corresp
Direct Dial: +1.513.361.1230
smahon@ssd.com
June 4, 2010
VIA EDGAR AND OVERNIGHT DELIVERY
Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549-3628
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Attention:
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James E. OConnor, Esq. |
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Division of Investment Management |
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Re: |
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Horizon Technology Finance Corporation |
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Registration Statement on Form N-2, Filed March 19, 2010 |
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File Nos. 333-165570 and 814-00802 |
Dear Mr. OConnor:
On behalf of Horizon Technology Finance Corporation, a Delaware corporation (the Fund), we
are responding to the comments of the staff (the Staff) of the Securities and Exchange Commission
(the Commission) set forth in your letter dated May 28, 2010, and as communicated to us by
telephone by Ms. Christina DeAngelo on May 28, 2010, with respect to the above-referenced
registration statement on Form N-2, filed by the Fund on March 19, 2010 (the Registration
Statement), in connection with the proposed offer by the Fund of its common stock, $0.001 per
share par value (the Shares).
In connection with this response the Fund is today also filing with the Commission Amendment
No. 1 to the Registration Statement (the Amendment) which reflects the responses set forth below,
as appropriate. We are also sending you via overnight delivery three (3) courtesy copies of the
Amendment.
To facilitate the Staffs review, this letter includes each of the Staffs comments in italics
followed by a response to the staffs comments. Capitalized terms used in the Amendment and used
in the following responses without definition have the meanings specified in the Amendment, or the
Staffs comment letter, as the context requires. All references to page numbers in the responses
to the Staffs comments are to page numbers in the Amendment.
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Securities and Exchange Commission
June 4, 2010
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Prospectus
Cover Pages
1. The disclosure on the front cover states that the Fund intends to file an election to be
regulated as a business development company. We suggest that this election be made, by filing
Form N-54A, before the Funds registration is declared effective.
As suggested by the Staff, the Fund intends to file an election to be regulated as a business
development company on Form N-54A before the Registration Statement is declared effective by the
Commission.
2. Please disclose in the third paragraph on the front cover that none of the proceeds of the CHP
shares being registered for resale will go to the Fund.
Disclosure has been added in the third paragraph on the front cover of the prospectus that
none of the proceeds of the CHP shares being registered for resale will go to the Fund.
3. Please make prominent the statement in the third paragraph that this is our initial public
offering, and there is no prior public market for our shares. See Item 1.1.i. of Form N-2. Please
also move the last sentence of the sixth paragraph to follow this sentence and disclose the amount
of immediate dilution in net asset value per share that purchasers in the current offering will
suffer, based on the initial offering price per share. In addition, please provide page citations
to the dilution discussions, on pages 35 and 47, of the prospectus.
In response to the Staffs comment, the Fund has made prominent the referenced statement by
including it in the bolded large-type paragraph on the front cover that discusses risk and
dilution. In addition, the noted disclosure regarding dilution has been added in the bolded
paragraph, including cross-references to the dilution discussions on pages 34 and 48 of the
Amendment.
4. Also in the bolded paragraph, please revise the statement that investing in our common stock
involves risks... to state that investments made in the Fund should be considered highly
speculative and involving a high degree of risk. See Item 1.1.j. of Form N-2.
The requested revision to the bolded large-type paragraph on the front cover that discusses
risk and dilution has been added.
5. In the bolded paragraph, please delete the phrase which are structured similarly to us and
substitute including business development companies.
The requested deletion and substitution in the bolded paragraph has been made.
6. Please add a statement to the paragraph immediately preceding the Table of Contents that the
prospectus will be amended to reflect material changes.
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Securities and Exchange Commission
June 4, 2010
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A statement that the prospectus will be amended to reflect material changes has been added to
the paragraph immediately preceding the Table of Contents.
7. Please add the statement required by Rule 481(e) under the 1933 Act.
The statement required by Rule 481(e) was already included on the back cover page of the
prospectus.
8. The Fund does not appear to have a minimum offering requirement. If not, please disclose the
risk that the Fund may be undercapitalized.
In response to the Staffs comment, the Fund has added disclosure on the inside front cover of
the prospectus contained in the Amendment to state that because the Fund does not have a minimum
offering requirement, there is a risk that the Fund may be undercapitalized.
9. Please explain in your response letter how the Fund will account for the offering expenses and
sales load.
We have been advised that offering expenses and the sales load will be recorded as an off-set
to the stockholders capital account.
10. Where will the over-allotment shares come from?
As indicated on the cover page and elsewhere in the prospectus, all of the over-allotment
shares will come from the Fund.
11. Please disclose any other consideration paid to the underwriters. See Instruction 2. to Item
1.1.g. of Form N-2.
Neither the Fund nor the Selling Shareholders will pay any other consideration within the
meaning of Instruction 2. to Item 1.1g. of Form N-2.
Prospectus Summary
1. In all of the Summary subsections, please include citations, including page numbers, where there
are more detailed discussions in the body of the prospectus.
Cross references, including page numbers, to more detailed discussions in the body of the
prospectus have been added throughout the Summary subsections.
2. The subsection Our Company describes the existing portfolio as being invested only in loans
and warrants. The disclosure about specific investments on pages 73-75, however, appears to
indicate
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Securities and Exchange Commission
June 4, 2010
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that the existing portfolio includes substantial investments in preferred shares. Please clarify
the disclosure.
The disclosure on pages 76 through 78 of the Amendment indicates that the investments include
warrants to purchase either common stock or preferred stock. Disclosure has been added to pages 1
and 2 of the Amendment under the subsection Our Company clarifying that the existing portfolio
includes warrants to purchase either common stock or preferred stock. There have been no
investments to date in any preferred stock.
3. Please disclose, in the same subsection, that the loans in which the Fund invests will generally
not be rated by any rating agency. If they were rated, they would be rated as below investment
grade or junk. Indebtedness of below investment grade quality is regarded as having
predominantly speculative characteristics with respect to the issuers capacity to pay interest and
repay principal.
Disclosure has been added under the subsection Our Company to reflect that the loans in
which the Fund invests will generally not be rated by any rating agency.
4. Please move the subsection, Historical Performance of Our Advisor, on page 3, to anywhere
after the financial highlights table. In addition, please inform us what authority permits you to
present the Advisors prior performance and how your presentation is consistent with that
authority.
In response to the Staffs comment, the disclosure regarding the Advisors historical
performance has been moved to pages 87 and 88 of the Amendment. The Fund believes that the
information regarding the historical performance of the Advisor as depicted in the Amendment (and
with the benefit of the Staffs comments herein) is important to investors making a decision as to
whether or not to purchase the shares being offered. Accordingly, that information is material and
should be disclosed. Moreover, disclosure of this information is not inconsistent with the general
requirements of Parts A and B of Form N-2 concerning historical information regarding portfolio
managers. We are not aware of other authority that prohibits the Fund to present the Advisors
prior performance history.
5. Please clarify the meaning of the phrases fund raising history and investment mandate similar
to ours. Does the latter mean that there are no material differences in the objectives, policies
and investment strategies?
The Fund has deleted the phrase fund raising history. In addition, disclosure has been
added on page 3 of the Amendment in the subsection Historical Performance of Our Advisor to
clarify that there are no material differences in the objectives, policies and investment
strategies of the Fund and the other funds historically managed by the Advisor.
6. Please delete the three sentences that follow the phrase investment mandate similar to ours.
(In addition to the performance shown below...could also decrease the IRR of each fund presented
below.) They are irrelevant to a presentation of prior performance. Likewise, please delete the
last paragraph of this subsection. It does not describe the historical performance of the advisor.
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Securities and Exchange Commission
June 4, 2010
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The requested deletions have been made and the deleted information has been moved to the
subsection Our Advisor and Its Personnel on pages 2 and 3 of the Amendment.
7. Any prior performance presentation that is presented may only be calculated using the
SEC-mandated average annual total return formula for the 1-, 5-, and 10-year periods ended on the
date of the most recent balance sheet included in the registration statement (or for the periods
the funds have been in operation). Please delete all references to IRR.
In response to the Staffs comment, the Fund has revised the prior performance presentation on
pages 87 and 88 of the Amendment to disclose the SEC-mandated average annual total return formula
for the 1- and 5-year periods ended on the date of the most recent balance sheet included in the
Registration Statement and the periods since inception of the funds have been in operation. All
references to IRR have been deleted.
8. The subsection Our Strategy, on page 3, states that the Funds our investment objective is to
maximize our investment portfolios total return by generating current income from the loans we
make. The cover page states that the Funds investment objective is to generate current income
from the loans we make. Please conform the disclosure.
The Fund has conformed the disclosure consistent with the Staffs comment.
9. The paragraph Disciplined Underwriting, Diversification and Portfolio Management, on page 4
states that the Fund seeks to diversify its investment portfolio. Because the Fund is
non-diversified, please use another term.
The Fund has revised the disclosure on pages 3 and 63 of the Amendment to use the term
balanced instead of the term diversify.
10. With respect to the paragraph Use of Leverage; SBA Debenture Program, on page 5, what is the
current status of the Funds application for an SBIC license and its related application for
exemptive relief from the SEC.
Following the receipt by the Advisor of the Move Forward Letter noted in the Registration
Statement, there have been no material developments in the SBIC licensing process. The Fund and
the Advisor expect to continue the pursuit of the SBIC license and to seek companion exemptive
relief from the Commission soon after the completion of the offering.
11. In the Investment Summary subsection, on page 8, please clarify the following issues.
Are all of the listed investments assets of Compass Horizon Funding Company LLC and will they all
become assets of the Fund?
All of the listed investment assets, other than loans that have been fully repaid, are
currently assets of Compass Horizon Funding Company LLC and/or its wholly-owned subsidiary, Horizon
Credit I LLC.
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Securities and Exchange Commission
June 4, 2010
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All of these current assets will become assets of the Fund upon completion of the Share Exchange.
The Fund has clarified the disclosure on page 76 of the Amendment in response to the Staffs
comment.
Are all of the loans currently performing and not impaired?
All of the loans are currently performing and unimpaired. The Fund has clarified the
disclosure on page 76 of the Amendment in response to the Staffs comment.
12. With respect to the Distribution and Share Exchange, discussed on pages 9 and 39, please
clarify the following issues:
What is the meaning of prior to the completion of this offering?
The Share Exchange will occur prior to the time the Form N-54A is filed and the Form N-2 is
declared effective.
Will the Share
Exchange be completed and all of the Fund shares to be issued
to the owners of Compass Horizon be in their hands before the effectiveness of the registration statement?
The Share Exchange will be completed and all of the Shares to be issued to the owners of
Compass Horizon will be in their hands before the Registration Statement is declared effective.
Is the closing of the private placement contingent upon the closing of the IPO?
The Share Exchange will be completed before the closing of the IPO and is not conditioned upon
the closing of the IPO.
Will anyone, other than the current
owners of Compass Horizon, be issued shares of the Fund before the effectiveness of the registration statement?
No one, other than the current owners of Compass Horizon, will be issued shares of the Fund
before the effectiveness of the Registration Statement.
Will
any of the current owners of Compass Horizon be issued additional Fund shares in exchange for cash, property, by means of a financing transaction before the effectiveness of the registration
statement?
Other than the shares issued in the Share Exchange, the current owners of Compass Horizon will
not be issued additional Fund shares in exchange for cash or property or by means of a financing
transaction before the effectiveness of the Registration Statement.
Will Compass borrow to make the cash distribution to CHP?
Compass Horizon will not borrow funds to make the cash distribution to CHP.
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Securities and Exchange Commission
June 4, 2010
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What is meant by other loan income?
Although the reference to other loan income has been deleted from the description of the
Distribution and Share Exchange, other loan income means various fees on loans which generally
consist of advisory fees, commitment fees, amendment fees, non-utilization fees and prepayment fees
and, in a limited number of cases, a non-refundable deposit earned upon the termination of a
transaction.
Will the Share Exchange rely on Section 4(2) of the 1933 Act, through the Rule 506 safe harbor of
Regulation D?
The issuance of Fund shares in the Share Exchange will be made in reliance on the exemption
provided by Rule 4(2) of the 1933 Act and Rule 506 of Regulation D thereunder.
Will all of the restricted shares of the Fund be issued to accredited investors?
All of the restricted shares of the Fund will be issued to accredited investors.
Are the selling shareholders described as parties to the underwriting in the underwriting
agreement?
The selling stockholder is described as a party to the underwriting in the underwriting
agreement.
Will the selling shareholders be participating in the Share Exchange with a view to reselling
their shares in the IPO, such that they may be deemed to be underwriters, as defined in Section
2(a)(11) of the 1933 Act? Please provide an analysis.
Except for the shares being sold by the selling stockholder in the offering which are included
in the Registration Statement, neither the selling stockholder nor any of the other Compass Horizon
Owners participating in the Share Exchange will be doing so with a view to reselling their shares
in the IPO. Since the shares being sold in the IPO by the selling stockholder are being
registered, the selling stockholder is not relying upon the exemption provided by Section 4(1) of
the 1933 Act and, accordingly, it is not necessary to determine whether the selling stockholder or
any other Compass Horizon Owner is an underwriter as defined in Section 2(a)(11) of the 1933 Act.
13. Please provide us with copies of the registration rights agreements between the Fund and the
selling shareholders and a copy of the Funds private placement memorandum.
The
Fund has described the terms of the registration rights
agreement among the selling stockholder, HTF-CHF and the Fund that the Fund intends to execute with
the selling stockholder and HTF-CHF in conjunction with the Share
Exchange on page 106 and will file a copy of the agreement by
amendment. The Fund does not
intend to use a private placement memorandum in connection with the Share Exchange.
14. In the Risk Factors subsections, on pages 9, 22, and elsewhere in the registration statement,
please make clear that, not only does the Advisor have no experience managing a business
development company, but it also has no experience managing an investment company.
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Securities and Exchange Commission
June 4, 2010
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In the risk factor subsections on pages 8 and 16, disclosure has been added to make it clear
that not only does the Advisor have no experience in managing a business development company, it
also has no experience in managing an investment company.
15. In the same subsection, please explain what is meant by the statement: we may allocate the net
proceeds from this offering in ways with which you may not agree.
As
disclosed on pages 10, 33 and 45 of the Amendment, the Fund intends to use the net proceeds of
the offering for new investments in portfolio companies in accordance with the Funds investment
objectives and strategies described in the prospectus, for general working capital purposes and for
temporary repayment of debt. It is possible that every investor may not agree with the Funds
allocation of the net proceeds of the offering or the amount of proceeds allocated for such
purposes. In particular, investors may not agree with particular investments purchased using such
proceeds.
The Offering, page 11
1. Please fill in the blanks with respect to the amounts of shares being offered on pages 11 and
14.
The blanks with respect to the amounts of shares being offered will be filled in on pages 10
and 13 by amendment before the Registration Statement is declared effective by the Commission.
2. The table at the top of page 11 appears to indicate that the selling stockholder will be
selling in the offering. Likewise, the disclosure on page 14 states: ...the number of shares of
our common stock to be outstanding immediately following the completion of this offering is based
on the number of shares outstanding as of ___, 2010 and assumes the sale of ___shares of our
common stock by the selling stockholder... The disclosure on pages 34 and 102, however, indicates
that the shares issued to the selling shareholder will be subject to a 180-day contractual
lock-up. Please explain this apparent discrepancy or revise the disclosure.
The disclosures on pages 32 and 106 reflect what will be the case upon consummation of the
offering. Those disclosures are consistent with the fact that the selling stockholder will be
selling shares in the offering. Only the shares owned by the selling stockholder that are not
included in the offering will be subject to the lock-up.
3. Is the selling stockholder an affiliate subject to the volume limitations and manner-of-sale
requirements of Rule 144 under the 1933 Act disclose the amount of immediate dilution in net asset
value per share that purchasers in the current offering will suffer, based on the initial offering
price per share. In addition, please provide page citations to the dilution discussions, on pages
35 and 47, of the prospectus.
Whether or not the selling stockholder will be an affiliate subject to the volume
limitations and manner-of-sale requirements or Rule 144 will depend upon the facts and
circumstances at the time of any sale made by the selling stockholder in reliance upon Rule 144.
Rule 144 defines an affiliate of an
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Securities and Exchange Commission
June 4, 2010
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issuer to mean a person that directly, or indirectly, controls, or is controlled by, or is under
common control with, such issuer. It is not possible to determine whether the selling stockholder
will be an affiliate at the time it chooses to make a sale of its common stock in reliance upon
Rule 144. It is not necessary for the selling stockholder to rely upon the relief provided by Rule
144 in connection with the offering, because the shares being offered by the selling stockholder
will be registered under the 1933 Act. Following the completion of the offering, the Compass
Horizon owners may be considered affiliates of the Fund and, if so, would be subject to the
volume limitations and manner of sale requirements of Rule 144.
The Fund will disclose the amount of immediate dilution in net asset value per share that
purchasers in the current offering will suffer based upon the initial offering price per share by
amendment as soon as a mid-point of the offering price range is established in conjunction with
discussions with the underwriters.
The Fund has added a new subsection to the Offering section called Dilution in which the
Fund highlights the amount of immediate dilution in net asset value per share that purchasers in
the current offering will suffer based upon the initial offering price per share and have provided
citations to the dilution discussions elsewhere in the prospectus.
4. The disclosure on page 11 states that the proceeds of the offering may be used for temporary
repayment of debt. Please explain this statement.
The portion of the net proceeds of the offering used for temporary repayment of debt will be
used to pay down the Funds existing Credit Facility. Since funds may be reborrowed under the
Credit Facility, it is expected that the repayment of the Credit Facility may be temporary. The
Fund has clarified the disclosure on pages 10 and 45 of the Amendment in response to the Staffs
comment.
5. It appears from the disclosure that the Investment Management Agreement and the Administration
Agreement may cover some of the same expenses. Please explain or revise the disclosure.
The Fund advises the Staff that it has revised the disclosure in the summary section to
clarify that the expense reimbursement amounts will be payable pursuant to the Administration
Agreement. There will be no duplication in the expenses that are covered under the Administration
Agreement and the Investment Management Agreement. Conforming changes throughout the Amendment
have also been made.
Fees and Expenses, page 15
1. Please relocate the fee table so that it immediately follows the prospectus summary.
The Fund respectfully advises the Staff that the location of the Fees and Expenses table on
page 14 of the Amendment is appropriate and complies with General Instruction 1 to Form N-2, which
requires the Fees and Expenses table to follow the information provided pursuant to Items 1 and 2
of Form N-2.
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Securities and Exchange Commission
June 4, 2010
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2. Please provide the missing fee table information.
All missing fee table information is now provided.
3. Please confirm that the amount of offering proceeds used in the calculation of net assets is the
amount most likely to be raised in the offering.
The Funds calculation of net assets will be based on its total assets and net assets on a pro
forma basis after giving effect to the offering that will be discussed in a subsequent amendment to
the Registration Statement. While the Fund is currently unable to determine the actual amount of
proceeds most likely to be raised in the offering, the Fund believes the use of the pro forma
amounts is reasonable.
4. In the line item Estimated Annual Expenses (as a Percentage of Net Assets Attributable to
Common Stock), please delete the word estimated.
The Fund has revised the disclosure on page 14 of the Amendment consistent with the Staffs
comment.
5. In the line item Base Management Fees, please delete the word base and make fees singular.
The Fund has revised the disclosure on page 14 of the Amendment consistent with the Staffs
comment.
6. Please provide an Acquired Fund Fees and Expenses line item if any of the Funds assets will
be invested in an acquired fund, including a money market fund. See Instruction 10 to Item 3.1.
of Form N-2.
None of the Funds assets on the date of the closing of the offering will be invested in an
acquired fund. Accordingly, the inclusion of an Acquired Fund Fees and Expenses line item is
not required by Form N-2.
7. Please expand footnote 4 to indicate that the term gross assets includes those acquired
using leverage.
Footnote 4 on page 14 of the Amendment has been expanded to disclose that the term gross
assets includes those assets acquired using the proceeds of leverage.
8. At the end of the line item Other Expenses, please add the phrase (estimated for the current
fiscal year).
The Fund has revised the disclosure on page 14 of the Amendment consistent with the Staffs
comment.
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Securities and Exchange Commission
June 4, 2010
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9. Please move the examples of the calculation of the incentive fees from page 85 to immediately
follow the Example.
The Fund notes the Staffs comment and respectfully advises the Staff that it does not believe
that moving the examples of the calculation of the incentive fees is required by Form N-2. In
addition, the Fund believes that moving the examples will make the Fees and Expenses section unduly
lengthy and difficult for an investor to understand without the more fulsome disclosure regarding
the fees payable under the Investment Management Agreement beginning on page 16 of the Amendment.
The Fund has revised the disclosure on page 15 of the Amendment to add a cross-reference to the fee
calculation examples beginning on page 89 of the Amendment.
10. In the fee table and throughout the registration statement, please provide financial
information as of a date that is more recent than December 31, 2009.
In the fee table and throughout the Registration Statement, financial information as of March
31, 2010 has been provided.
11. Does the Fund intend to issue preferred shares within a year of the effective date of the
registration statement?
The Fund does not currently intend to issue preferred shares within one year of the effective
date of the Registration Statement.
12. Please delete the phrase, our only debt outstanding is $64.2 million under our Credit Facility
and from the narrative to the Example.
The Fund has revised the disclosure on page 15 of the Amendment consistent with the Staffs
comment.
Risk Factors, page 17
1. The disclosure, on page 19, states that in lieu of a security interest in the intellectual
property we may sometimes only obtain a commitment by the portfolio company not to grant liens to
any other creditor on the companys intellectual property. In these cases, we may have additional
difficulty recovering our principal in the event of a foreclosure. This statement contradicts the
investment strategy described on the cover of, and elsewhere in, the prospectus that the Fund makes
only secured loans. Please explain this discrepancy or revise the disclosure.
Although the Fund will make only secured loans, consistent with its investment strategy, in
some cases these loans may be secured by all of the borrowers assets other than intellectual
property. We have revised the disclosure on page 29 to clarify the disclosure.
2. Please make the subsection Risks Related to our Business and Structure the first one in the
Risk section.
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Securities and Exchange Commission
June 4, 2010
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The risks under the subsection Risks Related to our Business and Structure have been moved to
the beginning of the Risk Factor section of the prospectus beginning on page 16 of the Amendment.
3. With respect to the disclosure on page 24, please address the following issues.
What is Horizon Credit I LLC and why is it a party to the Credit Facility with WestLB AG? Is
Horizon Credit I a financing subsidiary of the Fund set up to hold Fund assets that serve as
collateral for loans made under the credit facility?
Horizon Credit I LLC is a party to the Credit Facility to satisfy the lenders requirement
that the collateral for the loans made under the Credit Facility be held by a bankruptcy remote
subsidiary as borrower under the Credit Facility.
Will such assets remain consolidated on the Funds balance sheet and count for the Funds
asset coverage requirements under the Investment Company Act of 1940 (1940 Act)?
Yes. Such assets will remain consolidated on the Funds balance sheet and count for the
Funds asset coverage requirements under the 1940 Act.
Please identify the certain of our subsidiaries referred to throughout this subsection. Why are
they also parties to the Credit Facility arrangement? Why are they required to comply with
various financial covenants?
The risk factor on page 18 of the Amendment regarding the Credit Facility has been revised to
delete the references to certain of our subsidiaries and disclose that the Funds only
subsidiaries are Compass Horizon Funding Company LLC and Horizon Credit I LLC. Compass Horizon
Funding Company LLC and Horizon Credit I LLC are required to comply with the various financial
covenants because they are parties to the Credit Facility.
Please define the term certain change of control events.
We have modified the disclosure on page 18 of the Amendment to clarify that a change of
control means a merger or other consolidation , a liquidation or bankruptcy, a sale of all or
substantially all of the assets of the Fund, or a transaction (or series of transactions) in which
another person or entity acquires 50% or more of our shares.
Please explain what is meant by a breach of certain of the covenants or restrictions would result
in a default under the Credit Facility that would permit the lender to declare all amounts
outstanding to be due and payable. In the event of a default, would the lender have contractual
rights to seize Horizon Credit I assets without adjudication?
We have modified the disclosure on page 19 of the Amendment to clarify that an event of
default under the Credit Facility would permit the lender to exercise all rights available under
Credit Facility and
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Securities and Exchange Commission
June 4, 2010
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the security interest granted in the assets of Credit I, including, to the extent permissible under
applicable law, the seizure of such assets without adjudication.
Please explain the statement: an event of default or an acceleration under the Credit Facility
could also cause a cross-default or cross-acceleration of another debt instrument or contractual
obligation.
The statement cited means that an event of default under the Credit Facility could also result
in an event of default under another debt instrument or contractual obligation of the Fund.
Similarly, if the lenders under the Credit Facility accelerate the loan thereunder, the lenders
under another debt instrument or contractual obligation could also be permitted to accelerate any
obligations thereunder. Currently, however, there is no other debt instrument or contractual
obligation to which the Fund or either of its subsidiaries is a party.
Please furnish us with copies of the Credit and Security Agreement.
In response to the Staffs comment, the Credit and Security Agreement has been filed as an
exhibit to the Registration Statement and any amendments thereto will be filed as exhibits to a
subsequent amendment to the Registration Statement.
4. On page 27, the disclosure states that the board of directors will value these investments on a
quarterly basis in accordance with our valuation policy consistent with generally accepted
accounting principles. Please revise this to state that the board will determine fair value
quarterly, or more frequently, as circumstances require. Please explain what is meant by
consistent with generally accepted accounting principles. Is the valuation policy written and
has it been formally adopted by the board.
We have revised the disclosure on page 21 of the Amendment to clarify that the board will
determine fair value more frequently than quarterly as circumstances require. In addition, we have
expanded the disclosure concerning valuation policies to reference both GAAP and the 1940 Act.
Finally, the Fund confirms that the valuation policy is written and will be presented to the board
of the Fund for approval prior to the Funds election to be regulated as a business development
company upon the filing of its Form N-54A.
5. The same subsection states that our board of directors will employ an independent third-party
valuation firm to assist the board in arriving at the fair value of our investments. The section
Determination of Net Asset Value, on page 94, states, however, that a third-party valuation firm
will be engaged by the board only to conduct selected investment independent appraisals for
investments for which market quotations are not readily available or for which no indicative
prices from pricing services or brokers or dealers. If it is not the Funds policy to engage an
independent third-party valuation firm for every such investment, this represents a significant
risk that should be prominently disclosed.
The disclosure in the same subsection has been revised to reflect that an independent
third-party valuation firm will be engaged by the board to conduct, at least annually, a valuation
of each investment.
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Securities and Exchange Commission
June 4, 2010
Page 14
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6. Page 29 indicates that the Fund may make investments in original issue discount instruments.
Page 31 indicates that Advisor will have an incentive to invest in instruments that have a
deferred interest feature. What percentage of the Funds income is anticipated to be OID? Is
there a limit on the OID investments that the Fund can make? If the Funds OID investments will be
significant, please provide summary risk disclosure about the fact that such investments will
require the Fund to pay incentive fees and taxes on accrued income that will not be collectible
until maturity of the instrument and, ultimately, may not be collected.
We have revised the disclosure on page 25 of the Amendment to reflect that for the fiscal
years ended December 31, 2008 and December 31, 2009 and the quarterly period ended March 31, 2010,
respectively, Compass Horizon derived 1.60%, 3.42% and 4.54%, respectively, of its income from the
deferred interest component of its loans. The disclosure has also been revised to state that the
governing documents of the Fund do not place a limit on the number of loans the Fund may make with
deferred interest features or on the proportion of the Funds income derived from such loans as
OID.
In addition, we have revised the disclosure on page 23 of the Amendment to reflect that total
OID as a proportion of Compass Horizons income for the fiscal years ended December 31, 2008 and
December 31, 2009 and the quarterly period ended March 31,
2010 was approximately 4.34%, 8.24% and
7.66%, respectively.
7. With respect to the conflicts of interest disclosure on page 30, does the Advisor have a written
policy for handling conflicts of interest?
The Advisor will have a written policy for handling conflicts of interest prior to the
completion of the offering, which policy will be approved by the Funds board of directors prior to
retaining the services of the Advisor.
8. In the same conflict of interest disclosure on page 30, raises the issue of whether the Fund may
be making co-investments that require exemptive relief under Section 17(d) of the 1940 Act. Please
provide us with more information about the joint transactions referred to in this subsection.
Please inform us whether the board of directors will approve every co-investment made the Fund.
The Fund respectfully advises the Staff that the Fund does not presently intend to make
co-investments that would require exemptive relief under Section 17(d) of the 1940 Act. The
disclosure on page 25 of the Amendment is intended to advise investors that, in certain cases,
investment opportunities may be allocated to other entities affiliated with or arranged by the
Funds Advisor. In the event that the Fund were to elect in the future to make co-investments with
other affiliated entities that neither exist today nor are contemplated to exist, these
co-investments would be approved by the board of directors and would be preceded by a request for
exemptive relief under the 1940 Act from the Commission if needed. We have modified the disclosure
on page 24 to remove a portion of the penultimate sentence of the referenced paragraph, which
portion implied that co-investments are contemplated.
9. On page 31, please state how much advance notice the Fund will give shareholders if it changes
investment objective or policies.
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Securities and Exchange Commission
June 4, 2010
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The Fund respectfully advises the Staff that no advance notice will generally be given to
stockholders with respect to changes in the Funds investment objectives or policies as disclosed
on page 25 of the Amendment. The Fund has, however, modified the disclosure on pages 25
and 108 of the Amendment to reflect the fact that the Fund may not change the nature of its
business so as to cease to be, or withdraw its election, as a business development company without
stockholder approval as required by the 1940 Act at a special meeting as called upon written notice
of not less than 10 nor more than 60 days before the date of such meeting.
10. The disclosure on pages 32-33 may create an impression that compliance with Sarbanes-Oxley
creates risks for the Fund. In fact, such compliance may reveal risks that can then be eliminated
by the Fund. Please clarify this point.
The risk factor regarding Section 404 of the Sarbanes-Oxley Act has been deleted.
11. Please revise the subsection heading on page 34, as follows: Subsequent sales in the public
market of substantial amounts of our common stock issued to insiders may have an adverse effect on
the market price of our common stock.
The requested revisions to the risk factor heading on page 32 of the Amendment regarding the
potential effect of subsequent sales of the Funds common stock have been made.
12. In the same subsection, please disclose the following information.
What is the number of Fund shares to be issued to officers, directors and existing stockholders?
Disclosure regarding the number of Fund shares to be issued to officers, directors and
existing stockholders will be added to the risk factor on page 32 by amendment.
The disclosure says that all of the shares issued to the officers, directors and existing
stockholders are subject to contractual lock-ups, but the Selling Shareholders shares included
in the current resale registration are obviously not. Please clarify the disclosure.
The disclosure indicates that upon consummation of this offering officers, directors and
existing stockholders will be subject to contractual lock-ups with the underwriters. The shares
being sold by the selling stockholders in the offering will no longer be owned by the selling
stockholder upon consummation of the offering. As a result, these shares will not be subject any
contractual lock-ups but any shares that the selling stockholder continues to own will be so
subject. The Fund has revised the disclosure on page 32 of the Amendment in response to the
Staffs comment.
What portion of the shares issued to the Selling Shareholder is included in the resale
registration?
The Fund anticipates that approximately 54% of the shares issued to the selling stockholder in
the Share Exchange will be included in the offering.
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Securities and Exchange Commission
June 4, 2010
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What is the expected ratio of the number of restricted Fund shares subject to lock-up compared to
the number of publicly issued following completion of the offering?
The Fund respectfully advises the Staff that the expected ratio of the number of restricted
Fund shares subject to the lock-up compared to the number of publicly issued shares outstanding
upon completion of the offering is currently expected to be approximately 1-to-6 (or approximately
15% to 20%).
If the overhang is significant, please disclose prominently that the Funds share price may be
negatively impacted by insider sales following the expiration of the lock-up.
The overhang is not expected to be significant.
What percentage of the restricted shares is expected to be sold following the end of the lock-up
period.
The Fund has no information as to whether any of the holders of the restricted shares intend
to sell such shares following the end of the lock-up period.
Will the Fund pay the costs of the resale registrations of the Rule 144 stock of its officers,
directors and existing stockholders?
The Fund intends to execute a registration rights agreement with the selling stockholder and
HTF-CHF in conjunction with the Share Exchange and, as a result,
will be obligated to register the resale of any shares subject to such agreement and pay the
customary costs and expenses of such registration. The Fund has not granted, nor does it intend to
grant, any other registration rights to its officers, directors or existing stockholders.
Accordingly, other than with respect to the registration rights agreement mentioned above, the Fund
will have no obligation either to register the resale of any shares held by its officers, directors
or existing stockholders or to pay the costs of such registration.
Will the board make a good faith determination with respect to the payment by the Fund of the
expenses of the current and future resale registrations?
The board will make a good faith determination with respect to the payment by the Fund of the
expenses of the current resale registration. Additionally, when the board considers the approval
of the anticipated registration rights agreement with the selling stockholder and HTF-CHF, it will
make a good faith determination with respect to the payment by the Fund of the expenses of future
resale registrations.
13. In the subsection describing the risks of immediate dilution, on page 35, please clarify why
the price discussion of the Funds stock issued to the owners of Compass Horizon is based on
Compass Horizons net asset value at December 31, 2009.
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Securities and Exchange Commission
June 4, 2010
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We have deleted the last sentence to the first paragraph under the risk on page 34 of the
Amendment entitled, Investors in this offering will incur immediate dilution upon the closing of
the offering. The net asset value used to determine the number of shares of common stock that the
Compass Horizon owners will receive in connection with the Share Exchange will be the net asset
value of Compass Horizon as of the most recently available quarter end, which we anticipate will be
March 31, 2010.
14. Please include the risks in the immediate dilution subsection in the Summary section.
The Fund has revised the disclosure on page 12 of the Amendment consistent with the Staffs
comment.
15. With respect to the disclosure in the same subsection, will the Compass Horizon Owners and the
purchasers in the public offering pay the same price for their shares in the Fund? Will any of the
Fund shares be issued to the owners of Compass Horizon for services? Will the Fund shares issued
to the Compass Horizon Owners be sold at net asset value per share? Your response should be framed
in terms of the analysis in the Big Apple Capital Corp. No-Action Letter (publicly available May
6, 1982). How will the net asset value of the Fund be determined? Will an independent third-party
valuation service be used?
In the Share Exchange, the Compass Horizon Owners will receive a number of shares of common
stock of the Fund in an amount equal to the net asset value of Compass Horizon as of the most
recently available quarter end, which we anticipate will be March 31, 2010. It is currently
anticipated that the purchasers in the public offering will pay an amount which is equal to or
slightly higher than the net asset value of the Fund.
None of the Fund shares will be issued to the owners of Compass Horizon for services.
As indicated above, the number of shares issued to the owners of Compass Horizon will be equal
to the net asset value of Compass Horizon as of the most recently available quarter end, which we
anticipate will be March 31, 2010.
The analysis in the Big Apple Capital Corp. No-Action Letter (publicly available May 6,
1982) (Big Apple) is not applicable to the Share Exchange because the value of the shares to be
issued in the Share Exchange is expected to be equal to or slightly lower than the public offering
price. Unlike Big Apple (in which common stock was issued to a companys organizers at a price of
$0.05 per share in contemplation of a public offering of its common stock at a price of $1.00 per
share, or twenty times higher than the price per share for the companys organizers), the Fund
contemplates that the price of the shares acquired in the Share Exchange will equal net asset value
and that the public offering price will be equal to or slightly higher than the net asset value of
the Fund.
The net asset value of the Fund as of March 31, 2010 (or the most recently available quarter
close prior to the offering) will be determined by the Advisor and approved by the board of the
Fund for use in
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Securities and Exchange Commission
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connection with the Share Exchange. No independent valuation service will be used to determine the
net asset value of the Fund.
16. Please furnish us with a representation that the Fund will disclose estimates of the tax
characteristics of its quarterly distributions in its semi-annual reports, even though its tax
numbers cannot be finalized until its fiscal year-end. Estimates of the tax characterizations of
the Funds distributions in its semi-annual reports will alert shareholders to potential year-end
tax consequences.
The Fund has advised us that it will disclose estimates of the tax characteristics of its
quarterly distributions in the periodic reports it files with the Commission pursuant to the
Securities Exchange Act of 1934.
17. Please inform us whether the Fund intends to report a distribution yield. If the Fund intends
to report a distribution yield at any point prior to finalizing its tax figures, it should disclose
the components of the distribution yield. In addition, any reports containing distribution yields
should be accompanied by the SEC total return and/or yield and the Fund should also disclose that
the distribution yield does not represent its performance.
The Fund does not currently intend to report a distribution yield.
Directors Qualifications and Review of Director Nominees, page 81
For the current members and each person that is appointed to the board, please disclose why the
persons particular and specific experience, qualifications, attributes or skills led the board to
conclude that such person should serve as a director of the Fund, in light of the Funds business
and structure, at the time that a filing containing the disclosure is made. See Item 18. 17. of
Form N-2, (added by Investment Company Act Release No. 29092 (Dec. 16, 2009)).
The disclosure on page 85 of the Amendment regarding the current members of the board has been
revised, as applicable to reflect why the persons particular and specific experience,
qualifications, attributes or skills led the board to conclude that such person should serve as a
directors of the Fund.
Other
1. Please explain to us why the registration statement does not include a statement of additional
information.
The general instructions to Form N-2 provide that if the information required by Part B
[Statement of Additional Information (SAI)] is included in the prospectus, it need not be
repeated in the SAI and a registrant need not prepare an SAI or refer to it in the prospectus if
all of the information required to be in the SAI is included in the prospectus. Accordingly, the
Registration Statement does not include an SAI because all of the information required to be in the
SAI is included in the prospectus.
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Securities and Exchange Commission
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2. Does the prospectus describe all of the fundamental policies of the Fund with respect to the
activities listed in Item 17. 2. of Form N-2 and any other policy that the Fund deems fundamental.
Does the Fund reserve freedom of action with respect to any of these activities?
As indicated on page 108 of the Amendment, none of the Funds investment policies have been
deemed to be fundamental.
3. Does the prospectus describe fully all significant investment policies of the Fund that are not
deemed fundamental and that may be changed without the approval of the holders of a majority of the
voting securities?
The prospectus does describe fully all significant policies of the Fund that are not deemed
fundamental and that may be changed without the approval of the holders of a majority of the voting
securities of the Fund.
4. Does the prospectus disclose the extent to which the Fund may engage in its fundamental and
non-fundamental policies and the risks inherent in such policies?
The prospectus does disclose the extent to which the Fund may engage in its non-fundamental
policies and the risks inherent in such policies. As discussed in Comment 2 above, the Fund does
not have any policies that it deems fundamental.
5. Please inform us whether the officers, directors, and beneficial owners of more than 10% of the
Funds securities will file the ownership reports (Forms 3, 4, and 5) required by Section 16(a) of
the Securities Exchange Act of 1934.
The officers, directors and beneficial owners of more than 10% of each class of the Funds
equity securities will be expected to file the ownership reports (Forms 3, 4 and 5) required be
Section 16(a) of the Securities Exchange Act of 1934.
6. Please state in your response letter whether the FINRA has reviewed the terms and arrangements
of the underwriting.
The underwriters have made all filings required by FINRA with respect to the offering and will
file any amendments to the Registration Statement and other documents that may be required. FINRA
is in the process of reviewing the terms and arrangements of the offering. The Fund understands
that in order to request acceleration of the effective date of the Registration Statement, you must
be provided with a statement from FINRA expressing no objections to the compensation of, and other
arrangements with, the underwriters.
Accounting Comments
On May 28, 2010 at 11:30 am (EST), Christina DeAngelo conveyed to me by telephone
the following accounting comments:
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Securities and Exchange Commission
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1. Generally, the numbers in the Form N-2 should be updated and blanks should be completed.
The Funds historical financial information as of March 31, 2010 has been included in the
Amendment. In addition, all quarterly information and blanks driven off of March 31, 2010 net
asset value have been completed. All blanks driven off of a mid-point of a price range and number
of shares will be completed by amendment.
2. Please ensure that your auditor consents are dated within 5 business days of the filing.
The Fund confirms that its auditor consent is dated within 5 business day of the filing of the
Amendment.
3. Fee Table: In addition to the comment concerning Acquired Fund Fees and Expenses, please
advise in your response letter whether the line item Cash and cash equivalents as of March 31,
2010, included acquired funds, and, if it did, state the composition of cash and cash equivalents.
As of March 31, 2010 the composition of the line item Cash and cash equivalents was as
follows:
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Checking account
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$10.4 million
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(Bank of America) |
Checking account
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$3.7 million
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(US Bank) |
Money Market Account
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$5.1 million
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(Fidelity Prime MM Portfolio CLE) |
As noted in the response to the comment concerning Acquired Fund Fees and Expenses, none of
the Funds assets on the date of closing of the offering will be invested in an acquired fund,
including a money market fund.
4. Asset Coverage: Please confirm that, upon conversion, the Fund will meet the asset coverage
requirements of Section 61 of the 1940 Act.
The Fund confirms that upon conversion to a BDC, the Fund will meet the asset coverage
requirements of Section 61 of the 1940 Act.
5. Financial Highlights: Please be certain that the financial statements include all of the
required elements if Item 4 of Form N-2.
The Fund respectfully advises the Staff that the Financial Highlights as required by Item 4.1
of Form N-2 are not required to be included for the Fund pursuant to Instruction 1 thereof.
6. Confirmation of intent to comply: Please state in your response that the Fund future financial
statements will be prepared in accordance with Regulation S-X and in particular the requirements of
Sections 6-04, 6-07 and 6-09. In particular, please note that the statement of operations
contained in the Form N-2 does not precisely fit the Regulation S-X format and that the balance
sheet line items for Total
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Securities and Exchange Commission
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Liabilities and Member Capital and Total Assets should not be given greater prominence that the
line item for Total Members Capital.
The Fund acknowledges and confirms that its future financial statements will be prepared in
accordance with Regulation S-X and in particular the requirements of Sections 6-04, 6-07 and 6-09.
* * * *
We appreciate the efforts of the staff and look forward to resolving the above comments as
soon as possible. In response to the above comments, the Fund has also executed a written
statement acknowledging certain items referenced in the closing of your original letter, which is
attached hereto as Appendix A. Please contact the undersigned at the above number or Fred A.
Summer at (614) 365-2743 if you have any questions regarding the responses set forth above.
Very truly yours,
/s/ Stephen C. Mahon
Stephen C. Mahon
Appendix A
In conjunction with the responses to the letter dated May 28, 2010, containing comments from
the staff of the Securities and Exchange Commission (the Staff) in respect of the above-referenced
Registration Statement on Form N-2, Horizon Technology Finance Corporation (the Fund)
acknowledges that:
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should the Commission or the staff, acting pursuant to delegated authority, declare
the filing effective, it does not foreclose the Commission from taking any action with
respect to the filing; |
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the action of the Commission or the staff, acting pursuant to delegated authority,
in declaring the filing effective, does not relieve the Fund from its full
responsibility for the adequacy and accuracy of the disclosure in the filing; and |
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the Fund may not assert this action as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United States. |
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HORIZON TECHNOLOGY FINANCE
CORPORATION
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By: |
/s/ Robert D. Pomeroy, Jr.
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Robert D. Pomeroy, Jr. |
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Chief Executive Officer |
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