Good day and welcome to the Fourth Quarter 2009 Hercules Technology Growth Capital Conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jason Gold. Please go ahead.

Thank you Anthony, and good afternoon everyone. Presenting on the call today are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO, and David Lund, CFO. Our fourth quarter 2009 financial results were released just after today's market close. They can be accessed from the company's web site at www.herculestech.com or htgc.com. We have arranged for a taped 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. I would now like to turn the call over to Manuel Henriquez, Hercules Co-Founder, Chairman and CEO. Manuel?

Thank you Jason and good afternoon everybody and thanks for joining us today on our fourth quarter and 2009, earnings call. Most of you have now received and prior review the pre-releases we issued after the market close includes our stock dividends or stock repurchase and of course our Q4 and 2009 earnings call press release. All of this we will be discussing during this call and certainly during the Q&A session. Let me first start of by saying that we completed another terrific quarter. We worked through what’s considered one of the most difficult periods in time in American history as we continue to perform and excel in a very difficult time and the Hercules team once again delivered solid results by continuing to protect the balance sheet and increase all liquidity as evidence in our ending liquidity balance and our upstanding credit performance in this very difficult time. Let me now take an opportunity to talk to you about some of the quarterly high level result which David Lund will expand during his section to some achievements. Net interest income or net investment income more referred to as NII of $9.4 million during the quarter for GAAP earnings of $0.27 per share and cash flow earnings of $0.20 a share which David again will discuss further in his section. Our net interest margin remains quite solid, our net interest margin was at 12.82% or effected yield was over 13% further showing you the earning capabilities of our portfolio as most people here, would see that we have continued to cautiously manage down our investment portfolio as we bolster up our liquidity resources and therefore you will see that as the portfolio continues to decline we made the cautious decision to also adjust our dividend to reflect our current…

Thank you, Manuel. We believe our thesis of building liquidity and managing credit has placed us in a uniquely strong position going into 2010. Our results from operations for the quarter also prove out the conservative investment strategy that we have taken over the last several quarters has been an appropriate given the adverse market conditions. Today, I would like to focus on a couple of key areas. Summary of Q4 '09 and full year results, liquidity and capital resources and finally an overview of our dividend. During Q&A, Manuel and I will be more than happy to respond to questions you have on our operating results that I do not specifically address during my discussion. First, I will touch on the fourth quarter and full year operating results. We achieved approximately $16.7 million of investment income for the quarter and maintained a strong net interest margin at 12.82% for the quarter while managing our portfolio credit. For the full year of 2009, total investment income was $74.3 million compared to $75.8 million. This slight decrease was due to the smaller average debt portfolio as we were deleveraging our balance sheet in the first quarter of 2009 to pay off the $135 million of Citibank and Deutsche Bank credit facility in just five months and building liquidity in the second half of 2009. We continue to generate a solid net interest margin on our debt investments during the quarter at 12.8% compared to 11.4% in the fourth quarter of 2008. This increase is primarily attributed the lower cost of borrowings. Our fee income during the fourth quarter was down slightly from the third quarter and was largely made up of one time event driven and we anticipate that our Q1 2010 fee income will not be as high as Q4…

Thank you. (Operator Instructions). Our first question will come from John Hecht with JMP Securities.

Good afternoon, guys thanks for taking for my questions. With respect to the large potential pipeline Manuel referred to and you guys refer to a $180 million of (inaudible) out there, how fast you can convert these opportunities and what industries and regions are they in?

Well, the pipeline as we indicated unlike many BCs, we're happy to get in more specifics. We actually have anywhere between or rounding about $50 million already in house as science term sheet, we probably have another $160 million. They were in active terms of negotiations and balance that we are currently meeting with and qualifying the companies further. So, I expect to see the first quarter will start of probably a little more lighter and you start seeing that there was an (inaudible) really start to ramping up in the second, third and fourth quarter. We have purposely and consciously unlike others out there are rather waiting until water slowly than more aggressively. It doesn’t take any effort to put a $200 million in the book. So, we could have done that quite easily. It’s a long hard to ensure that you are picking the right companies and looking at the quality or balance sheet and your earnings as oppose to just looking at asset generation which we could have done quite easily. So, we expect to see starting of in the first quarter somewhere without giving guidance usually we don’t necessarily give guidance somewhere in the, I would say $30 million to $50 million level starting off and building from there.

Okay so growing from Q4 levels in the year end and growing as the year occurs.

There is no question that the originations in Q1 will be higher than that of Q4.

And then what is the margin on the pipeline as you see it?

There's a lot of being stated and a lot of earnings call that I've been listening recently there is been a lot hyperbole out there a lot of which I think is just lot of noise. The truth of matter is that we were seeing certainly in quality deals and this is where I think that the differentiation become some of the hyperbole that we are hearing and what we are seeing is quality deals are seeing tighter yield spreads, there is no question about that. More marginal deals are seeing continuously widening yield spreads that are out there and so its indicative of what is going on in the market place in a fairly we are seem to be fishing in the high quality bucket which why we are seeing a low tighter yield spread. So I still think that the yields that we are seeing are going to hold in what we have been kind of I guess forecasting in a the 12.5% to 14% range I think is a pretty good area that we are still working at I think that we're pretty comfortable in a short-term looking at that but I do expect that throughout 2010 that those yields spread were tightening a little bit to probably in '11 to 30% range as calendar 2010 continues to mature.

Okay, great thanks very much and David, have to get your answer but can you just quickly describe that the primary differences between operating income and the taxable income just to get a sense for the modeling in the next few quarters.

The difference is attributable to for instance acceleration of OID and timing matter. So for tax income where we might have something on the top line such as OID when we have an acceleration the IRS considers this to be capital gains. So that’s why you will see the difference between our GAAP income and the taxable income.

Okay and is this kind of different than OID and times are different going to be consistent for that couple of quarters or going to be about a volatile difference as well?

It depends quarter to quarter about what’s happening but certainly this quarter I think we saw more of it happening with some of the restructuring and so on, so I think you’ll see a more normalized difference similar to what you have seen in prior quarters and this last quarter.

Thank you. We’ll take our next question from Jason Deleeuw with Piper Jaffray.

Thank you. Just the $30 to $50 million in originations is that, that’s not net of pay downs that’s just true originations that you guys have impacted to this quarter?

That’s gross originations.

Okay and then you ramp up the workforce. Do you think there is anything more you need to do there to build out the platform to reach to growth objectives that you want to achieve this year?

Let me go and talk about that a little bit. We usually still have our two to three open hires that we are looking for just like our new investment activities for perspective portfolio companies we are seeing also seeing an abundance of talent of hiring we can do out there but just like our potential pipeline of deals not all that talent is what we are looking for meaning it doesn’t match our screen, there is an ordinary amount of this is a Belmont town out there with very little credit rating and skills set out that which doesn’t quite meet our screen. So, I would always like the same analog to what’s going on our pipeline, there is a lot of noise out there, doesn’t mean its all good in terms of looking at deal flow. So we are looking at probably higher 1 to 3 additional people assuming that we find their profile when we are looking for in the next quarter or two and I would remind everybody that it typically takes about 6 months to get a new hire, condition 2 in understanding the Hercules underwriting processes and criteria that we look for before we become productive generating assets if you will.

Okay and then just lastly with the share repurchases you hit that authorization was increased can you tell us your philosophy with the share repurchases specially with the share to your below book value?

Sure there is no question that as we are sitting on this level of liquidity and we are seeing or expect to see anywhere between $15 to $20 million in normal principle amortization, coming at a quarterly basis that we cannot prudently and I would not feel comfortable simply going out and originating $200 million of assets in one quarter simply to do that because of that and because of the current yields on cash or a whopping 50 and a 25 basis points it is probably better served for our share holders that we opportunistically go into the market when the stock is trading below book value to actually buy back stock that has a good return for our share holders and certainly sense where you are trading at below book value as a discipline that we will look to do in calendar 2010 as of whether now we fully fulfill the $35 million allocation is to return by the market place but we certainly believe and expect to be active and are looking at buying our stock when the under certain prices below book.

(Operator Instructions) We will hear next from Troy Ward with Stifel Nicolaus.

Can you go back real quickly to the liquidity discussion you talked about extending wells and the terms were the same. What about the upfront fees or did you pay upfront fees and is that the same that’s being amortized from the last facility?

Yeah, there was a $375,000 fee that we pay with the extension that will be amortized over the main incurred alone.

And do you recall last year, what was the upfront fee the last time you did it?

Yeah, it was 750 but it was over a two year period. So it’s the same 75 basis point charge.

Okay, great. Thanks. And then at the end of your liquidity David you said something about 2010 in the next quarter you are going to be renewing credit facilities. What were talking about with that?

Well, we are in discussions right now with Wells Fargo to renew or put a new facility in place. We just extended this one at this point in time. So what we would like to do is get into discussions with them on a new facility.

I have a little more color on that. What happened was the current facility has a natural window where it can be extended. Rather let that one to expire we want to exercise that window to give us a runway in assurances that we maintained liquidity for next 15, 18 months this why the extension. We are now have engaged with the discussion Wells Fargo to both increase as well as it can renew the credit facilities for another two or three year term. We don’t know it yet until we engage them in discussions right now that we are doing. But the whole reason why we pay the extension fee is to ensure that we have that runway out there.

Incapability so as of the 2011 date is actually become due?

I guess in 2011, yeah, that’s what we come to.

Assuming that is not renewed by that.

We now got 18 months to obviously sit down and discuss with Wells Fargo.

Right. Okay, that’s good. And then turning to the dividend and the taxable income Manuel if you could just put little more color I mean obviously this quarter you had $0.20 taxable income $0.20 dividend as you look to that is that going to be a quarterly look or is it going to manage the dividend more towards an annual taxable income.

I think that as originations start kicking in, the shift will start moving towards an annual I guess visibility of the dividend but I have to be honest as much as we have a good pipeline I am still on the sense as to the direction of economy and I was fully out of the reads yet remain may be on just hold over of being overly conservative what would I just want through in 2009. But I don’t want to use up all of my liquidity immediately right now in the investment and I certainly don’t want to find myself using up all our liquidity and then having raise capital that’s diluted to our share holders as many BDCs have done recently we are really pretty much against issuing shares below net asset value unless is an immediate intangible purpose that creates value for our share holders I think that the market right now is beginning to see the dramatic differentiation between an internal managed BDC and external managed BDC. And internal managed BDCs really care about dilution.

Can you expand a little bit more on the fee topic just in obviously origination fees get involved in the taxable income on the quarter of origination and as you ramped up the portfolio little bit here that’s probably going to cause some lumpiness in the taxable earnings. How are you going to look at that versus the dividend?

As we collect fees obviously over the as we do new origination that gets amortized both for tax and book purposes over the term of the agreement so there is you don’t see a lot of difference in terms of tax and book income for that. But what you do see is when you get accelerations when a loan pays of fairly. OID being accelerated for instance is considered the capital gain whereas for GAAP purposes it’s an interesting line item. So the only time you really see differences is when you get a lot of the accelerations and pay off, mandates here on originations.

Let me remind everybody that the Hercules business model is a bit unique to that of the other BDC is because we are working in a venture capital industry focus and focus on the venture capital there are technically four and that goes argue five different types of fees that need to be understood and the each have different implications both from a GAAP accounting and the tax accounting point of view. Fees for example include a work out fee, a restructuring or amendment fee, origination fee, also known as facility fee, you can have a back end fee, you can also have something called the commitment fee. All four, five of those fees are uniquely different and have different treatments because of what they imply. Further more when said in those fees if a loan pays off early you then find yourself with a prepayment fee that can also get triggered. And as David just eluted to an acceleration of a prior differed back end fee and or an acceleration of unrecognized or un-urge original origination fees. So, unfortunately it’s a much more complex issue when it comes to the fee income which is even why we have struggled with trying to forecast what that number can be because of early pay offs to accelerations that can occur.

Owing to the, what we call the origination fee or facility fee with like you said no you are not similar in other ways to the BDCs but do you have an upfront 3% origination fee?

3% is more tend to lower middle market, middle market in the venture industry the fees range from 75 basis points to the high end of way with 2.5 on the venture side on the lower middle market side you are probably seeing on an aggressive fee of 1.5 and you cant float with 3% fee in a lower-middle market so they are bit different but that’s correct

And as I understand that those origination fees due to hit taxable income in the quarter that they originated, David are you saying you amortized those?

Yeah they are amortized under the effective interest method.

Moving back to SBIC. How long do you believe once the second facility would be how long so you could draw that 75 and you have to fund that 37.5 for the equity upfront?

Well there is two things on the SBIC front, first of all I continue to remain very grateful to the SBA staff they continue to be very diligent and working with us we have a very good calendar and rapport with the SBA staff I feel very comfortable and confident that we probably will be the first or one of the first or few to get the second license in place I feel very, very optimistic about that. As to your question we really have a $20 million tail or stub on the regional first license that remained but I think that the SBA will look to have its first drawback down fully before we actually start consuming or using the second facility. As to the other question as our application stated it is our intent to first fund the equity, the so called regulatory equity capital contribution of $37.5 million into the SBIC before drawing the first dollar leverage. So I don’t expect as you really start drawing down the first capital on to the SBIC license until probably considerably end of the second quarter sometime in the third quarter. And I will remind everybody that HR 3654 which is now infamous SBA bill which has been approved by the House of Representatives is still sitting idly at the Senate when you get approved and I am a strong advocate that if we want to get middle America funded, the SBA program is the best way of getting capital to the hands of the companies that needed. And the SBA product is the best vehicle in doing that and we are more than able and willing to continue to fund lower middle market and venture stage companies are looking for capital.

Modeling question, based on the new hires what do you expect comp benefit is going to go in the expense line?

I think that the comp line is not going to materially move that much and the reason why I say that is that although comp lead originations if the market does not end up jelling the way we expect to continue see 2009 jell, we will make the commensurate adjustments to our operating expenses if that is in fact the case. As I said earlier I expect compensation cost to lead originations by six months, you have four individuals you are looking at it on an annual run rate of probably adding $1 million to SG&A but one of those hired was a slop out for headcounts, you will probably see the SG&A cost creep up by probably see the SG&A cost creep up by probably $500 million over the next 12 months.

We will take our next question from Vernon Plack with BB&T Capital Markets. Vernon Plack - BB&T Capital Markets: Thanks very much David what was taxable income for all of 2009?

Its 37.1 Vernon Plack - BB&T Capital Markets: 37.1? Okay, non accruals I believe the last quarter you reported four loans that were on non accrual but what is that number now?

We have 5 loans on non accrual at the end of the fourth quarter. Vernon Plack - BB&T Capital Markets: Okay, and do you have the cost based share volume?

The cost basis on that was $25.5 million and the fair value for a moment for you. I would say that the cost base is on that only represents 7.7% of the outstanding loan value as well just to point that out to you. Vernon Plack - BB&T Capital Markets: Okay, and net portfolio growth at least for us for the first quarter and then talk about new investments probably in the $30 to $50 million range should we to expect that portfolio growth in the first quarter?

I think you will see small net portfolio growth in the first quarter on a net based new pricing anywhere between $10 to possibly $20 million net portfolio growth in the first quarter but that will start dramatically accelerating in Q2 and beyond. The reason why I say that is that we are getting some kind of radio noise that one of our company’s is partially engaged at an MNA activity that end up creating a exit for us in value opportunity for us. But as we all know MNA at time is obviously closed.

And to follow-up at the carrying value of those loans about $11.3 million at the end of the quarter.

(Operator Instructions). Okay, we’ll take our next question (inaudible) with UBS.

Gentlemen I’m having a little difficulty reconciling the answer you gave to the gentlemen Stifel Nicolaus regarding the dividend policy. I understand that we are paying the dividend at of the net taxable income as opposed to the net investment income and you mention with the origination fees that they are being amortized over the life of the loan. Now the origination fees is taxable income. You mentioned that at the loan is prepaid the amortization amount which hasn’t some times been taken to income now because of the capital gain and it is non-taxable income. Is that correct?

That’s correct, it gets treated as capital again.

Okay. Let say then you make a loan over a 2 or 3 year period and you've advertised the origination of that 2 or 3 period and now the loan is paid back within a year so that two years of that origination fee pose it to non-taxable income, based on the current dividend policy that’s not available for dividend payers and that being that origination fee is revered a loss as a purpose of basis for dividend income.

The two years that is amortized is actually in taxable income it's in the net investment income and so that actually gets distributed and then if we have capital gains for instance that we have an acceleration, we have capital and gains to distribute it… [Multiple Speakers]

So to be paid it into the year when you even out the taxable income versus the investment income?

The use of the word evening up between taxable and GAAP is not correct. The GAAP income versus taxable income can and often times are very separate so there is a not a point we true up to get superiority between the GAAP number and the taxable number.

So at the end of the year you will still wind up paying out the taxable income as opposed to GAAP income?

That’s correct. Now not the complicate it further for you, there is another twist that half the times people have misunderstood and that is that there was a bit of a confusion in early 2009 where there is some misunderstanding in the market place by other BDCs that we have a capital loss for example you can offset that against your taxable ordinary income if you are recognizing. And in fact the truth of the matter is that we have a capital loss you then have what's called the capital loss carry forward that you use to then offset when you have capital gains in the future but you cannot take a capital loss to offset against your taxable ordinary income.

Okay. That what I understand but getting back to the original part of my question is that when we do have a capital gain on origination income, it becomes non-taxable because of the capital gain that means that you don’t intend to pay out that portion of the origination fee as the form of a dividend?

In that case that will be usually applied towards any capital loss that we have first. That’s correct. In the event now that for example, we have no capital losses we have in the option which is traditionally available to BDCs to decide whether or not you want to pay your corporate tax on that, meaning your corporate colors of 38%, 35% effective corporate tax and then we change then to earnings or option two, you pay your excise tax if you have distributing your 98% and still over to the next calendar year which then requires BDC by September of the following year. Or thirdly, you simply make a dividend distribution to your shareholders as you would normally as either a special or something simple than your ordinary dividend by that distribution and that part would be probably considered to be (inaudible) we call the adjusted lower taxable dividend income charge.

Yeah, it would be considered capital gains.

That’s the one I was looking for.

Okay, could I assume then that the company doesn’t intend to follow the first policy whereby you pay the 38% corporate rate or any origination fees that are carried forward?

I think that you are quite assured that that exactly is the case.

And we have time for one last question. We will have a follow-up from Jason Deleeuw with Piper Jaffray.

Thanks. Just was hoping to get some more color on the competitive environment and with the market healing up here and growth resuming I mean what are your expectations for the competitive environment as we move through the year?

So, I think starting in Q1 2010 I am going to start to answer that question by both the venture capital market place segment and as well as the lower middle market private equity segment because they are different and I think they were at stage of maturation now that giving a one blanket answer is no longer applicable. On the venture capital stage, the environment only continues to get better and better for us in that area many of the legacy players that existed that were more fund type structure or more importantly those back by hedge funds or having difficulties raising capital and securing additional financings and they are basically not in the market place right now and in fact we are seeing a lot of their adjusted portfolio companies and frankly a lot of their own employees coming to us giving us further assurances that they are in fact in trouble. So we are seeing a complete contraction and lack of real tangible day to day competitors that we would have seen a year and half ago, two years ago. So the venture capital market place is improving. That is not to say that the commercial banks in particular for example are not being a bit more aggressive on the really early stage companies that in fact remains as fairly robust and very tight yield spread in market on early stage side. On the more mature side of the venture capital industry we are not seeing much competition what so ever. When I turn my attention to the private equity world lower middle market and now I will make sure people understand when we call lower middle market we are calling that and defining that as companies that have $1 million to $15 million in EBITDA or…

I'd like to turn the conference back over to today's speakers for any additional or closing remarks.

Thank you, operator and thank you everyone for your continued interest and support for Hercules Technology Growth Capital. As usual Dave and myself will be making ourselves available to investors over the next 30 days as we continue to do our non-deal road show and we will be meeting with investors throughout the U.S. as we do our traveling schedule in next 30days or so. We look forward to meeting with you, if you have an interest please contact to David Lund our CFO or myself at 650-289-3060. And again thank you very much for being our shareholder and being part of the Hercules story. Thank you.

Once again ladies and gentlemen this does conclude today's conference call. We thank you for your participation.