Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer and Treasurer (Principal Financial Officer) and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its financial statements for external reporting purposes in accordance with U.S. GAAP.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the Company’s assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting as of December 31, 2021 was effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm due to an exemption for emerging growth companies under the JOBS Act.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. Other Information
Fees and Expenses
The following table is being provided to update as of December 31, 2021, certain information in our registration statement on Form N-2 (File No. 333-262146). The information is intended to assist you in understanding the costs and expenses that an investor in our common stock will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this Annual Report on Form 10-K contains a reference to fees or expenses paid by “you,” “us,” or “the Company,” or that “we” will pay for expenses, stockholders will indirectly bear such fees or expenses as investors in us.
Stockholder transaction expenses:
Sales load (as a percentage of offering price)
—
%
(1)
Offering expenses (as a percentage of offering price)
—
%
(2)
Dividend reinvestment plan expenses
—
%
(3)
Total stockholder transaction expenses (as a percentage of offering price)
—
%
Annual expenses (as a percentage of net assets attributable to common stock):
Management Fee payable under the Investment Advisory Agreement
1.48
%
(4)
Incentive Fee payable under the Investment Advisory Agreement
1.52
%
(5)
Interest payments on borrowed funds
0.42
%
(6)
Other expenses
-
%
(7)(8)
Total annual expenses
3.42
%
(8)
(1)
In the event that the securities are sold to or through underwriters, a related prospectus will disclose the applicable sales load (underwriting discount or commission).
(2)
A related prospectus will disclose the estimated amount of offering expenses, the offering price and the estimated amount of offering expenses borne by the Company as a percentage of the offering price.
(3)
The expenses of the dividend reinvestment plan are included in “other expenses” in the table above. For additional information, see “Dividend Reinvestment Plan.”
(4)
Assumes the base management fee will be an amount equal to 0.40% (1.60% annualized) of our average daily Gross Assets during the most recently completed calendar quarter. See “Management and Other Agreements - Compensation of Adviser.”
(5)
The incentive fee, which provides RGC with a share of the income that RGC generates for us, consists of an Investment Income Fee and a Capital Gains Fee.
Under the Income Incentive Fee, we pay RGC each quarter an incentive fee with respect to our Pre-Incentive Fee net investment income. The Income Incentive Fee is calculated and payable quarterly in arrears based on the Pre-Incentive Fee net investment income for the immediately preceding fiscal quarter. Payments based on Pre-Incentive Fee net investment income will be based on the Pre-Incentive Fee net investment income earned for the quarter. Pre-Incentive Fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less liabilities) at the end of the immediately preceding fiscal quarter, will be compared to a “hurdle rate” of 2.0% per quarter (8.0% annualized). We will pay RGC an Income Incentive Fee with respect to the our Pre-Incentive Fee net investment income in each calendar quarter as follows: (1) no Income Incentive Fee in any calendar quarter in which our Pre-Incentive Fee net investment income does not exceed the hurdle rate of 2.0%; (2) 80% of our Pre-Incentive Fee net investment income with respect to that portion of such Pre-Incentive Fee net investment income, if any, that exceeds the hurdle rate but is less than 2.667% in any calendar quarter (10.668% annualized) (the portion of our Pre-Incentive Fee net investment income that exceeds the hurdle but is less than 2.667% is referred to as the “catch-up”; the “catch-up” is meant to provide RGC with 20.0% of our Pre-Incentive Fee net investment income as if a hurdle did not apply if our Pre-Incentive Fee net investment income exceeds 2.667% in any calendar quarter (10.668% annualized)); and (3) 20.0% of the amount of our Pre-Incentive Fee net investment income, if any, that exceeds 2.667% in any calendar quarter (10.668% annualized) payable to RGC (once the hurdle is reached and the catch-up is achieved, 20.0% of all Pre-Incentive Fee net investment income thereafter is allocated to RGC).
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Under the Capital Gains Fee, we will pay RGC, as of the end of each calendar year, 20.0% of our aggregate cumulative realized capital gains, if any, from the date of our election to be regulated as a BDC through the end of that calendar year, computed net of our aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fee. See “Management and Other Agreements - Compensation of Adviser.”
(6)
Interest payments on borrowed funds represents an estimate of our annualized interest expense based on borrowings under the Credit Agreement. The assumed weighted average interest rate on our total debt outstanding was 3.5%. We may borrow additional funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so. We may also issue debt securities or preferred stock, subject to our compliance with applicable requirements under the 1940 Act.
(7)
Includes our overhead expenses, such as payments under the Administration Agreement for certain expenses incurred by the Adviser. See “Management and Other Agreements - Investment Advisory Agreement; Administration Agreement; License Agreement.” We based these expenses on estimated amounts for the current fiscal year.
(8)
Estimated.
Example
The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at the levels set forth in the table above. Transaction expenses are included in the following example.
1 Year
3 Years
5 Years
10 Years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return from realized capital gains
$
36
$
109
$
185
$
383
The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. Because the Income Incentive Fee under the Advisory Agreement is unlikely to be significant assuming a 5% annual return, the example assumes that the 5% annual return will be generated entirely through the realization of capital gains on our assets and, as a result, will trigger the payment of the Capital Gains Fee under the Advisory Agreement. The Income Incentive Fee under the Advisory Agreement, which, assuming a 5% annual return, would either not be payable or have an immaterial impact on the expense amounts shown above, is not included in the example. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an Income Incentive Fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, if our Board authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the dividend. See “Item 1. Business—Dividend Reinvestment Plan” for additional information regarding our dividend reinvestment plan.
This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
None.
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Item 10. Directors, Executive Officers and Corporate Governance
Information in response to this item is incorporated by reference from our 2022 Proxy Statement. The 2022 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal period covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act.
We have adopted a Code of Business Conduct and Ethics for our employees and directors, including, specifically, our Chief Executive Officer, our Chief Financial Officer, and our other executive officers. Our Code of Business Conduct and Ethics satisfies the requirements for a “code of ethics” within the meaning of SEC rules. A copy of the Code of Business Conduct and Ethics is posted on our website at https://runwaygrowth.com/wp-content/uploads/2020/02/Runway-Growth-Credit-Fund-SOX-Code-of-Business-Conduct-and-Ethics-March-2018.pdf. We intend to disclose any changes in, or waivers from, the Code of Business Conduct and Ethics by posting such information on the same website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or NASDAQ.
Item 11. Executive Compensation
Information in response to this item is incorporated by reference from our 2022 Proxy Statement. The 2022 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal period covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information in response to this item is incorporated by reference from our 2022 Proxy Statement. The 2022 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal period covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information in response to this item is incorporated by reference from our 2022 Proxy Statement. The 2022 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal period covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act.
Item 14. Principal Accountant Fees and Services
Information in response to this item is incorporated by reference from our 2022 Proxy Statement. The 2022 Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal period covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act.
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Item 15. Exhibits and Financial Statement Schedules
The following documents are filed or incorporated by reference as part of this annual report on Form 10-K:
(a)Financial Statements
(1) Financial Statements — Refer to Part II, Item 8 of this Form 10-K, which are incorporated herein by reference:
Page
Report of Independent Registered Public Accounting Firm
90
Statements of Assets and Liabilities as of December 31, 2021 and 2020
91
Statements of Operations for the years ended December 31, 2021, 2020 and 2019
92
Statements of Changes in Net Assets for the years ended December 31, 2021, 2020 and 2019
93
Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
94
Schedules of Investments as of December 31, 2021 and 2020
95
Notes to Financial Statements
112
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Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Exhibit No.
Description
3.1
Articles of Amendment and Restatement (1)
3.2
Articles of Amendment (15)
3.3
Second Amended and Restated Bylaws (15)
4.1
Form of Subscription Agreement (3)
4.2
Description of Securities (11)
9.1
Voting Proxy of OCM Growth Holdings, LLC in favor of Runway Growth Credit Fund Inc. (4)
10.1
Second Amended and Restated Investment Advisory Agreement between Runway Growth Credit Fund Inc. and Runway Growth Capital LLC, as the investment adviser (5)
10.2
Amended and Restated Administration Agreement between Runway Growth Credit Fund Inc. and Runway Administrator Services, LLC, as the administrator (14)
10.3
Stockholder Agreement between Runway Growth Credit Fund Inc. and OCM Growth Holdings, LLC (1)
10.4
Custody Agreement between Runway Growth Credit Fund Inc. and U.S. Bank National Association, as the custodian (1)
10.5
Amended and Restated Dividend Reinvestment Plan (16)
10.6
Form of Indemnification Agreement (6)
10.7
Trademark License Agreement by and between Runway Growth Capital LLC and the Runway Growth Finance Corp. (19)
10.8
Transfer Agent Agreement by and between American Stock Transfer & Trust Company, LLC and the Registrant (8)
10.9
Marketing and Consulting Agreement by and between Pickwick Capital Partners, LLC, Runway Growth Capital LLC and the Registrant (9)
10.10
Marketing and Consulting Agreement by and between Peak Capital Limited, Runway Growth Capital LLC and the Registrant (9)
10.11
Credit Agreement, dated as of May 31, 2019, by and among the Company, as borrower, KeyBank National Association, as administrative agent and syndication agent, CIBC Bank USA, as documentation agent, U.S. Bank National Association, as paying agent, the guarantors from time to time party thereto, and the lenders from time to time party thereto. (10)
10.12
First Amendment to Credit Agreement, dated as of November 10, 2020, among the Company, as borrower; the financial institutions party thereto as lenders; KeyBank National Association, as administrative agent and lender; CIBC Bank USA, as documentation agent and lender; and U.S. Bank National Association, as paying agent. (12)
10.13
Second Amendment to Credit Agreement, dated as of December 2, 2020, among the Company, as borrower; the financial institutions party thereto as lenders; KeyBank National Association, as administrative agent and lender; CIBC Bank USA, as documentation agent and lender; MUFG Union Bank, N.A., as co-documentation agent and lender; and U.S. Bank National Association, as paying agent. (13)
10.14
Third Amendment to Credit Agreement, dated as of June 1, 2021, among the Company, as borrower; the financial institutions party thereto as lenders; KeyBank National Association, as administrative agent and lender; CIBC Bank USA, as documentation agent and lender; MUFG Union Bank, N.A., as co-documentation agent and lender; and U.S. Bank National Association, as paying agent (17)
10.15
Fourth Amendment to Credit Agreement, dated as of August 3, 2021, among Runway Growth Credit Fund Inc., as borrower; the financial institutions party thereto as lenders; KeyBank National Association, as administrative agent and lender; CIBC Bank USA, as documentation agent and lender; MUFG Union Bank, N.A. as co-documentation agent and lender; and U.S. Bank National Association, as paying agent (14)
10.16
Master Note Purchase Agreement, dated December 10, 2021, by and among Runway Growth Finance Corp. and the Purchasers signatory thereto (18)
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10.17
Fifth Amendment to Credit Agreement, dated as of October 19, 2021, among Runway Growth Finance Corp., as borrower; the financial institutions party thereto as lenders; KeyBank National Association, as administrative agent and lender; CIBC Bank USA, as documentation agent and lender; MUFG Union Bank, N.A. as co-documentation agent and lender; and U.S. Bank National Association, as paying agent*
11.1
Computation of Per Share Earnings (Included in the notes to the financial statements contained in this report)
14.1
Joint Code of Ethics (14)
21.1
List of Subsidiaries: RWAY IP Holdings LLC - Delaware
23.1
Consent of RSM US LLP*
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended*
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
*
Filed herewith.
(1)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 19, 2016.
(2)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2017.
(3)
Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2017.
(4)
Previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2017.
(5)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on May 28, 2021.
(6)
Previously filed as an exhibit to the Company’s Registration Statement on Form 10 (File No. 000-55544) filed with the SEC on February 12, 2016.
(7)
Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2017.
(8)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2018.
(9)
Previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2019.
(10)
Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on June 6, 2019.
(11) Previously filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on March 20, 2020.
(12) Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2020.
(13) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 4, 2020.
(14) Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 5, 2021.
(15) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2021.
(16) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on October 27, 2021.
(17) Previously filed as an exhibit to the Company’s Registration Statement on Form N-2 (File No. 333-259824) filed with the SEC on September 27, 2021.
(18) Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2021.
(19) Previously filed as an exhibit otto the Company’s Current report on Form 8-K filed with the SEC on September 23, 2021.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RUNWAY GROWTH FINANCE CORP.
Date: March 3, 2022
By:
/s/ R. David Spreng
R. David Spreng
President, Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 3, 2022
By:
/s/ R. David Spreng
R. David Spreng
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Date: March 3, 2022
By:
/s/ Thomas B. Raterman
Thomas B. Raterman
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: March 3, 2022
By:
/s/ Gary Kovacs
Gary Kovacs
Director
Date: March 3, 2022
By:
/s/ Brian Laibow
Brian Laibow
Director
Date: March 3, 2022
By:
/s/ Julie Persily
Julie Persily
Director
Date: March 3, 2022
By:
/s/ Lewis W. Solimene, Jr.
Lewis W. Solimene, Jr.
Director
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