tv489319-497 - none - 23.208899s
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 Filed Pursuant to Rule 497​
 Securities Act File No. 333-191307​
PROSPECTUS SUPPLEMENT
(to Prospectus dated May 9, 2017)
$40,000,000
[MISSING IMAGE: http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12151255&doc=2]
GSV Capital Corp.
4.75% Convertible Senior Notes due 2023
We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a business development company, or “BDC”, under the Investment Company Act of 1940, or the “1940 Act.” Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We may also invest on an opportunistic basis in select publicly-traded equity securities of rapidly growing companies that otherwise meet our investment criteria. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria, although in no event will the aggregate value of our non-U.S. investments exceed 30% of the aggregate value of our total investment portfolio. We acquire our investments through direct investments with prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. Our investment activities are managed by GSV Asset Management, LLC, our registered investment adviser. GSV Capital Service Company, LLC provides administrative services to us to operate.
We seek to deploy capital primarily in the form of equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity, and convertible debt securities with a high equity component. As our investment strategy is focused on equity positions, our investments generally do not produce current income. We will seek to deploy capital primarily in the form of non-controlling investments in our portfolio companies.
We are offering $40.0 million in aggregate principal amount of our 4.75% Convertible Senior Notes due 2023 (a “Note” or the “Notes”). The Notes will bear interest at a rate of 4.75% per year, payable semiannually in arrears on March 31 and September 30 of each year, beginning on September 30, 2018. The Notes will mature on March 28, 2023. Holders (the “Holders”) may surrender their Notes for conversion at any time prior to the close of business on the business day immediately preceding the stated maturity date. Upon conversion of the Notes, we will deliver a number of shares of our common stock, per $1,000 principal amount of Notes, equal to the conversion rate, as described in this prospectus supplement.
The initial conversion rate will be 93.2836 shares of our common stock for each $1,000 principal amount of Notes, which represents an initial conversion price of approximately $10.72 per share. Following certain corporate transactions that occur on or prior to the stated maturity date, we will, in certain circumstances, increase the conversion rate for a Holder that elects to convert its Notes in connection with such a corporate transaction. If a fundamental change, as defined herein, occurs prior to the stated maturity date, Holders may require us to purchase for cash all or any portion of their Notes at a fundamental change purchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date. The Notes will be our general, unsecured, senior obligations and will rank senior in right of payment to all of our future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment with all of our existing and future unsecured, senior indebtedness (whether or not secured); effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the asset securing such indebtedness; and structurally junior to the liabilities, including trade payables, of our subsidiaries.
We may not redeem the Notes prior to March 27, 2021. On or after March 27, 2021, we may redeem the Notes for cash, in whole or from time to time in part, at our option if  (i) the closing sale price of the common stock for at least 15 trading days (whether or not consecutive) during the period of any 20 consecutive trading days is greater than or equal to 150% of the conversion price on each applicable trading day, (ii) no public announcement of a pending, proposed or intended fundamental change has occurred which has not been abandoned, terminated or consummated, and (iii) no event of default under the indenture, and no event that with the passage of time or giving of notice would constitute an event of default under the indenture, has occurred or exists. The Notes may be redeemed at a redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed plus accrued and unpaid interest payments, if any, to, but excluding, the date fixed for redemption. See “Description of Notes — Optional Redemption Upon Satisfaction of Sale Price Condition” in this prospectus supplement for more information on the circumstances under which we may redeem the Notes.
For the period from the initial issuance of the Notes to, and including, March 27, 2019, we agree not to incur any indebtedness other than certain permitted debt, including, without limitation, up to $12.0 million in borrowings under our existing senior secured revolving credit facility with Western Alliance Bank (the “Credit Facility”), as described further under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement.
We do not intend to apply to list the Notes on any securities exchange or for inclusion on any automated dealer quotation system. Our common stock is listed on the Nasdaq Capital Market under the symbol “GSVC.” On March 22, 2018, the closing sale price of our common stock was $8.93 per share.
An investment in our Notes is subject to risks and involves a heightened risk of a total loss of your investment. In addition, the companies in which we invest are subject to special risks. For example, we invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “high yield” or “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. See “Risk Factors” beginning on page 20 of the accompanying prospectus to read about factors you should consider, including the risk of leverage, before investing in our Notes.

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This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in the Notes. Please read this prospectus supplement and the accompanying prospectus before investing in the Notes and keep each for future reference. We are required to file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). This information will be available free of charge by contacting us at GSV Capital Corp., 2925 Woodside Road, Woodside, CA 94062, by telephone at (650) 235-4769, or on our website at http://www.gsvcap.com. Information contained on our website is not incorporated by referenced into this prospectus supplement or the accompanying prospectus, and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus. The SEC also maintains a website at http://www.sec.gov that contains information about us.
Neither the SEC nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Public Offering Price
$ 100% $ 40,000,000
Underwriting Discounts and Commissions
$ 4% $ 1,600,000
Proceeds, before expenses, to us
$ 96% $ 38,400,000
The underwriter may also purchase up to an additional $6,000,000 total aggregate principal amount of Notes offered hereby within 30 days of the date of this prospectus supplement. If the underwriter exercises this option in full, the total public offering price will be $46,000,000, the total underwriting discount paid by us will be $1,840,000, and the total proceeds to us, before expenses, will be $44,160,000.
THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Delivery of the Notes will be made to investors in book-entry form only through The Depository Trust Company, or DTC, on or about March 28, 2018. The CUSIP for the Notes is 36191JAC5.
Sole Bookrunner
BTIG
Prospectus Supplement dated March 22, 2018.

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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is part of a “shelf” registration statement on Form N-2 that we filed with the Securities and Exchange Commission in two parts. The first part is the prospectus supplement, which describes the terms of this offering of Notes and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more general information and disclosure. To the extent the information contained in this prospectus supplement differs from or is in addition to the information contained in the accompanying prospectus, you should rely only on the information contained in this prospectus supplement. In particular, this prospectus supplement includes updated risk factors, financial data, portfolio holdings and their respective valuations, and other disclosure that is tailored to address the pertinent market and other conditions that are currently prevalent. Please carefully read this prospectus supplement and the accompanying prospectus together with the additional information described under the headings “Available Information” and “Supplementary Risk Factors” included in this prospectus supplement and “Risk Factors” included in the accompanying prospectus, respectively, before investing in the Notes.
We further note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any document that is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus supplement or in the accompanying prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to purchase, the Notes offered by this prospectus supplement and the accompanying prospectus in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer or solicitation of an offer in such jurisdiction. The information contained in this prospectus supplement or the accompanying prospectus, or incorporated by reference herein or therein is accurate only as of the respective dates thereof, regardless of the time of delivery of this prospectus supplement and the accompanying prospectus or of any sale of our securities. It is important for you to read and consider all information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein, in making your investment decision. You should also read and consider the information in the documents to which we have referred you in the sections entitled “Where You Can Find More Information” and “Incorporation of Certain Information by Reference” in this prospectus supplement and in the accompanying prospectus.
We are offering to sell, and seeking offers to buy, the Notes only in jurisdictions where offers and sales are permitted. The distribution of this prospectus supplement and the accompanying prospectus and the offering of the Notes in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus supplement and the accompanying prospectus must inform themselves about, and observe any restrictions relating to, the offering and the distribution of this prospectus supplement and the accompanying prospectus outside the United States. This prospectus supplement and the accompanying prospectus do not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the Notes offered by this prospectus supplement and the accompanying prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.
You should rely on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriter has not, authorized any dealer, salesman or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they
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relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the respective front cover of this prospectus supplement and the accompanying prospectus. We will amend or supplement this prospectus supplement and the accompanying prospectus in the event of any material change to the information contained herein during the distribution period.
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary contains basic information about the offering of the Notes pursuant to this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all the information that is important to you. For a more complete understanding of the offering of the Notes pursuant to this prospectus supplement, we encourage you to read this entire prospectus supplement and the accompanying prospectus, and the documents to which we have referred in this prospectus supplement and the accompanying prospectus. Together, these documents describe the specific terms of the Notes we are offering. You should carefully read the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included in the accompanying prospectus and any updates or additions to those sections included in this prospectus supplement.
Except where the context suggests otherwise, the terms “we,” “us,” “our” and “GSV Capital” refer to GSV Capital Corp. In addition, the terms “GSV Asset Management” or “investment adviser” refer to GSV Asset Management, LLC, and “GSV Capital Service Company” or the “administrator” refer to GSV Capital Service Company, LLC.
GSV Capital
GSV Capital Corp., a Maryland corporation, is an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act, In addition, we have elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We commenced operations upon completion of our initial public offering (“IPO”) in May 2011.
Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments. We invest principally in the equity securities of what we believe to be rapidly growing venture capital-backed emerging companies. We acquire our investments through direct investments in prospective portfolio companies, secondary marketplaces for private companies and negotiations with selling stockholders. We may also invest on an opportunistic basis in select publicly traded equity securities or certain non-U.S. companies that otherwise meet our investment criteria. Our investment activities are supervised by our board of directors and managed by our investment adviser, and our administrator provides the administrative services to us.
Our investment philosophy is based on a disciplined approach of identifying potentially high-growth emerging companies across several key industry themes which may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. GSV Asset Management’s investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the company’s growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Venture capital funds or other financial or strategic sponsors have invested in the vast majority of the companies that GSV Asset Management evaluates.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity, and convertible debt securities with a significant equity component. Typically, our preferred stock investments are non-income producing, have different voting rights than our common stock investments and are generally convertible into common stock at our discretion.
We seek to create a low-turnover portfolio that includes investments in companies representing a broad range of investment themes.
Our common stock is traded on the Nasdaq Capital Market under the symbol “GSVC”. The net asset value per share of our common stock on December 31, 2017 was $9.64. On March 22, 2018, the last reported sale price of a share of our common stock on the Nasdaq Capital Market was $8.93.
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Risk Factors Summary
The value of our assets, as well as the market price of our securities, will fluctuate. Our investments may be risky, and you may lose all or part of your investment in us. In addition, the other information included in this prospectus supplement and the accompanying prospectus contains a discussion of factors you should carefully consider before deciding to invest in the Notes. Some of these risks include:

Our investments in the rapidly growing venture capital-backed emerging companies that we target may be extremely risky and we could lose all or part of our investment therein.

Because our investments are generally not in publicly traded securities, there will be uncertainty regarding the value of our investments, which could adversely affect the determination of our net asset value.

We may not realize gains from our equity investments and, because certain of our portfolio companies may incur substantial debt to finance their operations, we may experience a complete loss on our equity investments in the event of a bankruptcy or liquidation of any of our portfolio companies.

Some of our portfolio companies are currently experiencing operating losses, which may be substantial, and there can be no assurance when or if such companies will operate at a profit.

The lack of liquidity in, and potentially extended holding period of, our investments may adversely affect our business and will delay any distributions of gains, if any.

Our portfolio is concentrated in a number of portfolio companies or market sectors, which subjects us to a risk of significant loss if the business or market position of these companies deteriorates or these market sectors experience a market downturn.

Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences, periodic downturns, regulatory concerns and litigation risks.

We may be limited in our ability to make follow-on investments, and our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

We are dependent upon GSV Asset Management’s senior investment professionals for our management and future success. If we lose any of GSV Asset Management’s senior investment professionals, our ability to implement our business strategy could be significantly harmed.

We will likely experience fluctuations in our quarterly results and we may be unable to replicate past investment opportunities or make the types of investments we have made to date in future periods.

There are significant potential risks related to investing in securities traded on private secondary marketplaces.

We operate in a highly competitive market for direct equity investment opportunities.

There are significant potential conflicts of interest, which could impact our investment returns and limit the flexibility of our investment policies.

Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital, which may expose us to risks, including the typical risks associated with leverage.

We will be subject to corporate-level U.S. federal income tax if we are profitable and are unable to qualify as a RIC, which could have a material adverse effect on us and our stockholders.

Our stockholders may experience dilution upon the conversion of the Notes.
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We may not have, or have the ability to raise, the funds necessary to repurchase the Notes upon a fundamental change, and our debt may contain limitations on our ability to deliver shares of our common stock upon conversion or pay cash upon repurchase of the Notes.

Provisions of the Notes could discourage an acquisition of us by a third party.

Certain adverse consequences could result if the Notes are treated as equity interests in us for purposes of regulations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA").
Investing in the Notes involves other risks, including those discussed under the caption “Supplementary Risk Factors” beginning on page S-20 of this prospectus supplement and “Risk Factors” beginning on page 19 of the accompanying prospectus.
About GSV Asset Management
Our investment activities are managed by GSV Asset Management, an investment adviser registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), subject to the overall supervision of our board of directors. GSV Asset Management is led by Michael Moe, Executive Chairman of our board of directors. Mr. Moe is assisted by William Tanona, our President, Chief Financial Officer, Treasurer and Corporate Secretary, and Luben Pampoulov, a partner of GSV Asset Management, whom we refer to collectively as GSV Asset Management’s senior investment professionals.
We believe we benefit from the ability of GSV Asset Management’s senior investment professionals to identify attractive investment opportunities, conduct diligence on and value prospective investments, negotiate terms, and manage and monitor a portfolio of those investments. GSV Asset Management’s senior investment professionals have broad investment backgrounds, with prior experience at investment banks, commercial banks, unregistered investment funds and other financial services companies, and have collectively developed a broad network of contacts that provides us with an important source of investment opportunities.
We pay GSV Asset Management a fee for its services pursuant to the Amended and Restated Investment Advisory Agreement, as amended (the “Investment Advisory Agreement”), which consists of two components — a base management fee and an incentive fee. See “— Investment Advisory Agreement” beginning on page 98 of the accompanying prospectus. We have also entered into an administration agreement pursuant to which we have agreed to reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses incurred on our behalf  (the “Administration Agreement”).
GSV Asset Management is a Delaware limited liability company. The principal executive offices of GSV Asset Management are located at 2925 Woodside Road, Woodside, CA 94062.
About GSV Capital Service Company
GSV Capital Service Company, a Delaware limited liability company, provides, among other things, administrative services and facilities for us pursuant to the Administration Agreement. The principal executive offices of GSV Capital Service Company are located at 2925 Woodside Road, Woodside, CA 94062.
GSV Capital Service Company has retained Carl Rizzo of Alaric Compliance Services LLC to serve as our Chief Compliance Officer.
Investment Opportunity
We believe that society is experiencing a convergence of numerous disruptive trends, producing new high-growth markets. For example, the growth of both social networking and connected mobile devices, such as smartphones and tablets, has opened up new channels for communication and real-time collaboration. The number of devices and people that regularly connect to the Internet has increased in recent years, generating significant demand for always accessible, personalized and localized content and
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real-time online interactivity. Similarly, the advent of education technology, and insights with respect to how, and what, people learn, are also disrupting the traditional educational sector. We believe these factors are creating opportunities for new market participants and significant growth for established companies with leading positions capitalizing on these trends.
At the same time, we believe that the IPO markets have experienced substantial structural changes which have made it significantly more challenging for private companies to go public. Volatile equity markets, a lack of investment research coverage for private and smaller companies, and investor demand for a longer history of revenue and earnings growth have resulted in companies staying private significantly longer than in the past. In addition, increased public company compliance obligations, such as those imposed by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), have made it more costly and less attractive to become a public company. As a result, there are significantly fewer IPOs today than there were during the 1990s, with prospective public companies taking longer to come to market.
Investment Strategy
We seek to maintain our portfolio of potentially high-growth emerging private companies through a repeatable and disciplined investment approach, as well as to provide investors with access to such companies through our publicly traded common stock.
Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments. We have adopted the following business strategies to achieve our investment objective:

Identify high quality growth companies.   Based on our extensive experience in analyzing technology trends and markets, we have identified the technology sub-sectors of social mobile, cloud computing and big data, internet commerce, sustainability and education technology as opportunities where we believe companies are capable of producing substantial growth. We rely on our collective industry knowledge as well as an understanding of where leading venture capitalists are investing.
We leverage a combination of our relationships throughout Silicon Valley and our independent research to identify leaders in our targeted sub-sectors that we believe are differentiated and best positioned for sustained growth. Our evaluation process is based on what we refer to as “the four P’s”:

People — Organizations led by strong management teams with in-depth operational focus

Product — Differentiated and disruptive products with leading market positioning

Potential — Large addressable markets

Predictability — Ability to forecast and drive predictable and sustainable growth
We consider these to be the core elements for identifying rapidly growing emerging companies.

Acquire positions in targeted investments.   We seek to add to our portfolio by sourcing investments at an acceptable price through our disciplined investing strategy. To this end, we utilize multiple methods to acquire equity stakes in private companies that are not available to many individual investors.
Direct equity investments.   We seek direct investments in private companies. There is a large market among emerging private companies for equity capital investments. Many of these companies, particularly within the technology sector, lack the necessary cash flows to sustain substantial amounts of debt and, therefore, have viewed equity capital as a more attractive long-term financing tool. We seek to be a source of such equity capital as a means of investing in these companies and look for opportunities to invest alongside other venture capital and private equity investors with whom we have established relationships.
Private secondary marketplaces and direct share purchases.   We also utilize private secondary marketplaces as a means to acquire equity and equity-related interests in privately-held companies that meet our investment criteria and that we believe are attractive candidates for investment. We
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believe that such markets offer new channels for access to equity investments in private companies and provide a potential source of liquidity should we decide to exit an investment. In addition, we also purchase shares directly from stockholders, including current or former employees. As certain companies grow and experience significant increased value while remaining private, employees and other stockholders may seek liquidity by selling shares directly to a third party or to a third party via a secondary marketplace. Sales of shares in private companies are typically restricted by contractual transfer restrictions and may be further restricted by provisions in company charter documents, investor rights of first refusal and co-sale and company employment and trading policies, which may impose strict limits on transfer. We believe that GSV Asset Management’s investment professionals’ reputation within the industry and history of investing affords us a favorable position when seeking approval for a purchase of shares subject to such limitations.

Create access to a varied investment portfolio.   We seek to hold a varied portfolio of non-controlling equity investments, which we believe will minimize the impact on our portfolio of a negative downturn at any one specific company. We believe that our relatively varied portfolio will provide a convenient means for accredited and non-accredited individual investors to obtain access to an asset class that has generally been limited to venture capital, private equity and similar large institutional investors.
Starting in 2017, we began to focus our investment strategy to increase the size of our investments in individual portfolio companies. While this will likely have the effect of reducing the number of companies in which we hold investments, we believe that the shift towards larger positions will better allow GSV Asset Management’s investment professionals to focus our investments in companies and industries that are more likely to result in beneficial returns to our stockholders.
Competitive Advantages
We believe that we benefit from the following competitive advantages in executing our investment strategy:

Experienced team of investment professionals.   GSV Asset Management’s senior investment professionals and our board of directors have significant experience researching and investing in the types of potentially rapidly growing venture-capital-backed emerging companies we are targeting for investment. Through our proprietary company-evaluation process, including our identification of technology trends and themes and company research, we believe we have developed important insight into identifying and valuing emerging private companies.

Disciplined and repeatable investment process.   We have established a disciplined and repeatable process to locate and acquire available shares at attractive valuations by utilizing multiple sources. In contrast to industry “aggregators” that accumulate stock at market prices, we conduct valuation analyses and make acquisitions only when we can invest at valuations that we believe are attractive to our investors.

Deep relationships with significant credibility to source and complete transactions.   GSV Asset Management, including its senior investment professionals, is strategically located in the heart of Silicon Valley in Woodside, California. During the course of over two decades of researching and investing in emerging private companies, GSV Asset Management’s senior investment professionals have developed strong reputations within the investing community, particularly within technology-related sectors. GSV Asset Management’s senior investment professionals have also developed strong relationships in the financial, investing and technology-related sectors.

Source of permanent investing capital.   As a publicly traded corporation, we have access to a source of permanent equity capital which we can use to invest in portfolio companies. This permanent equity capital is a significant differentiator from other potential investors that may be required to return capital to stockholders on a defined schedule. We believe that our ability to invest on a long-term time horizon makes us attractive to companies looking for strong, stable owners of their equity.

Early mover advantage.   We believe we are one of the few publicly traded BDCs with a specific
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focus on investing in potentially rapidly growing venture capital-backed emerging companies. The transactions that we have executed to date since our IPO have helped to establish our reputation with the types of secondary sellers and emerging companies that we target for investment. We have leveraged a number of relationships and channels to acquire the equity of private companies. As we continue to grow our portfolio with attractive investments, we believe that our reputation as a committed partner will be further enhanced, allowing us to source and close investments that would otherwise be unavailable. We believe that these factors collectively differentiate us from many other potential investors in private company securities and will serve our goal to complete equity transactions in compelling private companies at attractive valuations.
Our primary competitors include specialty finance companies, including late-stage venture capital funds, private equity funds, other crossover funds, public funds investing in private companies and public and private BDCs. Many of these entities have greater financial and managerial resources than we have. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider more investments and establish more relationships than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions the 1940 Act imposes on us as a BDC. For additional information concerning the competitive risks we face, see “Supplementary Risk Factors — Risks Related to Our Business and Structure” in this prospectus supplement and “Risk Factors — Risks Related to Our Business and Structure” in the accompanying prospectus.
Operating and Regulatory Structure
GSV Capital, a Maryland corporation, is an externally managed, non-diversified closed-end management investment company. We completed our IPO in May 2011 and have elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to meet regulatory tests, including the requirement to invest at least 70% of our gross assets in “qualifying assets.” Qualifying assets generally include, among other things, securities of  “eligible portfolio companies.” “Eligible portfolio companies” generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any non-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets until such time as 70% of our then current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances. See “Regulation as a Business Development Company” in the accompanying prospectus. We have elected to be treated as a RIC under the Code and expect to continue to operate in a manner so as to qualify for the tax treatment applicable to RICs. See “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.
Our investment activities are managed by GSV Asset Management and supervised by our board of directors. GSV Asset Management is an investment adviser registered under the Advisers Act. Pursuant to the Investment Advisory Agreement, we have agreed to pay GSV Asset Management an annual base management fee based on the average value of our gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any equity or debt capital raises, repurchases or redemptions during the current calendar quarter, as well as an incentive fee based on our performance. See “Investment Advisory Agreement” in the accompanying prospectus. We have also entered into an administration agreement (the “Administration Agreement”), pursuant to which we have agreed to reimburse GSV Capital Service Company for our allocable portion of overhead and other expenses incurred related to us.
Our Corporate Information
Our principal office is located at 2925 Woodside Road, Woodside, CA 94062, and our telephone number is (650) 235-4769.
Recent Developments
Portfolio Activity
Please refer to “Note 11 — Subsequent Events” to our consolidated financial statements as of December 31, 2017, which is included in this prospectus supplement, for details regarding our portfolio activity from January 1, 2018 through March 16, 2018.
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We are frequently in negotiations with various private companies with respect to investments in such companies. Investments in private companies are generally subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its stockholders and termination rights by the seller or us. Equity investments made through the secondary market may involve making deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such equity investments will be effectuated.
Share Repurchase Program
From January 1, 2018 through March 16, 2018, we repurchased 179,807 shares of our common stock pursuant to the Company's discretionary open-market share repurchase program (the “Share Repurchase Program”) at an average price of  $6.90 per share.
Tender Offer for Convertible Senior Notes due 2018
As of the expiration of the tender offer on January 17, 2018 (the “Tender Offer”), approximately $4.8 million aggregate principal amount of the then outstanding 2013 Convertible Notes issued by us in September 2013 (the “2013 Convertible Notes”), representing approximately 7.0% of the then outstanding 2013 Convertible Notes, were validly tendered and not validly withdrawn pursuant to the Tender Offer.
Fee Waiver Agreement
On February 5, 2018, we announced that GSV Asset Management had agreed to reduce the fees payable under the Investment Advisory Agreement (the “Waiver Agreement”). The Waiver Agreement is effective February 1, 2018 and changes the fee structure set forth in the Investment Advisory Agreement by: (i) reducing the base management fee from 2.00% to 1.75%; and (ii) creating certain high-water marks that must be reached before any incentive fee is paid to GSV Asset Management. In that regard, an incentive fee earned by GSV Asset Management shall be payable only if, at the time that such incentive fee becomes payable under the Investment Advisory Agreement, both our stock price and our last reported net asset value per share are equal to or greater than $12.55 (the “High-Water Mark”). The High-Water Mark is based upon the volume weighted average price (VWAP) of all our equity offerings since our IPO, less the dollar amount of all dividends paid by us since inception. At such time that the High-Water Mark is achieved, and GSV Asset Management is paid an incentive fee, a new High-Water Mark will be established. Each new High-Water Mark will be equal to the most recent High-Water Mark, plus 10.0%. Any High-Water Mark then in effect will be adjusted to reflect any dividends paid by us or any stock split effected by us. In addition, pursuant to the Waiver Agreement, GSV Asset Management has agreed to forfeit $5.0 million of its previously accrued but unpaid incentive fees, and to waive base management fees on cash balances until the currently outstanding 2013 Convertible Notes mature or are retired. After these changes take effect, in no event will the aggregate fees earned by GSV Asset Management in any quarterly period be higher than those aggregate fees that would have been earned prior to the effectiveness of the Waiver Agreement.
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SPECIFIC TERMS OF OUR NOTES AND THE OFFERING
This prospectus supplement sets forth certain terms of the Notes that we are offering pursuant to this prospectus supplement and supplements the accompanying prospectus that is attached to this prospectus supplement. This section outlines the specific legal and financial terms of the Notes. You should read this section of the prospectus supplement together with the section titled “Description of the Notes” in this prospectus supplement and the more general description of the Notes in the accompanying prospectus under the heading “Description of Our Debt Securities” before investing in the Notes. Capitalized terms used in this prospectus supplement and not otherwise defined shall have the meanings ascribed to them in the accompanying prospectus or in the indenture governing the Notes.
Issuer
GSV Capital Corp., a Maryland corporation.
Securities Offered
$40.0 million in aggregate principal amount of 4.75% Convertible Senior Notes due 2023 (plus up to an additional $6.0 million in aggregate principal amount at the underwriter’s option).
Maturity
March 28, 2023, unless earlier redeemed, repurchased or converted.
Interest
4.75% per year, payable semiannually in arrears on March 31 and September 30 of each year, beginning on September 30, 2018. We will pay additional interest, if any, at our election as the sole remedy relating to the failure to comply with certain of our reporting obligations as described under “Description of Notes — Events of Default” in this prospectus supplement.
Optional Redemption Upon
Satisfaction of Sale Price
Condition
We may not redeem the Notes prior to March 27, 2021. On or after March 27, 2021, we may redeem the Notes for cash, in whole or from time to time in part, at our option if  (i) the closing sale price of the common stock for at least 15 trading days (whether or not consecutive) during the period of any 20 consecutive trading days is greater than or equal to 150% of the conversion price on each applicable trading day, (ii) no public announcement of a pending, proposed or intended fundamental change has occurred which has not been abandoned, terminated or consummated, and (iii) no event of default under the indenture, and no event that with the passage of time or giving of notice would constitute an event of default under the indenture, has occurred or exists. Upon satisfaction of such conditions, we may exercise our option to redeem the Notes by issuing notice to the holders within 30 days of the satisfaction of any such sale price condition. Notice of the redemption must be delivered to the holders not less than 30 days nor more than 70 days prior to the date fixed for redemption. The Notes may be redeemed at a redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed plus accrued and unpaid interest payments, if any, to, but excluding, the date fixed for redemption. See “Description of Notes — Optional Redemption Upon Satisfaction of Sale Price Condition” in this prospectus supplement for more information on the circumstances under which we may redeem the Notes.
Ranking
The Notes will be our senior unsecured obligations and will be:

senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the Notes;

equal in right of payment to our existing and future
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unsecured indebtedness that is not so subordinated, including, without limitation, the 2013 Convertible Notes;

effectively junior to any of our existing or future secured indebtedness to the extent of the value of the assets securing such indebtedness, including, without limitation, any borrowings under our Credit Facility; and

structurally junior to all future indebtedness (including trade payables) incurred by our subsidiaries.
Any such indebtedness that we incur after the initial issuance date of the Notes will be subject to the limitation on incurring additional indebtedness described under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement. On September 17, 2013, the Company issued $69.0 million aggregate principal amount of 2013 Convertible Notes, which bear interest at a fixed rate of 5.25% per year, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2014. The 2013 Convertible Notes mature on September 15, 2018, unless previously repurchased or converted in accordance with their terms. We do not have the right to redeem the 2013 Convertible Notes prior to maturity. On December 15, 2017, we announced the commencement of a cash Tender Offer to purchase any and all of our $69.0 million aggregate principal amount of 2013 Convertible Notes. As of the expiration of the Tender Offer on January 17, 2018, approximately $4.8 million aggregate principal amount of the 2013 Convertible Notes, representing approximately 7.0% of the outstanding 2013 Convertible Notes, were validly tendered and not validly withdrawn pursuant to the Tender Offer. As of March 21, 2018, we have $64.2 million of the 2013 Convertible Notes outstanding, but no indebtedness outstanding under our Credit Facility.
Conversion
Holders of the Notes may convert all or any portion of their Notes, in multiples of  $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding the maturity date.
The conversion rate for the Notes is initially 93.2836 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $10.72 per share of our common stock), subject to adjustment for certain events, including, but not limited to, the declaration of any dividends, as described under “Description of Notes — Conversion of Notes — Conversion Rate Adjustments.”
Upon conversion of the Notes, we will deliver for each $1,000 principal amount of Notes converted a number of shares of our common stock equal to the conversion rate (together with a cash payment in lieu of delivering any fractional share) on the second business day immediately following the relevant conversion date.
In addition, following certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a Holder who elects to convert its Notes in
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connection with such a corporate event, as described under “Description of Notes — Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event.”
You will not receive any additional cash payment or additional shares of our common stock representing accrued and unpaid interest, if any, upon conversion of a Note, except in limited circumstances. Instead, interest will be deemed to be paid by the delivery to you of the shares of our common stock, together with a cash payment for any fractional shares, upon conversion of a Note.
Limitation on Beneficial
Ownership
Notwithstanding the foregoing, no Holder of the Notes will be entitled to receive shares of our common stock upon conversion of the Notes to the extent (but only to the extent) that such receipt would cause such converting Holder to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than 5% of the shares of our common stock outstanding at such time (the “limitation”). Any purported delivery of shares of our common stock upon conversion of the Notes shall be void and have no effect to the extent (but only to the extent) that such delivery would result in the converting Holder becoming the beneficial owner of more than 5% of the shares of our common stock outstanding at such time. If any delivery of shares of our common stock owed to a Holder upon conversion of Notes is not made, in whole or in part, as a result of the limitation, our obligation to make such delivery shall not be extinguished and we shall deliver such shares of our common stock as promptly as practicable after any such converting Holder gives notice to us that such delivery would not result in it being the beneficial owner of more than 5% of the shares of our common stock outstanding at such time. The limitation shall no longer apply following the effective date of any fundamental change, as defined in “Description of Notes — Purchase of Notes at Your Option upon a Fundamental Change.”
Adjustment to Conversion Rate
Following a Make-Whole
Adjustment Event
If certain corporate events as described under “Description of Notes — Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event” occur at any time prior to the stated maturity date, each of which we refer to as a “make-whole adjustment event,” the conversion rate for any Notes converted following such make-whole adjustment event will, in certain circumstances and for a limited period of time, be increased by a number of additional shares of our common stock. The following table sets forth the number of additional shares of our common stock to be added to the conversion rate for each $1,000 principal amount of Notes in connection with a make-whole adjustment event, based on hypothetical stock prices and effective dates:
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Stock Price
Effective Date
$8.93
$10.00
$10.72
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$48.00
Year 0
20.5677 16.0130 13.7360 6.6320 3.737 2.3928 1.5517 0.9554 0.5073 0
Year 1
19.2027 14.4100 12.0802 5.0740 2.6245 1.6776 1.0997 0.6894 0.3813 0
Year 2
18.1377 12.9070 10.4944 3.4627 1.3890 0.8908 0.5927 0.3800 0.2200 0
Year 3
17.3841 11.2550 8.6651 2.0513 0 0 0 0 0 0
Year 4
17.5801 9.4010 6.1810 1.3447 0 0 0 0 0 0
Year 5
20.5677 8.5860 1.8694 0 0 0 0 0 0 0
A description of how the number of additional shares of our common stock will be determined following a make-whole adjustment event is set forth under “Description of Notes — Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event.”
Purchase of Notes at Your Option upon a Fundamental Change
Holders of the Notes may require us to purchase for cash all or any portion of their Notes upon the occurrence of a fundamental change at the fundamental change purchase price equal to 100% of the principal amount of the Notes being purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date. For the definition of  “fundamental change” and related information, see “Description of Notes — Purchase of Notes at Your Option upon a Fundamental Change.”
Use of Proceeds
We estimate that the net proceeds from the sale of the $40.0 million in aggregate principal amount of Notes in this offering, after deducting estimated expenses of this offering payable by us and the underwriter’s discount, will be approximately $38.2 million (or approximately $44.0 million, if the over-allotment is exercised in full), in each case assuming the Notes are sold at 100% of par. We intend to use all of the net proceeds from the offering, approximately $38.2 million (or approximately $44.0 million if the underwriters exercise their option to purchase additional Notes in full) to repurchase or pay at maturity a portion of the outstanding 2013 Convertible Notes, which bear interest at 5.25% per annum and mature on September 15, 2018. See “Use of Proceeds.”
Other Covenants
In addition to any covenants described elsewhere in this prospectus supplement or the accompanying prospectus, the following covenants will apply to the Notes:

For the period of time during which any Notes are outstanding, we will not violate, whether or not we are subject to, Section 18(a)(l)(A) as modified by Section 61(a)(l) of the Investment Company Act or any successor provisions thereto of the Investment Company Act, but giving effect to any exemptive relief that may be granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the Investment Company Act, equals at least 200% after such borrowings.
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See “Supplementary Risk Factors — Risks Related to the Notes — Pending legislation may allow us to incur additional leverage” in this prospectus supplement.

For the period from the initial issuance of the Notes to, and including, March 27, 2019, we agree not to incur any indebtedness other than certain permitted debt, including, without limitation, up to $12 .0 million in borrowings under our Credit Facility, as described further under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement. This limitation on the incurrence of additional indebtedness will cease to apply, however, upon the occurrence of  (i) a “change in control” as described in clause (1) or (2) of that definition under the heading “— Purchaseof Notes at Your Option upon a Fundamental Change,” or (ii) at such time as less than 25% of the initial aggregate principal amount of the Notes (including Notes issued upon the exercise by the underwriter of its over-allotment option) remain outstanding.
Trading
We do not intend to apply to list the Notes on any securities exchange or for inclusion on any automated dealer quotation system. Our common stock is listed on the Nasdaq Capital Market under the symbol “GSVC.”
Risk Factors
See the information under the caption “Supplementary Risk Factors” in this prospectus supplement and “Risk Factors” in the accompanying prospectus and the other information contained in this prospectus supplement and the accompanying prospectus for a discussion of factors you should carefully consider before deciding to invest in the Notes.
Certain United States Federal
Income Tax Considerations
You should consult your tax advisor with respect to the United States federal income tax consequences of owning the Notes and the common stock into which the Notes may be converted in light of your own particular situation and with respect to any tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction. See “Additional Material Federal Income Tax Consequences” in this prospectus supplement.
Trustee, Paying Agent and
Conversion Agent
U.S. Bank National Association
Global Securities; Book-Entry
Form
The Notes will be issued in book-entry form and will be represented by global certificates deposited with, or on behalf of, DTC and registered in the name of a nominee of DTC. Beneficial interests in any of the Notes will be shown on, and transfers will be effected only through, records maintained by DTC or its nominee and any such interest may not be exchanged for certificated securities, except in limited circumstances.
Absence of a public market for the Notes
The Notes are new securities and there is currently no established market for the Notes. Accordingly, we cannot assure you as to the development or liquidity of any market for the Notes. The
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underwriter has advised us that it currently intends to make a market in the Notes. However, it is not obligated to do so, and it may discontinue any market making with respect to the Notes without notice. We do not intend to apply for a listing of the Notes on any securities exchange or any automated dealer quotation system.
Further issuances
We have the ability to issue additional debt securities under our base indenture (subject to complying with the limitation on incurring additional indebtedness described under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement). In addition, notwithstanding the limitation on incurring additional indebtedness described under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement, without the consent of the Holders of the Notes, we have the ability to reopen the Notes and issue additional Notes on the same terms.
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FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly on an as-converted basis. We caution you that some of the percentages indicated in the table below are estimates and may vary. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus supplement contains a reference to fees or expenses paid by “us” or “GSV Capital,” or that “we” will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in GSV Capital Corp. However, you will not be required to deliver any money or otherwise bear personal liability or responsibility for such fees or expenses.
Stockholder transaction expenses:
Sales expense (as a percentage of offering price)
0.00%(1)
Offering expenses (as a percentage of offering price)
0.50%(2)
Underwriter’s discount for notes (as a percentage of offering price)
4.00%(3)
Dividend reinvestment plan expenses
0.00%
Total stockholder transaction expenses (as a percentage of offering price)
4.50%(2)
Annual expenses (as a percentage of net assets attributable to common stock):(4)
Base management fee
2.64%(5)
Incentive fees payable under our Investment Advisory Agreement (20%)
1.70%(6)
Interest payments on borrowed funds
1.53%(7)
Other expenses
2.11%(8)
Total annual expenses
7.98%
Management fee waiver
(0.33)%
Total annual expenses after waiver
7.65%
Example
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. See Note 7 below for additional information regarding certain assumptions regarding our level of leverage subsequent to this offering.
1 Year
3 Years
5 Years
10 Years
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return
$ 79 $ 230 $ 371 $ 691
(1)
The expenses of converting the Notes are included in “Other expenses.”
(2)
The offering expenses of this offering are estimated to be approximately $0.2 million.
(3)
Represents the commission with respect to the Notes being sold in this offering, which we will pay to the underwriter in connection with the sale of the Notes effected by the underwriter in this offering.
(4)
Net assets attributable to common stock, which we calculate to equal approximately $214.5 million, reflect our December 31, 2017 net asset value increased to reflect an assumed annual return of 8.0% on our $220.6 million of portfolio investments as of December 31, 2017.
(5)
Reflects the base management fee payable to GSV Asset Management, as a percentage of our net assets. The base management fee pursuant to the Investment Advisory Agreement is based on our gross assets, which is our total assets as reflected on our balance sheet (with no deduction for liabilities), including those acquired using borrowings for investment purposes. As a result, to the extent we elect to utilize additional leverage in the future, the base management fee as a percentage of our net assets would increase.
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(6)
The incentive fee is determined and payable to GSV Asset Managment, in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal the lesser of  (i) 20% of our realized capital gains during such calendar year, if any, calculated on an investment-by-investment basis, subject to a non-compounded preferred return, or “hurdle,” and a “catch-up” feature, and (ii) 20% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees. For accounting purposes, in order to reflect the theoretical capital gains incentive fee that would be payable to GSV Asset Management for a given period as if all unrealized gains were realized, we are required to accrue a capital gains incentive fee based upon realized capital gains and losses during the current calendar year through the end of the period, plus any unrealized capital appreciation and depreciation as of the end of the period. It should be noted that a fee so calculated and accrued would not necessarily be payable under the Investment Advisory Agreement, and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts paid to GSV Asset Management under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement.
(7)
We are exposed to the risks of leverage, which may be considered a speculative investment technique. The use of leverage magnifies the potential for gain and loss on amounts invested and, therefore, increases the risks associated with investing in the Notes. In addition, the costs associated with our borrowings, including any increase in the base management fee payable to our investment adviser, GSV Asset Management, are borne by our common stockholders. For purposes of this section, we have assumed that we will borrow for investment purposes an amount equal to $12.0 million at an annual interest rate of 7.50% under the Credit Facility.
(8)
“Other expenses” of approximately $4.5 million are based on estimates for the 12 months ending December 31, 2018.
The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. As the incentive fee pursuant to the Investment Advisory Agreement is payable only on realized capital gains, this illustration assumes that the entire 5.0% annual return is in the form of realized capital gains (computed net of all realized capital losses and unrealized capital depreciation) in each of the indicated time periods, and that we will be required to pay an incentive fee on the full amount of the annual return. If we achieve a greater realization of realized capital gains than the assumed 5.0% annual return, our expenses and returns to our investors would be higher. Also, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
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SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data for the fiscal years ended December 31, 2017, 2016, 2015, 2014 and 2013, respectively, have been derived from our consolidated financial statements in this prospectus supplement and in the accompanying prospectus. The data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto contained in this prospectus supplement.
Year Ended December 31,
2017
2016
2015
2014
2013
Income Statement Data
Total Investment Income
$ 852,768 $ 736,283 $ 290,896 $ 185,946 $ 48,951
Gross Operating Expenses
22,439,855 1,999,646 26,978,235 21,775,939 22,083,875
Management fee waiver
(708,272)
Net Operating Expenses
21,731,583 1,999,646 26,978,235 21,775,939 22,083,875
Benefit (Reversal of benefit) from taxes on net investment loss(4)
(21,969,370) 8,810,102 13,159,268
Net Investment Loss
(20,878,815) (1,263,363) (48,656,709) (12,779,891) (8,875,656)
Net realized gain (loss) on
investments
913,982 (2,634,471) 54,144,229 23,926,124 (21,706,021)
Benefit from/(Provision for) taxes on net realized loss/gain on investments(4)
342,802 (9,769,036) 9,426,234
Net change in unrealized appreciation/​
(depreciation) of investments
34,775,696 (73,213,845) (13,422,245) (5,811,797) 87,445,149
Benefit from/(Provision for) taxes on
unrealized depreciation/appreciation
of investments(4)(5)
2,757,070 2,116,784 16,058,080 2,371,829 (30,906,063)
Net increase/(decrease) in net assets resulting from operations
17,567,933 (74,994,895) 8,466,157 (2,062,771) 35,383,643
Per Common Share Data
Weighted-Average Common Shares:
Basic
21,924,490 22,181,003 19,327,938 19,320,100 19,320,100
Diluted
21,924,490 22,181,003 19,327,938 19,320,100 20,541,014
Net increase (decrease) in net assets resulting from operations per average share:
Basic
$ 0.80 $ (3.38) $ 0.44 $ (0.11) $ 1.83
Diluted
0.80 (3.38) 0.44 (0.11) 1.78
Net asset value per share(1)
9.64 8.66 12.08 14.80 14.91
Market price at year-end
5.45 5.03 9.37 8.63 12.09
Distributions declared
0.04 2.76
Shares Outstanding at Year End
21,246,345 22,181,003 22,181,003 19,320,100 19,320,100
Balance Sheet Data(3)
Total Assets(2)
$ 381,682,536 $ 300,964,426 $ 397,843,071 $ 482,979,027 $ 374,569,437
Convertible Senior Notes payable 5.25% due September 15, 2018
68,382,549 67,512,798 66,649,047 65,795,284 64,957,174
Convertible Senior Notes embedded derivative liability
1,000 799,000
Total Liabilities
176,919,670 108,835,616 129,832,126 197,075,354 86,602,993
Net Assets
204,762,866 192,128,810 268,010,945 285,903,673 287,966,444
(1)
Net asset value per share is based on basic shares outstanding at the end of the period.
(2)
During the year ended December 31, 2013, total assets increased due to the issuance of the 2013 Convertible Notes. During the year ended December 31, 2014, total assets increased due to the purchase of a U.S. Treasury bill on margin. During the year ended December 31, 2015, total assets
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decreased due to a declared dividend, which was paid on December 31, 2015. During the year ended December 31, 2016, total assets and net assets decreased due to a change in unrealized depreciation of investments and net realized losses on investments. During the year ended December 31, 2017, total assets and net assets increased due to a change in unrealized appreciation of investments and net realized gains on investments. For further discussion of factors that affected our total assets and net assets refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in this prospectus supplement.
(3)
Deferred debt issuance costs of  $1,947,572, $2,667,069 and $3,378,121, as of December 31, 2015, 2014 and 2013, respectively, related to the Company’s issuance of the 2013 Convertible Notes were previously classified as “Deferred financing costs” as of December 31, 2015, 2014 and 2013. In accordance with ASU 2015-03, each of these balances has been retrospectively reclassified as a direct deduction from the 2013 Convertible Notes. Refer to “Note 10 — Debt Capital Activities” of the consolidated financial statements as of December 31, 2017 included in this prospectus supplement for further detail.
(4)
Due to our change in tax status to a RIC from a C Corporation, the associated accrued benefits from and provisions for taxes from previous years were reversed for the year ended December 31, 2015. Refer to “Note 9 — Income Taxes” to our consolidated financial statements as of December 31, 2017 included in this prospectus supplement for further detail.
(5)
During the year ended December 31, 2017, we recognized a net benefit from taxes on unrealized depreciation of  $2,757,070 despite recording a net change in unrealized appreciation of approximately $34.8 million. The net tax benefit from taxes on unrealized depreciation for the year ended December 31, 2017 was the result of an approximately $4.1 million decrease in built-in gains tax liability due to the recently passed tax legislation that reduced the U.S. corporate federal income tax rate from 35% to 21%, partially offset by a $1.3 million increase in the net deferred tax liability generated by the GSVC Holdings. The term “GSVC Holdings” refers to a number of the Company’s subsidiaries that were formed to hold portfolio investments for certain tax related purposes. The GSVC Holdings, including their associated portfolio investments, are consolidated with the Company for accounting purposes, but have elected to be treated as separate entities for U.S. federal income tax purposes. See “Note 1 — Nature of Operations” to our consolidated financial statements for the year ended December 31, 2017, included in this prospectus supplement, for more information.
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SUPPLEMENTARY RISK FACTORS
Investments in the Notes involve a high degree of risk. Before you invest in the Notes, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this prospectus supplement and the accompanying prospectus, before you decide whether to make an investment in the Notes. Although the prospectus supplement and the accompanying prospectus together describe our material risks, the risks set forth below and in the accompanying prospectus are not the only risks we face. If any of the adverse events or conditions described below or in the accompanying prospectus occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value could decline, and you may lose all or part of your investment.
Risks Related to the Notes
The Notes will be unsecured and, therefore, will be effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
The Notes will not be secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have outstanding as of the date of this prospectus supplement or that we or they may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the Holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the Holders of the Notes. As of March 21, 2018, we did not have any indebtedness outstanding under our $12 .0 million Credit Facility; however, our Credit Facility is secured and, therefore, effectively senior to the Notes to the extent of the value of the assets securing any future borrowings under our Credit Facility.
The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of GSV Capital Corp. and not of any of our subsidiaries, which are separate and distinct legal entities. None of our subsidiaries is a guarantor of the Notes or is otherwise obligated to make payments on the Notes or to make any funds available for that purpose, and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. As a result, the Notes will be structurally subordinated to any future liabilities and other indebtedness of our subsidiaries. These liabilities may include indebtedness, trade payables, guarantees, lease obligations and letter of credit obligations.
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets (including interests in our portfolio companies if permitted pursuant to the terms of our investment) under terms that may be disadvantageous for us, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Regulatory actions and the inability of the Holders to borrow our common stock may adversely affect the trading price and liquidity of the Notes.
We expect that Holders and potential purchasers of the Notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the Notes. The Holders would typically implement this
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strategy by selling short the common stock underlying the Notes and dynamically adjusting their short position while they hold the Notes. The Holders may also implement this strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock.
The SEC and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the future that may impact those engaging in short selling activity involving equity securities (including our common stock), including Rule 201 of SEC Regulation SHO, the Financial Industry Regulatory Authority, Inc.’s “Limit Up-Limit Down” program, market-wide circuit breaker systems that halt trading of securities for certain periods following specific market declines, and rules stemming from the enactment and implementation of the Dodd-Frank Act. Past regulatory actions, including emergency actions or regulations have had a significant impact on the trading prices and liquidity of equity-linked instruments. Any governmental action that similarly restricts the ability of the Holders or potential purchasers of, the Notes to effect short sales of our common stock or enter into swaps on our common stock could similarly adversely affect the trading price and the liquidity of the Notes.
In addition, if the Holders and potential purchasers of the Notes seeking to employ a convertible arbitrage strategy are unable to borrow or enter into swaps on our common stock, in each case on commercially reasonable terms, the trading price and liquidity of the Notes may be adversely affected.
Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the Notes.
The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section, elsewhere in this prospectus supplement or in the accompanying prospectus or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our portfolio companies or competitors regarding their own performance, as well as industry conditions and general financial, economic and political instability. A decrease in the market price of our common stock would likely adversely impact the trading price of the Notes. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading prices of the Notes. This may result in greater volatility in the trading price of the Notes than would be expected for non-convertible debt securities.
In addition, in recent years, the stock market in general has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons often unrelated to their operating performance. These broad market fluctuations may adversely affect our stock price, regardless of our operating results.
We may not have, or have the ability to raise, the funds necessary to purchase the Notes as required upon a fundamental change, and our future debt may contain limitations on our ability to deliver shares of our common stock deliverable upon conversion or purchase of the Notes.
Holders of the Notes will have the right to require us to purchase their Notes for cash upon the occurrence of a fundamental change at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, as described under “Description of Notes — Purchase of Notes at Your Option upon a Fundamental Change.” We may not have enough available cash or be able to obtain financing at the time we are required to make purchases of Notes surrendered therefor. In addition, our ability to purchase the Notes or to deliver shares of our common stock upon conversions of the Notes may be limited by law, by regulatory authority or by agreements governing our indebtedness. For example, our Credit Facility generally prohibits us from prepaying indebtedness other than borrowings under our Credit Facility and, under certain circumstances, our currently outstanding 2013 Convertible Notes. As a result, before making any such repurchase of the Notes, we would have to obtain consent from the lender under our Credit Facility to the extent such requirements remain in effect at such time. Our failure to purchase Notes at a time when the purchase is required by the indenture or deliver any shares of our common stock deliverable on future conversions of the Notes as required by the indenture would constitute a default under
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the indenture. A default under the indenture or the fundamental change itself would also lead to a default under our Credit Facility. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the Notes.
Future sales of our common stock in the public market or issuance of securities senior to our common stock could lower the market price for our common stock and adversely impact the value of the Notes.
Future sales of substantial amounts of our common stock or equity-related securities in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and the value of the Notes and could impair our ability to raise capital through future offerings of equity or equity-related securities. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock or the value of the Notes.
The conversion rate of the Notes may not be adjusted for all dilutive events.
The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance to all or substantially all holders of our common stock of stock dividends, certain rights, options or warrants, capital stock, indebtedness, assets or cash, and subdivisions and combinations of our common stock, and certain issuer tender or exchange offers as described under “Description of Notes — Conversion of Notes — Conversion Rate Adjustments.” However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the Notes or the common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.
Holders of the Notes will not be entitled to any rights with respect to our common stock, but will be subject to all changes made with respect to them to the extent our conversion obligation includes shares of our common stock.
Holders of the Notes will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock) prior to the conversion date relating to the Notes, but Holders of the Notes will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the conversion date related to a Holder’s conversion of its Notes, such Holder will not be entitled to vote on the amendment, although such Holder will nevertheless be subject to any changes affecting our common stock.
Upon conversion of the Notes, you may receive less valuable consideration than expected because the value of our common stock may decline after you exercise your conversion right but before we settle our conversion obligation.
Under the Notes, a converting Holder will be exposed to fluctuations in the value of our common stock during the period from the date such Holder surrenders its Notes for conversion until the date we settle our conversion obligation.
Because we will satisfy our conversion obligation solely in shares of our common stock upon conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the second business day following the relevant conversion date. Accordingly, if the price of our common stock decreases during this period, the value of the shares of our common stock that you receive will be adversely affected and would be less than the conversion value of the Notes on the conversion date.
The Notes contain limited restrictive covenants; and we may incur substantially more debt or take other actions that would intensify the risks described herein.
The indenture contains limited restrictions on our ability to incur debt, including senior indebtedness. For example, as described under the heading “Investment Company Act — Section 18(a)(1)(A) as Modified by Section 61(a)(1)” in this prospectus supplement, we have agreed under the indenture that, for the period
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of time during which the Notes are outstanding, we will not violate, whether or not we are subject to, Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act or any successor provision thereto of the Investment Company Act, but giving effect to any exemptive relief that may be granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the Investment Company Act, equals at least 200% after such borrowings. See “Supplementary Risk Factors — Risks Related to Our Business and Structure — Pending legislation may allow us to incur additional leverage” in this prospectus supplement. In addition, as described under the heading “Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement, we have agreed that, for the period from the initial issuance of the Notes to, and including, March 27, 2019, we will not incur any indebtedness other than certain permitted debt, including, without limitation, up to $12.0 million in borrowings under our Credit Facility. This limitation on the incurrence of additional indebtedness will cease to apply, however, upon the occurrence of  (i) a “change in control” as described in clause (1) or (2) of that definition under the heading “— Purchase of Notes at Your Option upon a Fundamental Change” or (ii) at such time as less than 25% of the initial aggregate principal amount of the Notes (including Notes issued upon the exercise by the underwriter of its over-allotment option) remain outstanding.
The indenture contains no covenants or other provisions to afford protection to Holders of the Notes in the event of a fundamental change or other corporate transaction involving us except to the extent described under “Description of Notes — Purchase of Notes at Your Option upon a Fundamental Change,” and “Description of Notes — Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event.” We could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations, that could substantially affect our capital structure and the value of the Notes and shares of our common stock, but may not constitute a fundamental change that permits Holders to require us to purchase their Notes or a make-whole adjustment event that would require an increase in the conversion rate for Notes converted in connection therewith. For these reasons, you should not consider the covenants in the indenture or the fundamental change purchase and make-whole adjustment features of the Notes as significant factors in evaluating whether to invest in the Notes.
Notwithstanding these limited restrictive covenants, we may, subject to complying with the limitation described under the heading “Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement, be able to incur substantial additional debt in the future, secure existing or future debt, recapitalize our debt or take a number of other actions that could have the effect of diminishing our ability to make payments on the Notes when due. See “Risk Factors — Risks Related to Our Business and Structure — Borrowings, such as the 2013 Convertible Senior Notes, can magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us” in the accompanying prospectus. If we incur substantial additional indebtedness in the future, our indebtedness may affect our ability to pay the principal of and interest on the Notes, or any fundamental change purchase price, and our creditworthiness generally.
These covenants could also limit our operational flexibility and prevent us from taking advantage of business opportunities as they arise, growing our business, or competing effectively.
The adjustment to the conversion rate for Notes converted in connection with a make-whole adjustment event may not adequately compensate you for any lost value of your Notes as a result of such transaction.
Following a make-whole adjustment event, if a Holder elects to convert its Notes in connection with such corporate transaction, we will increase the conversion rate by an additional number of shares of our common stock upon conversion in certain circumstances. The increase in the conversion rate will be determined based on the date on which the make-whole adjustment event occurs or becomes effective and the price paid (or deemed to be paid) per share of our common stock in the make-whole adjustment event, as described below under “Description of Notes — Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event.” The adjustment to the conversion rate for Notes converted in connection with a make-whole adjustment event may not adequately compensate you for any lost value of your Notes as a result of such transaction. In addition, if the price paid (or deemed to be paid) per share of our common stock in the make-whole adjustment event is greater than $48.00 per share or less than $8.93
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per share (in each case, subject to adjustment), no increase in the conversion rate will be made. Moreover, in no event will the conversion rate per $1,000 principal amount of Notes exceed the maximum conversion rate described further under “Description of Notes — Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event” which is subject to adjustment as described in such section.
Our obligation to increase the conversion rate upon the occurrence of a make-whole adjustment event could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness of economic remedies.
Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to purchase the Notes.
Upon the occurrence of a fundamental change, you have the right to require us to purchase your Notes. However, the fundamental change provisions will not afford protection to Holders of Notes in the event of other transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamental change requiring us to repurchase the Notes. In addition, Holders may not be entitled to require us to purchase their Notes upon a fundamental change in certain circumstances involving a significant change in the composition of our board, or in connection with a proxy contest where our board does not endorse a dissident slate of directors but approves them for purposes of the definition of “continuing directors” as set forth under “Description of Notes — Purchase of Notes at Your Option upon a Fundamental Change.” In the event of any such transaction, the Holders of the Notes would not have the right to require us to purchase their Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the Holders of the Notes.
Provisions of the Notes could discourage an acquisition of us by a third party.
Certain provisions of the Notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, Holders of the Notes will have the right, at their option, to require us to purchase for cash all of their Notes or any portion of the principal amount of such Notes in integral multiples of  $1,000. We may also be required to increase the conversion rate in the event of certain transactions constituting a make-whole adjustment event. These provisions could discourage an acquisition of us by a third party.
We cannot assure you that an active trading market will develop for the Notes, and the price may be volatile, so you may be unable to sell your Notes at the price you desire or at all.
The Notes are a new issue of securities and there is no existing trading market for the Notes. We do not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. We have been informed by the underwriter that it currently intends to make a market in the Notes after the offering is completed. However, the underwriter may cease it’s market-making at any time without notice. In addition, any market-making activity will be subject to limits imposed by law. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of security and by changes in our financial performance or prospects or in the prospects for companies in our industry generally, as well as, among other things, the prevailing interest rates. In addition, historically, the market for convertible debt has been subject to disruptions that have caused volatility in prices. It is possible that the market for the Notes will be subject to disruptions that may have a negative effect on the Holders of the Notes, regardless of our prospects or financial performance. As a result, we cannot assure you that an active trading market will develop for the Notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case you may not be able to sell your Notes at a particular time or you may not be able to sell your Notes at a favorable price. Moreover, even if you are able to sell your Notes, you may not receive a favorable price for your Notes.
Any adverse rating of the Notes may negatively affect the trading price and liquidity of the Notes and the price of our common stock.
We do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating service were to assign the Notes a rating lower than the rating expected by investors or were to
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lower its rating on the Notes below the rating initially assigned to the Notes or otherwise announce its intention to put the Notes on credit watch, the trading price or liquidity of the Notes and the price of our common stock could decline.
You may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Notes, even though you do not receive a corresponding cash distribution.
The conversion rate of the Notes is subject to adjustment in certain circumstances, including the payment of cash dividends. If the conversion rate is adjusted as a result of a distribution that is taxable to our common stockholders, such as a cash dividend, you may be deemed to have received a dividend subject to U.S. federal income tax without the receipt of any cash. In addition, a failure to adjust (or to adjust adequately) the conversion rate after an event that increases your proportionate interest in us could be treated as a deemed taxable dividend to you. If a make-whole adjustment event occurs on or prior to the business day immediately preceding the stated maturity date of the Notes, under some circumstances, we will increase the conversion rate for the Notes converted in connection with the make-whole adjustment event. Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. See “Additional Material Federal Income Tax Consequences” in this prospectus supplement. In addition, if you are a Non-U.S. Holder, you may be subject to U.S. federal withholding tax in connection with such a deemed distribution. If withholding tax is paid on your behalf as a result of an adjustment to the conversion rate of the Notes, the withholding agent may offset such payments against payments of cash and common stock on the Notes. You are urged to consult your tax advisor with respect to the U.S. federal income tax consequences resulting from an adjustment to the conversion rate of the Notes. See the discussions under “Additional Material Federal Income Tax Consequences — Tax Consequences to U.S. Holders of Notes — Constructive Dividends” in this prospectus.
Conversions of the Notes will dilute the ownership interest of our existing stockholders, including Holders who had previously converted their Notes.
The conversion of some or all of the Notes will dilute the ownership interests of our existing stockholders. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could depress the price of our common stock.
If the convertibility feature of the Notes is deemed to be greater than incidental, we would be subject to ERISA fiduciary duties.
Under certain circumstances, our underlying assets could be treated as “plan assets” of employee benefit plans subject to ERISA, or section 4975 of the Code. This would occur if the convertibility feature of the Notes were to be treated as greater than “incidental,” in which case, among other consequences, we and our management would be subject to ERISA fiduciary duties, and certain transactions we might enter into, or may have entered into, in the ordinary course of our business might constitute non-exempt “prohibited transactions” under section 406 of ERISA or section 4975 of the Code and might have to be rescinded at significant cost to us.
If the Notes are issued with original issue discount and a bankruptcy petition were filed by or against us, Holders of the Notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the Notes.
If the Notes are issued with original issue discount and a bankruptcy petition were filed by or against us under the United States Bankruptcy Code after the issuance of the Notes, the claim by any Holder of the Notes for the principal amount of the Notes may be limited to an amount equal to the sum of: the original issue price for the Notes and that portion of any original issue discount that does not constitute “unmatured interest” for purposes of the United States Bankruptcy Code.
Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Accordingly, Holders of the Notes under these circumstances may receive a lesser amount than they would be entitled to under the terms of the indenture governing the Notes, even if sufficient funds are available.
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You may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Notes even though you do not receive a corresponding cash distribution.
The conversion rate of the Notes is subject to adjustment in certain circumstances, including the payment of cash dividends. If the conversion rate is adjusted as a result of a cash dividend paid to our common stockholders, you may be deemed to have received a dividend subject to U.S. federal income tax without the receipt of any cash. In addition, a failure to adjust (or to adjust adequately) the conversion rate after an event that increases your proportionate interest in us could be treated as a deemed taxable dividend to you. If a make-whole fundamental change occurs prior to the maturity date, under some circumstances, we will increase the conversion rate for the Notes converted in connection with the make-whole fundamental change. Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. See “Additional Material Federal Income Tax Consequences — Tax Consequences to U.S. Holders of Notes — Constructive Dividends” in this prospectus supplement. If you are a Non-U.S. Holder (as defined in “Additional Material Federal Income Tax Consequences” in this prospectus supplement), any deemed dividend would be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty, and if you are a U.S. Holder (as defined in “Additional Material Federal Income Tax Consequences’’ in this prospectus supplement), any deemed dividend may be subject to federal backup withholding tax at a 24% rate, which, in each case, may be withheld from subsequent payments on the Notes or other amounts received by you. See “Additional Material Federal Income Tax Consequences” in this prospectus supplement.
We intend to take the position that the Notes are not contingent payment debt instruments, which position is not free from doubt.
We may be required to make additional payments on the Notes that are converted in certain circumstances. Due to a lack of relevant authority regarding certain of these payments, the applicability to the Notes of U.S. Treasury regulations governing contingent payment debt instruments is uncertain. Although the matter is not free from doubt, we intend to take the position for U.S. federal income tax purposes that the Notes are not contingent payment debt instruments. Our position that the Notes should not be treated as contingent payment debt instruments is binding on the Holders of the Notes unless a contrary position is disclosed to the Internal Revenue Service (“IRS”) (but is not binding on the IRS). If the IRS were to successfully challenge our position, and the Notes were treated as contingent payment debt instruments, U.S. Holders would be required, among other potential adverse consequences, to accrue interest income at a rate substantially higher than the stated interest rate on the Notes (regardless of such U.S. Holder’s regular method of accounting for U.S. federal income tax purposes), and to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange or redemption of a note. In addition, any gain on the sale, exchange, retirement or other taxable disposition of the Notes (including any gain recognized on the conversion of a Note) would be required to be treated as ordinary income. Holders are urged to consult with their own tax advisors regarding the tax consequences of purchasing, owning and disposing of the Notes and the common stock that may be received upon conversion of the Notes. See “Additional Material Federal Income Tax Consequences” in this prospectus supplement.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law and significantly changes the Code. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction or net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Our U.S. federal net operating loss carryovers created in 2018 and thereafter will be carried forward indefinitely pursuant to the Tax Act. We continue to examine the impact this tax legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected. The impact of this Tax Act on Holders of our Notes or common stock is also uncertain and could be adverse. This prospectus
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supplement and the accompanying prospectus do not discuss any such tax legislation or the manner in which it might affect us or purchasers of our Notes or holders of our common stock. We urge purchasers of Notes in this offering to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our Notes and common stock.
Because the Notes will initially be held in book-entry form, Holders must rely on DTC’s procedures to receive communications relating to the Notes and exercise their rights and remedies.
We will initially issue the Notes in the form of one or more global notes registered in the name of Cede & Co., as nominee of DTC. Beneficial interests in global notes will be shown on, and transfers of global notes will be effected only through, the records maintained by DTC. Except in limited circumstances, we will not issue certificated Notes. See “Description of Notes — Book-Entry Delivery and Form” and “Description of Notes – Book-Entry Procedures for the Global Securities.” Accordingly, if you own a beneficial interest in a global note, then you will not be considered an owner or Holder of the Notes. Instead, DTC or its nominee will be the sole Holder of the Notes. Unlike persons who have certificated Notes registered in their names, owners of beneficial interests in global notes will not have the direct right to act on our solicitations for consents or requests for waivers or other actions from Holders. Instead, those beneficial owners will be permitted to act only to the extent that they have received appropriate proxies to do so from DTC or, if applicable, a DTC participant. The applicable procedures for the granting of these proxies may not be sufficient to enable owners of beneficial interests in global notes to vote on any requested actions on a timely basis. In addition, notices and other communications relating to the Notes will be sent to DTC. We expect DTC to forward any such communications to DTC participants, which in turn would forward such communications to indirect DTC participants. But we can make no assurances that you timely receive any such communications.
Risks Related to Our Investments
The securities of our private portfolio companies are illiquid, and the inability of these portfolio companies to complete an IPO or consummate another liquidity event within our targeted time frame will extend the holding period of our investments, may adversely affect the value of these investments, and will delay the distribution of gains, if any.
The IPO market is, by its very nature, unpredictable. A lack of IPO opportunities for venture capital-backed companies could lead to companies staying longer in our portfolio as private entities still requiring funding. This situation may adversely affect the amount of available venture capital funding to late-stage companies that cannot complete an IPO. Such stagnation could depress returns or could lead to unrealized depreciation and realized losses as some companies run short of cash and have to accept lower valuations in private fundings or are not able to access additional capital at all. A lack of IPO opportunities for venture capital-backed companies may also cause some venture capital firms to change their strategies, leading some of them to reduce funding of their portfolio companies and making it more difficult for such companies to access capital. This might result in unrealized depreciation and realized losses in such companies by other investment funds, like us, who are co-investors in such companies. There can be no assurance that we will be able to achieve our targeted return on our portfolio company investments if, as and when they go public.
The equity securities we acquire in a private company are generally subject to contractual transfer limitations imposed on the company’s stockholders as well as other contractual obligations, such as rights of first refusal and co-sale rights. These obligations generally expire only upon an IPO by the company or the occurrence of another liquidity/exit event. As a result, prior to an IPO or other liquidity/exit event, our ability to liquidate our private portfolio company positions may be constrained. Transfer restrictions could limit our ability to liquidate our positions in these securities if we are unable to find buyers acceptable to our portfolio companies, or where applicable, their stockholders. Such buyers may not be willing to purchase our investments at adequate prices or in volumes sufficient to liquidate our position, and even where they are willing, other stockholders could exercise their co-sale rights to participate in the sale, thereby reducing the number of shares available to sell by us. Furthermore, prospective buyers may be deterred from entering into purchase transactions with us due to the delay and uncertainty that these transfer and other limitations create.
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If the private companies in which we invest do not perform as planned, they may be unable to successfully complete an IPO or consummate another liquidity event within our targeted time frame, or they may decide to abandon their plans for an IPO. In such cases, we will likely exceed our targeted holding period and the value of these investments may decline substantially if an IPO or other exit is no longer viable. We may also be forced to seek to take other steps to exit these investments.
The illiquidity of our private portfolio company investments, including those that are traded on the trading platforms of private secondary marketplaces, may make it difficult for us to sell such investments should the need arise. Also, if we were required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. We will have no limitation on the portion of our portfolio that may be invested in illiquid securities, and we anticipate that all or a substantial portion of our portfolio may be invested in such illiquid securities at all times. Due to the inherent uncertainty in determining the fair value of investments that do 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 the value that would have been used by us had a ready market existed for such investments, and the differences could be material and adverse.
In addition, even if a portfolio company completes an IPO, we will typically not be able to sell our position until any applicable post-IPO lockup restriction expires. As a result of lockup restrictions, the market price of securities that we hold may decline substantially before we are able to sell them following an IPO. There is also no assurance that a meaningful trading market will develop for our publicly traded portfolio companies following an IPO to allow us to liquidate our position when we desire.
Technology-related sectors in which we invest are subject to many risks, including volatility, intense competition, decreasing life cycles, product obsolescence, changing consumer preferences, periodic downturns, regulatory concerns and litigation risks.
Given the experience of GSV Asset Management’s senior investment professionals within the technology space, a number of the companies in which we have invested and intend to invest operate in technology-related sectors. Investments in such companies are subject to substantial risks. The revenue, income (or losses) and valuations of technology-related companies can and often do fluctuate suddenly and dramatically. In addition, because of rapid technological change, the average selling prices of products and some services provided by companies in technology-related sectors have historically decreased over their productive lives.
In addition, our portfolio companies face intense competition since their businesses are rapidly evolving, intensely competitive and subject to changing technology, shifting user needs and frequent introductions of new products and services. Potential competitors to our portfolio companies in the technology industry range from large and established companies to emerging start-ups. Further, such companies are subject to laws that were adopted prior to the advent of the Internet and related technologies and, as a result, may not contemplate or address the unique issues of the Internet and related technologies. The laws that do reference the Internet are being interpreted by the courts, but their applicability and scope remain uncertain. Claims have been threatened and filed under both U.S. and foreign laws for defamation, invasion of privacy and other tort claims, unlawful activity, copyright and trademark infringement, or other theories based on the nature and content of the materials searched and the ads posted by a company’s users, a company’s products and services, or content generated by a company’s users. Further, the growth of technology-related companies into a variety of new fields implicate a variety of new regulatory issues and may subject such companies to increased regulatory scrutiny, particularly in the U.S. and Europe. Any of these factors could materially and adversely affect the business and operations of a portfolio company in the technology industry and, in turn, adversely affect the value of these portfolio companies and the value of any securities that we may hold.
Our financial results could be negatively affected if a significant portfolio company 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 fails to 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 smaller investments in more companies. The following table shows the cost and fair value of our ten largest portfolio company positions as of December 31, 2017:
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Portfolio Company
Cost
Fair
Value
% of Net
Asset
Value
Palantir Technologies, Inc.
$ 16,189,935 $ 35,075,759 17.1%
Spotify Technology S.A.
10,002,084 30,729,068 15.0
Coursera, Inc.
14,519,519 18,360,674 9.0
Dropbox, Inc.
13,656,926 17,875,696 8.7
StormWind, LLC
6,130,474 13,453,718 6.6
General Assembly Space, Inc.
5,999,961 10,840,866 5.3
Lyft Inc.
4,296,334 10,123,515 4.9
Course Hero, Inc.
5,000,001 10,041,426 4.9
NestGSV, Inc. (d.b.a. GSV Labs, Inc.)
9,869,428 9,683,581 4.7
Chegg, Inc.
6,008,468 8,160,000 4.0
Total
$ 91,673,130 $ 164,344,303 80.2%
Risks Related to Our Business and Structure
We are dependent upon GSV Asset Management’s senior investment professionals for our future success. If we lose any of GSV Asset Management’s senior investment professionals, our ability to implement our business strategy could be significantly harmed.
We depend on the diligence, skill and network of business contacts of GSV Asset Management’s senior investment professionals. These senior investment professionals, together with other investment professionals employed by GSV Asset Management, evaluate, negotiate, structure, close, monitor and service our investments. Our future success will depend to a significant extent on the continued service and coordination of GSV Asset Management’s senior investment professionals, particularly Michael T. Moe, William Tanona and Luben Pampoulov.
All of GSV Asset Management’s senior investment professionals, including Michael T. Moe, William Tanona and Luben Pampoulov, are at-will employees. As a result, although Messrs. Moe, Tanona and Pampoulov comprise the senior investment professionals and principals of GSV Asset Management, they are free to terminate their employment with GSV Asset Management at any time. In addition, none of GSV Asset Management’s senior investment professionals, including Messrs. Moe, Tanona and Pampoulov, are subject to any non-compete agreements that would restrict their ability to provide investment advisory services to an entity with an investment objective similar to our own in the event they were to terminate their employment with GSV Asset Management, or if GSV Asset Management were to no longer serve as our investment adviser. There can be no assurance that GSV Asset Management will be successful in retaining its senior investment professionals, including Messrs. Moe, Tanona and Pampoulov. The departure of any of Messrs. Moe, Tanona and Pampoulov could have a material adverse effect on our ability to achieve our investment objective.
Our growth will require that GSV Asset Management retain and attract new investment and administrative personnel in a competitive market. Its ability to attract and retain personnel with the requisite credentials, experience and skills will depend on several factors including, but not limited to, its ability to offer competitive wages, benefits and professional growth opportunities. Many of the entities with which GSV Asset Management will compete for experienced personnel, including investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, will have greater resources than it does.
Capital markets may experience periods of disruption and instability. These market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may in the future have a negative impact on our business and operations.
As a BDC, we must maintain our ability to raise additional capital for investment purposes. Without sufficient access to the capital markets or credit markets, we may be forced to curtail our business operations or we may not be able to pursue new business opportunities.
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From time to time, capital markets may experience periods of disruption and instability. During such periods of market disruption and instability, we and other companies in the financial services sector may have limited access, if available, to alternative markets for debt and equity capital. Equity capital may be difficult to raise because, subject to some limited exceptions which will apply to us as a BDC, we will generally not be able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors. In addition, our ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 200% immediately after each time we incur indebtedness. The debt capital that will be available, if at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.
Given the volatility and dislocation in the capital markets over the past several years, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, this volatility and disruption, has had, and in the future may have, a negative effect on the valuations of our investments and on the potential for liquidity events involving these investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume, as part of our valuation process that our investments are sold in orderly mark-to-market transactions between market participants. As a result, volatility in the capital markets can adversely affect our investment valuations. Further, the illiquidity of our investments may make it difficult for us to sell such investments if required and to value such investments. As a result, we may realize significantly less than the value at which we will have recorded our investments. 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 or results of operations. In addition, a prolonged period of market illiquidity may cause us to reduce the volume of investments we may make and adversely affect the value of our portfolio investments, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many of the portfolio companies in which we make investments may be susceptible to economic slowdowns or recessions and may be unable to repay any loans made to them during these periods and, thus, jeopardize our equity investment in such portfolio companies. Therefore, the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value. Adverse economic conditions also may decrease the value of our equity investments and the value of any collateral securing our loans, if any. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions could also increase our and our portfolio companies’ funding costs, limit our and our portfolio companies’ access to the capital markets or result in a decision by lenders not to extend credit to us or our portfolio companies. These events could prevent us from increasing investments and harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize our equity investment in such portfolio company. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a financially distressed or defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, we would typically be last in line behind any creditors and would likely experience a complete loss on our investment.
Any disruptive conditions in the financial industry and the impact of new legislation in response to those conditions could restrict our business operations and could adversely impact our results of operations and financial condition. In addition, the BDC market may be more sensitive to changes in interest rates or other factors and to the extent the BDC market trades down, our shares might likewise be affected. If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratios imposed upon us by the 1940 Act. Any such failure would affect our ability to issue securities, including borrowings, and pay dividends, which could materially impair our business operations. Our liquidity could be impaired
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further by an inability to access the capital markets or to consummate new borrowing facilities to provide capital for normal operations, including new originations. In recent years, reflecting concern about the stability of the financial markets, many lenders and institutional investors have reduced or ceased providing funding to borrowers.
In addition to regulatory requirements that restrict our ability to raise capital, the loan agreement governing our Credit Facility contain various covenants which, if not complied with, could materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay dividends.
Under the Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank, pursuant to which Western Alliance Bank agreed to provide us with our $12.0 million Credit Facility, we have made certain customary representations and warranties and are required to comply with various affirmative and negative covenants, reporting requirements, and other customary requirements for similar credit facilities, including, without limitation, restrictions on incurring additional indebtedness, compliance with the asset coverage requirements under the 1940 Act, a minimum net asset value requirement of at least the greater of  $60.0 million or five times the amount of our $12.0 million Credit Facility, a limitation on our net asset value being reduced by more than 15% of our net asset value at December 31, 2016, and maintenance of RIC and BDC status. The Loan Agreement includes usual and customary events of default for credit facilities of this nature, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to certain other indebtedness, bankruptcy, the cessation of the Investment Advisory Agreement and the occurrence of a material adverse effect.
Our ability to continue to comply with these covenants in the future depends on many factors, some of which are beyond our control. There are no assurances that we will be able to comply with these covenants. Failure to comply with these covenants would result in a default which, if we were unable to obtain a waiver under the Loan Agreement, would have a material adverse impact on our liquidity, financial condition, results of operations and ability to pay dividends.
Changes in laws or regulations governing our business or the businesses of our portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, and any failure by us or our portfolio companies to comply with these laws or regulations may adversely affect our business and the businesses of our portfolio companies.
We and our portfolio companies are subject to laws and regulations at the U.S. federal, state and local levels and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, may change from time to time, and new laws, regulations and interpretations may also come into effect, potentially with retroactive effect. Any such new or changed laws or regulations could have a material adverse effect on our business or the business of our portfolio companies. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In addition, there is significant uncertainty regarding enacted legislation (including the Dodd-Frank Act and the regulations adopted thereunder and future regulations that may or may not be adopted pursuant to such legislation) and, consequently, the full impact that such legislation will ultimately have on us and the markets in which we trade and invest is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.
In addition, as private equity firms become more influential participants in the U.S. and global financial markets and economy generally, there recently has been pressure for greater governmental scrutiny and/or regulation of the private equity industry. It is uncertain as to what form and in what jurisdictions such enhanced scrutiny and/or regulation, if any, on the private equity industry may ultimately take. Therefore, there can be no assurance as to whether any such scrutiny or initiatives will have an adverse impact on the private equity industry, including our ability to effect operating improvements or restructurings of our portfolio companies or otherwise achieve our objectives.
Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any
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regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our or our portfolio companies’ operating results or financial condition, impose additional costs on us or our portfolio companies, intensify the regulatory supervision of us or otherwise adversely affect our business.
Additionally, any changes to the laws and regulations governing our operations may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences to the strategies and plans set forth herein and may result in our investment focus shifting from the areas of expertise of the GSV Asset Management senior investment professionals to other types of investments in which the investment team may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
Pending legislation may allow us to incur additional leverage.
As a BDC, under the 1940 Act, we generally are not permitted to incur borrowings, issue debt securities or issue preferred stock unless immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200%. The U.S. Senate recently introduced the legislation, which if passed, would modify this section of the 1940 Act and increase the amount of debt that BDCs may incur by modifying the asset coverage percentage from 200% to 150%. As a result, we may be able to incur additional indebtedness in the future, and therefore, your risk of an investment in us may increase. In addition, since our management fee is calculated based on the value of our gross assets, including assets acquired through the incurrence of debt, our base management fee expenses will increase if we incur additional indebtedness.
We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business.
Legislative or other actions relating to taxes could have a negative effect on us. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. On December 22, 2017, the Tax Act was signed into law and significantly changes the Code, including significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with certainty how any changes in the tax laws might affect us, Holders of our Notes, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. You are urged to consult with your tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.
Certain investors are limited in their ability to make significant investments in us.
Private funds that are excluded from the definition of  “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the 1940 Act are restricted from acquiring directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the 1940 Act and BDC’s, such as us, are also subject to this restriction as well as other limitations under the 1940 Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors will be limited in their ability to make significant investments in us at a time that they might desire to do so.
Ineffective internal controls could impact our business and operating results.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSV Capital, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our equity investments in such portfolio companies,

an economic downturn could disproportionately impact the market sectors in which a significant portion of our portfolio is concentrated, causing us to suffer losses in our portfolio,

an inability to access the equity markets could impair our investment activities,

interest rate volatility could adversely affect our results, particularly if we opt to use leverage as part of our investment strategy, and

the risks, uncertainties and other factors we identify in “Supplementary Risk Factors” and “Risk Factors,” elsewhere in this prospectus supplement and the accompanying prospectus.
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus supplement or the accompanying prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled “Supplementary Risk Factors” beginning on page 20 of this prospectus supplement and “Risk Factors” beginning on page 19 of the accompanying prospectus and elsewhere in this prospectus supplement. You should not place undue reliance on these forward-looking statements, which apply only as of the dates of this prospectus supplement and the accompanying prospectus, respectively. The forward-looking statements and projections contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). In addition, the forward-looking statements and projections contained in any reports we may file subsequent to completion of this offering under the Exchange Act will be excluded from the safe harbor protection provided by Section 21E of the Exchange Act.
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CAPITALIZATION
The following table sets forth our cash and capitalization as of December 31, 2017 (1) on an actual basis and (2) as adjusted to reflect the effects of the sale of  $40.0 million in aggregate principal amount of Notes in this offering (assuming that the underwriters do not exercise their over-allotment option) at an offering price of 100% of par and the application of the net proceeds of this offering. You should read this table together with “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and notes thereto included in this prospectus supplement and the accompanying prospectus. The adjusted information is illustrative only.
As of December 31, 2017
Actual
As Adjusted
for this
Offering(1)
(Dollars in thousands)
Cash
$ 59,839 $ 98,039
Total assets
$ 381,683 $ 419,883
Borrowings
$ 69,000 $ 109,000
Notes Offered hereby
$ $ 40,000
2013 Convertible Notes
$ 69,000 $ 69,000
Common stock, par value $0.001 per share; 100,000,000 shares authorized, 21,246,345 shares issued and outstanding respectively
$ 212 $ 212
Capital in excess of par value
$ 202,584 $ 202,584
Distributable earnings(2)
$ 1,967 $ 166
Total stockholders’ equity
$ 204,763 $ 202,963
Total capitalization
$ 273,763 $ 311,963
(1)
Does not include the underwriter’s option to purchase additional Notes.
(2)
Includes cumulative net investment income or loss, cumulative amounts of gains and losses realized from investments and net unrealized appreciation or depreciation of investments, and distributions paid to stockholders other than tax return of capital distributions. Distributable earnings is not intended to represent amounts we may or will distribute to our stockholders.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the $40.0 million in aggregate principal amount of Notes in this offering, after deducting estimated expenses of this offering payable by us and the underwriter’s discount, will be approximately $38.2 million (or approximately $44.0 million, if the over-allotment is exercised in full), in each case assuming the Notes are sold at 100% of par.
We intend to use all of the net proceeds from the offering, approximately $38.2 million (or approximately $44.0 million if the underwriter’s exercise their option to purchase additional Notes in full) to repurchase or pay at maturity a portion of the outstanding 2013 Convertible Notes, which bear interest at 5.25% per annum and mature on September 15, 2018.
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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the Nasdaq Capital Market under the symbol “GSVC”. The following table sets forth, for each fiscal quarter within the two most recent fiscal years and each full fiscal quarter since the beginning of the current fiscal year, the net asset value, or “NAV,” per share of our common stock, the high and low sales prices for our common stock, and such sales prices as a percentage of NAV per share.
Price Range
High Close Price as
a Premium/​
(Discount) to
NAV(2)
Low Close Price as
a Premium/​
(Discount) to
NAV(2)
NAV(1)
High
Low
Fiscal 2018
First Quarter (through March 22, 2018)
* 9.18 5.58 * *
Fiscal 2017
Fourth Quarter
$ 9.64 $ 6.62 $ 5.27 (31.3)% (45.3)%
Third Quarter
9.69 5.41 3.86 (44.2) (60.2)
Second Quarter
9.11 4.71 4.29 (48.3) (52.9)
First Quarter
8.83 5.52 4.43 (37.5) (49.8)
Fiscal 2016
Fourth Quarter
$ 8.66 $ 5.15 $ 4.50 (40.5)% (48.0)%
Third Quarter
10.08 5.85 4.61 (42.0) (54.3)
Second Quarter
10.22 6.03 4.60 (41.0) (55.0)
First Quarter
10.96 6.73 5.41 (38.6) (50.6)
(1)
NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low close prices. The NAV per share figures shown are based on outstanding shares at the end of each period.
(2)
Calculated as the respective high or low close price less NAV per share, divided by NAV per share.
*
Not determinable as of the date of this prospectus.
On March 22, 2018, the last reported sales price of our common stock was $8.93 per share.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at premiums that are unsustainable over the long term or at a discount from net asset value are separate and distinct from the risk that our net asset value will decrease. Since our IPO in May 2011, our shares of common stock have traded at both a discount and a premium to the net assets attributable to those shares. As of March 22, 2018, our shares of common stock traded at a discount equal to approximately (7.4)% of the net assets attributable to those shares based upon our $9.64 NAV per share as of December 31, 2017. It is not possible to predict whether the Notes offered hereby will trade at, above, or below net asset value.
The timing and amount of our dividends, if any, will be determined by our board of directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. We intend to focus on making capital gains-based investments from which we will derive primarily capital gains. As a consequence, we do not anticipate that we will pay dividends on a quarterly basis or become a predictable distributor of dividends, and we expect that our dividends, if any, will be much less consistent than the dividends of other business development companies that primarily make debt investments. However, if there are earnings or realized capital gains to be distributed, we intend to declare and pay a dividend at least annually.
We have elected to be treated as a RIC under subchapter M of the Code and expect to continue to operate in a manner so as to qualify for the tax treatment applicable to RICs. To maintain RIC tax treatment, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Further, undistributed
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taxable income (subject to a 4% excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared prior to the later of   (1) the fifteenth day of the ninth month following the close of that fiscal year or (2) the extended due date for filing the U.S. federal income tax return for that fiscal year. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of   (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment. If this happens, our stockholders will be treated as if they received an actual distribution of the capital gains we retain and reinvested the net after-tax proceeds in us. Stockholders may be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to the allocable share of the tax we paid on the capital gains deemed distributed to them. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
The timing and amount of our distributions, if any, will be determined by our board of directors and will be declared out of assets legally available for distribution. The following table lists the distributions, including dividends and returns of capital, if any, per share that we have declared since our formation through December 31, 2017. The table is divided by fiscal year according to record date:
Date Declared
Record Date
Payment Date
Amount
per Share
Fiscal 2015:
November 4, 2015(1)
November 16, 2015
December 31, 2015
$ 2.76
Fiscal 2016:
August 3, 2016(2)
August 16, 2016
August 24, 2016
0.04
Total
$
2.80
(1)
The distribution was paid in cash or shares of our common stock at the election of stockholders, although the total amount of cash distributed to all stockholders was limited to approximately 50% of the total distribution to be paid to all stockholders. As a result of stockholder elections, the distribution consisted of approximately 2,860,903 shares of common stock issued in lieu of cash, or approximately 14.8% of our outstanding shares prior to the distribution, as well as cash of $26,358,885. The number of shares of common stock comprising the stock portion was calculated based on a price of   $9.425 per share, which equaled the average of the volume weighted-average trading price per share of our common stock on December 28, 29 and 30, 2015. None of the $2.76 per share distribution represented a return of capital.
(2)
Of the total distribution of   $887,240 on August 24, 2016, $820,753 represented a distribution from realized gains, and $66,487 represented a return of capital.
We intend to focus on making capital gains-based investments from which we will derive primarily capital gains. As a consequence, we do not anticipate that we will pay distributions on a quarterly basis or become a predictable distributor of distributions, and we expect that our distributions, if any, will be much less consistent than the distributions of other BDCs that primarily make debt investments. If there are earnings or realized capital gains to be distributed, we intend to declare and pay a distribution at least annually. The amount of realized capital gains available for distribution to stockholders will be impacted by our tax status.
Our current intention is to make any future distributions out of assets legally available therefrom in the form of additional shares of our common stock under our dividend reinvestment plan, except in the case of stockholders who elect to receive dividends and/or long-term capital gains distributions in cash. Under the
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dividend reinvestment plan, if a stockholder owns shares of common stock registered in its own name, the stockholder will have all cash distributions (net of any applicable withholding) automatically reinvested in additional shares of common stock unless the stockholder opts out of our dividend reinvestment plan by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. Any distributions reinvested under the plan will nevertheless be treated as received by the U.S. stockholder for U.S. federal income tax purposes, although no cash distribution has been made. As a result, if a stockholder does not elect to opt out of the dividend reinvestment plan, it will be required to pay applicable federal, state and local taxes on any reinvested dividends even though such stockholder will not receive a corresponding cash distribution. See “Additional Material Federal Income Tax Consequences” in this prospectus supplement. In addition, reinvested dividends have the effect of increasing our gross assets, which may correspondingly increase the management fee payable to GSV Asset Management. Stockholders that hold shares in the name of a broker or financial intermediary should contact the broker or financial intermediary regarding any election to receive distributions in cash.
So long as we qualify and maintain our tax treatment as a RIC, we generally will not pay corporate-level U.S. federal or state income taxes on any ordinary income or capital gains that we distribute at least annually to our stockholders as dividends. Rather, any tax liability related to income earned by the RIC will represent obligations of our investors and will not be reflected in our consolidated financial statements. See “Note 2 — Significant Accounting Policies — U.S. Federal and State Income Taxes” and “Note 9 — Income Taxes” to our consolidated financial statements for the year ended December 31, 2017, included in this prospectus supplement, for more information. The GSVC Holdings included in our consolidated financial statements are taxable subsidiaries, regardless of whether we are taxed as a RIC. These taxable subsidiaries are not consolidated for income tax purposes and may generate income tax expenses as a result of their ownership of the portfolio companies. Such income tax expenses and deferred taxes, if any, will be reflected in our consolidated financial statements.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our consolidated financial statements and notes thereto appearing elsewhere in this prospectus supplement. The following discussion and other parts of this prospectus supplement and the accompanying prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Supplementary Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this prospectus supplement and “Risk Factors” and “Forward-Looking Statements” in the accompanying prospectus.
Overview
We are an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. Our investment objective is to maximize our portfolio’s total return, principally by seeking capital gains on our equity and equity-related investments. We invest principally in the equity securities of what we believe to be rapidly growing venture-capital-backed emerging companies. We have also invested, on an opportunistic basis, in select publicly traded equity securities of rapidly growing companies that otherwise meet our investment criteria and may continue to do so in the future. In addition, while we invest primarily in U.S. companies, we may invest on an opportunistic basis in certain non-U.S. companies that otherwise meet our investment criteria. In regard to the regulatory requirements for BDCs under the 1940 Act, some of these investments may not qualify as investments in “eligible portfolio companies,” and thus may not be considered “qualifying assets.” “Eligible portfolio companies” generally include U.S. companies that are not investment companies and that do not have securities listed on a national exchange. If at any time less than 70% of our gross assets are comprised of qualifying assets, including as a result of an increase in the value of any on-qualifying assets or decrease in the value of any qualifying assets, we would generally not be permitted to acquire any additional non-qualifying assets until such time as 70% of our then-current gross assets were comprised of qualifying assets. We would not be required, however, to dispose of any non-qualifying assets in such circumstances. See “Regulation as a Business Development Company” in the accompanying prospectus for more information.
We acquire our investments in portfolio companies through offerings of the prospective portfolio companies, transactions on secondary marketplaces for private companies and negotiations with selling stockholders. Our investment activities are managed by GSV Asset Management. GSV Capital Service Company provides the administrative services necessary for us to operate.
Our investment philosophy is premised on a disciplined approach of identifying high-growth emerging companies across several key industry themes that may include, among others, social mobile, cloud computing and big data, internet commerce, sustainability and education technology. GSV Asset Management’s investment decisions are based on a disciplined analysis of available information regarding each potential portfolio company’s business operations, focusing on the company’s growth potential, the quality of recurring revenues and cash flow and cost structures, as well as an understanding of key market fundamentals. Many of the companies that our investment adviser, GSV Asset Management, evaluates have financial backing from top-tier venture capital funds or other financial or strategic sponsors.
We seek to deploy capital primarily in the form of non-controlling equity and equity-related investments, including common stock, warrants, preferred stock and similar forms of senior equity, which may or may not be convertible into a portfolio company’s common equity, and convertible debt securities with a significant equity component. Typically, our preferred stock investments are non-income-producing, have different voting rights than common stock and are generally convertible into common stock at our discretion. Our investments generally do not produce current income and, therefore, we may be dependent on future capital raising to meet our operating needs if no other source of liquidity is available.
Starting in 2017, we began to focus our investment strategy to increase the size of our investments in individual portfolio companies. While this will likely have the effect of reducing the number of companies in which we hold investments, we believe that the shift towards larger positions will better allow GSV Asset
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Management’s investment professionals to focus our investments in companies and industries that are more likely to result in beneficial returns to our stockholders.
Management Transition and Board Changes
On March 15, 2017, each of Catherine J. Friedman and Bradford C. Koenig resigned as a member of our board of directors, effective as of March 17, 2017.
On March 16, 2017, our board of directors appointed Marc Mazur to fill the vacancy created by Ms. Friedman’s resignation and to serve as a member of the board of directors, effective March 17, 2017, until our 2019 annual meeting of stockholders and until his successor is duly elected and qualifies.
In addition, on March 16, 2017, our board of directors appointed David S. Pottruck to fill the vacancy created by Mr. Koenig’s resignation and to serve as a member of our board of directors, effective May 31, 2017, until our 2018 annual meeting of stockholders and until his successor is duly elected and qualifies.
On August 8, 2017, we announced Michael Moe’s resignation as our Chief Executive Officer, effective August 11, 2017, and that our board of directors had appointed Mark Klein, a member of our board of directors and a consultant to GSV Asset Management, to serve as our Chief Executive Officer, effective August 11, 2017. Mr. Moe continues to serve as Executive Chairman of our board of directors. Further information regarding the management transition can be found in our Current Report on Form 8-K, filed with the SEC on August 8, 2017.
On October 17, 2017, Mark Flynn resigned from his positions as our President and as a member of our board of directors, effective October 17, 2017. In connection with Mr. Flynn’s resignation, our board of directors reduced the number of directors that constitutes the full board to six (6) directors from seven (7) directors. Mr. Flynn continues to provide services to GSV Asset Management pursuant to a consulting agreement with GSV Asset Management.
In addition, our board of directors appointed William Tanona to serve as our President, effective October 17, 2017, in order to fill the vacancy created by Mr. Flynn’s resignation. Mr. Tanona previously served, and continues to serve, as our Chief Financial Officer, Treasurer and Corporate Secretary. Further information regarding the management transition can be found in our Current Report on Form 8-K, filed with the SEC on October 18, 2017.
Portfolio and Investment Activity
The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments and the sales of existing investments. The fair value, as of December 31, 2017, of all of our portfolio investments, excluding U.S. Treasury bills, was $220,588,493.
During the year ended December 31, 2017 we did not fund any new investments; however, we capitalized fees of  $191,274, primarily due to the sale or disposal of portfolio company investments, and received 125,000 Series B warrants upon the May 29, 2017 extension of the unsecured promissory note to NestGSV, Inc. (d/b/a GSV Labs, Inc.). During the year we realized a net investment gain of approximately $0.9 million due to the sales and write-offs of some of our investments. The table below summarizes the portfolio investments we sold or wrote-off during the quarter and year ended December 31, 2017:
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Quarter Ended December 31, 2017
Year Ended December 31, 2017
Portfolio Company
Net Proceeds
Realized
Gains/(Losses)(1)
Net Proceeds
Realized
Gains/(Losses)(1)
AliphCom, Inc. (d/b/a Jawbone)
$ $ $ $ (793,152)
AlwaysOn, Inc.
(1,903,414)
Beamreach Solar, Inc. (f/k/a Solexel, Inc.)
(14,272,840)
Cricket Media (f/k/a ePals Corporation)
(2,448,959)
EarlyShares.com, Inc.
(312,438)
Orchestra One, Inc. (f/k/a Learnist, Inc.)
(4,959,614)
Global Education Learning (Holdings) Ltd.
(675,495)
Snap, Inc.
4,033,360 31,090
JAMF Holdings, Inc.(2)
34,931,287 25,474,575 34,931,287 25,474,575
Spotify Technology S.A.(3)
13,896,600 10,299,111 13,896,600 10,299,111
Dataminr, Inc.
4,803,384 1,635,673 4,803,384 1,635,673
Whittle Schools, LLC
4,575,000 (181,045) 4,575,000 (181,045)
Chegg, Inc.(3)
4,506,108 1,241,122 10,246,005 2,231,611
Strategic Data Command, LLC(2)
2,454,652 1,524,374 2,454,652 1,524,374
Palantir Technologies, Inc.(3)
2,091,501 1,078,692 2,091,501 1,078,692
Circle Media (f/k/a S3 Digital Corp. (d/b/a S3i)
(1,839,914) (1,839,914)
Handle Financial, Inc. (f/k/a PayNearMe, Inc.)
(14,000,398) (14,000,398)
Total Disposals
$ 67,258,532 $ 25,232,190 $ 77,031,789 $ 887,857
(1)
Realized gains/(losses) exclude any realized gains/(losses) incurred on the maturity of our U.S. Treasury investments.
(2)
Net proceeds does not reflect amounts expected to be received from the sale of these investments currently being held in escrow. Refer to “Note 2 — Significant Accounting Policies — Escrow Proceeds Receivable” to our consolidated financial statements as of December 31, 2017 for further detail.
(3)
Represents only a partial sale of our investment in the denoted portfolio companies. Refer to our Consolidated Schedule of Investments as of December 31, 2017 for the remaining investments held in these portfolio companies as of December 31, 2017.
2016 — Portfolio and Investment Activity
The table below summarizes the portfolio investments we purchased during the year ended December 31, 2016:
Fundings by Portfolio Company (Industry)
Year Ended
December 31, 2016
Beamreach Solar, Inc. (f/k/a Solexel, Inc.) (Solar Power)
$ 250,000
Curious.com Inc. (Online Education)
2,000,003
Fullbridge, Inc. (Business Education)
1,000,000
Lytro, Inc. (Light Field Imaging Platform)
3,000,002
NestGSV, Inc. (d/b/a GSV Labs, Inc.) (Global Innovation Platform)
1,526,000
Ozy Media, Inc. (Digital Media Platform)
2,000,000
Snap Inc. (f/k/a Snapchat, Inc.) (Social Communication)
3,999,990
Capitalized Fees(1)
27,347
Total Gross Payments
$ 13,803,342
(1)
Capitalized fees represent costs such as legal and other fees associated with entering into or exiting a portfolio company investment or the ongoing due diligence and other costs associated with an existing
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portfolio company investment. Refer to “Note 2 — Significant Accounting Policies — Investment Transaction Costs and Escrow Deposits” to our consolidated financial statements as of December 31, 2017 for further detail.
The table below summarizes the portfolio investments we sold or wrote-off during the year ended December 31, 2016:
Year Ended December 31, 2016
Portfolio Company
Net Proceeds
Realized
Gains/(Losses)(1)
Bloom Energy Corporation
$ 2,973,438 $ (882,162)
Gilt Groupe Holdings, Inc.(2)
429,261 (6,165,173)
Lyft, Inc.
7,651,890 4,430,220
NestGSV, Inc.
500,000
Twitter, Inc.
14,578,469 306,603
Upwork Global Inc. (f/k/a Odesk Corporation)
108,531 (77,819)
Total Disposals
$ 26,241,589 $ (2,388,331)
(1)
Realized gains/(losses) exclude any realized gains/(losses) incurred on the maturity of our U.S. Treasury investments as well as realized losses of  $246,714 from our investments in warrants of FullBridge, Inc.
(2)
$1,991 of the proceeds received from Gilt Groupe Holdings, Inc. represents an excess distribution of proceeds received as part of the January 2016 sale of Gilt Groupe Holdings, Inc. to Hudson’s Bay Co., the parent company of Saks Fifth Avenue.
2015 — Portfolio and Investment Activity
The table below summarizes the portfolio investments we purchased during the year ended December 31, 2015:
Fundings by Portfolio Company (Industry)
Year Ended
December 31, 2015
NestGSV, Inc. (d/b/a GSV Labs, Inc.) (Global Innovation Platform)
$ 3,499,999
Fullbridge, Inc. (Business Education)
964,042
Lyft, Inc. (Peer to Peer Ridesharing)
2,499,985
Handle Financial, Inc. (f/k/a PayNearMe, Inc.). (Cash Payment Network)
3,999,998
GSV Sustainability Partners (Clean Technology)
2,300,000
Earlyshares.com, Inc. (Equity Crowdfunding)
50,000
Enjoy Technology, Inc. (On-Demand Commerce)
4,000,000
Aspiration Partners, Inc. (Financial Services)
999,975
Declara, Inc. (Social Cognitive Learning)
2,000,000
EdSurge, Inc. (Education Media Platform)
500,000
Circle Media (f/k/a S3 Digital Corp. (d/b/a S3i)) (Sports Analytics)
25,000
Spotify Technology S.A. (Music Streaming Service)
10,001,100
Capitalized Fees(1)
115,420
Total Gross Payments
$ 30,955,519
(1)
Capitalized fees represent costs such as legal and other fees associated with entering into or exiting a portfolio company investment or the ongoing due diligence and other costs associated with an existing portfolio company investment. Refer to “Note 2 — Significant Accounting Policies — Investment Transaction Costs and Escrow Deposits” to our consolidated financial statements as of December 31, 2017 for further detail.
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The table below summarizes the portfolio investments we sold or wrote-off during the year ended December 31, 2015:
Year Ended December 31, 2015
Portfolio Company
Net Proceeds
Realized
Gains/(Losses)(1)
2U, Inc. (f/k/a 2tor, Inc.)
$ 47,192,835 $ 37,160,718
DailyBreak, Inc.
3,000 (2,854,204)
Global Education Learning (Holdings) Ltd.(2)
3,660,394
NewZoom, Inc.
(260,476)
SugarCRM, Inc.
1,874,000 549,710
Twitter, Inc.
40,166,211 26,886,514
Totus Solutions, Inc.(3)
50,000 (6,052,203)
The rSmart Group, Inc.
5,000 (1,264,160)
Total Disposals
$ 92,951,440 $ 54,165,899
(1)
Realized gains/(losses) excludes any realized gains/(losses) incurred on the maturity of our U.S. Treasury investments.
(2)
Represents a tax distribution from Global Education Learning (Holdings) Ltd.
(3)
Represents sales of multiple share classes as well a debt investment in Totus Solutions, Inc.
Share Repurchase Program
On August 8, 2017, we announced the $5.0 million discretionary Share Repurchase Program.
On November 7, 2017, our board of directors authorized an extension of, and an increase in the amount of shares of our common stock that may be repurchased under, the discretionary Share Repurchase Program until the earlier of  (i) November 6, 2018 or (ii) the repurchase of  $10.0 million in aggregate amount of our common stock. The timing and number of shares to be repurchased will depend on a number of factors, including market conditions and alternative investment opportunities. The Share Repurchase Program may be suspended, terminated or modified at any time for any reason and does not obligate us to acquire any specific number of shares of our common stock.
During the three months ended December 31, 2017, we repurchased 360,549 shares of our common stock for approximately $2.1 million under the Share Repurchase Program.
Tender Offer for the 2013 Convertible Notes
On December 15, 2017, we announced the commencement of the Tender Offer to purchase any and all of our $69.0 million aggregate principal amount of the 2013 Convertible Notes. As of the expiration of the Tender Offer on January 17, 2018, approximately $4.8 million aggregate principal amount of the 2013 Convertible Notes, representing approximately 7.0% of the outstanding 2013 Convertible Notes, were validly tendered and not validly withdrawn pursuant to the Tender Offer.
Recent Developments
Portfolio Activity
Please refer to “Note 11 — Subsequent Events” to our consolidated financial statements as of December 31, 2017 for details regarding our portfolio activity from January 1, 2018 through March 16, 2018.
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We are frequently in negotiations with various private companies with respect to investments in such companies. Investments in private companies are generally subject to satisfaction of applicable closing conditions. In the case of secondary market transactions, such closing conditions may include approval of the issuer, waiver or failure to exercise rights of first refusal by the issuer and/or its stockholders and termination rights by the seller or us. Equity investments made through the secondary market may involve making deposits in escrow accounts until the applicable closing conditions are satisfied, at which time the escrow accounts will close and such equity investments will be effectuated.
Share Repurchase Program
From January 1, 2018 through March 16, 2018, we repurchased 179,807 shares of our common stock pursuant to the Share Repurchase Program at an average price of  $6.90 per share.
Tender Offer for the 2013 Convertible Notes
As of the expiration of the Tender Offer on January 17, 2018, approximately $4.8 million aggregate principal amount of the 2013 Convertible Notes, representing approximately 7.0% of the outstanding 2013 Convertible Notes, were validly tendered and not validly withdrawn pursuant to the Tender Offer.
Management and Incentive Fee Waiver Agreement
On February 5, 2018, we announced that GSV Asset Management had agreed to reduce the fees payable under the Investment Advisory Agreement pursuant to the Waiver Agreement. The Waiver Agreement is effective February 1, 2018 and changes the fee structure set forth in the Investment Advisory Agreement by: (i) reducing the base management fee from 2.00% to 1.75%; and (ii) creating certain high-water marks that must be reached before any incentive fee is paid to GSV Asset Management. In addition, pursuant to the Waiver Agreement, GSV Asset Management has agreed to forfeit $5.0 million of its previously accrued but unpaid incentive fees, and to waive base management fees on cash balances until the 2013 Convertible Notes mature or are retired.
For the avoidance of doubt, after these changes take effect, under no circumstances will the aggregate fees earned by GSV Asset Management in any quarterly period be higher than those aggregate fees that would have been earned prior to the effectiveness of the Waiver Agreement.
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Results of Operations
Operating results for the years ended December 31, 2017, 2016 and 2015 are as follows:
Year Ended December 31,
2017
2016
2015
Total Investment Income
$ 852,768 $ 736,283 $ 290,896
Interest income
304,672 523,488 244,115
Dividend income
475,000 46,781
Other income
73,096 212,795
Gross Operating Expenses
22,439,855 1,999,646 26,978,235
Management fee waiver
(708,272)
Net Operating Expenses
21,731,583 1,999,646 26,978,235
Management fees
5,666,176 6,896,347 8,044,801
Incentive fees/(reversal of incentive fee accrual)
7,151,641 (15,188,121) 8,170,326
Costs incurred under Administration Agreement
1,874,839 2,545,316 2,681,079
Directors’ fees
328,480 345,000 373,676
Professional fees
2,068,668 1,966,906 1,357,988
Interest expense
4,696,819 4,731,430 4,961,169
Tax expense
52,901 880,778
Other expenses
600,331 702,768 509,418
Gain on fair value adjustment for embedded
derivative
(1,000)
Reversal of benefit from taxes on net investment
loss(1)
(21,969,370)
Net investment loss
(20,878,815) (1,263,363) (48,656,709)
Net realized gain/(loss) on investments
913,982 (2,634,471) 54,144,229
Reversal of provision for taxes on net realized gains on investments(1)
342,802
Net change in unrealized appreciation/(depreciation) of investments
34,775,696 (73,213,845) (13,422,245)
Benefit from taxes on unrealized depreciation of investments(1)(2)
2,757,070 2,116,784 16,058,080
Net increase/(decrease) in net assets resulting from
operations
$ 17,567,933 $ (74,994,895) $ 8,466,157
(1)
Due to our change in tax status to a RIC from a C corporation, the associated accrued benefits from and provisions for taxes from previous years were reversed for the year ended December 31, 2015. Refer to “Note 9 — Income Taxes” to our consolidated financial statements as of December 31, 2017 included in this prospectus supplement for further detail.
(2)
During the year ended December 31, 2017, we recognized a net benefit from taxes on unrealized depreciation despite recording a net change in unrealized appreciation of approximately $34.8 million. The net tax benefit was the result of a decrease in built-in gains tax liability due to the recently passed Tax Act, partially offset by an increase in the net deferred tax liability generated by the GSVC Holdings. Refer to “Note 9 — Income Taxes” to our consolidated financial statements as of December 31, 2017 included in this prospectus supplement for further detail.
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Total Investment Income
For the year ended December 31, 2017 as compared to the year ended December 31, 2016
Investment income increased to $852,768 for the year ended December 31, 2017, from $736,283 for the year ended December 31, 2016. The increase was primarily due to increased dividend income which was partially offset by reversals of interest accruals. The increase in dividend income resulted from a $475,000 dividend received from our investment in SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.). Interest income also increased due to increased interest income from our investment in NestGSV, Inc. (d/b/a GSV Labs, Inc.)
For the year ended December 31, 2016 as compared to the year ended December 31, 2015
Investment income increased to $736,283 for the year ended December 31, 2016, from $290,896 for the year ended December 31, 2015. The increase was primarily due to increased interest income and other income received in 2016. The increase in interest income resulted from our acquisition of interest-bearing debt investments during the fiscal year ended December 31, 2016. As of December 31, 2016, the cost of our debt investments increased to $8,849,434 from $4,177,804 as of December 31, 2015. The increase in other income between periods resulted from the proceeds from Michael Moe’s sale of common shares of 2U, Inc. (f/k/a 2tor, Inc.), one of our former portfolio companies, that Mr. Moe received while serving on 2U, Inc.’s board of directors. The sales proceeds were remitted directly to the Company pursuant to GSV Asset Management’s internal policy whereby any fees or compensation received by a manager, partner, officer or employee of GSV Asset Management in exchange for serving as a director of, or providing consulting services to, any of our portfolio companies will be transferred to us, net of any personal taxes incurred, upon such receipt for the benefit of us and our stockholders.
Operating Expenses
For the year ended December 31, 2017 as compared to the year ended December 31, 2016
Total operating expenses, net of waiver of management fees, increased to $21,731,583 for the year ended December 31, 2017, from $1,999,646 for the year ended December 31, 2016, primarily due to incentive fee accruals for the year ended December 31, 2017 as well as the reversal of incentive fee accruals during fiscal year 2016, and, to a lesser extent, increased professional fees, which include legal, valuation, audit and consulting fees. We accrued incentive fees during the year ended December 31, 2017, as a result of the unrealized appreciation of our portfolio investments in the aggregate during the period. The increase in total operating expenses during the year ended December 31, 2017, was partially offset by lower management fees due to lower average gross assets outstanding, and GSV Asset Management’s voluntary 0.25% reduction to the base management fee payable under the Investment Advisory Agreement, as well as a decrease in costs incurred under the Administration Agreement.
For the year ended December 31, 2016 as compared to the year ended December 31, 2015
Total operating expenses decreased to $1,999,646 for the year ended December 31, 2016, from $26,978,235 for the year ended December 31, 2015. Total operating expenses decreased primarily as a result of the reversal of previously accrued incentive fees during the year ended December 31, 2016, which was the result of the realization of  $2,634,471 in net losses on investments in the year ended December 31, 2016, as compared to $54,144,229 in net realized gains on investments in the year ended December 31, 2015. The unrealized depreciation of our portfolio investments in the aggregate during the year ended December 31, 2016 also contributed to the reversal of previously accrued incentive fees. Total operating expenses also decreased due to lower management fees resulting from lower average gross assets outstanding, as well as a decrease in interest expense resulting from lower average borrowings under the $18.0 million senior secured credit facility with Silicon Valley Bank (the “SVB Credit Facility”). There was also no income tax expense incurred for the year ended December 31, 2016. These decreases were minimally offset by an increase in other expenses and professional fees, which include legal, valuation, audit and consulting fees.
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Net Investment Loss
For the year ended December 31, 2017 as compared to the year ended December 31, 2016
For the year ended December 31, 2017, we recognized a net investment loss of  $20,878,815, compared to a net investment loss of  $1,263,363 for the year ended December 31, 2016. The increase in net investment loss resulted primarily from the large increase in our operating expenses for the year ended December 31, 2017, as discussed above. For the years ended December 31, 2017 and 2016, we recognized no benefit from taxes on net investment loss.
For the year ended December 31, 2016 as compared to the year ended December 31, 2015
For the year ended December 31, 2016, we recognized a net investment loss of  $1,263,363, compared to a net investment loss of  $48,656,709 for the year ended December 31, 2015. The decrease in net investment loss resulted primarily from the large decrease in our operating expenses for the year ended December 31, 2016, as discussed above, as well as the fact that we recognized no benefit from taxes on net investment loss for the year ended December 31, 2016, as compared to the year ended December 31, 2015, where we recognized a $21,969,370 reversal of our previously accrued benefit from taxes on net investment loss.
Our election to be treated as a RIC resulted in no new tax provisions or benefits being accrued following the appropriate reversals for the year ended December 31, 2015. Typically for a taxable entity, a net investment loss would generate a benefit from taxes; however, as a result of our election to be treated as a RIC, we reversed the previously accrued benefits from taxes on net investment loss from prior periods.
Net Realized Gain/(Loss) on Investments
For the year ended December 31, 2017, we recognized net realized gains of  $913,982, compared to net realized losses of  $2,634,471 for the year ended December 31, 2016 and net realized gains of  $54,144,229 for the year ended December 31, 2015. The components of our net realized gains and losses on portfolio investments for the years ended December 31, 2017, 2016, and 2015, excluding U.S. Treasury investments, are reflected in the tables above, under “— Portfolio and Investment Activity.”
For the year ended December 31, 2017, we recognized no provision for taxes on our net realized capital gains due to our election to be treated as a RIC. For the year ended December 31, 2016, we recognized no benefit from taxes on our net realized capital losses due to our election to be treated as a RIC.
For the year ended December 31, 2015, we reversed a previously accrued provision of  $342,802 for taxes on net realized capital gains due to our election to be treated as a RIC. Typically for a taxable entity, net realized capital gains would generate a provision for taxes; however, as a result of our election to be treated as a RIC, we reversed the previously accrued provisions for taxes on net realized capital gains from prior periods.
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Net Change in Unrealized Appreciation/(Depreciation) of Investments
For the year ended December 31, 2017, we had a net change in unrealized appreciation of  $34,775,696. For the year ended December 31, 2016, we had a net change in unrealized depreciation of  $73,213,845. For the year ended December 31, 2015, we had a net change in unrealized depreciation of  $13,422,245. The following tables summarize, by portfolio company, the significant changes in unrealized appreciation and/or depreciation of our investment portfolio for the years ended December 31, 2017, 2016 and 2015.
Portfolio Company
Net Change in
Unrealized
Appreciation/​
(Depreciation)
For the Year Ended
December 31, 2017
Spotify Technology S.A.(2)
$ 15,394,865
Beamreach Solar, Inc. (f/k/a Solexel, Inc.)(1)
14,272,843
Handle Financial, Inc. (f/k/a PayNearMe, Inc.)(1)
13,835,988
Chegg, Inc.(2)
7,445,390
Orchestra One, Inc. (f/k/a Learnist Inc.)(1)
4,959,614
Dropbox Inc.
4,685,212
NestGSV, Inc. (d/b/a GSV Labs, Inc.)
4,308,957
Coursera, Inc.
3,849,819
StormWind, LLC
3,832,681
Lyft, Inc.
2,671,022
Cricket Media (f/k/a ePals Inc.)(1)
2,448,959
AlwaysOn, Inc.(1)
1,903,414
Aspiration Partners, Inc.
1,440,417
Circle Media (f.k.a. S3 Digital Corp.(d/b/a S3i)(1)
1,325,033
Strategic Data Command, LLC(2)
(1,063,278)
Maven Research, Inc.
(1,672,521)
Dataminr, Inc.(2)
(2,348,736)
General Assembly Space, Inc.
(2,905,898)
SugarCRM, Inc.
(2,893,050)
SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)
(3,239,916)
JAMF Holdings, Inc.(2)
(3,856,826)
Curious.com, Inc.
(4,470,877)
Palantir Technologies, Inc.(2)
(5,424,238)
Ozy Media, Inc.
(5,518,893)
Declara Inc.
(6,111,907)
Lytro, Inc.
(8,793,884)
Other(3) 701,506
Total
$ 34,775,696
(1)
The change in unrealized appreciation for this investment resulted from writing off an investment that was previously reduced in value to zero.
(2)
The change in unrealized appreciation/(depreciation) reflected for these investments resulted from the full or partial sale of the relevant investment, which resulted in the reversal of previously accrued unrealized appreciation/(depreciation).
(3)
“Other” represents investments (including U.S. Treasury bills and U.S. Treasury strips) for which individual change in unrealized appreciation/(depreciation) was less than $1,000,000 for the year ended December 31, 2017.
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Portfolio Company
Net Change in
Unrealized
Appreciation/​
(Depreciation)
For the Year Ended
December 31, 2016
Palantir Technologies, Inc.
$ (14,844,283)
Beamreach Solar, Inc. (f/k/a Solexel, Inc.)
(14,281,910)
Handle Financial, Inc. (f/k/a PayNearMe, Inc.).
(13,810,477)
Dropbox, Inc.
(9,041,704)
Fullbridge, Inc.
(5,904,068)
Dataminr, Inc.
(5,875,388)
Avenues Global Holdings, LLC
(4,886,897)
Declara Inc.
(4,506,983)
Twitter, Inc.(2)
(4,254,018)
SugarCRM, Inc.
(3,866,388)
Lyft, Inc.(2)
(3,305,991)
NestGSV, Inc. (d/b/a GSV Labs, Inc.)
(2,827,142)
Curious.com Inc.
(2,011,360)
SPBRX, INC. (f/k/a GSV Sustainability Partners, Inc.)
(1,940,222)
Ozy Media, Inc.
(1,518,995)
Knewton, Inc.
(1,171,677)
Strategic Data Command, LLC
1,050,905
General Assembly Space, Inc.
2,225,392
Spotify Technology S.A.
2,711,991
JAMF Holdings, Inc.
3,133,955
Course Hero, Inc.
5,532,303
Gilt Groupe Holdings, Inc.(2)
6,055,046
Other(3) 124,066
Total
$ (73,213,845)
Portfolio Company
Net Change in
Unrealized
Appreciation/​
(Depreciation)
For the Year Ended
December 31, 2015
2U, Inc. (f/k/a 2tor, Inc.)(2)
$ (13,310,392)
Palantir Technologies, Inc.
10,877,933
Dataminr, Inc.
7,443,644
Lyft, Inc.
6,466,730
Totus Solutions, Inc.(1)
5,894,116
General Assembly Space, Inc.
5,395,948
Dailybreak, Inc.(1)
2,857,204
The rSmart Group, Inc.(1)
1,074,654
Circle Media (f/k/a S3 Digital Corp. (d/b/a S3i))
(1,050,872)
Gilt Groupe Holdings, Inc.
(2,628,721)
Dropbox, Inc.
(2,836,295)
Orchestra One, Inc. (f/k/a Learnist Inc.)
(5,374,947)
Twitter, Inc.(2)
(25,607,941)
Other(3) (2,623,306)
Total
$ (13,422,245)
(1)
The change in unrealized appreciation for this investment resulted from writing off an investment that was previously reduced in value to zero.
(2)
The change in unrealized appreciation/(depreciation) reflected for these investments resulted from the full or partial sale of the relevant investment, which resulted in the reversal of previously accrued unrealized appreciation/(depreciation).
(3)
“Other” represents investments (including U.S. Treasury bills and U.S. Treasury strips) for which individual change in unrealized appreciation/(depreciation) was less than $1,000,000 for the years ended December 31, 2016 and 2015.
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For the year ended December 31, 2017, we recognized a net benefit from taxes on unrealized appreciation/depreciation of investments of  $2,757,070, compared to our recognition of a benefit from taxes of  $2,116,784 on unrealized depreciation of investments for the year ended December 31, 2016. Despite unrealized appreciation of our portfolio investments between periods, which would typically result in a provision for taxes, our net benefit from taxes on unrealized appreciation/depreciation of investments for fiscal year 2017 was significantly impacted by the U.S. tax reform legislation signed into law in December 2017 that reduced corporate income tax rates and ultimately reduced the amount of our deferred tax liabilities. Our accrual for deferred tax liabilities is made up of: the built-in gains tax, taxes related to book and tax basis differences of certain equity investments, and net operating losses held by the GSVC Holdings.
For the year ended December 31, 2016, we recognized a benefit from taxes on unrealized depreciation of investments of  $2,116,784, compared to our recognition of a benefit from taxes of  $16,058,080 on unrealized depreciation of investments for the year ended December 31, 2015. Our benefit from taxes on unrealized depreciation of investments decreased between periods due to our election to be treated as a RIC, which resulted in no accrual of new tax benefits.
For the year ended December 31, 2015, we recognized a benefit from taxes of  $16,058,080 on unrealized depreciation of investments. As a result of our election to be treated as a RIC, we reversed the previously accrued provisions for taxes on unrealized appreciation of investments from prior periods. This reversal resulted in a larger benefit for taxes on unrealized depreciation of investments than would have been accrued solely based on the unrealized depreciation of investments for the year ended December 31, 2015.
Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from the sales of our investments and advances from any credit facility from which we may borrow. For example, prior to its expiration in accordance with its terms on December 31, 2016, we generated liquidity and capital resources from the SVB Credit Facility. In addition, on May 31, 2017, we entered into the Loan Agreement which provides us with a $12.0 million Credit Facility that matures on the later of  (i) August 15, 2018 or (ii) 30 days prior to the due date of the 2013 Convertible Notes, which mature on September 15, 2018. In management’s view, we have sufficient liquidity and capital resources to pay our operating expenses and conduct investment activities. With regard to the 2013 Convertible Notes, which mature on September 15, 2018, we are actively managing our liquidity in anticipation of meeting our obligations thereunder.
Our primary uses of cash are to make investments, pay our operating expenses and make distributions to our stockholders. For the years ended December 31, 2017, 2016 and 2015, our operating expenses, net of any management fee waiver, were $21,731,583, $1,999,646, and $26,978,235, respectively.
Cash Reserves and Liquid Securities
December 31,
2017
December 31,
2016
December 31,
2015
Cash
$ 59,838,600 $ 8,332,634 $ 13,349,877
Borrowing availability under the Credit Facility(1)
12,000,000 18,000,000
Securities of publicly traded portfolio companies:
Unrestricted securities(2)
8,160,000 8,729,005 26,486,074
Subject to other sales restrictions(3)
67,296
Total securities of publicly traded portfolio companies
8,160,000 8,729,005 26,553,370
Total Cash Reserves and Liquid Securities
$ 79,998,600 $ 17,061,639 $ 57,903,247
(1)
Subject to leverage and borrowing base restrictions under the Credit Facility as of December 31, 2017 and under the SVB Credit Facility as of December 31, 2015. Refer to “Note 10 — Debt Capital Activities” to our consolidated financial statements as of December 31, 2017 for details.
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(2)
“Unrestricted securities” represents common stock of our publicly traded companies that are not subject to any restrictions upon sale. We may incur losses if we liquidate these positions to pay operating expenses or fund new investments.
(3)
As of December 31, 2015, this balance represents our shares of common stock of Cricket Media (f/k/a ePals Inc.). These shares were freely tradable; however, at certain times in the past, these shares may have been subject to black-out periods as a result of Michael Moe’s previously held seat on the board of directors of Cricket Media (f/k/a ePals Inc.) Mr. Moe resigned from his position as a director of Cricket Media (f/k/a ePals Inc.) in May 2016.
During the year ended December 31, 2017, cash increased to $59,838,600 from $8,332,634 at the beginning of the year. The increase in cash was primarily due to approximately $77.0 million in sales of our portfolio investments, which was partially offset by $5.2 million in management fees paid under the Investment Advisory Agreement, $4.9 million of share repurchases under the Share Repurchase Program, $3.6 million in interest payments on the 2013 Convertible Notes, $2.0 million of audit and legal fees and $1.3 million in allocation of overhead expenses paid to GSV Capital Service Company under the Administration Agreement.
Contractual Obligations
Payments Due By Period (dollars in millions)
Total
Less than
1 year
1 – 3 years
3 – 5 years
More than
5 years
Payable for securities purchased(1)
$ 89.5 $ 89.5 $ $ $
Credit Facility payable(2)(3)
2013 Convertible Notes(4)
69.0 69.0
Total
$ 158.5 $ 158.5 $ $ $
(1)
“Payable for securities purchased” relates to the purchase of the U.S. Treasury bill on margin. This balance was subsequently repaid on January 4, 2018, when the $100.0 million U.S. Treasury bill matured and the $10.5 million margin deposit that we posted as collateral was returned.
(2)
The total unused amount available under the Credit Facility as of December 31, 2017 was $12.0 million.
(3)
The weighted-average interest rate incurred under the Credit Facility was 0.02% for the year ended December 31, 2017.
(4)
The balance shown for the 2013 Convertible Notes reflects the principal balance payable to investors as of December 31, 2017. Following the expiration of the Tender Offer on January 17, 2018, approximately $4.8 million aggregate principal amount of the 2013 Convertible Notes, representing approximately 7.0% of the outstanding 2013 Convertible Notes, were validly tendered and not validly withdrawn pursuant to the Tender Offer. As of March 16, 2018, the balance due for our 2013 Convertible Notes is approximately $64.2 million. Refer to “Note 10 — Debt Capital Activities” to our consolidated financial statements as of December 31, 2017 for more information.
Credit Facility
On May 31, 2017, we entered into the Loan Agreement with Western Alliance Bank, pursuant to which Western Alliance Bank agreed to provide us with the $12.0 million Credit Facility. The Credit Facility, among other things, matures on the later of  (i) August 15, 2018 or (ii) thirty days prior to the due date of the 2013 Convertible Notes, which mature on September 15, 2018. The Credit Facility bears interest at a per annum rate equal to the prime rate plus 3.50%. In addition, a facility fee of  $60,000 was charged upon closing of the Credit Facility, and the Loan Agreement requires payment of a fee for unused amounts during the revolving period in an amount equal to 0.50% per annum of the average unused portion of the Credit Facility payable quarterly in arrears.
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We entered into a loan agreement, effective December 31, 2013, with Silicon Valley Bank to provide us with the SVB Credit Facility, which expired on December 31, 2016 in accordance with its terms. The SVB Credit Facility bore interest at a per annum rate equal to the greater of  (i) the prime rate plus 4.75% or (ii) 8.0% on amounts drawn. Refer to “Note 10 — Debt Capital Activities” to our consolidated financial statements as of December 31, 2017 for more information regarding the Credit Facility and the SVB Credit Facility.
Convertible Senior Notes Payable (2013 Convertible Notes)
On September 17, 2013, we issued $69.0 million aggregate principal amount of the 2013 Convertible Notes (including $9.0 million aggregate principal amount issued pursuant to the exercise of the initial purchasers’ option to purchase additional 2013 Convertible Notes), which bear interest at a fixed rate of 5.25% per year, are payable semi-annually and mature on September 15, 2018, unless previously repurchased or converted in accordance with their terms. We do not have the right to redeem the 2013 Convertible Notes prior to maturity. As of December 31, 2017, the 2013 Convertible Notes were convertible into shares of our common stock based on a conversion rate of 83.3596 shares of our common stock per $1,000 principal amount of the 2013 Convertible Notes, which is equivalent to a conversion price of approximately $12.00 per share of common stock. Refer to “Note 10 — Debt Capital Activities” to our consolidated financial statements as of December 31, 2017 for more information regarding the 2013 Convertible Notes.
Tender Offer for the 2013 Convertible Notes
On December 15, 2017, we announced the commencement of the Tender Offer to purchase any and all of our $69.0 million aggregate principal amount of the 2013 Convertible Notes. See “— Recent Developments” above for information regarding the expiration and results of the Tender Offer.
Share Repurchase Program
On November 7, 2017, our board of directors authorized an extension of, and an increase in the amount of shares of our common stock that may be repurchased under, the discretionary Share Repurchase Program until the earlier of  (i) November 6, 2018 or (ii) the repurchase of  $10.0 million in aggregate amount of our common stock. See “— Recent Developments” above and our consolidated financial statements in this prospectus supplement for more information about the Share Repurchase Program.
Off-Balance Sheet Arrangements
As of December 31, 2017, we had no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices. However, we may employ hedging and other risk management techniques in the future.
Equity Issuances & Debt Capital Activities
There were no sales of our equity or debt securities during the years ended December 31, 2017, 2016 or 2015. As a result of our distribution paid on December 31, 2015, we issued 2,860,903 shares of common stock. Refer to “— Distributions” below for details of our distributions paid.
Distributions
The timing and amount of our distributions, if any, will be determined by our board of directors and will be declared out of assets legally available for distribution. See “Price Range of Common Stock and Distributions” in the accompanying prospectus for a list of our past distributions, including dividends and returns of capital, if any, per share that we have declared since our formation through December 31, 2017.
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Critical Accounting Policies
Critical accounting policies and practices are the policies that are both most important to the portrayal of our financial condition and results, and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. These include estimates of the fair value of our Level 3 investments and other estimates that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of certain revenues and expenses during the reporting period. It is likely that changes in these estimates will occur in the near term. Our estimates are inherently subjective in nature and actual results could differ materially from such estimates. See “Note 2 — Significant Accounting Policies” to our consolidated financial statements as of December 31, 2017 for further detail regarding our critical accounting policies and recently issued accounting pronouncements.
Related-Party Transactions
See “Note 3 — Related-Party Arrangements” to our consolidated financial statements as of December 31, 2017 for more information.
Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Our equity investments are primarily in growth companies that in many cases have short operating histories and are generally illiquid. In addition to the risk that these companies may fail to achieve their objectives, the price we may receive for these companies in private transactions may be significantly impacted by periods of disruption and instability in the capital markets. While these periods of disruption generally have little actual impact on the operating results of our equity investments, these events may significantly impact the prices that market participants will pay for our equity investments in private transactions. This may have a significant impact on the valuation of our equity investments.
Interest Rate Risk
We are subject to financial market risks, which could include, to the extent we utilize leverage with variable rate structures, changes in interest rates. As we invest primarily in equity rather than debt instruments, we would not expect fluctuations in interest rates to directly impact the return on our portfolio investments, although any significant change in market interest rates could potentially have an adverse effect on the business, financial condition and results of operations of the portfolio companies in which we invest.
As of December 31, 2017, all of our debt investments and outstanding borrowings bore a fixed rate of interest. The Credit Facility, however, is indexed to the prime rate. We do not expect a significant impact on our net investment income or loss due to changes in the prime rate; however, the table below indicates the impact on our net investment income or loss should the prime rate change.
Based on our December 31, 2017 Consolidated Statement of Assets and Liabilities, the following table shows the various, incremental impact of changes in interest rates on our net income or loss related to our Credit Facility for the year ended December 31, 2017, assuming no changes in our investment income and borrowing structure.
Basis Point Change(1)
Interest
Income
Interest
Expense
Net
Income/(Loss)
Up 300 Basis points
$      — $ 330,000 $ (330,000)
Up 200 Basis points
$ $ 220,000 $ (220,000)
Up 100 Basis points
$ $ 110,000 $ (110,000)
Down 100 Basis points
$ $ (110,000) $ 110,000
Down 200 Basis points
$ $ (220,000) $ 220,000
Down 300 Basis points
$ $ (330,000) $ 330,000
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(1)
Assumes we have borrowed $12.0 million under our Credit Facility for the year ended December 31, 2017. Our actual borrowings under the Credit Facility will vary based on our needs throughout the year. For the year ended December 31, 2017, our actual average borrowings under our Credit Facility were $460,274.
Although we believe that this measure is indicative of our sensitivity to the above-referenced interest rate changes, it does not reflect potential changes in credit quality, size and composition of the assets on our statement of assets and liabilities and other BDCs that could affect net increase or decrease in net assets resulting from operations, or net income or loss.
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SENIOR SECURITIES
Information about our senior securities is shown in the following tables as of the end of each fiscal year since our IPO.
Class and Year
Total Amount
Outstanding
Exclusive of
Treasury
Securities(1)
Asset
Coverage
Ratio
Per Unit(2)
Involuntary
Liquidation
Preference
Per Unit(3)
Average
Market
Value
Per Unit(4)
2013 Convertible Notes
Fiscal 2017
$ 69,000,000 $ 3,968 N/A
Fiscal 2016
69,000,000 3,784 N/A
Fiscal 2015
69,000,000 4,884 N/A
Fiscal 2014
69,000,000 4,286 N/A
Fiscal 2013
69,000,000 5,173 N/A
Fiscal 2012
N/A
Fiscal 2011
N/A
Credit Facility
Fiscal 2017(5)
$ $ 3,968 N/A
Fiscal 2016(6)
3,784 N/A
Fiscal 2015(6)
4,884 N/A
Fiscal 2014(6)
18,000,000 4,286 N/A
Fiscal 2013
5,173 N/A
Fiscal 2012
N/A
Fiscal 2011
N/A
(1)
Total gross amount of each class of senior securities outstanding at the end of the period presented, before deduction of discount and debt issuance costs.
(2)
Asset coverage per unit for a class of senior securities is the ratio of the face value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.
(3)
The amount to which such class of senior security would be entitled upon the voluntary liquidation of the issuer in preference to any security junior to it. The “—” in this column indicates that the SEC expressly does not require this information to be disclosed for the types of senior securities representing indebtedness issued by GSV Capital as of the stated time periods.
(4)
Not applicable because senior securities are not registered for public trading.
(5)
The $12.0 million senior secured revolving Credit Facility with Western Alliance Bank.
(6)
The $18.0 million SVB Credit Facility expired pursuant to its terms on December 31, 2016.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table contains our ratio of earnings to fixed charges for the periods indicated, computed as set forth below. You should read these ratios of earnings to fixed charges in connection with our consolidated financial statements, including the notes to those statements, included in this prospectus supplement.
For the
Year Ended
December 31,
2017
For the
Year Ended
December 31,
2016
For the
Year Ended
December 31,
2015
For the
Year Ended
December 31,
2014
For the
Year Ended
December 31,
2013
For the
Year Ended
December 31,
2012
Earnings to Fixed Charges(1)(2)
4.15:1 (15.30):1 3.83:1 0.37:1 35.17:1 N/A
For purposes of computing the ratio of earnings to fixed charges, earnings represent net increase in stockholders’ equity resulting from operations plus (or minus) income tax expense (benefit), including excise tax expense, plus fixed charges. Fixed charges include any interest and credit facility fees expense and amortization of deferred financing costs.
(1)
Earnings include net realized and unrealized gains or losses. Net realized and unrealized gains or losses can vary substantially from period to period.
(2)
Not applicable for the fiscal year ended December 31, 2012, as the Company had no fixed charges.
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DESCRIPTION OF NOTES
We will issue the Notes under a base indenture and a first supplemental indenture thereto, to be entered into between us and U.S. Bank National Association, as trustee. We refer to the base indenture and the first supplemental indenture collectively as the “indenture” and to U.S. Bank National Association as the “trustee.” The following summarizes the material provisions of the Notes and the indenture but does not purport to be complete and is qualified by reference to all the provisions of the Notes and the indenture, including the definitions of certain terms used in those documents. We urge you to read the indenture, including the form of certificate evidencing the Notes in their entirety, because they, and not this description, define your rights as a Holder of the Notes. You may request a copy of these documents at our address shown under “Available Information” in this prospectus supplement.
General
We will issue $40.0 million (or $46.0 million if the underwriter exercises its option to purchase additional Notes in full) aggregate principal amount of Notes. The Notes will bear interest at a rate of 4.75% per year, payable semiannually in arrears on March 31 and September 30 of each year, beginning on September 30, 2018. The Notes will mature on March 28, 2023, unless earlier converted by you, purchased by us at your option upon the occurrence of a fundamental change (as defined below), or redeemed by us pursuant to the “Optional Redemption Upon Satisfaction of Sale Price Condition” described below. You may surrender your Notes for conversion at any time prior to the close of business on the business day immediately preceding the stated maturity date. We will settle conversions of Notes by delivering a number of shares of our common stock, per $1,000 principal amount of Notes, equal to the then-applicable conversion rate (together with a cash payment in lieu of any fractional share) as described below under “—Conversion of Notes — Settlement upon Conversion.” The Notes will be issued only in denominations of $1,000 and in integral multiples of  $1,000.
The indenture contains limited restrictions on our ability to incur debt, including senior indebtedness. For example, as described under the heading “Investment Company Act — Section 18(a)(1)(A) as Modified by Section 61(a)(1)” in this prospectus supplement, we have agreed under the indenture that, for the period of time during which the Notes are outstanding, we will not violate, whether or not we are subject to, Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act or any successor provision thereto of the Investment Company Act, but giving effect to any exemptive relief that may be granted to us by the SEC. Currently, these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the Investment Company Act, equals at least 200% after such borrowings. See “Supplementary Risk Factors — Risks Related to Our Business and Structure — Pending legislation may allow us to incur additional leverage” in this prospectus supplement. In addition, as described under the heading “Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement, we have agreed that, for the period from the initial issuance of the Notes to, and including, March 27, 2019, we will not incur any indebtedness other than certain permitted debt, including, without limitation, up to $12.0 million in borrowings under our Credit Facility. This limitation on the incurrence of additional indebtedness will cease to apply, however, upon the occurrence of  (i) a “change in control” as described in clause (1) or (2) of that definition under the heading “— Purchase of Notes at Your Option upon a Fundamental Change” or (ii) at such time as less than 25% of the initial aggregate principal amount of the Notes (including Notes issued upon the exercise by the underwriter of its over-allotment option) remain outstanding. There are no financial covenants in the indenture. You are not protected by the indenture in the event of a highly leveraged transaction, a change in control involving us or a termination in the trading of our common stock, except to the extent described under “— Purchase of Notes at Your Option upon a Fundamental Change” and “— Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event.” The Notes are not guaranteed by any of our subsidiaries.
Notwithstanding the limitation on incurring additional indebtedness described under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement, we may from time to time, without the consent of the Holders, reopen the indenture and issue additional Notes under the indenture with the same terms (other than date of issuance and, in some cases, the date from which interest will initially accrue) as the Notes offered hereby in an
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unlimited aggregate principal amount; provided that if any such additional Notes are not fungible with the Notes initially offered hereby for U.S. federal income tax purposes, such additional Notes will have a separate CUSIP number. The Notes offered hereby and any such additional Notes would be treated as a single class for all purposes under the indenture and would vote together as one class on all matters with respect to the Notes. We do not intend to list the Notes on any securities exchange or automated dealer quotation system.
Ranking
The Notes will be our general unsecured obligations that rank senior in right of payment to all of our future indebtedness that is expressly subordinated in right of payment to the Notes. The Notes will rank equally in right of payment with all of our existing and future liabilities that are not so subordinated, including the 2013 Convertible Notes that mature on September 15, 2018. The Notes will effectively rank junior to any of our and our subsidiaries’ secured indebtedness (including unsecured indebtedness that later becomes secured indebtedness) to the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility. The Notes will rank structurally junior to all future indebtedness (including trade payables) incurred by our subsidiaries and financing vehicles. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure secured debt will be available to pay obligations on the Notes only after all indebtedness under such secured debt, including our Credit Facility, has been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the Notes then outstanding. Any such indebtedness that we incur after the initial issuance date of the Notes will be subject to the limitation on incurring additional indebtedness described under the heading “Description of Notes — Limitation on Incurrence of Additional Indebtedness for 12 Months” in this prospectus supplement.
As of March 21, 2018, we had $64.2 million in aggregate principal amount of the 2013 Convertible Notes outstanding, but no indebtedness outstanding under our Credit Facility.
Optional Redemption Upon Satisfaction of Sale Price Condition
We may not redeem the Notes prior to March 27, 2021. On or after March 27, 2021, we may redeem the Notes for cash, in whole or from time to time in part, at our option if  (i) the closing sale price of the common stock for at least 15 trading days (whether or not consecutive) during the period of any 20 consecutive trading days is greater than or equal to 150% of the conversion price on each applicable trading day, (ii) no public announcement of a pending, proposed or intended fundamental change has occurred which has not been abandoned, terminated or consummated, and (iii) no event of default under the indenture, and no event that with the passage of time or giving of notice would constitute an event of default under the indenture, has occurred or exists. Upon satisfaction of such conditions, we may exercise our option to redeem the Notes by issuing notice to the holders within 30 days of the satisfaction of any such sale price condition. Notice of the redemption must be delivered to the holders not less than 30 days nor more than 70 days prior to the date fixed for redemption. The Notes may be redeemed at a redemption price equal to 100% of the outstanding principal amount of the Notes to be redeemed plus accrued and unpaid interest payments, if any, to, but excluding, the date fixed for redemption.
The “closing sale price” of our common stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) at 4:00 p.m. (New York City time) on that date as reported in composite transactions for the principal U.S. national or regional securities exchange on which our common stock is traded. If our common stock is not listed for trading on a U.S. national or regional securities exchange on the relevant date, the “closing sale price” will be the last quoted bid price for our common stock in the over-the-counter market at 4:00 p.m. (New York City time) on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If our common stock is not so quoted, the “closing sale price” will be the average of the mid-point of the last bid and ask prices for our common stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by us for this purpose.
A “trading day” means a day on which (i) the Nasdaq Capital Market or, if our common stock is not listed on the Nasdaq Capital Market, the principal other U.S. national or regional securities exchange on which our common stock is then listed is open for trading, in each case, with a scheduled closing time of
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4:00 p.m. (New York City time) or the then-standard closing time for regular trading on the relevant exchange or market, or, if our common stock is not so listed, any business day and (ii) a closing sale price for our common stock is available on such securities exchange or market.
If we decide to redeem fewer than all of the outstanding Notes, the Notes shall be selected to be redeemed (in principal amounts of  $1,000 or multiples thereof) in accordance with the applicable procedures of DTC, in the case of global notes, and on a pro rata basis, by lot or by such other method as the trustee in its sole discretion deems fair and appropriate, in the case of certificated notes.
If a portion of your Note is selected for partial redemption and you convert a portion of the same Note, the converted portion will be deemed to be from the portion selected for redemption.
In the event of any redemption in part, we will not be required to register the transfer of or exchange of any Notes so selected for redemption, in whole or in part, except the unredeemed portion of any Note being redeemed in part.
No Notes may be redeemed if the principal amount of the Notes has been accelerated, and such acceleration has not been rescinded, on or prior to the redemption date (except in the case of an acceleration resulting from a default by us in the payment of the redemption price with respect to such Notes).
No sinking fund is provided for the Notes.
Interest
We will pay interest on the Notes at a rate of 4.75% per annum, payable semi-annually in arrears on March 31 and September 30 of each year, or if any such day is not a business day, the immediately following business day (each, an “interest payment date”), commencing on September 30, 2018, to Holders of record at the close of business on the preceding March 15 and September 15, respectively. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months and will accrue from March 28, 2018 or from the most recent date to which interest has been paid or duly provided for. A “business day” is any day other than (x) a Saturday, (y) a Sunday or (z) a day on which state or federally chartered banking institutions in New York, New York, or Boston, Massachusetts, are not required to be open.
Conversion of Notes
General
At any time prior the close of business on the business day immediately preceding the stated maturity date, you may convert all or any portion of your Notes at an initial conversion rate of 93.2836 shares of our common stock per $1,000 aggregate principal amount of Notes (equivalent to an initial conversion price of approximately $10.72 per share of common stock). The conversion rate and the corresponding conversion price will be subject to adjustment as described below under “— Conversion Rate Adjustments” and “— Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event.” The conversion price of a Note at any time is equal to $1,000 divided by the conversion rate in effect at such time. Accordingly, an adjustment to the conversion rate will result in a corresponding (but inverse) adjustment to the conversion price. A Holder may convert fewer than all of such Holder’s Notes so long as the Notes converted are in an integral multiple of  $1,000 principal amount.
If we call the Notes for redemption, a Holder of the Notes may convert all or any portion of its Notes called for redemption only until the close of business on the business day immediately preceding the redemption date.
We will settle conversions of Notes by delivering shares of our common stock, together with a cash payment in lieu of any fractional share, as described below under “— Settlement upon Conversion.”
Upon conversion of a Note, a Holder will not receive any additional cash payment for accrued and unpaid interest, if any, unless such Holder is the Holder on a regular record date and such conversion occurs between such regular record date and the interest payment date to which it relates as described
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below, and we will not adjust the conversion rate to account for accrued and unpaid interest. Except as described below, our settlement of conversions as described below under “— Settlement upon Conversion” will be deemed to satisfy our obligation to pay the principal amount of the Note and accrued and unpaid interest, if any, to, but not including, the conversion date, except as described below.
Holders of Notes at the close of business on a regular record date will receive payment of interest payable on the corresponding interest payment date notwithstanding the conversion of such Notes at any time after the close of business on the applicable regular record date. Notes surrendered for conversion by a Holder after the close of business on any regular record date but prior to the open of business on the next interest payment date must be accompanied by payment of an amount equal to the interest that will be payable on the Notes; provided, however, that no such payment need be made (1) if we have specified a fundamental change purchase date following a fundamental change that is after a regular record date and on or prior to the corresponding interest payment date, (2) with respect to any Notes surrendered for conversion following the regular record date immediately preceding the stated maturity date, (3) only to the extent of overdue interest, if any overdue interest exists at the time of conversion with respect to such Notes or (4) in connection with any conversion of Notes, other than any conversion in connection with a make-whole adjustment event, that occurs prior to March 27, 2021. As a result of the foregoing, we will pay interest on the stated maturity date on all Notes converted after the regular record date immediately preceding the stated maturity date, and converting Holders will not be required to pay us an equivalent interest amount.
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.
A “scheduled trading day” means any day that is scheduled to be a trading day on the principal U.S. national or regional securities exchange or market on which our common stock is listed for trading. If our common stock is not so listed, “scheduled trading day” means a “business day.”
Settlement upon Conversion
Upon conversion of the Notes, we will deliver to Holders in respect of each $1,000 principal amount of Notes being converted a number of shares of our common stock equal to the conversion rate in effect immediately prior to the close of business on the relevant conversion date. No fractional shares will be issued upon conversion. Instead, we will pay cash in lieu of any fractional share based on the closing sale price of our common stock on the relevant conversion date.
Each conversion will be deemed to have been effected as to any Notes surrendered for conversion on the conversion date, and the person in whose name any shares of our common stock shall be issuable upon conversion will be treated as the Holder of record of such shares as of the close of business on the conversion date.
We will deliver the consideration due in respect of any conversion on the second business day immediately following the relevant conversion date.
Conversion Procedures
The right of conversion attaching to any Note may be exercised (a) if such Note is represented by a global security, by book-entry transfer to the conversion agent through the facilities of DTC and compliance with DTC’s then applicable conversion procedures or (b) if such Note is represented by a certificated security, by delivery of such Note at the specified office of the conversion agent, accompanied by a duly signed and completed notice of conversion and appropriate endorsements and transfer documents if required by the conversion agent. We will pay any documentary, stamp or similar issue or transfer tax on the issuance of the shares of our common stock upon conversion of the Notes, unless the tax is due because the Holder requests such shares to be issued in a name other than the Holder’s name, in which case the Holder will pay the tax. We refer to the date a Holder complies with the relevant procedures for conversion described above as the “conversion date.”
If you have submitted your Notes for purchase upon a fundamental change, you may only convert your Notes if you withdraw your purchase notice prior to the fundamental change purchase date, as described below under “— Purchase of Notes at Your Option upon a Fundamental Change.” If your Notes are
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submitted for purchase upon a fundamental change, your right to withdraw your purchase notice and convert the Notes that are subject to purchase will terminate at the close of business on the business day immediately preceding such purchase date.
Limitation on Beneficial Ownership
Notwithstanding the foregoing, no Holder of the Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting Holder to become, directly or indirectly, a “beneficial owner” (within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder) of more than 5% of the shares of our common stock outstanding at such time (the “limitation”). Any purported delivery of shares of our common stock upon conversion of Notes shall be void and have no effect to the extent (but only to the extent) that such delivery would result in the converting Holder becoming the beneficial owner of more than the limitation. If any delivery of shares of our common stock owed to a Holder upon conversion of Notes is not made, in whole or in part, as a result of the limitation, our obligation to make such delivery shall not be extinguished and we shall deliver such shares as promptly as practicable after any such converting Holder gives notice to us that such delivery would not result in it being the beneficial owner of more than 5% of the shares of our common stock outstanding at such time. The limitation shall no longer apply following the effective date of any fundamental change, as defined in “— Purchase of Notes at Your Option upon a Fundamental Change.”
Conversion Rate Adjustments
The conversion rate will be adjusted as described below:
(1) If we issue solely shares of our common stock as a dividend or distribution on all or substantially all of our shares of our common stock, or if we subdivide or combine our common stock, the conversion rate will be adjusted based on the following formula:
CR = CR0 × OS
OS0
where,
CR = the conversion rate in effect immediately after the close of business on the record date for such dividend or distribution, or immediately after the open of business on the effective date of such subdivision or combination of common stock, as the case may be;
CR0 = the conversion rate in effect immediately prior to the close of business on the “record date” (as defined below) for such dividend or distribution, or immediately prior to the open of business on the effective date of such subdivision or combination of common stock, as the case may be;
OS0 = the number of shares of our common stock outstanding immediately prior to the close of business on the record date for such dividend or distribution, or immediately prior to the open of business on the effective date of such subdivision or combination of common stock, as the case may be; and
OS = the number of shares of our common stock that would be outstanding immediately after giving effect to such dividend or distribution, or immediately after the effective date of such subdivision or combination of common stock, as the case may be.
Any adjustment made under this clause (1) will become effective immediately after the close of business on the record date for such dividend or distribution, or immediately after the open of business on the effective date of such subdivision or combination of common stock, as the case may be. If such dividend or distribution described in this clause (1) is declared but not so paid or made, the conversion rate shall be immediately readjusted, effective as of the date our board of directors or a duly authorized committee thereof determines not to pay such dividend or distribution, to the conversion rate that would then be in effect if such dividend or distribution had not been declared.
(2) If we declare a distribution to all or substantially all holders of our common stock of any rights, options or warrants entitling them to subscribe for or purchase shares of our common stock, at a price per share less than the average of the closing sale prices of our common stock for the 10 consecutive
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trading-day period ending on, and including, the trading day immediately preceding the announcement date for such distribution, the conversion rate will be increased based on the following formula:
[MISSING IMAGE: http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12151255&doc=4]
where,
CR = the conversion rate in effect immediately after the close of business on the record date for such distribution;
CR0 = the conversion rate in effect immediately prior to the close of business on the record date for such distribution;
OS0 = the number of shares of our common stock outstanding immediately prior to the close of business on the record date for such distribution;
X = the total number of shares of our common stock issuable pursuant to such rights, options or warrants; and
Y = the number of shares of our common stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the average of the closing sale prices of our common stock over the 10 consecutive trading-day period ending on, and including, the trading day immediately preceding the announcement date for such distribution.
Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are issued and will become effective immediately after the close of business on the record date for such distribution. To the extent that shares of common stock are not delivered after the expiration of such rights, options or warrants, the conversion rate shall be decreased, as of the date of such expiration, to the conversion rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of common stock actually delivered. If such rights, options or warrants are not so distributed, the conversion rate shall be decreased, as of the scheduled distribution date, to the conversion rate that would then be in effect if the record date for such distribution had not occurred.
For purposes of this clause (2), in determining whether any rights, options or warrants entitle the holders to subscribe for or purchase shares of our common stock at a price that is less than the average of the closing sale prices of our common stock for each trading day in the applicable 10 consecutive trading-day period, there shall be taken into account any consideration we receive for such rights, options or warrants and any amount payable on exercise thereof, with the value of such consideration if other than cash to be determined in good faith by our board of directors or a duly authorized committee thereof.
(3) If we declare a distribution of shares of our capital stock, evidences of our indebtedness, other assets or property of ours or other securities, to all or substantially all holders of our common stock (excluding (i) dividends or distributions as to which an adjustment was effected under clause (1) or (2) above; (ii) dividends or distributions paid exclusively in cash as to which an adjustment was effected under clause (4) below; and (iii) spin-offs as defined below in this clause (3)) (a “relevant distribution”), then the conversion rate will be increased based on the following formula:
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where,
CR = the conversion rate in effect immediately after the close of business on the record date for such distribution;
CR0 = the conversion rate in effect immediately prior to the close of business on the record date for such distribution;
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SP0 = the average of the closing sale prices of our common stock over the 10 consecutive trading-day period ending on, and including, the trading day immediately preceding the ex-dividend date for such distribution; and
FMV = the fair market value (as determined in good faith by our board of directors or a duly authorized committee thereof) of the shares of capital stock, evidences of indebtedness, assets or property or rights, options or warrants distributed with respect to each outstanding share of our common stock as of the close of business on the ex-dividend date for such distribution.
Any increase made under the above portion of this clause (3) will become effective immediately after the close of business on the record date for such distribution. No adjustment pursuant to the above formula will result in a decrease of the conversion rate. However, if such distribution is not so paid or made, the conversion rate shall be decreased, as of the date our board of directors or a duly authorized committee thereof determines not to pay or make such distribution, to be the conversion rate that would then be in effect if such distribution had not been declared. Notwithstanding the foregoing, if  “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder of a Note shall receive, in respect of each $1,000 principal amount thereof, at the same time and upon the same terms as holders of our common stock, without having to convert its Notes, the amount and kind of the relevant distribution that such Holder would have received if such Holder owned a number of shares of common stock equal to the conversion rate on the record date for such distribution.
With respect to an adjustment pursuant to this clause (3) where we have declared a dividend or other distribution to all or substantially all holders of our common stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit, that are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange, which we refer to as a “spin-off,” the conversion rate will be increased based on the following formula:
[MISSING IMAGE: http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12151255&doc=6]
where,
CR = the conversion rate in effect immediately after the close of business on the record date for the spin-off;
CR0 = the conversion rate in effect immediately prior to the close of business on the record date for the spin-off;
FMV = the average of the closing sale prices of the capital stock or similar equity interest distributed to holders of our common stock applicable to one share of our common stock (determined by reference to the definition of  “closing sale price” set forth under “— Settlement upon Conversion” as if references therein to our common stock were to such capital stock or similar equity interest) over the first 10 consecutive trading-day period commencing on, and including, the ex-dividend date for the spin-off  (such period, the “valuation period”); and
MP0 = the average of the closing sale prices of our common stock over the valuation period.
The adjustment to the conversion rate under the preceding paragraph of this clause (3) will be determined on the last trading day of the valuation period but will be given effect immediately after the close of business on the record date for the spin-off. In respect of any conversion during the valuation period for any spin-off, references within this clause (3) related to 10 trading days shall be deemed to be replaced with such lesser number of trading days as have elapsed from, and including, the ex-dividend date for such spin-off to, but excluding, the relevant conversion date.
In addition, and notwithstanding the foregoing, if the Company declares a dividend or distribution consisting of a combination of cash and shares of the Company's common stock, then the conversion rate shall be increased: (i) as to the cash portion, according to clause (4) below; and (ii) as to the common stock portion, according to the greater of the values calculated (x) pursuant to clause (4) below as if the common stock portion were to be paid in cash, or (y) pursuant to clause (1) above.
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If the Company declares a dividend or distribution where shareholders of the common stock have the option of receiving such dividend or distribution, in whole or in part, in the form of either cash or shares of the Company's common stock, then the conversion rate shall be increased: (i) as to the portion of the dividend or distribution taken as cash by the shareholders of the common stock, according to clause (4) below; and (ii) as to the portion of the dividend or distribution taken as shares of common stock by the shareholders of the common stock, according to the greater of the values calculated (x) pursuant to clause (4) below as if such common stock portion were to be paid in cash, or (y) pursuant to clause (1) above.
(4) If we declare a cash dividend or distribution to all, or substantially all, holders of our outstanding common stock, the conversion rate will be increased based on the following formula:
[MISSING IMAGE: http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12151255&doc=7]
where,
CR0 = the conversion rate in effect immediately prior to the close of business on the record date for such dividend or distribution;
CR = the conversion rate in effect immediately after the close of business on the record date for such dividend or distribution;
SP0 = the closing sale price of our common stock on the trading day immediately preceding the ex-dividend date for such dividend or distribution; and
C = the amount in cash per share we pay or distribute to all or substantially all holders of our common stock.
Any increase made under this clause (4) shall become effective immediately after the close of business on the record date for such dividend or distribution. No adjustment pursuant to the above formula will result in a decrease of the conversion rate. However, if any dividend or distribution described in this clause (4) is declared but not so paid or made, the new conversion rate shall be readjusted, as of the date our board of directors or a duly authorized committee thereof determines not to pay or make such dividend or distribution, to the conversion rate that would then be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, if  “C” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder of a Note shall receive, for each $1,000 principal amount of Notes, at the same time and upon the same terms as holders of shares of our common stock, without having to convert its Notes, the amount of cash that such Holder would have received if such Holder owned a number of shares of our common stock equal to the conversion rate on the record date for such cash dividend or distribution.
(5) If we or any of our subsidiaries makes a payment in respect of a tender or exchange offer for our common stock and, if the cash and value of any other consideration included in the payment per share of common stock exceeds the average of the closing sale prices of our common stock over the 10 consecutive trading-day period commencing on, and including, the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “expiration date”), the conversion rate will be increased based on the following formula:
[MISSING IMAGE: http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12151255&doc=8]
where,
CR0 = the conversion rate in effect immediately prior to the open of business on the trading day next succeeding the expiration date;
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CR = the conversion rate in effect immediately after the open of business on the trading day next succeeding the expiration date;
AC = the aggregate value of all cash and any other consideration (as determined in good faith by our board of directors or a duly authorized committee thereof) paid or payable for shares purchased in such tender or exchange offer;
OS0 = the number of shares of our common stock outstanding immediately prior to the time (the “expiration time”) such tender or exchange offer expires (prior to giving effect to such tender or exchange offer);
OS = the number of shares of our common stock outstanding immediately after the expiration time (after giving effect to such tender or exchange offer); and
SP = the average of the closing sale prices of our common stock over the 10 consecutive trading-day period commencing on, and including, the trading day next succeeding the expiration date.
The adjustment to the conversion rate under the preceding paragraph of this clause (5) will be determined at the close of business on the tenth trading day immediately following, but excluding, the expiration date but will be given effect at the open of business on the trading day next succeeding the expiration date. In respect of any conversion during the 10 trading days commencing on the trading day next succeeding the expiration date, references within this clause (5) to 10 trading days shall be deemed to be replaced with such lesser number of trading days as have elapsed from, and including, the trading day next succeeding the expiration date to, but excluding, the relevant conversion date. No adjustment pursuant to the above formula will result in a decrease of the conversion rate.
As used in this section, “ex-dividend date” means the first date on which the shares of our common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from us or, if applicable, from the seller of our common stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.
As used in this section, “record date” means, with respect to any dividend, distribution or other transaction or event in which the holders of our common stock have the right to receive any cash, securities or other property or in which common stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of our common stock entitled to receive such cash, securities or other property (whether such date is fixed by our board of directors or a duly authorized committee thereof, statute, contract or otherwise).
To the extent that we have a rights plan in effect upon conversion of the Notes (i.e., a poison pill), you will receive, in addition to the common stock received in connection with such conversion, the rights under the rights plan, unless prior to any conversion, the rights have separated from the common stock, in which case the conversion rate will be adjusted at the time of separation as if we distributed to all or substantially all holders of our common stock, shares of our capital stock, evidences of indebtedness, other assets or property or rights, options or warrants to acquire our capital stock or other securities as described in clause (3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.
To the extent permitted by applicable law and applicable listing rules of the Nasdaq Capital Market and any other securities exchange on which our securities are then listed, (i) we are permitted to increase the conversion rate of the Notes by any amount for a period of at least 20 business days so long as the increase is irrevocable during the period and our board of directors determines that such increase would be in our best interest and (ii) we may (but are not required to) increase the conversion rate to avoid or diminish income tax to holders of our common stock or rights to purchase shares of our common stock in connection with a dividend or distribution of shares (or rights to acquire shares) or similar events. We must give at least 15 days’ prior notice of any such increase in the conversion rate.
You may, in some circumstances, including the distribution of cash dividends to holders of our shares of common stock, be deemed to have received a distribution or dividend subject to U.S. federal income tax as a result of an adjustment or the nonoccurrence of an adjustment to the conversion rate. For a discussion of the U.S. federal income tax treatment of an adjustment to the conversion rate, see “Additional Material Federal Income Tax Considerations” below for a relevant discussion.
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Adjustments to the conversion rate will be calculated to the nearest 1/10,000th of a share.
Whenever any provision of the indenture requires us to calculate the closing sale prices or the “stock price” for purposes of a make-whole adjustment event over a span of multiple days, the board of directors or a committee thereof will make appropriate adjustments to account for any adjustment to the conversion rate that becomes effective, or any event requiring an adjustment to the conversion rate where the ex-dividend date, record date, expiration date or effective date of the event occurs, at any time during the period from which such closing sale prices or stock prices are to be calculated.
No adjustment to the conversion rate need be made for a given transaction if Holders of the Notes will be entitled to participate in that transaction, without conversion of the Notes, on the same terms and at the same time as a holder of a number of shares of common stock equal to (i) the principal amount of a Holder’s Notes, divided by $1,000, multiplied by (ii) the conversion rate would be entitled to participate.
If we adjust the conversion rate pursuant to the above provisions, we will deliver to the trustee and conversion agent a certificate setting forth the conversion rate, detailing the calculation of the conversion rate and describing the facts upon which the adjustment is based. In addition, we will issue a press release containing the relevant information (and make the press release available on our website).
Recapitalizations, Reclassifications and Changes to Our Common Stock
In the event of:

any recapitalization, reclassification or change of our common stock (other than changes resulting from a subdivision or combination);

a consolidation, merger, combination, binding share exchange or similar transaction involving us;

a sale, assignment, conveyance, transfer, lease or other disposition to another person of all or substantially all of our properties and assets; or

a liquidation or dissolution of us,
in each case, in which holders of our outstanding common stock are entitled to receive cash, securities or other property for their shares of our common stock (“reference property” and any such transaction, a “share exchange event”), we or the successor or purchasing company, as the case may be, will execute with the trustee a supplemental indenture, providing that, at and after the effective time of such share exchange event, Holders of each $1,000 principal amount of Notes will be entitled to convert their Notes into the kind and amount of reference property that a holder of a number of shares of our common stock equal to the conversion rate immediately prior to such share exchange event would have owned or been entitled to receive upon such share exchange event. The supplemental indenture will also provide for anti-dilution and other adjustments that are as nearly equivalent as possible to the adjustments described under “— Conversion Rate Adjustments” above. If the reference property in respect of any such share exchange event includes shares of stock, securities or other property or assets of a company other than the successor or purchasing corporation, as the case may be, in such share exchange event, such other company will also execute such supplemental indenture, and such supplemental indenture will contain such additional provisions to protect the interests of the Holders, including the right of Holders to require us to purchase their Notes upon a fundamental change as described under “— Purchase of Notes at Your Option on a Fundamental Change” below, as the board of directors (or an authorized committee thereof) reasonably considers necessary by reason of the foregoing. If the Notes become convertible into reference property, we will notify the trustee and the conversion agent and issue a press release containing the relevant information (and make the press release available on our website). Throughout this section (“— Conversion of Notes”), if our common stock has been replaced by reference property as a result of any share exchange event, references to our common stock are intended to refer to such reference property, subject to the provisions of the supplemental indenture.
For purposes of the foregoing, the type and amount of consideration that holders of our common stock are entitled to in the case of share exchange events that cause our common stock to be converted into the right to receive more than a single type of consideration because the holders of our common stock have the right to elect the type of consideration they receive will be deemed to be the weighted average of the
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types and amounts of consideration received by the holders of our common stock that affirmatively make such an election or if no holders of our common stock affirmatively make such an election, the types and amounts of consideration actually received by the holders of our common stock. We will notify Holders, the trustee and the conversion agent of the weighted average as soon as practicable after such determination is made. We will agree in the indenture not to become a party to any share exchange event unless its terms are consistent with the foregoing.
Adjustment to Conversion Rate upon Conversion upon a Make-Whole Adjustment Event
If you elect to convert your Notes at any time from, and including, the effective date of a “make-whole adjustment event” (as defined below) to, and including, the business day immediately preceding the related fundamental change purchase date, or if a make-whole adjustment event does not also constitute a fundamental change as described below under “— Conversion of Notes — Purchase of Notes at Your Option upon a Fundamental Change,” the 40th scheduled trading day immediately following the effective date of such make-whole adjustment event, the conversion rate will be increased by an additional number of shares of common stock (these shares being referred to as the “additional shares”) as described below. We will notify Holders, the trustee and the conversion agent of the anticipated effective date of such make-whole adjustment event and issue a press release as soon as practicable after we first determine the anticipated effective date of such make-whole adjustment event (and make the press release available on our website). We will use our commercially reasonable efforts to give notice to Holders of the anticipated effective date for a make-whole adjustment event not less than 20 scheduled trading days prior to the anticipated effective date. In addition, we will notify Holders, the trustee and the conversion agent of the actual effective date and issue a press release containing such information (and make the press release available on our website) within five business days following such effective date.
A “make-whole adjustment event” is (i) any “change in control” as described below under “— Purchase of Notes at Your Option upon a Fundamental Change” (determined after giving effect to any exceptions or exclusions from such definition but without giving effect to the proviso in clause (2) of the definition thereof) and (ii) any “termination of trading” as described below under “— Purchase of Notes at Your Option upon a Fundamental Change.”
The number of additional shares, if any, by which the conversion rate will be increased for conversions in connection with a make-whole adjustment event will be determined by reference to the table below, based on the date on which the make-whole adjustment event occurs or becomes effective, which we refer to as the “effective date,” and (1) the price paid per share of our common stock in the change in control in the case of a make-whole adjustment event described in clause (2) of the definition of change in control, in the event that our common stock is acquired for cash, or (2) the average of the closing sale prices of our common stock over the five trading-day period ending on the scheduled trading day immediately preceding the effective date of such other make-whole adjustment event, in the case of any other make-whole adjustment event. We refer to the amount determined under the clause (1) or clause (2) of the preceding sentence, as applicable, as the “stock price.”
The stock prices set forth in the first row of the table below (i.e., column headers) will be adjusted as of any date on which the conversion rate of the Notes is adjusted as described under “— Conversion of Notes — Conversion Rate Adjustments.” The adjusted stock prices will equal the stock prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the conversion rate immediately prior to the adjustment giving rise to the stock price adjustment and the denominator of which is the conversion rate as so adjusted. The number of additional shares will be adjusted in the same manner and at the same time as the conversion rate as set forth under “— Conversion of Notes — Conversion Rate Adjustments.”
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The following table sets forth the number of additional shares to be added to the conversion rate for each $1,000 principal amount of Notes based on hypothetical stock prices and effective dates:
Stock Price
Effective Date
$8.93
$10.00
$10.72
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$48.00
Year 0
20.5677