Good day and welcome to the Hercules Technology Growth Capital, Inc. fourth quarter 2008 conference call. Today’s call is being recorded. At this time, all participants are in listen-only mode. Later we will open the call for your questions. (Operator instructions) I'll now turn the call over to Judy Golz of FD Ashton Partners, Investor Relations Counsel for Hercules. You may go ahead, Mr. Golz.

Thank you, operator, and good afternoon, everyone. On the call today are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; and David Lund, our CFO. Our fourth quarter and year end 2008 financial results were released just after today's market close. They can be accessed from the Company's Web site, at hercules.com, or htgc.com. We have arranged for a tape replay of today's call, which will be available through our Web site or by using the telephone numbers and pass code provided in today's earnings release. I would like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information. Today's conference call may include forward-looking statements and projections. We ask that you refer to our most recent filings with the SEC for important risk factors that could cause actual results to differ materially from these projections. We do not take any obligations to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit sec.gov or visit our Web site at herculestech.com. I would now like to turn the call over to Manuel Henriquez, Hercules Co-Founder, Chairman and CEO. Manuel?

Thank you, Judy, and good afternoon and thank you, everybody, for joining us on the call today. I would like to share with you Hercules’ outstanding fourth quarter performance and fiscal year end 2008. Despite an otherwise prolific and extremely challenging market. However before I start the call today I want to acknowledge that in this unprecedented economic environment which continues to persist and frankly have only gotten worse. We remain hopeful and overly optimistic that things may improve sometime in the second half of 2009. I believe that the global financial crisis we are currently experiencing will be far more reaching and deeper than anyone might have previously have expected just a short time ago. Many adjustments have been made to contain its spread have proven and continue to prove difficult and ineffective. The banking crisis continues and access to credit facilities is close to nearly impossible to secure despite efforts from the government and the TARP Program. The banking sector continues to degenerate further as evidenced by the continuing burnings of assets that we have seen during the fourth quarter despite our government’s Herculean efforts to stabilize and stimulate our economy. Liquidity continues to be calm, or as we say, liquidity is suddenly the Holy Grail of the financial services community, followed by a heightened and continued awareness of credit concerns. Despite the government’s attempt to unlock the credit and capital markets, we have seen little to no activity in terms of gaining access to these credit facilities. We continue to engage in discussions with various potential lenders in order for Hercules to secure additional lines of capital in the current market which is a testimony to our continued access or I should say lack of access to capital lines to continue to operate our business. Liquidity has…

Thank you, Manuel. As Manuel mentioned, given the recent market turbulence, we are very pleased with the results we achieved for the fourth quarter and the full year. During the quarter, we were particularly focused on de-leveraging our balance sheet by collecting early loan repayments that allowed us to pay down our credit facilities with Citibank and Deutsche Bank. We also continued to work diligently to maintain the strong credit quality so that we are well positioned to continue financing companies that we believe will be future leaders in the technology and life science sectors. With that, I will now provide more details on our summary of the fourth quarter and full year results. Key portfolio metrics and credit facility update; total investment income for the fourth quarter which is comprised of interest and fee income was $22 million, which was an increase of 39% over the fourth quarter of 2007 investment income of $15.8 million. For the full year of 2008, total investment income was $75.8 million compared to $53.9 million in 2007, an increase of 41%. The increase in interest and fee incomes are directly attributed to higher yields, additional fees and higher average outstanding loan balances in their respective periods. The effect of yield on our debt investment during the quarter was 14.9%. The increase from the effective yield of 13.1% for the third quarter was due to higher average yield to maturity and higher one-time fees. The weighted average yield of our portfolio at the time of loan origination increased to approximately 12.87% from 12.67% in the previous quarter. Interest expense and loan fees on borrowings were $5.5 million for the fourth quarter of 2008 as compared to $1.8 million in the fourth quarter of 2007. The increase of approximately $3.7 million was primarily attributed to…

(Operator instructions) Your first question comes from the line of John Hecht - JMP Securities.

A couple of questions, one is the compensation. Dave could you talk about some of the increasing compensation ready to work out this and it went from $2.5 million to $3.4 million from Q3 to Q4, is this a good base or there is some additional compensation expenses in that line item that would be more one time line digit?

Well, I will say that during the fourth quarter, we did increase our bonus accrual because the performance of the team and third quarter was a little bit lower because we were uncertain about what was going to happen in the marketplace in the fourth quarter as it turns out, it was outstanding. So, the accrual there is a little bit higher. So, turning a little bit higher by promptly a couple of $100,000.

And that would be a couple of $100,000 above the normal rate of compensation expense?

That is the best.

That is right and in a normalized market clearly that number is probably a major astound in calendar ’09 but we do not necessarily give guidance but you can expect that number to probably drift down because of the less originations obviously occurring in ’09 if the market continues the way it is.

Okay. Manuel, can you a little bit elaborate on the dividend policy understand the reason for paying out in stock given your goal to maintain liquidity, how should we proceed once you pay down the Citicorp facility, would we expect this to go back to a cash dividend and how would the treatment of the spillover be at potential stock and cash as well?

I would first make sure people understand the conscious decision and the multiple processes that we went through to make this decision with our Board and ourselves. The decision to, in essence, we called cash had been deployed, is clearly one of prudence and caution. The decision is made at this point solely for the purposes of the first quarter. It is not a policy that we are adhering to or initially believe we will continue throughout 2009. I have no expectations or beliefs at this point that we will continue that policy beyond the first quarter. It is absolutely and certainly being done as a further insurance to insure that we have unequivocal capital needed to satisfy the remaining balloon payment at the end of April for the Citibank/Deutsche facility that is maturing. It is entirely a cautionary move for that purposes. I hope so that you will not get confused as to the merits of the dividend. Frankly, we are one of the few BDC’s truly are paying a dividend and frankly seeing a very strong $0.32 dividend. I think it is very proud of being that we did as a testimony to achieve an earning $0.34 quarterly earnings performance in the fourth quarter. So, we have two very critical components here. The first one is the dividend policy of having a visibility and dividend coverage. This is why you see a dividend that is in essence of approximately 95% of the GAAP earnings and the fourth quarter of $0.34 translating into a $0.32 dividend. In terms of the spillover itself, clearly once again, I am not aware of many BDCs that also spillovers but that spillover is an important that will help at the end of calendar ’09 on supplementing exact form of a fifth dividend or more commonly known the industry as the special dividend at the end of calendar ’09 that will translate into any curative remaining spillover or actually earnings required to get distributed under the RIC rules. And as a reminder the RIC rules require you to pay out at least the 8% of your earnings and then between 90% and 98% of your earnings you get off to pay an excise tax the gradual excise tax but most companies they distributed between 90% and 98% of their earnings and you are going to have the treatment of capital gains or equity derived gains during the year. Those are able to be spilled over and paid out in the following calendar year. So, at this point we have $0.18 that was spilling over from ’08 to ’09 that unless we have any unforeseen losses should be paid out in a form of special dividends to shareholders at the end of this 2009 period.

Okay, great color on that. And final question is your exit credit quality was somewhat consistent that there was a pickup in the Grade 4 class and I wonder if you could maybe give us a little bit color on that, was that one or two large loans or maybe more granular loan so that you can disclose on that?

Sure. We are having every type of services companies in this world, our challenge by the FAS 157; we went through almost an incredible amount of scrubbing because of the volatility and because of the changes of venture capital landscape. We, exercised of really going through line item-by-line item and company-by-company looking our portfolio and really looking at FAS 157 impact in essence. Depreciating the assets, we feel merit depreciation with the prevailing changes in the overall marketplace today. Specifically to your question, the grade in the Grade 4, the increase in Grade 4 is attributable to one company and that one company without a name has a very large pharmacompany that is in process securing a very similar to that of the analysis we have made today, securing a contract in materialization with a large pharma partner because that has not been closed yet and given the size of that exposure, we felt it was prudent to downgrade that particular company until that particular contract is signed. So, it is really skewed by one company in particular.

Okay. So, I assume that that contract is successfully signed that would fall to Grade 1or 2 category maybe?

Depending on the magnitude of the contract, it could be definitely catapult itself back up to the, just like a Grade 2 and depending on the debt and strategic relation for contract is negotiated could it back right to a level grade credit.

Okay.

You have to remind. I need to remind. Life Science companies in particular have a fairly binary event. They either had successful Phase II Clinical Trial or a successful Phase III Clinical Trial and even though they make feel Clinical Trial it does not mean that the Company necessarily does fail. It means you can go back and resubmit data or go through different toxicology in order to resubmit data to the FDA. Technology companies have a lot more binary outcome, and this particular Company is a Life Sciences Company that is in negotiations of a large contract.

Your next question comes from the line of Troy Ward - Stifel Nicolaus.

Just back to the balance sheet for a second, the $19 million depreciation number obviously was considerably more than your historical experience. Can you comment or whether or not you made any changes to your valuation technique other than just like you said a line-by-line scrubbing?

Look, the change is valuation technique is called volatility in the fourth quarter. You do not go for volatility index on the VIX on the historical 20% VIX index to 40% in the second quarter to 91% in the fourth quarter. When you apply a higher volatility to the Black-Sholes model that VIX by itself will create what I consider to be an artificially high valuation number or artificially low number, so because of that heightened concern on looking at the volatility that occurred just by using our standard methodologies, we decided to go through to get one more step on looking at all the credits as we normally do individually but also looking at comp group analysis and really looking at the prevailing occurrence in the venture capital marketplace and in essence impairing some of the valuation even further on specific companies that we have some awareness are either behind plan or encountering somewhat challenging revenue generating capabilities and those factors certainly play a role in depreciation further of that portfolio. So, I guess I think we are more conservative in the third quarter than any other time ever in terms of looking at additional factors and I think that may have an impact in the portfolio.

Can you help us understand, maybe kind of on a percentage basis, how much of the write-down was due to the volatility in the Black-Sholes versus actually credits that are behind plan?

Well, that is easier Dave. It is an easier question.

Yes. The depreciation that was taken, it is slipped in $4 million. That is really related in the kind of depreciation for performance and a loan and really the write-downs are largely attributed to just the volatility that took place in the public market when we have to do enterprise value parallels in terms of trying to determine what the value of the underlying private companies are.

In other words, the $4 million of that depreciation that was attributed to a loan is probably directly correlated to two particular companies, one of which is in a workout mode right now that we are working with the management teams and selling that asset as we historically done at Hercules. But again, as we have done in the past, we, Hercules will always downgrade a credit as it is approaching a trigger point of either capital raise or material event in its lifecycle. It is a cautionary move and we have done that time immemorial since we started Hercules and we will do that again and continue do that. So, of the two loans that make up substantially all of that $4 million or so, we are actively involved in the sale of one of the triggering companies and working through a capital raise and one on the other.

Okay, great. That is a great color. And moving over to questions on the credit facility, looking at your subsequent event in such of $71 million as beginning of early January and then additional announcements even beyond that, it would seem to us that it is pretty well perceived that you are going to get that down to that $50 million level to allow your Wells facility to fully repay Citi. Is that the idea?

Actually, our confidence level is actually much higher than that. We feel pretty strongly right now, especially with the dividend cash or I would say stock payment the final bolstering of our liquidity. We feel very, very strongly that we will be able to fully pay off the credit facility with a combination of cash on the balance sheet certainly drawing portions of that outside of the Wells line. We do not, at this point, anticipate fully need to draw the whole facility on the Wells Fargo, but it is certainly an action that we are looking into as a possibility as well as using excess capital that we are accumulating inside of our SBA entity as well. So, we have an abundance of capital that we believe come April timeframe to pay off this credit facility.

That is exactly, how we perceiving it coming into the quarter that is why we were a bit surprised, more than a bit surprised that you issued the dividend with stock. How can you explain the methodology of the new investments in Q4 versus issuing new equity at these levels?

Well, let us be clear. We do not view this as issuing equity in a direct sense because we are not paying an underwriter’s fee of 5% or 7% plus a discount around a fair value of stock itself. We felt and we strongly think that the very viable thing to do, which is even though Hercules is one of the BDCs that has ability to issue stock below NAV, we find that privilege in high, high regard that we do not want to abuse that privilege. So, we do not have any intention of simply issuing equity below NAV to issue equity below NAV and we are talking about an impact here from about $9 million or so of this whole back of the cash on our balance sheet which we think will be accretive in the long run because we are able to have that extra buffer in case some unforeseen issue occurs that we have some credit that we anticipated maturing inside the Citibank facility. If it does not occur we have that extra insurance policy that $9 million to insure that we pay the thing off.

And also I would like to point out in the investments we have made in the fourth quarter. We have one investment. There was new one. The rest of them are more ongoing commit is do we had to existing portfolio company. So, it is not like we were making investments imprudently to the risk of the credit facility.

And Troy let me give a little more color on this. I think this is something is missing that may actually give you the [aha] that you are looking for. A lot of the credits or new investments that you perceived that we do oftentimes are potentially re-extending new credit facilities to our existing portfolio companies or rewriting an existing loan with one of our portfolio companies or we may have had a fixed interest rate or below market interest rate which allows us then to rewrite the credit facility at a significantly higher rate or interest and that will translate into our either higher effective yield or better yet a higher net interest margin. So, the highly accretive event for us to continue to be very active supporters for our portfolio companies and working through our portfolio companies in both good and bad times as you maintain to build the brand of Hercules in the venture community.

But wouldn’t you agree that the new shares that are issued the $9 million let us call it $1.7 million, $1.8 million, however many share that turns into. I mean that is kind of have a hurdle rate in excess of 20% to be accretive to existing shareholders, Isn’t that correct?

Well, if you measure clearly by today’s terminology of course because we have dividend today of 22%. So, of course, the issues of share is that but if I would tell you that our new loan originations are generating current yields in the 15%, 16% range plus you add on the equity component to that you are quickly achieving our cost of capital in terms of new originations. So, we think that is an accretive event and we can actually originally return an excess of our dividend yields today.

Okay. And then on the middle net worth covenant, you are totally closer than we would have thought you were going to be because of the write-downs in the quarter, how are you looking at that covenant going forward?

We are at 382. The minimum is 360. This was largely attributed to put to the write-down of FAS 157 for the warrant and equity or our approaching cost. So, we really do not feel like we are at significant risks here of tripping that covenant.

And Troy, another insurance if you will on that statement that you asked is another factor of taking into account by holding back $9 million of the capital, you in essence bolster, your net worth and therefore solidify or give you a better cushion on that net worth test with the Wells Fargo facility. So, that was also another factor taken into account on the dividend holdback for that one quarter.

Right, that is what we assumed. What is your appetite for leverage, let us say, towards the end of this year? Is there any thought of de-leveraging this with that completely potentially?

It is actually a…delivering only the context of paying back our Citibank and Deutsche Bank credit facility. There is absolute interest enough to continue to originate in a very select basis as we said in the beginning of the call and this is why we preserved the Wells Fargo credit facility until we absolutely pay off the Citibank/Deutsche Bank line once that is paid off, the Wells Fargo facility will be used to start levering the balance sheet. We believe by that point the other lenders will in fact join the syndicate into the Wells Fargo facility and increase the balance sheet leverage further, but I will caution that I need to see some civilization in the market and improved excess in the market as we look to originate significant amounts.

Okay. One more then I will be done here. The SBIC, can you give us an update on what you are hearing whether or not we have heard some potentially positive things about that program building expanded? What is the appetite right now for the ability to get some of that done do you think?

Well, unfortunately, I have more real time data than you may actually want to know. At the beginning of this morning, we were positively supported that the legislators had at one point check, the $150 million increase in the SBIC program. As you may or may not recall, the SBIC program today is about approximately $137 million availability under the SBIC program. At one point, there was a rumor that it would increase to 225 or 250 and then it went to 185 and this morning we had heard that it was stabilized at 150, but at the beginning of this call we received an email saying that, “Oops, it got cut at the last minute.” I mean I am talking in real time here, but it may be brought back again some time between now and over the weekend but we will see. So, we were doing with the real time, real situations. Further evidence as to why we decide to be very prudent and very cautious because were dealing variables. They are entirely out of our control and we to make sure that we are hedging we have all kinds of options available to us than a single critical path issue.

Your next question comes from the line of Jon Arfstrom with RBC Capital Markets.

Can you just talk a little bit of how the board came up with the $0.32 it is number down the couple of pennies and I understand that but is this a level that you are going to evaluate each quarter or just a level that you think based on where you sit with your business model right now that it is a sustainable number?

As I said in the past we certainly do not give guidance and something that we will continue to not do given the unpredictability of the market. I think that the dividend policy is much more clearer than you may realize and that is back in December , we had issued I think the change in policy which make us one of the few BDC that I think really stand up to this issue and that is that we believe that shareholders are better served by having absolute and greater transparency of the dividend coverage based on net N&I anonymous in income so the $0.32 is arithmetic derived from $0.34 of earnings at N&I in the fourth quarter and merely multiply by it 95%. And so the dollar expectations on going forward basis and to pay any between 95% and 99% of the quarterly earnings in the rears in the form of dividend and I want to reiterate what I said a minute a go it is not anticipated that future dividend payments will be paid in stock. It will be revert back to the cash payments that we have done historically but clearly that will be reviewed every quarter given March conditions as they turn more adverse which I hope that they do not but I think that we are preparing ourselves for a tough market here.

I understand that but just the expectation as in everybody should they expect that dividend is going to jump around from quarter to quarter?

Well, we certainly do not expect it to jump around materially as you may believe that it will. I think that we will pay a dividend that represents 90% to 95% and with the $0.80 spill that we have, I think that there will be a potential, it could be a significant and potential fifth dividend or special dividend during the year that has made up of some portion of the $0.18 spillover and the remaining balance of the quarterly earnings that are not paid out in that particular period. So it is a combination of the 90% that we payout leaving a 10% buffer. That 10% buffer would accumulate at the end of the year and distribute it to our shareholders along with any special or any earnings spillover that cap gains that may or may not occur but yes, the dividend could move around quarter to quarter.

Okay, good. I am just changing gears here. The senior credit offers that roll that you talked about in your release; can you talk a little bit about what specifically you are using the senior credit offers are for? Is that approval one the front end? Is it monitoring? Does it work out? Can you give us some more details?

No, Diane Earle, the credit officer I was referring to is so far an outstanding individual. She has been an incredible contributor to the organization. Most of you know that I also served as a credit officer of the Company for quite a significant period of time and Diane coming on board, I feel incredibly honored to have her here. There is a lot to take an enormous amount of credit off my plate and really hand it off to her. So, she is materially responsible for the day-to-day credit oversight operation in the organization about the technology and life sciences group as well as a lower amount of market experience. She is a highly experienced veteran in the credit community. She is a hardened asset base lender with a good 15 to 20 years of asset base lending under her belt and she comes to us with a lot of experience from her most recent institution and so she now has a very strong day-to-day credit oversight of the organization working in conjunction with two group heads of the technology and life sciences groups.

So, it is all the way through the approval monitoring and the tailwind on this as well?

That is right. Diane is intimately involved on continuing takeover responsibility that I had held which is on work out. I would still be around to assist on all work outs, not to get cynical. I actually do not mind work outs at all. I think you learn the best in a difficult and strenuous situation. Diane is a very hard individual. I think that she can more than easily handle and she has proven it so far on work out so far being on Hercules.

And she is working with the deal teams on the front end of deals as well to make sure the structure looks right given the portfolio of the Company in fact. So, she has got the kind of beginning as well as end.

Last question, this may seem like a silly question but I will ask it, do you have any competitors maybe approximately a bit above this competitive environment?

It is less silly than you think. I do not want to slip at the value; I think it is horrible what is going on the financial community so I do not want to slip it or just missed about it. But the short answer is no, there is really no real more competition left. I mean the only competitors that we have are to some extent were venture banks and venture banks really do not do what we do. They are more early stage focus that we are an I think that the early stage venture activity that some of these banks have embarked on, sitting on a couple of billion dollars at early stage venture loans are going to go through a bit of load of herds here as the venture capital community contracts specifically in its efforts on early stage investing activities. So, this may sound completely crazy. The competitive landscape is almost entirely gone which is why we continue to preserve our own capital and we feel that as we satisfy the Citibank and Deutsche Bank credit facilities, we will be in a position to look at a beautiful landscape of investment opportunities with little to no competition at extremely attractive yields which is why we feel very strongly by withholding back $9 million of our dividend capital. We look forward to the opportunity to deploy that capital in the second and third quarter and fourth quarter of 2009 at greater than our yield spread or dividend yields today.

Your next question comes from the line of Robert Napoli - Piper Jaffray.

This is Jason DeLu calling in for Bob. I was wondering what amortization and early payoffs in the portfolio are you guys expecting each quarter.

It obviously varies depending upon the activities that are happening. I think in terms of early payoffs where we are seeing fewer IPO or M&A activities in the course of 2009 that that will come down if you are in the first couple of quarters. Hopefully, we will see more of that pick up in the third and fourth quarters but I think we will possibly going to be looking probably something more in the neighborhood of maybe a million dollars of early fees and things of that nature.

Well, maybe a little more specific. I truly believe that the normal amortization in portfolio will continue at a run rate of probably $30 million to $40 million a quarter amortization, oh I am sorry, taking into account the de-levering. But probably more than $25 million to $35 million of amortization on a quarterly run rate basis on normal principal repayments.

I think that Jason was asking about what fees and when it will be collected. Is that correct, Jason?

Well, I guess both but I will take both numbers. So, I mean I was looking for the run off that you guys are expecting each quarter.

Yes, that is what I thought so on a normalized basis, I think we would probably see a portfolio normalizing down and de-levering in a $25 million to $35 million normalized amortization rate and we considered Blue Bird for lack of a better word for early payoffs. I think David is right, we are probably between now and the maturity of the Citibank line. You are probably looking at $1 million to $5 million.

Okay and then with the expectation that VC investments can be down in 2009, can you speak to what you guys are expecting for investment within some of the industries where your portfolios are most heavily weighted? And then, how does this reduced VC investments, how can they impact your outlook for credit in terms of the great threes coming up with another need for another round of financing?

Well, as an answer to your question, let me take the first part of it. As we indicated right now, the venture capital industry did $28.8 billion, based on $29 billion in calendar 2008. We are probably a little more draconian in our assessment of the overall market itself. We are only expecting to see $20 billion to $22 billion of venture capital activity but as the previous caller asked, Jon Arfstrom at RBC, given the fact that we have little to no competition that is left in the market place. That is a pretty big pond to swim in at $20 billion to $22 billion of opportunities that the VCs will still invest. A better way of looking at that from a quantitative point of view is that if you look at the venture capital dollars being deployed, let us say $20 billion and you assume that 20% of that could be debt capital complementing that, you are looking in a $4 billion market opportunity there on an annual basis. There is no way in the world that we will ever, ever fulfill the total potential demand for $4 billion. So we continue to have the opportunity to play the very large pond as one of the bigger fish there and looking at the better opportunities to invest and by looking at the better opportunities to invest in, you disproportionably pick the better players who have the stronger survivability which means you can have low to no credit losses similar to what we have had since inception of Hercules and I think that is going to continue to do well for us so the full and steady strategy of not over deploying your capital and maintaining strong liquidity on your balance sheet will build quite well for us in the second half of 2009 as we start to get back of that market. And the VCs are still supporting their better companies which so far I think we have proven our ability to select those set of companies because our companies continue to receive additional runs of equity capital and that is happening in our portfolio as we speak.

Your next question comes from the line of Henry Coffey - Sterne, Agee & Leach. Henry Coffey - Sterne, Agee & Leach: Just going through the subsequent event section, what is the size of the Guava Technologies loan that you expect to get paid off?

Just right around $5 million. Henry Coffey - Sterne, Agee & Leach: And then the final line on this Portola Pharmaceuticals, would that create a cash distribution on your way if it is successful?

Well, first of all I think the announcement that Portola did today is absolutely fantastic. Henry Coffey - Sterne, Agee & Leach: Right, $75 million, how much of that gets into your pocket so to speak?

I think the Company is going to retain all of that capital at this point and continue their very successful clinical trial process going on right now. So, we were not expecting a payoff from that loan. We think it is a fantastic company, doing phenomenally very, very well and you are seeing a lot of our life sciences portfolio as you have seen in subsequent events, continue to make very strong disclosures and positive development. So we are not expecting Portola to pay us off. Henry Coffey - Sterne, Agee & Leach: And then the cash on the balance sheet, I mean that is real cash that is accessible to you. That is not restricted or committed in any fashion, right?

You mean at the Portola or our level? Henry Coffey - Sterne, Agee & Leach: Your level, the $17.2 million of cash that you ended the period with.

Right, we do have our requirement why the Citibank, Deutsche Bank line is out to maintain $10 million of cash on our balance sheet. When that obviously is paid off, that requirement goes away. Henry Coffey - Sterne, Agee & Leach: But I mean 17 of that, that could all go to them as well?

Correct. That is our cash to use as we see fit.

Henry, as we David pointed out earlier to kind of give you a little peak on the progress, the Citibank line balance is down to…

About $71 million. Henry Coffey - Sterne, Agee & Leach: About $70.9 million, yes.

Right, so we continue to accelerate and continue to pay that off and there is an interesting benefit. As we pay that credit facility off even faster, you are getting a high end interest margin being generated in the portfolio. Henry Coffey - Sterne, Agee & Leach: Right, that is probably why I am, as well as everyone else in the phone sort of shocked at the fact that you are not paying a cash dividend in the March quarter. I understand the logic behind it. It is just when you look at the amount of cash resources that you have here, I do not know think anybody would have predicted the dividend news that would have been handed.

Well, hold on. I got to get you at that. I think that people need to understand and I apologize if I did not articulate this appropriately the right way. Although we have absolutely sufficient cash to satisfy the Citibank and Deutsche Bank line, we live in a world where unforeseen issues surface that we are not aware of and what I am saying to you very directly is that had we not done this particular prudent, cautious thing on holding back $9 million of cash, had we missed the payment on Citibank and Deutsche Bank line, you would have put ourselves in a higher peril because you can trigger potentially across default with the Wells Fargo facility if we don’t satisfy the Citibank Deutsche Bank line. So, that extra $9 million in incredibly valuable to us as an insurance to ensure absolutely unequivocally that we can now satisfy obligation without risk and if investors do not like that, I am sorry but I think strongly this is a very prudent thing to do for one quarter only but we are still paying a $0.32 dividend while other BDCs are not paying dividends.

Your next question comes from the line of Sean Jackson - Avondale Partners LLC.

Most of my questions had been answered but can you talk about I guess in the Wells line, $50 million I have seen you have been working on getting up to $300 million. I mean, is progress there just dead or is there any progress to talk about at all?

It is obviously very slow. You can look around in all the national banks, the regional banks and everybody and they are all sitting on their hands at the moment. They are trying to figure out what is going on with the charter program. They are trying to figure out where to invest so conversations are continuing but the commitment at this point has not come across the threshold.

Is there any catalyst event you think will loosen that up a little bit and talks will resume?

Well I was hoping that when the Treasury Secretary spoke, that would have done it.

Alright and then lastly, is there something you are looking at, you said you intend to start it again second, third and fourth quarters. Is there one sector or something that is standing out whether it be a life sciences or I think you mentioned software in previous calls that is looking a little better. Can you just comment on that?

I think that we rather answer the question that we are focusing more on stage of company than particular specific verticals or niches within the technology and life sciences there. I think they were seeing an ordinary amount of incredible opportunities on looking at lower middle market credits or investment opportunities that a year ago, we are looking at 5 times all in leverage, 5.5 times all in leverage and today, you gain those companies that barely all end three extra leverage on EBITDA, extremely attractive the rates in and now including the even workout risk and more companies so we think that it is prudent to look at the more mature companies as opposed to early stage once you get back-to-back Company that may require five or seven years to achieve an exit while a lower bit of market credits will achieved an exit or liquidity event in two to three years. And so we are more about mature stage focused than necessarily sector driven.

Your next question comes from the line of Arthur Winston - Pilot Advisors.

I realized that you directed a brilliant, how do you figure this in the $0.32 dividend and keep saying in $0.32 when the stock is going to go down to $0.32 when you pay it out? Could you just explain that?

I can explain that. I can not foresee what the stock will or will not do.

What are you doing is taking for shares for everybody's worth is less.

Arthur, I do not think that is correct because all shareholders are relatively receiving the same treatments so no one is in essence being diluted whatsoever and as I indicated earlier, we feel that the $9 million can easily be deployed at a higher cost to capital than our yield.

But do not give yourself; you are not saying $0.32 dividends. Could you now explain under what circumstances the dividend changes in the second quarter or does not change in the second quarter very slowly?

Well as I said earlier we do not provide guidance on earnings whatsoever. We never have and I think that the policy that we adopted is one that I think is very important and that is to create a greater transparency on dividend coverage. As I am sure you are fully aware of many, many BDCs and other financial…

Since where are the BDCs?

They had over extended themselves on the dividend damage on earning coverage by a adopting a policy of 90% to 95% of paying out the NII earnings, you and the shareholder have a greater transparency number and you will receive that benefit at the end of the year on any remaining distributions under the RIC requirement that will be paid out as a special dividend at the end of the year making up 90% to 98% required distribution under RIC program.

Could you explain why had suggested perhaps stated that the dividends is a one time situation for the first quarter?

Sure. As it is no secret as we are talking about in this call, the dividend decision on paying the 90% in stock and 10% in cash was really driven as being said the further insurance to ensure that we absolutely can unequivocally meet the requirement of the Citibank, Deutsche Bank payoff at the end of April. We have events that may occur that if we find ourselves $1 million or $3 million short, I think that shareholder value will be a lot more distressed by suddenly having default on the Citibank, Deutsche Bank line as opposed to having one quarter only where we would withhold our cash in order to ensure the satisfying of that obligation at the end of April. So I think that is a very prudent thing to do. I am sorry that you find it not as prudent but I think that it is a greater preservation of shareholder value by doing that as opposed to placing yourself on undue risk that we are not able to satisfy the Deutsche Bank, Citibank facility at the end of April and thereby triggering the possibility of the cross default into a lost further line and lose the $50 million credit facility in the process.

What are you suggesting is if the cash flow comes in the way it has and the way you are hoping or thinking it might?

I think they will return back…

Can you let me ask the question? If the cash flow slows in the way it has been on more or less the same trajectory taking account what is going on in the world, you will be able to meet the payments on the Citi Corps situation, sometime in April or in May and therefore thereafter, there is some probability that it is possible that the dividend can be paid in the future in cash? Is that about right?

Well absolutely! I mean I am sorry if that is a confusing message I am delivering. I do not mean to do that, I do not see or at least foresee future dividends paying in stock. I really do not see that. If I led that impression, that is not the intent at all. Now, clearly things could deteriorate further and that will be revisited but at this juncture for what I know and what I am seeing from my cash flow, I do not anticipate that dividend in the future could be paid out of stock, no! It is a one time event in my opinion, in my view. It is there and sorry for the purpose of the insurance and for touching to our shareholders to ensure that we absolutely can pay the Citibank line and that to me is extremely valuable step to take in a very prudent step to take for one quarter, one quarter only and then we will return back to cash dividend as we historically have done.

What is the date of the Citi Corp trends comes up?

April 30, 2009.

Your next question comes from the line of Art Spinner - Spinner Global Technology.

We are new shareholders and I am still a bit confused about something. Would not it be simpler just to use the Wells Fargo line to prepay the Citibank line and then you eliminate any possibility of cross default through that means and reduce your cost to capital simultaneously?

The problem is that, is we spoke about this in the third quarter. It is not were absolute viable option we clearly would not have taken it. But the problem is we had to be cognizant of the remaining un-funded commitments that we have in our balance sheet so we have outstanding obligations and those outstanding obligation as we indicated earlier represents about $82 million of outstanding obligations. However, a significant portion of those un-funded commitments are specifically tied to milestone that the Company must achieve so we expect the $82 million to translate into funding over the next 2 to 3 quarters. It is probably going to around $40 million which is why we keep the Wells Fargo facility on top in case we need to fulfill those obligations.

So you really, that is beside the match to be an offset to those obligations?

Absolutely. I mean and you are absolutely correct. Clearly we would have taken the opportunity to take the Wells Fargo facility and satisfy the Citibank facility but that I think would have been a greater risk because what that would have done is it will potentially was force us to use our capital rate below NAV which I frankly do not want to do and use our 20% below NAV unless it is an absolute must to do. So I think strongly as a CEO that this was the most prudent thing to do and the most cautious thing to do in order to ensure long-term value preservation for shareholders.

And other than the covenant the gentleman was referring to earlier, are there any other covenants in Wells Fargo that you are bumping up against?

No, that is the only one. I would say it is not even the concern but that is the only one that really is out there.

And what recourse that your clients have if they can ask you for a drawdown and you do not have the funds to meet it?

Well, I do not think will find ourselves in that situation. We have, we look and track and monitor the unfunded commitment number quite extensively. That number has gone down from if I remember in Q3 or is it maybe on in $2,700 and $10 million that are moves up and I do not have that number in front of me. And we match our exposure quite diligently but I need to remind everybody, a lot of that is time delaying. It mean that that the fastest time has to occur as well as very positive and very significant milestones need to occur so we do not think that liability is a very significant size in the short term.

I am sorry if I missed that but have you made new commitments in the fourth quarter and recently and where they have been situations where you were, there are other providers of capital that you prevailed again?

We have only made one new commitment in the fourth quarter.

It is an existing portfolio company that we are very, very happy with the performance on.

And you may have heard or not earlier we take advantage that we have a maturing credit for an investment in one of our companies and they are performing quite well. We had an opportunity, a rare one of that in the market where you can re-originate an invest to an existing company at a significantly higher yield than you had historically underwritten it because the prevailing interest rates in the market place are such. So today, we are looking new invested transactions on a current cash basis generating 14% to 16%. You add it on to the certainties to it and then you factor in to the equity derivative in the formula one and you are far, far exceeding the 22% or 24% dividend yield that our cash was translating to cost of capital equation.

You have a follow-up question comes from the line of John Hecht of JMP Securities.

In terms of your yield during the quarter can, you maybe breakout from the yield what might have been the OID or loan origination of prepayment, the prepayment components of it?

Yes, let me grab that here. On a yield base or the dollar basis?

On a yield basis and then the follow-up to that is going to be whether you are writing new loans, I know you are very prudent about writing new loans but where are you writing it now just to give me sense where yield is going?

The yield has gone up exponentially. You are looking at current yields today, 14% to 16% are pretty much atypical or normal, I should say. On a current cash basis you add on that depending on the stage of the company one to two points in fees then you tack it on potential equity derivatives and you are looking at returns north of 25% to 30% with some deals.

And we have not tracked each one of the individual components to tell you what the yield was there on OID or something of that nature.

But John we can give you the OID number and do that. We do not calculate the impact numbers sell but we can definitely derive that for you. It is not that difficult.

If you have the OID number, I think could derive it myself.

For the instance, the OID number was about $2.9 million for the fourth quarter.

Okay.

And we had about 300,000 of what we called peak income.

Okay great and then the prepayment, would that be in the C-line?

Yes.

That concluded the question and answer session today. At this time I had like to turn the call back over to Mr. Manuel Henriquez for any additional or closing remarks.

Thank you, operator and thank you everyone for your continued interest in Hercules Technology Growth Capital. As we have always done, we will be planning a trip to go meet with investors over the course of the next 2 to 3 weeks and if you have an interest in doing that and scheduling a face-to-face or one-one-one with management, feel free to contact David line or myself at 650-289-3060 and again thank you very much for being our shareholders and for being part of Hercules Technology story. Thank you.

This concludes today Conference. We thank you for your participation. You may now disconnect. Have a nice day.