represented 5% or more of the Company’s net assets. At December 31, 2015, the Company had four equity investmentsrepresenting approximately 53.2% of the total fair value of the Company’s equity investments, and each represented 5% or more of the total fair value of theCompany’s equity investments. At December 31, 2014, the Company had three equity investments which represented approximately 61.5% of the total fair value ofthe Company’s equity investments, and each represented 5% or more of the total fair value of such investments.177 13. Selected Quarterly Data (Unaudited)The following tables set forth certain quarterly financial information for each of the last eight quarters ended December 31, 2015. This information wasderived from the Company’s unaudited consolidated financial statements. Results for any quarter are not necessarily indicative of results for the full year or for anyfurther quarter. Quarter Ended (in thousands, except per share data) March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 Total investment income $32,494 $38,126 $47,132 $39,380 Net investment income before investment gains and losses 12,993 16,781 23,590 20,137 Net increase (decrease) in net assets resulting from operations 21,919 2,752 4,075 14,170 Change in net assets per common share (basic) $0.33 $0.03 $0.05 $0.20 Quarter Ended March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 Total investment income $35,770 $34,001 $37,019 $36,875 Net investment income before investment gains and losses 18,304 18,551 18,995 15,899 Net increase (decrease) in net assets resulting from operations 22,185 13,191 15,177 20,635 Change in net assets per common share (basic) $0.36 $0.21 $0.24 $0.32 14. Subsequent EventsDividend DeclarationOn February 17, 2016 the Board of Directors declared a cash dividend of $0.31 per share to be paid on March 14, 2016 to shareholders of record as of March7, 2016. This dividend would represent the Company’s forty-second consecutive dividend declaration since the Company’s initial public offering, bringing the totalcumulative dividend declared to date to $11.54 per share.Corporate RebrandingOn February 25, 2016, the Company changed its name to “Hercules Capital, Inc.”, from “Hercules Technology Growth Capital, Inc.” The Company willcontinue to trade on the New York Stock Exchange under the “HTGC” ticker symbol.Share Repurchase ProgramOn February 24, 2015, the Board of Directors approved a $50.0 million open market share repurchase program and on February 17, 2016, the Board ofDirectors extended the program until August 23, 2016. The Company may repurchase shares of its common stock in the open market, including block purchases, atprices that may be above or below the net asset value as reported in our then most recently published financial statements. The Company expects that the sharerepurchase program will be in effect until August 23, 2016, or until the approved dollar amount has been used to repurchase shares. Subsequent to December 31,2015 and as of February 22, 2016, the Company repurchased 449,588 shares of its common stock at an average price per share of $10.64 per share and a total cost ofapproximately $4.8 million. As of February 22, 2016, approximately $40.6 million of common stock remains eligible for repurchase under the stock repurchase plan.Restricted Stock Award GrantsIn January 2016, the Company granted approximately 536,250 restricted stock awards pursuant to the Plans.Portfolio Company DevelopmentsAs of February 22, 2016, the Company held warrants or equity positions in three companies that have filed registration statements on Form S-1 with the SECin contemplation of potential initial public offerings. All three companies filed confidentially under the Jumpstart Our Business Startups Act of 2012. There can beno assurance that these companies will complete their initial public offerings in a timely manner or at all. 178 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable.Item 9A.Controls and Procedures1. Disclosure Controls and ProceduresThe Company’s chief executive and chief financial officers, under the supervision and with the participation of the Company’s management, conducted anevaluation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. As of the end of the periodcovered by this Annual Report, the Company’s chief executive and chief financial officers have concluded that the Company’s disclosure controls and procedureswere effective to ensure that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded,processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed by the Company in thereports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s chiefexecutive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.2 . Internal Control Over Financial Reportinga. Management’s Annual Report on Internal Control over Financial ReportingThe Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness ofinternal control over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed under the supervision of theCompany’s principal executive and principal financial and accounting officer, approved and monitored by the Company’s Board of Directors, and implemented bymanagement and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements inaccordance with U.S. GAAP.The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being madeonly in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detectionof unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.Management of the Company conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31,2015 based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (“the COSO Framework”). Based on this assessment, management has concluded that the Company’s internal control over financial reporting waseffective as of December 31, 2015.Report of the Independent Registered Public Accounting FirmThe effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm who also audited the Company’s consolidated financial statements, as stated in their report, which is included in thisAnnual Report on Form 10K.Changes in Internal Control over Financial Reporting in 2015There have been no changes in the Company’s internal control over financing reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act,which occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.179 Item 9B.Other Information None. PART IIIItem 10.Directors, Executive Officers and Corporate GovernanceInformation in response to this Item is incorporated herein by reference to the information provided in the Company’s definitive Proxy Statement for theCompany’s 2016 Annual Meeting of Shareholders (the “2016 Proxy Statement”) to be filed with the SEC pursuant to Regulation 14A under the Exchange Act underthe headings “Proposal I: Election Of Directors,” “Information About Executive Officers Who Are Not Directors” and “Certain Relationships And Transactions.”The Company has adopted a code of business conduct and ethics that applies to directors, officers and employees. The code of business conduct and ethics isavailable on the Company’s website at http//www.htgc.com. The Company will report any amendments to or waivers of a required provision of the code of businessconduct and ethics on the Company’s website or in a Form 8-K.Item 11.Executive CompensationThe information with respect to compensation of executives and directors is contained under the caption “Executive Compensation” in the Company’s 2016Proxy Statement and is incorporated in this Annual Report by reference in response to this item.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information with respect to security ownership of certain beneficial owners and management is contained under the captions “Security Ownership ofCertain Beneficial Owners and Management” and “Executive Compensation” in the Company’s 2016 Proxy Statement and is incorporated in this Annual Report byreference in response to this item.Item 13.Certain Relationships and Related Transactions and Director IndependenceThe information with respect to certain relationships and related transactions is contained under the caption “Certain Relationships and Transactions” and thecaption “Proposal I: Election of Directors” in the Company’s 2016 Proxy Statement and is incorporated in this Annual Report by reference in response to this item.Item 14.Principal Accountant Fees and ServicesThe information with respect to principal accountant fees and services is contained under the captions “Principal Accountant Fees and Services” and“Proposal II: Ratification of Selection of Independent Registered Public Accountants” in the Company’s 2016 Proxy Statement and is incorporated in this AnnualReport by reference to this item. 180 PART IVItem 15.Exhibits and Financial Statement Schedules 1. Financial Statements The following financial statements of Hercules Capital, Inc. (formerly Hercules Technology Growth Capital, Inc.; the“Company” or the “Registrant”) are filed herewith: AUDITED FINANCIAL STATEMENTS Consolidated Statements of Assets and Liabilities as of December 31, 2015 and December 31, 2014 110 Consolidated Statements of Operations for the three years ended December 31, 2015 112 Consolidated Statements of Changes in Net Assets for the three years ended December 31, 2015 113 Consolidated Statements of Cash Flows for the three years ended December 31, 2015 114 Consolidated Schedule of Investments as of December 31, 2015 115 Consolidated Schedule of Investments as of December 31, 2014 130 Notes to Consolidated Financial Statements 144 2. The following financial statement schedule is filed herewith: Schedule 12-14 Investments In and Advances to Affiliates 182 3. Exhibits required to be filed by Item 601 of Regulation S-K. 181 Schedule 12-14HERCULES CAPITAL, INC.(FORMERLY HERCULES TECHNOLOGY GROWTH CAPITAL, INC.)SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATESAs of and for the year ended December 31, 2015(in thousands) Amount of As of As of Interest December 31, December 31, Credited to 2014 Gross Gross 2015 Portfolio Company Investment (1) Income (2) Fair Value (5) Additions (3) Reductions (4) Fair Value Affiliate Investments Optiscan BioMedical, Corp. Preferred Stock $— $5,853 $808 $— $6,661 Preferred Warrants — 219 93 — 312 Stion Corporation Senior Debt 347 1,600 — (587) 1,013 Total Control and Affiliate Investments $347 $7,672 $901 $(587) $7,986 (1)Stock and warrants are generally non-income producing and restricted. The principal amount for debt is shown in the Consolidated Schedule of Investments as of December 31, 2015.(2)Represents the total amount of interest or dividends credited to income for the year an investment was an affiliate or control investment.(3)Gross additions include increases in the cost basis of investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and closingfees and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealizeddepreciation.(4)Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more newsecurities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation.(5)Note that as of December 31, 2014, Gelesis was classified as an affiliate investment on Consolidated Statement of Assets and Liabilities. During the year ended December 31, 2015,changes to the capitalization structure of the portfolio company occurred that reduced the Company’s investment below the threshold for classification as an affiliate investment. As suchthe investment has been removed from this disclosure. 182 3. E xhibitsPlease note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended toprovide any other factual or disclosure information about us or the other parties to the agreements. The agreements contain representations and warranties by each ofthe parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actualstate of affairs as of the date they were made or at any other time. ExhibitNumber Description 3(a) Articles of Amendment and Restatement. ( 8 ) 3(b) Articles of Amendment, dated March 6, 2007. (7) 3(c) Articles of Amendment, dated April 5, 2011. ( 22 ) 3(d) Articles of Amendment, dated April 6, 2015. ( 43 ) 3(e) Articles of Amendment, dated February 25, 2016. ( 49 ) 3(f) Amended and Restated Bylaws. ( 49 ) 4(a)* Specimen certificate of the Company’s common stock, par value $.001 per share. 4(b) Form of Dividend Reinvestment Plan. (1) 4(c) Indenture between Hercules Funding Trust I and U.S. Bank National Association, dated as of August 1, 2005. ( 2 ) 4(d) Indenture between Hercules Technology Growth Capital, Inc. and U.S. Bank National Association, dated as of April 15, 2011. ( 23 ) 4(e) Form of Note under the Indenture, dated as of April 15, 2011. ( 23 ) 4(f) Indenture between the Registrant and U.S. Bank National Association, dated as of March 6, 2012. (26) 4(g) First Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of April 17, 2012. ( 26 ) 4(h) Second Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of September 24, 2012. (29) 4(i) Third Supplemental Indenture between the Registrant and U.S. Bank National Association, dated as of July 14, 2014. ( 39 ) 4(j) Form of 7.00% Senior Note due 2019, dated as of April 17, 2012 (Existing April 2019 Note) (included as part of Exhibit 4(g)). ( 26 ) 4(k) Form of 7.00% Senior Note due 2019, dated as of July 6, 2012 (Additional April 2019 Note). (27) 4(l) Form of 7.00% Senior Note due 2019, dated as of July 12, 2012 (Over-Allotment April 2019 Note). ( 28 ) 4(m) Form of 7.00% Senior Note due 2019, dated as of September 24, 2012 (September 2019 Note) (included as part of Exhibit 4(h)). ( 29 ) 4(n) Form of 7.00% Senior Note due 2019, dated as of October 2, 2012 (Over-Allotment September 2019 Note). ( 30 ) 4(o) Form of 7.00% Senior Note due 2019, dated as of October 17, 2012 (Over-Allotment II September 2019 Note). (31) 4(p) Form of 6.25% Note due 2024, dated as of July 14, 2014 (July 2024 Note) (included as part of Exhibit 4(i)). ( 39 ) 4(q) Form of 6.25% Note due 2024, dated as of August 11, 2014 (Over-Allotment July 2024 Note). ( 40 ) 10(a) Credit Agreement between Hercules Technology Growth Capital, Inc. and Alcmene Funding, L.L.C., dated as of April 12, 2005. ( 8 ) 10(b) Pledge and Security Agreement between Hercules Technology Growth Capital, Inc. and Alcmene Funding, L.L.C., dated as of April 12, 2005. ( 8 ) 10(c) First Amendment to Credit and Pledge Security Agreement between Hercules Technology Growth Capital, Inc. and Alcmene Funding L.L.C., dated asof August 1, 2005. ( 2 ) 10(d) Second Amendment to Credit and Pledge and Security Agreement by and among Hercules Technology Growth Capital, Inc. and Alcmene Funding,L.L.C., as lender and administrative agent for the lenders, dated as of March 6, 2006. (12) 10(e) Loan Sale Agreement between Hercules Funding LLC and Hercules Technology Growth Capital, Inc., dated as of August 1, 2005. ( 2 )183 ExhibitNumber Description 10(f) Sale and Servicing Agreement among Hercules Funding Trust I, Hercules Funding LLC, Hercules Technology Growth Capital, Inc., U.S. BankNational Association and Lyon Financial Services, Inc., dated as of August 1, 2005. ( 2 ) 10(g) Indenture between Hercules Funding Trust I & U.S. Bank National Association, dated as of August 1, 2005. ( 2 ) 10(h) Note Purchase Agreement among Hercules Funding Trust I, Hercules Funding I LLC, Hercules Technology Growth Capital, Inc. and Citigroup GlobalMarkets Realty Corp., dated as of August 1, 2005. ( 2 ) 10(i) Hercules Technology Growth Capital, Inc. 2004 Equity Incentive Plan (2011 Amendment and Restatement). ( 10 ) 10(j) Hercules Technology Growth Capital, Inc. 2006 Non-Employee Director Plan (2007 Amendment and Restatement). ( 11 ) 10(k) Form of Custody Agreement between the Company and Union Bank of California. ( 8 ) 10(l) Form of Restricted Stock Award under the 2004 Equity Incentive Plan. ( 19 ) 10(m) Subscription Agreement by and among the Company and the subscribers named therein, dated as of March 2, 2006. ( 17 ) 10(n) Form of Incentive Stock Option Award under the 2004 Equity Incentive Plan. ( 8 ) 10(o) Form of Nonstatutory Stock Option Award under the 2004 Equity Incentive Plan. ( 8 ) 10(p) Form of Registrar Transfer Agency and Service Agreement between the Company and American Stock Transfer & Trust Company. ( 8 ) 10(q) Warrant Agreement, dated as of June 22, 2004, between the Company and American Stock Transfer & Trust Company, as warrant agent. ( 9 ) 10(r) Subscription Agreement, dated as of February 2, 2004, between the Company and the subscribers named therein. ( 8 ) 10(s) Lease Agreement, dated as of June 13, 2006, between the Company and 400 Hamilton Associates. ( 4 ) 10(t) Third Amendment to Sale and Servicing Agreement among Hercules Funding Trust I, Hercules Funding LLC, Hercules Technology Growth Capital,Inc., U.S. Bank National Association and Lyon Financial Services, Inc., dated as of July 28, 2006. ( 5 ) 10(u) Second Omnibus Amendment by and among Hercules Funding Trust I, Hercules Funding I LLC, Hercules Technology Growth Capital, Inc., U.S. BankNational Association, Lyon Financial Services, Inc. and Citigroup Global Markets Realty Corp., dated as of December 6, 2006. ( 6 ) 10(v) Fifth Amendment to Sale and Servicing Agreement by and among Hercules Funding Trust I, Hercules Funding I, LLC, Hercules Technology GrowthCapital, Inc., U.S. Bank National Association, Lyon Financial Services, Inc. and Citigroup Global Markets Realty Corp., dated as of March 30, 2007. (13 ) 10(w) Amended and Restated Sale and Servicing Agreement by and among Hercules Funding Trust I, Hercules Funding I LLC, the Company, U.S. BankNational Association, Lyon Financial Services, Inc., Citigroup Global Markets Inc., and Deutsche Bank AG, dated as of May 2, 2007. ( 14 ) 10(x) Fourth Amendment to the Warrant Participation Agreement by and among Hercules Technology Growth Capital, Inc. and Citigroup Global MarketsRealty Corp., dated as of May 2, 2007. ( 15 ) 10(y) Amended and Restated Note Purchase Agreement by and among the Company, Hercules Funding Trust I, Hercules Funding I LLC, and CitigroupGlobal Markets, Inc., dated as of May 2, 2007. ( 15 ) 10(z) First Amendment to Amended and Restated Note Purchase Agreement by and among the Company, Hercules Funding Trust I, Hercules Funding ILLC, and Citigroup Global Markets, Inc., dated as of May 7, 2008. ( 16 ) 10(aa) Second Amendment to Amended and Restated Sale and Servicing Agreement by and among Hercules Funding Trust I, Hercules Funding I LLC, theCompany, U.S. Bank National Association, Lyon Financial Services, Inc., Citigroup Global Markets Inc., and Deutsche Bank AG, dated as of May 7,2008. ( 16 ) 10(bb) Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Foothill, LLC, dated as of August 25, 2008. ( 18 ) 10(cc) Sale and Servicing Agreement among Hercules Funding II LLC, the Company, Lyon Financial Services, Inc., and Wells Fargo Foothill, LLC, dated asof August 25, 2008. ( 18 ) 10(dd) Form of SBA Debenture. ( 19 ) 184 ExhibitNumber Description10(ee) First Amendment to Loan and Security Agreement by and among Hercules Funding II, LLC and Wells Fargo Foothill, LLC, dated as of April 30, 2009.( 20 ) 10(ff) Loan and Security Agreement by Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated as of February 10, 2010. ( 21 ) 10(gg) Second Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a WellsFargo Foothill, LLC), dated as of June 20, 2011. ( 24 ) 10(hh) Amended and Restated Loan and Security Agreement between the Company and Union Bank, N.A., dated as of November 2, 2011. ( 25 ) 10(ii) Second Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a WellsFargo Foothill, LLC), dated as of June 20, 2011. ( 24 ) 10(jj) First Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and Union Bank,N.A., dated as of March 30, 2012. ( 32 ) 10(kk) Third Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells FargoFoothill, LLC), dated as of August 1, 2012. ( 33 ) 10(ll) Second Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and UnionBank, N.A., dated as of September 17, 2012. ( 34 ) 10(mm) Third Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and UnionBank, N.A., dated as of December 17, 2012. ( 34 ) 10(nn) First Omnibus Amendment by and among Hercules Funding Trust I, Hercules Funding I, LLC, Hercules Technology Growth Capital, Inc., U.S. BankNational Association, Lyon Financial Services, Inc. and Citigroup Global Markets Realty Corp., dated as of March 6, 2006. ( 12 ) 10(oo) Intercreditor Agreement among Hercules Technology Growth Capital, Inc., Alcmene Funding, L.L.C. and Citigroup Global Markets Realty Corp.,dated as of March 6, 2006. ( 12 ) 10(pp) Warrant Participation Agreement between the Company and Citigroup Global Markets Realty Corp., dated as of August 1, 2005. ( 35 ) 10(qq) Indenture by and between Hercules Capital Funding Trust 2012-1 and U.S. Bank National Association, dated as of December 19, 2012. ( 36 ) 10(rr) Amended and Restated Trust Agreement by and between Hercules Capital Funding 2012-1 LLC and Wilmington Trust, National Association, dated asof December 19, 2012. ( 36 ) 10(ss) Sale and Servicing Agreement by and Among Hercules Capital Funding 2012-1 LLC, Hercules Capital Funding Trust 2012-1 LLC, HerculesTechnology Growth Capital, Inc. and U.S. Bank National Association, dated as of December 19, 2012. ( 36 ) 10(tt) Sale and Contribution Agreement by and between Hercules Technology Growth Capital, Inc. and Hercules Capital Funding 2012-1 LLC, dated as ofDecember 19, 2012. (36) 10(uu) Note Purchase Agreement among the Hercules Technology Growth Capital, Inc., Hercules Capital Funding 2012-1 LLC, as Trust Depositor, HerculesCapital Funding Trust 2012-1, as Issuer, and Guggenheim Securities, LLC, as Initial Purchaser, dated as of December 12, 2012. ( 36 ) 10(vv) Administration Agreement between Hercules Capital Funding Trust 2012-1LLC, Hercules Technology Growth Capital, Inc, Wilmington Trust,National Association, and U.S. Bank National Association, dated as of December 19, 2012. ( 36 ) 10(ww) Third Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and UnionBank, N.A., dated as of December 19, 2012. (36) 10(xx) Fourth Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and UnionBank, N.A., dated as of December 2, 2013. (37) 10(yy) Fifth Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and MUFGUnion Bank, N.A., dated as of January 31, 2014. (37) 10(zz) Sixth Amendment to Amended and Restated Loan and Security Agreement by and between Hercules Technology Growth Capital, Inc. and MUFGUnion Bank, N.A., dated as of July 8, 2014. (38)185 ExhibitNumber Description 10(aaa) Second Amended and Restated Loan and Security Agreement by and among Hercules Technology Growth Capital, Inc. and Union Bank, N.A., dated asof August 14, 2014. (41) 10(bbb) Fifth Amendment to Loan and Security Agreement by and among Hercules Funding II, LLC and Wells Fargo Capital Finance, LLC (f/k/a Wells FargoFoothill, LLC), dated as of August 8, 2014. ( 42 ) 10(ccc) Form of Indemnification Agreement. (43) 10(ddd) Seventh Amendment to Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital, LLC (f/k/a Wells FargoFoothill, LLC), dated as of May 6, 2015. (44) 10(eee) Amended and Restated Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance, LLC (f/k/a WellsFargo Foothill, LLC), dated as of June 29, 2015. (45) 10(fff) Amended and Restated Sale and Servicing Agreement by and among Hercules Funding II LLC, Hercules Technology Growth Capital, Inc., and WellsFargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC), dated as of June 29, 2015. (45) 10(ggg) First Amendment and Waiver to Second Amended and Restated Loan and Security Agreement by and among Hercules Technology Growth Capital,Inc. and MUFG Union Bank, N.A., dated as of November 3, 2015. (47) 10(hhh) First Amendment to Amended and Restated Loan and Security Agreement by and among Hercules Funding II LLC and Wells Fargo Capital Finance,LLC (f/k/a Wells Fargo Foothill, LLC), dated as of December 16, 2015. (48) 11.1 Computation of per share earnings (included in the notes to the audited financial statements included in this report). 14.1 Code of Ethics. ( 8 ) 14.2 Code of Business Conduct and Ethics. (46) 21.1* List of Subsidiaries. 23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 31.1* Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2* Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(18 U.S.C. 1350). 32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18U.S.C. 1350). (1)Previously filed as part of Pre-Effective Amendment No. 2, as filed on June 8, 2005 (Registration No. 333-122950), to the Registration Statement on Form N-2 of the Company.(2)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 5, 2005.(3)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on March 2, 2006.(4)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on June 13, 2006.(5)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 28, 2006.(6)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on December 6, 2006.(7)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on March 9, 2007.(8)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 13, 2015.(9)Previously filed as part of the Registration Statement on Form N-2 of the Company (File No. 333-122950), as filed on February 22, 2005.(10)Previously filed as part of the Securities to be Offered to Employees in Employee Benefit Plans on Form S-8, as filed on June 22, 2007 and the Definitive Proxy Statement of theCompany, as filed on April 29, 2011.(11)Previously filed as part of the Securities to be Offered to Employees in Employee Benefit Plans on Form S-8, as filed on October 10, 2007.(12)Previously filed as part of the Post-Effective Amendment No. 3, as filed on March 9, 2006 (File No. 333-126604), to the Registration Statement on Form N-2 of the Company.(13)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 3, 2007.(14)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on May 5, 2007.(15)Previously filed as part of the Pre-Effective Amendment No. 1, as filed on May 15, 2007 (File No. 333-141828), to the Registration Statement on Form N-2 of the Company.186 (16)Previously filed as part of Pre-Effective Amendment No. 2, as filed on June 5, 2008 (File No. 333-150403 ), to the Registration Statement on Form N-2 of the Company. (17)Previously filed as part of the Post-Effective Amendment No. 3, as filed on March 9, 2006 (File No. 333-126604), to the Registration Statement on Form N-2 of the Company.(18)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 27, 2008.(19)Previously filed as part of the Annual Report on Form 10-K of the Company, as filed on March 16, 2009.(20)Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on May 11, 2009.(21)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on February 17, 2010.(22)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 11, 2011.(23)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on April 18, 2011.(24)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on June 24, 2011.(25)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on November 11, 2011.(26)Previously filed as part of Post-Effective Amendment No. 1, as filed on April 17, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(27)Previously filed as part of Post-Effective Amendment No. 2, as filed on July 6, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(28)Previously filed as part of Post-Effective Amendment No. 3, as filed on July 12, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(29)Previously filed as part of Post-Effective Amendment No. 5, as filed on September 24, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(30)Previously filed as part of Post-Effective Amendment No. 7, as filed on October 2, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(31)Previously filed as part of Post-Effective Amendment No. 8, as filed on October 17, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(32)Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on May 8, 2012.(33)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 2, 2012.(34)Previously filed as part of Post-Effective Amendment No. 4, as filed on September 17, 2012 (File No. 333-179431), to the Registration Statement on Form N-2 of the Company.(35)Previously filed as part of the Pre-Effective Amendment No. 1, as filed on October 17, 2006 (File No. 333-136918), to the Registration Statement on Form N-2 of the Company.(36)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on December 17, 2012.(37)Previously filed as part of the Annual report on Form 10-K of the Company, as filed on February 27, 2014.(38)Previously filed as part of Post-Effective Amendment No. 4, as filed on July 11, 2014 (File No. 333-187447), to the Registration Statement on Form N-2 of the Company.(39)Previously filed as part of Post-Effective Amendment No. 5, as filed on July 14, 2014 (File No. 333-187447), to the Registration Statement on Form N-2 of the Company.(40)Previously filed as part of Post-Effective Amendment No. 6, as filed on August 11, 2014 (File No. 333-187447), to the Registration Statement on Form N-2 of the Company.(41)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on August 14, 2014.(42)Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on November 6, 2014.(43)Previously filed as part of the Registration Statement on Form N-2 of the Company (File No. 333-203511), as filed on April 20, 2015.(44)Previously filed as part of the Quarterly Report on Form 10-Q of the Company, as filed on May 7, 2015.(45)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on June 30, 2015.(46)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on July 13, 2015.(47)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on November 13, 2015.(48)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on December 18, 2015.(49)Previously filed as part of the Current Report on Form 8-K of the Company, as filed on February 25, 2016.*Filed herewith 187 S IGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. HERCULES CAPITAL, INC.(FORMERLY KNOWN AS HERCULESTECHNOLOGY GROWTH CAPITAL, INC.) Date: February 25, 2016By: / S / M ANUEL A. H ENRIQUEZ Manuel A. Henriquez Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in thefollowing capacities on February 25, 2016. Signature Title Date /S/ MANUEL A. HENRIQUEZ Chairman of the Board, President and Chief February 25, 2016Manuel A. Henriquez Executive Officer (Principal Executive Officer) /S/ MARK HARRIS Chief Financial Officer February 25, 2016Mark Harris (Principal Accounting Officer) /S/ ROBERT P. BADAVAS Director February 25, 2016Robert P. Badavas /S/ THOMAS J. FALLON Director February 25, 2016Thomas Fallon /S/ RODNEY A. FERGUSON Director February 25, 2016Rodney A. Ferguson /S/ JOSEPH F. HOFFMAN Director February 25, 2016Joseph F. Hoffman /S/ SUSANNE D. LYONS Director February 25, 2016Susanne D. Lyons /S/ ALLYN C. WOODWARD, JR Director February 25, 2016Allyn C. Woodward, Jr. 188 EXHIBIT INDEX ExhibitNumber Descriptions 4(a) Specimen certificate of the Company’s common stock, par value $.001 per share. 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, asadopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended, asadopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 Exhibit 4(a)Specimen certificate of the Company’s common stock, par value $.001 per share Exhibit 21.1List of SubsidiariesHercules Technology SBIC Management, LLCHercules Technology II, L.P.Hercules Technology III, L.P.Hercules Technology IV, L.P.Hercules Technology Management Co II Inc.Hercules Technology Management Co III Inc.Hercules Technology Management Co V Inc.Hercules Funding II, LLCHydra Ventures LLCHercules Technology I, LLCHercules Technology II, LLCHercules Capital Funding Trust 2012-1Hercules Capital Funding 2012-1 LLCHercules Capital Funding Trust 2014-1Hercules Capital Funding 2014-1 LLCAchilles Technology Management Co., Inc. Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-144002, 333-146445, 333-189474 and 333-206633) of Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc.) of our report dated February 25, 2016 relating to the financialstatements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPSan Francisco, CaliforniaFebruary 25, 2016 Exhibit 31.1CERTIFICATION PURSUANT TORULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS AMENDEDI, Manuel A. Henriquez, President, Chief Executive Officer and Director of the Company, certify that:1. I have reviewed this annual report on Form 10-K of Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc.; the “registrant”)for the year ended December 31, 2015;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: February 25, 2016 By:/ S / M ANUEL A. H ENRIQUEZ Manuel A. Henriquez Chief Executive Officer Exhibit 31.2CERTIFICATION PURSUANT TORULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS AMENDEDI, Mark Harris, Chief Financial Officer (Principal Accounting Officer), certify that:1. I have reviewed this annual report on Form 10-K of Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc.; the “registrant”)for the year ended December 31, 2015;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Date: February 25, 2016 By:/ S / MARK HARRIS Mark Harris Chief Financial Officer(Principal Accounting Officer) Exhibit 32.1CERTIFICATION PURSUANT TOSECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the accompanying Annual Report of Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc.; the“Company”) on Form 10-K for the year ended December 31, 2015 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, I,Manuel Henriquez, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of theSarbanes Oxley Act of 2002, that:(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, asamended; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 25, 2016 By:/ S / M ANUEL A. H ENRIQUEZ Manuel A. Henriquez Chief Executive Officer Exhibit 32.2CERTIFICATION PURSUANT TOSECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the accompanying Annual Report of Hercules Capital, Inc. (formerly known as Hercules Technology Growth Capital, Inc.; the“Company”) on Form 10-K for the year ended December 31, 2015 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, I, MarkHarris, Chief Financial Officer (Principal Accounting Officer) of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adoptedpursuant to §906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, asamended; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 25, 2016 By:/ S / MARK HARRIS Mark Harris Chief Financial Officer(Principal Accounting Officer)

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