SCHEDULE 14A

Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant o

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þ		Preliminary Proxy Statement		o		Confidential, for Use of the Commission Only
¨		Definitive Proxy Statement				(as permitted by Rule 14a-6(e)(2))
¨		Definitive Additional Material
¨		Soliciting Material Pursuant to Rule 14a-12

Horizon Technology Finance Corporation

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

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Horizon Technology Finance Corporation

312 Farmington Avenue

Farmington, CT 06032

 

          , 2011

 

Dear Stockholder:

 

You are cordially invited to attend a Special Meeting of Stockholders of Horizon Technology Finance Corporation (the “Company”) to be held on July 12, 2011 at 10:00 AM, Eastern Time, at the offices of Horizon Technology Finance Corporation at 312 Farmington Avenue, Farmington, Connecticut 06032.

 

The Notice of Special Meeting of Stockholders and the Proxy Statement of the Board of Directors of the Company accompanying this letter provide an outline of the business to be conducted at the Special Meeting of Stockholders. At the meeting, you will be asked to approve a proposal to authorize flexibility for the Company, with the approval of its Board of Directors, to sell shares of its common stock (during the next 12 months) at a price below the then current net asset value per share in one or more offerings, subject to certain conditions as set forth in the Proxy Statement.

 

It is very important that your shares be represented at the Special Meeting. Whether or not you expect to be present in person at the Special Meeting, please sign the enclosed proxy and return it promptly in the envelope provided, or vote via the Internet. We encourage you to vote via the Internet, as it saves the Company significant time and processing costs. To vote via the Internet, access www.proxyvote.com and follow the on-screen instructions. Have your proxy card available when you access the web page. Your vote and participation in the governance of the Company are very important to us.

 

Sincerely yours,

 

Robert D. Pomeroy, Jr.
Chief Executive Officer

 

HORIZON TECHNOLOGY FINANCE CORPORATION
312 Farmington Avenue
Farmington, Connecticut 06032
(860) 676-8654

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JULY 12, 2011

 

Notice is hereby given to the owners of shares of common stock (the “Stockholders”) of Horizon Technology Finance Corporation (the “Company”) that:

 

A Special Meeting of Stockholders of the Company will be held at the offices of Horizon Technology Finance Corporation, located at 312 Farmington Avenue, Farmington, Connecticut 06032, on Tuesday, July 12, 2011 at 10:00 AM, Eastern Time, for the following purposes:

 

1. To consider and vote upon a proposal to authorize the Company, with the approval of its Board of Directors, to sell shares of its common stock (during the next 12 months) at a price below the then current net asset value per share in one or more offerings, subject to certain limitations described in this Proxy Statement; and

 

2. To transact such other business as may properly come before the Special Meeting.

 

You have the right to receive notice of, and to vote at, the Special Meeting if you were a stockholder of record at the close of business on May 23, 2011. Whether or not you expect to be present in person at the Special Meeting, please sign the enclosed proxy and return it promptly in the envelope provided, or vote via the Internet. Instructions are shown on the proxy card.

 

We have enclosed our Proxy Statement and a proxy card. Please sign the enclosed proxy card and return it promptly in the envelope provided, or vote via the Internet. Your vote is extremely important to us. In the event there are not sufficient votes for a quorum or to approve the proposal at the time of the Special Meeting, the Special Meeting may be adjourned in order to permit further solicitation of proxies by the Company.

 

THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL.

 

By Order of the Board of Directors,

 

John C. Bombara
Secretary

 

Farmington, Connecticut

          , 2011

 

 

 

 

HORIZON TECHNOLOGY FINANCE CORPORATION
312 Farmington Avenue
Farmington, Connecticut 06032
(860) 676-8654

 

PROXY STATEMENT
For
Special Meeting of Stockholders
To Be Held on July 12, 2011

 

This document will give you the information you need to vote on the matter listed on the accompanying Notice of Special Meeting of Stockholders (“Notice of Special Meeting”). Much of the information in this Proxy Statement is required under rules of the Securities and Exchange Commission (“SEC”), and some of it is technical in nature. If there is anything you do not understand, please contact the Company at 860-676-8654.

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board” “we,” “us,” or “our”) of Horizon Technology Finance Corporation (the “Company”) for use at the Special Meeting of Stockholders (the “Meeting”) to be held on Tuesday, July 12, 2011 at 10:00 AM, Eastern Time, at the offices of Horizon Technology Finance Corporation, 312 Farmington Avenue, Farmington, Connecticut 06032, and at any postponements or adjournments thereof. This Proxy Statement, along with the Notice of Meeting and proxy card, are being mailed to stockholders of the Company (the “Stockholders”) of record as of May 23, 2011 on or about          , 2011.

 

We encourage you to vote your shares, either by voting in person at the Meeting or by voting by proxy (i.e., authorizing someone to vote your shares). Shares represented by duly executed proxies will be voted in accordance with your instructions. If you execute a proxy without specifying your voting instructions, your shares will be voted “FOR” the authorization of the Company, with the approval of the Board, to sell shares of its common stock (during the next 12 months) at a price below the then current net asset value per share in one or more offerings, subject to certain limitations described in this Proxy Statement (the “Proposal”).

 

Because no routine discretionary matters for which broker non-votes may be submitted will be considered at the Meeting, broker non-votes, if any, will be treated as not present at the Meeting and, thus, not entitled to vote with respect to the Proposal.

 

You may revoke your vote on the Internet or on a proxy card at any time before it is exercised by resubmitting your vote on the Internet, notifying the Company’s Secretary in writing, by submitting a properly executed, later-dated proxy, or by voting in person at the Meeting. Any Stockholder entitled to vote at the Meeting may attend the Meeting and vote in person, whether or not he or she has previously voted his or her shares via proxy or wishes to change a previous vote.

 

You will be eligible to vote your shares electronically via the Internet or by mail.

 

Purpose of Meeting

 

As described in more detail in this Proxy Statement, the Meeting is being held for the following purposes:

 

1. To consider and vote upon a proposal to authorize the Company, with the approval of the Board, to sell shares of its common stock (during the next 12 months) at a price below the then current net asset value per share, subject to certain limitations described in this Proxy Statement; and

 

2. To transact such other business as may properly come before the Meeting.

Voting Securities

 

You may vote your shares at the Meeting only if you were a Stockholder of record at the close of business on May 23, 2011 (the “Record Date”). There were           shares of the Company’s common stock (the “Common Stock”) outstanding on the Record Date. Each share of the Common Stock is entitled to one vote.

 

Quorum Required

 

A quorum must be present at the Meeting for any business to be conducted. The presence at the Meeting, in person or by proxy, of the holders of more than one-half of the voting power of all outstanding shares of Common Stock of the Company outstanding on the Record Date will constitute a quorum. Shares that abstain will be counted for purposes of determining whether a quorum is present. As broker non-votes will be treated as not present at the Meeting and, thus, as not entitled to vote with respect to the Proposal, broker non-votes (if any) will not be counted for quorum purposes. If there are not enough votes for a quorum, the holders of a majority of the voting power present at the Meeting, in person or by proxy, may adjourn the Meeting to permit the further solicitation of proxies. Abstentions and broker non-votes, if any, will not have any effect on the result of the vote for adjournment.

 

Votes Required

 

Approval of the Proposal requires the affirmative vote of the Stockholders holding (1) a majority of the outstanding shares of the Common Stock entitled to vote at the Meeting and (2) a majority of the outstanding shares of the Common Stock entitled to vote at the Meeting that are not held by affiliated persons of the Company. For purposes of the Proposal, the Investment Company Act of 1940, as amended (the “1940 Act”), defines “a majority of the outstanding voting securities of a company” as: (1) 67% or more of the voting securities present at the applicable meeting if the holders of more than 50% of the outstanding voting securities of such company are present or represented by proxy; or (2) more than 50% of the outstanding voting securities of such company, whichever is less. Abstentions will have the effect of a vote against the Proposal.

 

Broker Non-Votes.  Broker non-votes are described as votes cast by a broker or other nominee on behalf of a beneficial holder who does not provide explicit voting instructions to such broker or nominee and who does not attend the Meeting. The Proposal is a non-routine matter. As a result, if you hold shares in “street name” through a broker, bank or other nominee, your broker, bank or nominee will not be permitted to exercise voting discretion with respect to the Proposal. Thus, if you do not give your broker or nominee specific instructions on how to vote for you or do not vote for yourself in accordance with the voting instructions on the proxy card, by returning a proxy card or by other arrangement with your broker or nominee, your shares will be treated as not present at the Meeting and, as a result, will have no effect on the Company’s ability to obtain the approval of 67% or more of the voting securities present at the Meeting, but would have the same effect as a vote against the Proposal if the Company did not obtain the approval of 67% or more of the voting securities present and instead were seeking to obtain the affirmative vote of 50% of the outstanding voting securities of the Company.

 

Adjournment and Additional Solicitation.  If there appears not to be enough votes to approve the Proposal at the Meeting, the Stockholders who are represented in person or by proxy may vote to adjourn the Meeting to permit further solicitation of proxies. Robert D. Pomeroy, Jr. or Christopher M. Mathieu are the persons named as proxies and will vote proxies held by them for such adjournment, unless marked to be voted against the Proposal, to permit the further solicitation of proxies.

Information Regarding This Solicitation

 

The Company will bear the expense of the solicitation of proxies for the Meeting, including the cost of preparing and posting this Proxy Statement to the Internet and the cost of mailing this Proxy Statement, Notice of Special Meeting and proxy card. The Company intends to use the services of Broadridge Financial Solutions, Inc., a leading provider of investor communications solutions, to aid in the distribution and collection of proxy votes. The Company expects to pay market rates for such services. If brokers, trustees, or fiduciaries and other institutions holding shares in their own names or in the names of their nominee, which shares are beneficially owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners, we will reimburse such persons for their reasonable expenses in so doing.

 

In addition to the solicitation of proxies by the use of the Internet, proxies may be solicited in person and/or by telephone, mail or facsimile transmission by directors or officers of the Company, officers or employees of Horizon Technology Finance Management LLC, which we sometimes refer to as HTFM, the Company’s investment advisor (the “Advisor” and “Administrator”) and/or by a retained solicitor. No additional compensation will be paid to directors, officers or regular employees for such services. If the Company retains a solicitor, the Company has estimated that it will pay approximately $15,000 for such services. If the Company engages a solicitor, you could be contacted by telephone on behalf of the Company and urged to vote. The solicitor will not attempt to influence how you vote your shares, but only ask that you take the time to cast a vote. You may also be asked if you would like to vote over the telephone and to have your vote transmitted to the Company’s proxy tabulation firm.

 

Stockholders may provide their voting instructions through the Internet or by mail by following the instructions on the proxy card. These options require Stockholders to input the Control Number, which is provided with the proxy card. If you vote using the Internet, after visiting www.proxyvote.com and inputting your Control Number, you will be prompted to provide your voting instructions. Stockholders will have an opportunity to review their voting instructions and make any necessary changes before submitting their voting instructions and terminating their Internet link. Stockholders who vote via the Internet, in addition to confirming their voting instructions prior to submission, also will receive an e-mail confirming their instructions upon request.

 

If a Stockholder wishes to participate in the Meeting, but does not wish to give a proxy by Internet or mail, the Stockholder may attend the Meeting in person.

 

Any proxy authorized pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised. A revocation may be effected by resubmitting voting instructions via the Internet voting site, by obtaining and properly completing another proxy card that is dated later than the original proxy and returning it, by mail, in time to be received before the Meeting, by attending the Meeting or by a notice, provided in writing and signed by the Stockholder, delivered to the Company’s Secretary on any business day before the date of the Meeting.

 

Security Ownership of Certain Beneficial Owners and Management

 

As of the Record Date, to our knowledge, no person would be deemed to control the Company, as such term is defined in the 1940 Act.

 

Our directors consist of interested directors and independent directors. Interested directors are “interested persons” of the Company, as defined in the 1940 Act, and independent directors are all other directors (the “Independent Directors”).

The following table sets forth, as of          , 2011, certain ownership information with respect to the Company’s Common Stock for those persons who directly or indirectly own, control or hold with the power to vote 5 percent or more of the Company’s outstanding Common Stock and all executive officers and directors, as a group.

 

 

 

 

Dollar Range of Securities Beneficially Owned by Directors

 

The following table sets forth the dollar range of the Company’s Common Stock beneficially owned by each of the Company’s directors as of          , 2011. Information as to the beneficial ownership of the Company’s directors is based on information furnished to the Company by such persons. The Company is not part of a “family of investment companies,” as that term is defined in the 1940 Act.

 

 

 

 

PROPOSAL: AUTHORIZATION TO OFFER AND SELL SHARES OF
COMMON STOCK BELOW NET ASSET VALUE

Stockholder Authorization

 

The 1940 Act generally prohibits the Company, as a business development company (“BDC”), from offering and selling shares of Common Stock at a price below the then current net asset value per share, or NAV, unless the policy and practice of doing so is approved by the Stockholders within one year immediately prior to any such sales. Shares of the Company’s Common Stock have a limited trading history and have traded at a price below their NAV since they started trading on the NASDAQ Global Market.

 

We are seeking Stockholder approval now to sell the Company’s shares below NAV in order to provide flexibility for future sales, which typically are undertaken quickly in response to market conditions. The final terms of any such sales will be determined by the Board at the time of sale. Any transaction where we sell such shares of the Company’s Common Stock, including the nature and amount of consideration that would be received by the Company at the time of sale and the use of any such consideration, will be reviewed and approved by the Board at the time of sale. If the Proposal is approved, we will not solicit further authorization from the Stockholders prior to any such sale, and the authorization would be effective for shares sold during a period beginning on the date of Stockholder approval and expiring one year from such approval.

 

In a common stock offering, investors are offered an ownership interest in a corporation. Stockholders typically are entitled to vote on the selection of corporate directors and other important matters as well as to receive distributions on their holdings to the extent such distributions are declared.

 

Generally, common stock offerings by BDCs are priced based on the market price of the currently outstanding shares of common stock, less a discount of approximately 5%. Accordingly, even when shares of the Company’s Common Stock trade at a market price below NAV, the proposed Stockholder approval would permit the Company to offer and sell shares of Common Stock in accordance with pricing standards that market conditions generally require. This Proxy Statement is not an offer to sell securities. Securities may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from SEC registration requirements.

1940 Act Conditions for Sales Below NAV

 

The Company’s ability to issue shares of Common Stock at a price below NAV is governed by the 1940 Act. Specifically, Section 63(2) of the 1940 Act provides that we may offer and sell shares of the Company’s Common Stock at prices below the then current NAV with Stockholder approval, provided that:

 

 

Without the approval of Stockholders to offer and sell shares of Common Stock at prices below NAV, the Company would be prohibited from selling such shares to raise capital when the market price for the Company’s Common Stock is below NAV. The Company’s shares have, for the most part, traded at a discount to NAV since they started trading on the NASDAQ Global Select Market.

 

Board Approval

 

On May 19, 2011, the Board unanimously approved, and is recommending that the Stockholders vote in favor of, the Proposal to authorize the Company to offer and sell shares of the Company’s Common Stock at prices that may be less than NAV. The Board previously concluded that the proposal is in the best interests of the Company and its Stockholders. In doing so, the Board, including the Independent Directors, considered and evaluated factors including the following, as discussed more fully below:

 

 

The Board has considered and evaluated materials that management provided on the merits of raising additional capital and publicly offering shares of the Company’s Common Stock at a price below NAV. Following such consideration and evaluation, the Board determined that it would be advantageous to the Company to have the ability to issue shares of Common Stock below NAV. The Independent Directors also voted separately on the issues presented.

 

The Board has not yet drawn any definite conclusions regarding the specific size of a contemplated capital raise at this time. The Board expects that any increase in capital would be from a public offering of the Company’s Common Stock, or the possibility of one or more private placements. Additionally, the Company’s Common Stock could be issued as part of a purchase of assets, portfolios or other companies.

 

In determining whether or not to offer and sell Common Stock, the Board has a duty to act in the Company’s best interests and that of the Company’s Stockholders and must comply with the other requirements of Section 63(2) of the 1940 Act. If Stockholders do not approve the Proposal, the Board will consider and evaluate options to determine what alternatives are in the Company’s best interests and that of its Stockholders.

 

Possible Long-Term Benefits to Stockholders

 

The Board believes that having the flexibility for the Company to sell its Common Stock below NAV in certain instances is in the Company’s best interests and the best interests of Stockholders. If the Company were unable to access the capital markets when attractive investment opportunities arise, the Company’s ability to grow over time and to continue to pay dividends to Stockholders could be adversely affected. In reaching that conclusion, the Board considered the following possible benefits to the Company’s Stockholders:

Current Market Conditions Have Created Attractive Opportunities

 

Current market conditions have created, and we believe will continue to create for the foreseeable future, favorable opportunities to invest, including opportunities that, all else being equal, may increase NAV over the longer-term, even if financed with the issuance of Common Stock below NAV. Stockholder approval of the Proposal, subject to the conditions detailed below, is expected to provide the Company with the flexibility to invest in such opportunities. We believe that current market conditions provide attractive opportunities to use capital.

 

Current market conditions also have beneficial effects for capital providers, including rational competition, favorable pricing of credit risk, and competitive capital structures and terms. Accordingly, we believe that the Company could benefit from access to capital in this credit market and that the current environment should provide attractive investment opportunities. The Company’s ability to take advantage of these opportunities will depend upon the Company’s access to capital.

 

Greater Investment Opportunities Due to Larger Capital Resources

 

The Board believes that additional capital raised through an offering of shares of the Company’s Common Stock may help the Company generate additional deal flow. Based on discussions with management, the Board believes that greater deal flow, which may be achieved with more capital, would enable the Company to be a more significant participant in the private debt and equity markets and to compete more effectively for attractive investment opportunities. With more capital to invest in portfolio opportunities, the Board intends for the Company to be a more meaningful capital provider to companies and to compete for high quality investment opportunities with other funds having greater resources than the Company. Management has represented to the Board that such investment opportunities may be funded with proceeds of an offering of shares of the Company’s Common Stock. However, management has not identified specific companies in which to invest the proceeds of an offering given that specific investment opportunities will change depending on the timing of an offering, if any.

 

Higher Market Capitalization and Liquidity May Make the Company’s Common Stock More Attractive to Investors

 

If the Company issues additional shares, its market capitalization and the amount of its publicly tradable Common Stock will increase, which may afford all holders of the Company’s Common Stock greater liquidity. A larger market capitalization may make the Company’s stock more attractive to a larger number of investors who have limitations of the size of companies in which they invest. Furthermore, a larger number of shares outstanding may increase the Company’s trading volume, which could decrease the volatility in the secondary market price of the Company’s Common Stock.

 

Maintenance or Possible Increase of Dividends

 

A larger and more diversified portfolio could provide the Company with more consistent cash flow, which may support the maintenance and growth of the Company’s dividend. The Company generally distributes dividends to the Company’s Stockholders. The Company paid a fourth quarter 2010 dividend of $0.22 per share of its Common Stock and have declared a first quarter 2011 dividend of $0.33 per share of its Common Stock, payable on May 26, 2011. Although management will continue to seek to generate income sufficient to pay the Company’s dividends in the future, the proceeds of future offerings, and the investments thereof, could enable the Company to maintain and possibly grow its dividends, which may include a return of capital, in the future.

 

Reduced Expenses Per Share

 

An offering that increases the Company’s total assets may reduce the Company’s expenses per share due to the spreading of fixed expenses over a larger asset base. The Company must bear certain fixed expenses, such as certain administrative, governance and compliance costs that do not generally vary based on the Company’s size. On a per share basis, these fixed expenses will be reduced when supported by a larger asset base.

Status as a BDC and RIC and Maintaining a Favorable Debt-to-Equity Ratio

 

As a BDC and a regulated investment company (“RIC”) for tax purposes, the Company must abide by certain requirements. RICs generally must distribute substantially all of their earnings from dividends, interest and short-term gains to Stockholders as dividends in order to maintain pass-through tax treatment. This requirement prevents the Company from using retained earnings to finance new investments. Further, in order to borrow money or issue preferred stock, BDCs must maintain a debt-to-equity ratio of not more than 1:1, which requires the Company to finance its investments with at least as much common equity as its combined outstanding debt and preferred stock. While we believe that the Company can continue to meet its obligations to pay dividends and maintain the requisite debt-to-equity ratio without raising capital, raising such capital could enable the Company to take advantage of new investment opportunities and build the Company’s investment portfolio, which could help the Company meet such regulatory obligations.

 

Exceeding the required 1:1 debt-to-equity ratio would have severe negative consequences for a BDC, including an inability to pay dividends, possible breaches of debt covenants and failure to qualify for tax treatment as a RIC. Although we do not currently expect that the Company will exceed the required 1:1 debt-to-equity ratio, the markets the Company operates in and the general economy remain volatile and uncertain. Even though the underlying performance of a particular portfolio company may not indicate impairment or an inability to repay indebtedness in full, the volatility in the debt capital markets may continue to impact the valuations of debt investments negatively and result in further unrealized write-downs of debt investments. Any such asset write-downs, as well as unrealized write-downs based on the underlying performance of the Company’s portfolio companies, if any, will negatively impact the Company’s Stockholders’ equity and the resulting debt-to-equity ratio required for BDCs. Continued volatility in the capital markets and the resulting negative pressure on debt investment valuations could negatively impact the Company’s asset valuations, Stockholders’ equity and the Company’s debt-to-equity ratio. Issuing new equity will improve its debt-to-equity ratio.

 

In addition to meeting legal requirements applicable to BDCs, having a more favorable debt-to-equity ratio will also generally strengthen the Company’s balance sheet and give it more flexibility in its operations.

 

Trading History

 

The Company’s Common Stock has been quoted on The NASDAQ Global Market under the symbol “HRZN” since October 29, 2010. The following table lists the high and low closing sales price for the Company’s Common Stock, the closing sales price as a percentage of NAV, and quarterly dividends per share since shares of the Company’s Common Stock began being regularly quoted on The NASDAQ Global Market. On          , 2011, the last reported closing sale price of the Company’s Common Stock was $      per share.

 

 

 

 

There can be no assurance that the share price of the Company’s stock will be above NAV.

Conditions to the Company’s Sale of Common Stock Below NAV

 

If Stockholders approve the Proposal, the Company will sell shares of its Common Stock at a price below NAV, exclusive of sales compensation, only if the following conditions are met:

 

 

Dilution

 

Before voting on the Proposal or giving proxies with regard to this matter, Stockholders should consider the potentially dilutive effect on the NAV of the issuance of shares of the Company’s Common Stock at a price less than NAV. Any sale of Common Stock at a price below NAV would result in an immediate dilution to existing Stockholders on a per share basis. This dilution would include reduction in the NAV as a result of the issuance of shares at a price below the NAV and a proportionately greater decrease in a Stockholder’s per share interest in the earnings and assets of the Company and per share voting interest in the Company. The Board has considered the potential dilutive effect of the issuance of shares at a price below the NAV and will consider again such dilutive effect when considering whether to authorize any specific issuance of shares of Common Stock below NAV.

 

The 1940 Act establishes a connection between market price and NAV because, when stock is sold at a market price below NAV, the resulting increase in the number of outstanding shares is not accompanied by a proportionate increase in the net assets of the issuer. Stockholders should also consider that they will have no subscription, preferential or preemptive rights to additional shares of Common Stock proposed to be authorized for issuance, and thus any future issuance of Common Stock at a price below NAV would dilute a Stockholder’s holdings of Common Stock as a percentage of shares outstanding to the extent the Stockholder does not purchase sufficient shares in the offering or otherwise to maintain the Stockholder’s percentage interest. Further, if the Stockholder does not purchase, or is unable to purchase, any shares to maintain the Stockholder’s percentage interest, regardless of whether such offering is at a price above or below the then current NAV, the Stockholder’s voting power will be diluted.

 

The precise extent of any such dilution cannot be estimated before the terms of a Common Stock offering are set. As a general proposition, however, the amount of potential dilution will increase as the size of the offering increases. Another factor that will influence the amount of dilution in an offering is the amount of net proceeds that we receive from such offering. The Board anticipates that the net proceeds to the Company will be equal to the price that investors pay per share, less the amount of any underwriting discounts and commissions, typically 95% of the market price.

 

As previously discussed, the Board evaluated a full range of offering sizes. The following example indicates how an offering would immediately affect the NAV of the Company’s Common Stock based on the assumptions set forth below. It does not include any effects or influence on market share price due to changes in investment performance over time, dividend policy, increased trading volume or other qualitative aspects of the shares the Company’s Common Stock.

 

Examples of Dilutive Effect of the Issuance of Shares Below NAV

 

The following table illustrates the level of NAV dilution that would be experienced by a nonparticipating stockholder in three different hypothetical common stock offerings of different sizes and levels of discount from NAV per share, although it is not possible to predict the actual level of market price decline below NAV per share that may occur. Actual sales prices and discounts may differ from the presentation below.

The examples assume that Company XYZ has 1,000,000 shares of common stock outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The current NAV and NAV per share are thus $10,000,000 and $10.00, respectively. The table below illustrates the dilutive effect on nonparticipating stockholder A of (1) an offering of 50,000 shares (5% of the outstanding shares) at $9.50 per share after offering expenses and commission (a 5% discount from NAV); (2) an offering of 100,000 shares (10% of the outstanding shares) at $9.00 per share after offering expenses and commissions (a 10% discount from NAV); and (3) an offering of 200,000 shares (20% of the outstanding shares) at $8.00 per share after offering expenses and commissions (a 20% discount from NAV).

 

 

The discount to NAV is a result of market perception that moves the share price and thus NAV is only one determinant of market value. We expect the market price of shares of Common Stock will incorporate a discount or premium factor based on the market assessment of future earnings and the likelihood of those earnings supporting growth in the Company’s dividend yield. The examples above reflect hypothetical examples of a discount to NAV only, and the actual discount to NAV may be greater than as reflected above.

 

Notwithstanding the dilutive effect of any equity financing on the Company’s NAV, the Board has considered the Company’s need to obtain additional capital for investment and other factors discussed in this Proxy Statement. With more capital to invest, the Board believes that the Company would be able to make investments with more significant earnings and growth potential. The Board further believes that over time the value of the incremental assets available for investment, taken together with the other factors previously discussed, may be reflected positively in the market price of the Company’s shares and that such increases may exceed the initial dilutive effects that the Company is likely to experience in its NAV due to offerings of shares of Common Stock in accordance with the Proposal. In the Board’s view, the secondary market price of the Company’s Common Stock is an important gauge of the true economic impact on Stockholders of any equity offering.

Other Considerations

 

In reaching its recommendation to the Stockholders to approve the Proposal, the Board considered a possible source of conflict of interest due to the fact that the proceeds from the issuance of additional shares of the Company’s Common Stock would increase the management fees that the Company pays to the Advisor as such fees are partially based on the amount of the Company’s gross assets. The Board and the Independent Directors concluded that the benefits to the Stockholders from increasing the Company’s capital base would outweigh any detriment from increased management fees, especially considering that the management fees would increase regardless of whether the Company offers shares of Common Stock below NAV or above NAV.

 

Potential Investors

 

We have not yet solicited any potential buyers of the shares that we may elect to issue in any future offering to comply with the federal securities laws. No shares are earmarked for management or other affiliated persons of the Company. However, members of the Company’s management and other affiliated persons may participate in a Common Stock offering on the same terms as others.

 

Required Stockholder Vote

 

If the Stockholders approve the Proposal, during a one-year period commencing on the date of such approval, we will be permitted, but not required or otherwise obligated, to offer and sell in one or more offerings newly issued shares of the Company’s Common Stock at a price below NAV at the time sold.

 

Approval of the Proposal requires the affirmative vote of (1) a majority of the outstanding shares of the Company’s Common Stock entitled to vote at the Meeting and (2) a majority of the outstanding shares of the Company’s Common Stock entitled to vote at the Meeting that are not held by affiliated persons of the Company. For purposes of the Proposal, the 1940 Act, defines “a majority of the outstanding voting securities of a company” as: (1) 67% or more of the voting securities present at the meeting if the holders of more than 50% of the outstanding voting securities of such company are present or represented by proxy or (2) more than 50% of the outstanding voting securities of such company, whichever is the less. Broker non-votes will have no effect on the Company’s ability to obtain the approval of 67% or more of the voting securities present at the Meeting but would have the same effect as a vote against the Proposal if the Company did not obtain the approval of 67% or more of the voting securities present and instead were seeking to obtain the affirmative vote of 50% of the outstanding voting securities of the Company. Abstentions will have the effect of a vote against the Proposal.

 

THE BOARD, INCLUDING ITS INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT EACH STOCKHOLDER VOTE FOR THIS PROPOSAL TO AUTHORIZE THE COMPANY, WITH THE APPROVAL OF THE BOARD, TO OFFER AND SELL SHARES OF THE COMPANY’S COMMON STOCK (DURING THE NEXT 12 MONTHS) AT A PRICE BELOW THEN CURRENT NAV IN ONE OR MORE OFFERINGS.

 

OTHER BUSINESS

 

The Board knows of no other matter that is likely to come before the Meeting or that may properly come before the Meeting, apart from the consideration of an adjournment or postponement.

 

If there appears not to be enough votes for a quorum or to approve the Proposal at the Meeting, the Stockholders who are represented in person or by proxy may vote to adjourn the Meeting to permit the further solicitation of proxies. The person(s) named as proxies will vote proxies held by them for such adjournment.

 

ANNUAL AND QUARTERLY REPORTS

 

Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K are available at the Company’s website at www.horizontechnologyfinancecorp.com or without charge upon request. Please direct your request to Horizon Technology Finance Corporation, Attention: Investor Relations, 312 Farmington Avenue, Farmington, Connecticut 06032, or 860-676-8654. Copies of such reports are also posted via EDGAR on the SEC’s website at www.sec.gov.

 

SUBMISSION OF STOCKHOLDER PROPOSALS

 

The Company expects that the 2012 Annual Meeting of Stockholders will be held in May 2012, but the exact date, time, and location of such meeting have yet to be determined. A Stockholder who intends to present a proposal at that annual meeting, including nomination of a director, must submit the proposal in writing addressed to John C. Bombara, Secretary, c/o Horizon Technology Finance Corporation, 312 Farmington Avenue, Farmington, Connecticut 06032. Notices of intention to present proposals, including nomination of a director, at the 2012 annual meeting must be received by the Company between December 3, 2011 and 5:00 p.m. Eastern Time on January 2, 2012. In order for a proposal to be considered for inclusion in the Company’s proxy statement for the 2012 annual meeting, the Company must receive the proposal no later than December 3, 2011. The submission of a proposal does not guarantee its inclusion in the Company’s proxy statement or presentation at the meeting unless certain securities law requirements are met. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.

 

* * * * *

 

You are cordially invited to attend the Company’s Special Meeting of Stockholders in person. Whether or not you plan to attend the Meeting, you are requested to please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage-paid envelope or to vote via the Internet, so that you may be represented at the Meeting.

 

By Order of the Board of Directors,

 

John C. Bombara
Secretary

 

Farmington, Connecticut

          , 2011