No. 812-15111
THIRD AMENDED AND RESTATED APPLICATION FOR AN ORDER PURSUANT TO SECTION
6(c) OF THE INVESTMENT COMPANY ACT OF 1940 (the “ACT”) GRANTING AN EXEMPTION FROM SECTIONS 23(a), 23(b) AND 63 OF THE ACT,
AND PURSUANT TO SECTIONS 57(a)(4) AND 57(i) OF THE ACT AND RULE 17d-1 UNDER THE ACT AUTHORIZING CERTAIN JOINT TRANSACTIONS OTHERWISE PROHIBITED
BY SECTION 57(a)(4) OF THE ACT, AND PURSUANT TO SECTION 23(c)(3) OF THE ACT GRANTING AN EXEMPTION FROM SECTION 23(c)
Steven L. Brown
Chief Executive Officer
Cynthia M. Krus, Esq.
Stephani M. Hildebrandt, Esq.
Anne G. Oberndorf, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street NW, Suite 700
Washington, DC 20001
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
In the Matter of:
TRINITY CAPITAL INC.
3075 West Ray Road, Suite 525
Chandler, Arizona 85226
File No. 812-15111
Investment Company Act of 1940
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THIRD AMENDED AND RESTATED
APPLICATION FOR AN ORDER
PURSUANT TO SECTION 6(c) OF THE
INVESTMENT COMPANY ACT OF
1940 (the “ACT”) GRANTING AN
EXEMPTION FROM SECTIONS
23(a), 23(b) AND 63 OF THE ACT, AND
PURSUANT TO SECTIONS 57(a)(4)
AND 57(i) OF THE ACT AND RULE
17d-1 UNDER THE ACT
AUTHORIZING CERTAIN JOINT
TRANSACTIONS OTHERWISE
PROHIBITED BY SECTION 57(a)(4) OF
THE ACT, AND PURSUANT TO
SECTION 23(c)(3) OF THE ACT
GRANTING AN EXEMPTION FROM
SECTION 23(c)
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Trinity Capital Inc. (“Applicant”), an internally
managed closed-end investment company that has elected to be regulated as a business development company (“BDC”)1
under the Investment Company Act of 1940 (the “Act”)2,
hereby applies for an order (the “Order”) of the U.S. Securities and Exchange Commission (the “Commission”)
pursuant to Section 6(c) granting an exemption from Sections 23(a), 23(b), and 63, and pursuant to Sections 57(a)(4) and 57(i) and Rule
17d-13 authorizing certain joint transactions otherwise prohibited
by Section 57(a)(4), and pursuant to Section 23(c)(3) granting an exemption from Section 23(c). The Order would permit Applicant to (i)
issue Restricted Stock (as defined below) as part of the compensation package for its non-employee directors (the “Non-Employee
Directors”)4 through its Trinity Capital Inc.
2019 Non-Employee Director Restricted Stock Plan (the “Non-Employee Director Plan”), (ii) issue Restricted
Stock (as defined below)5 as part of the compensation package
for certain of its Employee Participants, excluding the Non-Employee Directors, through its 2019 Trinity Capital Inc. Long Term Incentive
Plan (the “Long Term Incentive Plan”)6;
(iii) withhold shares of Applicant’s common stock or purchase shares of Applicant’s common stock from Participants to satisfy
tax withholding obligations relating to the vesting of Restricted Stock or the exercise of Options (as defined below)7
that will be granted pursuant to the Long Term Incentive Plan; and (iv) permit Employee Participants to pay the exercise
price of Options that will be granted to them pursuant to the Long Term Incentive Plan with shares of Applicant’s common stock.
1
Section 2(a)(48) defines a BDC to be any closed-end investment company that operates for the purpose of making investments in securities
described in sections 55(a)(1)through 55(a)(3) of the Act and makes available significant managerial assistance with respect to the issuers
of such securities.
2
Unless otherwise indicated, all section references herein are to the Act.
3
Unless otherwise indicated, all rule references herein are to rules under the Act.
4
Employees, officers and employee directors, together the “Employee Participants” and each, an “Employee
Participant.” The Employee Participants and Non-Employee Directors, together the “Participants”
and each, a “Participant.” Options (as defined below) will not be granted to Non-Employee Directors, and therefore,
no relief is sought in this application for the grant of Options to Non-Employee Directors.
5
Pursuant to the Long Term Incentive Plan (as later defined), “Restricted Stock” means an award of the Applicant’s
common stock that is subject to certain restrictions requiring that it be forfeited to the Applicant if specified conditions are not satisfied.
6 The “Long Term Incentive Plan” and
“Non-Employee Director Plan,” together the “Plans.”
Applicant is a Maryland corporation that was formed
in August 2019. Applicant is an internally managed, non-diversified closed-end investment company that has elected to be regulated as
a BDC under the Act. Applicant also intends to elect to be treated, and intends to qualify annually thereafter, as a regulated investment
company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”),
for U.S. federal income tax purposes.
The Board of Directors (the “Board”)
consists of five members, three of whom are not “interested persons” of Applicant within the meaning of Section 2(a)(19) of
the Act (the “Non-Interested Directors”). The Non-Interested Directors are also the Non-Employee Directors eligible
to participate in the Non-Employee Director Plan. As of December 31, 2020 Applicant had thirty-four employees.
Applicant is a leading provider of debt to growth stage companies,
including venture-backed companies and companies with institutional equity investors, and, to a lesser extent, equipment lease financing.
Applicant’s investment objective is to generate current income and, to a lesser extent, capital appreciation through its investors.
Applicant seeks to achieve its investment objective by making investments consisting primarily of term debt investments, and, to a lesser
extent, equipment lease financing, working capital loans, equity and equity related investments. As of December 31, 2020, the Applicant’s
total assets were $559,708,000 and the net asset value (“NAV”) per share of the Applicant’s common stock,
par value $0.001 (the “Common Stock”), was $13.03. The Applicant’s common stock began trading on the Nasdaq
Global Select Market on January 29, 2021 under the symbol “TRIN” in connection with its initial public offering of shares
of its common stock. Applicant had 26,415,275 shares of Common Stock outstanding as of April 26, 2021.
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III.
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EXEMPTION TO ISSUE RESTRICTED STOCK
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Applicant is applying for an order of the Commission
pursuant to Section 6(c) granting an exemption from Sections 23(a), 23(b), and 63, and from Section 57(a)(4) pursuant to Sections
57(a)(4) and 57(i) and Rule 17d-1 to enable Applicant to issue Restricted Stock to its Employee Participants and Non-Employee Directors
pursuant to the Plans, and pursuant to Section 23(c)(3) granting an exemption from Section 23(c). In particular, the Order would
(1) enable the Applicant to appropriately compensate Employee Participants and Non-Employee Directors in the form of Restricted Stock
, in the amount of which would be determined by the Board, a committee thereof, or Applicant’s Compensation Committee (as defined
below), as applicable, provided that, in no event shall the total number of shares of Restricted Stock subject to the annual grant to
Non-Employee Directors exceed 60,000 shares of Restricted Stock, and (2) allow the Applicant to remain competitive within its sector
of the financial services industry to attract and retain qualified employees and non-employee directors.
Reason for Request
Compensation Practices in the Asset Management
Industry
While Applicant believes that, because the market
for superior investment professionals is highly competitive, the Applicant’s successful performance depends on its ability to offer
fair compensation packages to its professionals that are competitive with those offered by other investment management businesses. While
the Applicant recognizes that employee and non-employee director retention is critical for all companies, the Applicant also believes
that the highly specialized nature of its business, the competitiveness of its market and the small size of its employee base relative
to its assets and revenue make such retentions even more critical for the Applicant. In that regard, the ability to offer equity-based
compensation to its Employee Participants and Non-Employee Directors, which both aligns employee and Board behavior with stockholder interests
and provides a retention tool, is vital to the Applicant’s future growth and success.
7 For the purposes of this
Application, Incentive Stock Options and Non-Statutory Stock Options (as defined in the Long Term Incentive Plan) are collectively
referred to as “Options.”
The Plans would enable Applicant to offer Employee
Participants and Non-Employee Directors compensation packages that are more competitive with those offered by other lending businesses
and investment management businesses, which would enhance the ability of Applicant to attract and retain superior senior management, qualified
non-employee directors and other key personnel. Offering competitive compensation packages is critical to Applicant’s ability to
generate the best possible risk-adjusted returns for its stockholders.
Use of Restricted Stock
Applicant strongly believes that Restricted Stock offers an attractive
form of equity-based compensation for certain Employee Participants and Non-Employee Directors. Relative to other forms of equity-based
compensation, Restricted Stock will allow Applicant to (1) compete more successfully with commercial banks, investment banks, other
publicly traded companies, and private equity funds for skilled employees and directors; (2) develop superior alignment of Applicant’s
business strategy, stockholder interests and employee interests; (3) manage dilution and cash expenses associated with equity-based
compensation and salaries and bonuses; and (4) match the return expectations of the business more closely with its equity-based compensation.
The Applicant believes awards of Restricted Stock will have a clear and meaningful benefit to its stockholders and its business prospects
that supports approval of this application.
Successfully Competing with Private Equity Firms
In order to compete successfully with private equity funds for talented
portfolio and business management personnel, Applicant ideally would be able to pass through to its employees, in the form of long-term
capital gain payments, at least 20 percent of the net realized income of Applicant over time. Inasmuch as Applicant cannot utilize the
pass through of capital gain payments to its employees that is available to the general partners of partnerships and desires to build
capital rather than make cash payments to its Employee Participants and Non-Employee Directors, the equity-based compensation structure
that Applicant believes comes closest to replicating the fund structure is Restricted Stock. Restricted Stock requires no cash outlay
by Applicant. Furthermore, an Employee Participant or Non-Employee Director who receives an award of Restricted Stock and pays tax at
ordinary rates based on the value of the stock at the time of vesting8
will be able to treat as long-term gain any subsequent appreciation prior to sale.
Developing Alignment in Business Plan, Stockholder Interests and
Employee Interests
Alignment of a company’s business plans, its stockholder expectations
and its employee compensation is an essential component of long-term business success. Long-term business success is in the interest of
the Applicant’s stockholders and employees. The Applicant typically makes longer term investments primarily in privately held businesses
that typically stay in its portfolio for the long term. Its business plan involves targeting investments in growth stage companies, including
venture backed companies, with institutional equity investors. Applicant’s business model involves taking on investment risks with
potential for higher returns, while also obtaining warrants or contingent exit fees from portfolio companies at funding to provide an
additional potential source of investment returns. Applicant’s primary investment objective is to generate current income, and to
a lesser extent, capital appreciation through its investments. Applicant intends to make quarterly distributions and to distribute, out
of assets legally available for distribution, substantially all of the available earnings as determined by the Board in its sole discretion
and in accordance with RIC requirements. Because Applicant is a taxpayer that will elect to be regulated as a RIC under Subchapter M of
the Code, the Applicant will be required to pay out 90% of its annual taxable income to maintain its tax advantaged status and 98% of
its annual taxable income (and 98.2% of capital gains) to avoid non-deductible excise taxes. This “pass through” configuration
means that, assuming the Applicant performs successfully, the shares of the Applicant’s common stock will appreciate modestly if
at all over time since earnings are distributed currently and not accumulated. Rather, the primary return for the Applicant’s stockholders
will be in the form of current income through the payment of dividends rather than capital appreciation through a rising stock price.
This recurring payout requires a methodical asset acquisition approach and active monitoring and management of the investment portfolio
over time. A meaningful part of the Applicant’s employee base is dedicated to the maintenance of asset values and expansion of this
recurring revenue to support and grow dividends.
8 A Participant who receives a grant of Restricted
Stock may, however, elect to be taxed at the time of receipt, as further described below.
The implications of the Applicant’s business model, as described
above, on the attractiveness of using Restricted Stock is relatively clear. Restricted Stock has intrinsic value that may not be offered
through other forms of equity-based compensation. Holders of Restricted Stock, over time, become owners of the stock with a vested interest
in value maintenance and, importantly in the Applicant’s case, the income stream and stock appreciation. These interests are completely
aligned with those of the Applicant’s stockholders. Stock option holders, by way of comparison, only earn compensation if the stock
price increases and do not benefit from dividends or valuation protection, two concepts that have high priority for the Applicant’s
stockholders. Stock options are arguably less effective for the Applicant in terms of motivating behaviors consistent with the business
objectives of moderate appreciation and stable and growing dividends, in part because the Act does not provide a mechanism for BDCs to
adjust the exercise price of a stock option when a dividend is issued in order to align the interests of an option holder with those of
a stockholder.
Moreover, the private equity funds with which the Applicant competes
are able to pay higher total cash compensation, composed of salaries and bonuses than the Applicant is able to pay because of the expenses
that the Applicant must pay that are related to the maintenance of its status as a publicly held company. In addition, the private firms
with which Applicant must compete for personnel typically permit their employees to co-invest with them, which Applicant is not permitted
to do under the Act absent a Commission order.
Managing Dilution and Cash Expenses
Dilution is an important consideration for stockholders, and Restricted
Stock is inherently less dilutive and more predictable than other common forms of equity based compensation, such as stock options. Because
Restricted Stock has intrinsic value, it takes fewer shares of Restricted Stock to generate a similar level of economic benefit to Employee
Participants and Non-Employee Directors. This is particularly true given the high level of dividend statutorily embedded in the Applicant’s
business model and regulatory structure, which does not accrue to the benefit of the option holder. In other words, the Applicant believes
that the number of shares of Restricted Stock that it will grant will be less than the number of shares that would be subject to option
were the Applicant to offer equivalent economic incentives through its Long Term Incentive Plan.
The Board, including the Required Majority, found that permitting an
annual grant of Restricted Stock to each Non-Employee Director will allow the Applicant to better align its business plan with stockholder
interests based on the nature of the Applicant’s business as well as the characteristics of Restricted Stock.
Applicant can also pay less cash compensation if it can issue Restricted
Stock to the Participants. Holding down cash compensation, like declaring deemed dividends rather than paying cash dividends, is significant
to the Applicant’s ability to maximize its cash available for investments.
Matching Return Expectations
Restricted Stock motivates behavior that is consistent with the type
of return expectations that the Applicant has established for its stockholders. To this end, Restricted Stock places more value on the
quality of originated assets over the quantity of originated assets, and thus, Restricted Stock is an attractive compensation tool for
the Applicant to align Employee Participant and Non-Employee Director interests with stockholder interests. Shares of Restricted Stock
that vest over time or are based upon performance targets will allow the Applicant to set objectives and provide meaningful rewards over
time to Employee Participants who effectuate the targeted outcome of income and principal stability.
Applicant’s management and the Board, including the Compensation
Committee, as applicable, have considered each of the factors discussed above and believe that the issuance of Restricted Stock as a form
of equity-based compensation is in the best interest of Applicant’s stockholders, employees and business.
The Plans
On October 17, 2019, by unanimous vote, Applicant’s
Board, including the required majority as defined by Section 57(o) (the “Required Majority”)9,
adopted the Plans. Once Applicant receives the Order from the Commission, the Plans will become effective upon approval by the shareholders.
The Non-Employee Director Plan
The Non-Employee Director Plan, a copy of which is attached to this
Application as Exhibit A10, provides for grants of Restricted
Stock to Non-Employee Directors.
Upon election to the Board, each Non-Employee Director may be granted
shares of Restricted Stock at or about the beginning of each one-year term of service on the Board, for which forfeiture restrictions
will lapse at the end of that year; provided that the Board may provide in any award agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to an award of Restricted Stock will be waived in whole or in part in the event of
terminations resulting from any cause, and the Board may in other cases waive in whole or in part the forfeiture of an award of Restricted
Stock. The number of shares of Restricted Stock granted to each Non-Employee Director each year will be determined in the discretion of
the Board.
The maximum aggregate number of shares of common stock that may be
authorized for issuance as Restricted Stock under the Non-Employee Director Plan is 60,000 shares. In addition, the total number of shares
that may be outstanding as restricted stock under the Plans shall not exceed 10% of the total number of shares outstanding on the effective
date of the Plans. Further, the amount of voting securities that would result from the exercise of all of the Applicant’s outstanding
warrants, options, and rights, together with any Restricted Stock issued pursuant to the Non-Employee Director Plan and any other compensation
plan of the Applicant, at the time of issuance shall not exceed 25% of the outstanding voting securities of the Applicant, provided,
however, that if the amount of voting securities that would result from the exercise of all of the Applicant’s outstanding warrants,
options, and rights issued to the Participants, together with any Restricted Stock issued pursuant to the Non-Employee Director Plan and
any other compensation plan of the Applicant, would exceed 15% of the outstanding voting securities of the Applicant, then the total amount
of voting securities that would result from the exercise of all outstanding warrants, options, and rights, together with any Restricted
Stock issued pursuant to the Non-Employee Director Plan and any other compensation plan of the Applicant, at the time of issuance shall
not exceed 20% of the outstanding voting securities of the Applicant. Any Restricted Stock granted pursuant to the Non-Employee Director
Plan but that is forfeited pursuant to the terms of the Plan or an award agreement shall again be available under the Non-Employee Director
Plan.
Under the Non-Employee Director Plan, the Board may modify, revise
or terminate the Non-Employee Director Plan at any time and from time to time, subject to applicable requirements in (a) the Applicant’s
articles of incorporation or by-laws and (b) applicable law and orders. The Board shall seek stockholder approval of any action modifying
a provision of the Non-Employee Director Plan where it is determined that such stockholder approval is appropriate under the provisions
of (a) applicable law or orders, or (b) the Applicant’s articles of incorporation or by-laws. Specifically, the Board shall seek
stockholder approval to increase (i) the maximum amount of Restricted Stock that any Non-Employee Director can receive in any one year;
and (ii) the total number of shares available under the Non-Employee Director Plan. In addition, no additional awards of Restricted Stock
will be made, and the amounts proposed to be issued to Non-Employee Directors as set forth in this application cannot be changed, without
prior approval from the Commission.
9
Section 57(o) provides that the term “required majority,” when used with respect to the approval of a proposed transaction,
plan, or arrangement, means both a majority of a BDC’s directors or general partners who have no financial interest in such transaction,
plan or arrangement and a majority of such directors or general partners who are not interested persons of such company.
10 The
Non-Employee Director Plan is attached for informational purposes only. The Applicant is solely responsible for the content of the
Non-Employee Director Plan, and in any event of any conflict between the terms and conditions applicable to the requested Order (as
described in Application, excluding Exhibit A) and the Non-Employee Director Plan, the former will govern the requested relief
herein.
The Non-Employee Director Plan shall be administered by the compensation
committee designated by the Board (the “Compensation Committee”), which is comprised of “non-employee
directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
each of whom also is not an “interested person” of the Company within the meaning of Section 2(a)(19) of the Act. The Compensation
Committee shall interpret the Non-Employee Director Plan and, to the extent and in the manner contemplated herein, shall exercise the
discretion reserved to it hereunder. The Compensation Committee may prescribe, amend and rescind rules and procedures relating to the
Non-Employee Director Plan and make all other determinations necessary for its administration. The decision of the Compensation Committee
on any interpretation of the Non-Employee Director Plan or administration hereof, if in compliance with the provisions of the Act, regulations
promulgated thereunder, and any exemptive relief granted by the Commission or the Commission staff, shall be final and binding with respect
to the Applicant and the Non-Employee Directors.
Unless the Board expressly provides otherwise, if a Non-Employee Director
holding shares of Restricted Stock ceases to be an eligible Non-Employee Director, any shares of Restricted Stock held by such Non-Employee
Director or the Non-Employee Director’s permitted transferee that have not vested will be terminated and such shares will be returned
to the Applicant and again be available for issuance under the Non-Employee Director Plan.
While subject to forfeiture provisions, Restricted Stock shall not
be transferable other than to the Non-Employee Director’s permitted transferee. For purposes of the Non-Employee Director Plan,
“permitted transferee” includes the spouse or lineal descendants (including adopted children) of the Non-Employee Director,
any trust for the benefit of the Non-Employee Director or the benefit of the spouse or lineal descendants (including adopted children)
of the Non-Employee Director, or the guardian or conservator of the participant.
The Non-Employee Director Plan also provides that upon the occurrence
of certain changes in the Applicant’s common stock, such as a stock dividend, stock split or combination of shares (including a
reverse stock split), recapitalization or other change in the Applicant’s capital structure, the Board will make appropriate adjustments
to the maximum number of shares that may be delivered under the Non-Employee Director Plan, to the maximum per-participant share limit
and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards then outstanding
or subsequently granted and any other provision of awards affected by such change.
Amendments required to be approved by the stockholders under the laws
of Maryland, the Commission under the Act (including Section 61), the rules of any applicable stock exchange or national market system,
or in order to comply with the exemptions set forth in Rule 16b-3 under the Exchange Act, will not be effective until so approved. All
questions of interpretation with respect to the Non-Employee Director Plan and Restricted Stock granted thereunder will be determined
by the Board. The Board will not make any material amendment to the Non-Employee Director Plan unless the Applicant receives an order
from the Commission approving the terms of such amendment.
Applicant acknowledges that Restricted Stock granted under the Non-Employee
Director Plan would have a dilutive effect on the shareholders’ equity of the Applicant, but, as further explained herein, believes
that effect would be outweighed by the anticipated benefits of the Non-Employee Director Plan to the Applicant and its stockholders.
The Long Term Incentive Plan
The Long Term Incentive Plan, a copy of which is attached to this Application
as Exhibit B,11 provides for grants of Restricted Stock and
Options (collectively, “Plan Awards”), which are subject to certain vesting and forfeiture provisions.12
The maximum aggregate number of shares of common
stock that may be authorized for issuance under the Long Term Incentive Plan pursuant to grants of Restricted Stock or the exercise of
Options is 3,600,000 shares. The maximum number of shares of common stock for which any Employee Participant may be granted in a calendar
year is 300,000 shares. In addition, under the Long Term Incentive Plan, no one person can be granted Restricted Stock relating to more
than 25% of the shares of common stock available for issuance under the Long Term Incentive Plan. If any Award for any reason expires
or otherwise terminates, in whole or in part, the shares of common stock, not acquired under the Award shall revert back to and again
become available for issuance under the Long Term Incentive Plan.
Under the Long Term Incentive Plan, the Board
may, subject to and consistent with the express provisions of the Long Term Incentive Plan (i) determine which of the persons eligible
under the Long Term incentive Plan will be granted Plan Awards, and the terms and conditions of those Plan Awards, to the extent permitted
by the requirements of the Act and any exemptive relief that may be granted by the Commission or other relief that may be granted by the
staff of the Commission’s Division of Investment Management; (ii) construe and interpret the Long Term Incentive Plan and award
agreements granted thereunder and correct defects, supply omissions, or reconcile inconsistencies therein; (iii) amend the Long Term Incentive
Plan and Plan Awards thereunder; (iv) terminate or suspend the Long Term Incentive Plan; and (v) make all other decisions and determinations
as the Board deems necessary or expedient to promote the best interest of the Applicant and that are not in conflict with the provisions
of the Long Term Incentive Plan.
Unless the Board expressly provides otherwise,
immediately upon the cessation of an Employee Participant’s continuous service that portion, if any, (i) of any Restricted Stock
held by the Employee Participant or the Employee Participant’s permitted transferee that is not then vested will terminate and the
unvested shares will be returned to the Applicant and will be available to be issued as Plan Awards under the Long Term Incentive Plan
and (ii) of any Option held by an Employee Participant or such Employee Participant’s permitted transferee that is not yet exercisable
will terminate and the balance will remain exercisable for the lesser of (x) a period of three months or (y) the period ending on the
latest date on which such Option could have been exercised, and will thereupon terminate subject to certain provisions.
For purposes of the Long Term Incentive Plan,
“permitted transferee” means a Family Member (as defined in the Long Term Incentive Plan) of an Employee Participant to whom
a Plan Award has been transferred by gift.
Under the Long Term Incentive Plan, Restricted
Stock will not be transferable except for disposition by will or the laws of descent and distribution. Additionally, Incentive Stock Options
will not be transferable except for disposition by will or the laws of descent and distribution and will be exercisable during the lifetime
of the Employee Participant only by the Employee Participant. Finally, a Non-Statutory Stock Option will not be transferable except for
disposition by will or by the laws of descent and distribution, or, to the extent provided by the Board, by gift to a permitted transferee,
and a Non-Statutory Stock Option that is nontransferable except at death shall be exercisable during the lifetime of the Employee Participant
only by the Employee Participant.
11
The 2019 Long Term Incentive Plan is attached for informational purposes only. The Applicant is solely responsible for the content of
the Plan, and in any event of any conflict between the terms and conditions applicable to the requested Order (as described in Application,
excluding Exhibit B) and the Plan, the former will govern the requested relief herein.
12 The Long Term Incentive Plan would permit Applicant
to grant Restricted Stock Units, Other Stock-Based Awards, Performance Based Awards, or Dividend Equivalent Rights (each as defined
in the Long Term Incentive Plan). However, Applicant is not seeking relief from the Commission to grant Restricted Stock Units,
Other Stock-Based Awards, Performance Based Awards, or Dividend Equivalent Rights to all Participants at this time, and therefore
will not grant any such units or awards unless and until Applicants seeks and receives the necessary exemptive relief from the
Commission for such units or awards.
The Long Term Incentive Plan also provides that
upon the occurrence of certain changes in the Applicant’s common stock, such as a stock dividend, stock split or combination of
shares (including a reverse stock split), recapitalization or other change in the Applicant’s capital structure, the Board will
make appropriate adjustments to the maximum number of shares that may be delivered under the Long Term Incentive Plan, to the maximum
per-participant share limit, and will also make appropriate adjustments to the number and kind of shares of stock or securities subject
to Plan Awards then outstanding or subsequently granted, any exercise prices relating to Plan Awards and any other provision of Plan Awards
affected by such change.
Amendments required to be approved by the stockholders
under the laws of Maryland, the Commission under the Act (including Section 61), the rules of any applicable stock exchange or national
market system, or in order to comply with the exemptions set forth in Rule 16b-3 under the Exchange Act, will not be effective until so
approved. All questions of interpretation with respect to the Long Term Incentive Plan and Plan Awards granted thereunder will be determined
by the Board. The Board will not make any material amendment to the Long Term Equity Incentive Plan unless the Applicant receives an order
from the Commission approving the terms of such amendment.
Applicant acknowledges that Plan Awards granted
under the Long Term Incentive Plan would have a dilutive effect on the shareholders’ equity of the Applicant, but, as further explained
herein, believes that effect would be outweighed by the anticipated benefits of the Long Term Incentive Plan to the Applicant and its
stockholders.
Applicant will comply with all disclosure requirements applicable
to BDCs, including the amended disclosure requirements for executive officer and director compensation, related party transactions, director
independence, and other corporate governance matters, and security ownership of officers and directors to the extent adopted and applicable
to BDCs and Applicant.13
Applicable Law and Need for Relief
Section 63 makes applicable to BDCs the provisions of Section 23(a)
generally prohibiting a registered closed-end investment company from issuing securities for services or for property other than cash
or securities and of Section 23(b) generally prohibiting a registered closed-end investment company from selling any common stock
of which it is the issuer at a price below the stock’s current net asset value, except with the consent of a majority of the company’s
common stockholders or under certain other enumerated circumstances not applicable to the Plans. Section 63(2) provides that, notwithstanding
Section 23(b), a BDC may sell any common stock of which it is the issuer at a price below the current net asset value of such stock
and may sell warrants, options, or rights to acquire any such common stock at a price below the current net asset value of such stock
if, (1) the holders of a majority of the BDC’s outstanding voting securities, and the holders of a majority of the BDC’s
voting securities who are not affiliated persons of the BDC, approved the BDC’s policy and practice of making such sales of securities
at the last annual meeting of stockholders within one year immediately prior to any such sale; (2) the Required Majority has determined
that such sale would be in the best interests of the BDC and its stockholders; and (3) the Required Majority, in consultation with
the underwriter or underwriters of the offering if it is to be underwritten, has determined in good faith, and as of a time immediately
prior to the first solicitation by or on behalf of such company of firm commitments to purchase such securities or immediately prior to
the issuance of such securities that the price at which such securities are to be sold is not less than a price which closely approximates
the market value of those securities, less any distributing commission or discount.
Because Restricted Stock that would be granted under the Plans would
not meet the terms of Section 63(2)(A) (i.e., the Plans will not be approved by the holders of a majority of the company’s
outstanding voting securities that are not affiliated persons of the Applicant), Section 23(b) would prevent the issuance of Restricted
Stock.
Section 57(a) proscribes certain transactions between a BDC and
persons related to the BDC in the manner described in Section 57(b) (“57(b) persons”), absent a Commission
order. Section 57(a)(4) generally prohibits a 57(b) person from effecting a transaction in which the BDC is a joint participant absent
such order. Rule 17d-1, made applicable to transactions subject to Sections 57(a)(4) by Section 57(i) to the extent the Commission
has not adopted a rule under Section 57(a)(4), generally proscribes participation in a “joint enterprise or other joint arrangement
or profit-sharing plan,” which includes, pursuant to paragraph 17d-1(c), a stock option or purchase plan. Employees and directors
of a BDC are 57(b) persons. Thus, although a compensation plan involving grants of Restricted Stock is not specifically referred to by
Section 57(a)(4) or Rule 17d-1, the issuance of shares of Restricted Stock could be deemed to involve a joint transaction involving
a BDC and a 57(b) person in contravention of Section 57(a)(4).
13 See Executive Compensation and Related Party
Disclosure, Securities Act Release No. 8655 (Jan. 27, 2006) (proposed rule); Executive Compensation and Related Party Disclosure,
Securities Act Release No. 8732A (Aug. 29, 2006) (final rule and proposed rule), as amended by Executive Compensation Disclosure,
Securities Act Release No. 8756 (Dec. 22, 2006) (adopted as interim final rules with request for comments).
Section 6(c) provides, in part, that the Commission may, by order
upon application, conditionally or unconditionally exempt any person, security, or transaction, or any class or classes thereof, from
any provision of the Act, if and to the extent that the exemption is necessary or appropriate, in the public interest and consistent with
the protection of investors and the purposes fairly intended by the policy and provisions of the Act.
Section 57(a)(4) and Rule 17d-l provides that the Commission may,
by order upon application, grant relief under Section 57(a)(4) and Rule 17d-1 permitting certain joint enterprises or arrangements
and profit-sharing plans. Rule 17d-1(b) further provides that in passing upon such an application, the Commission will consider (i) whether
the participation of the BDC in such enterprise, arrangement, or plan is consistent with the policies and purposes of the Act and (ii) the
extent to which such participation is on a basis different from or less advantageous than that of other participants.
Applicant’s Legal Arguments
The Commission and Congress have recognized the need for certain types
of investment companies, including closed-end investment companies and BDCs, to be able to offer their employees and non-employee directors
equity-based compensation. Applicant believes that its ability to offer equity-based compensation in the form of the Restricted Stock
is necessary for Applicant to recruit and retain management talent and align that talent with the interests of its stockholders. Thus,
Applicant believes that its request for an Order is consistent with the policies underlying the provisions of the Act permitting the use
of equity compensation by BDCs as well as prior exemptive relief granted by the Commission.
Similarity to Issuances Currently Permitted under the Act
Congress recognized the importance of equity-based compensation as
a means of attracting and retaining qualified management personnel, including Non-Employee Directors, in the Small Business Investment
Incentive Act of 1980 (the “1980 Amendments”). Section 61, enacted as part of the 1980 Amendments, permits BDCs
to issue to their directors, officers, employees, and general partners warrants, options, and rights to purchase voting securities of
such companies pursuant to executive compensation plans in compliance with certain conditions.14
Applicant believes that the issuance of Restricted Stock to Applicant’s Employee Participants and Non-Employee Directors,
for purposes of investor protection under the Act, is substantially similar to what is currently permitted under Section 61.
Applicant is not aware of any specific discussion in the legislative
history of the 1980 Amendments regarding the use of direct grants of stock as incentive compensation; however, the legislative history
recognizes the crucial role that equity-based compensation played in the operation of a private equity fund and its ability to attract
and retain employees. Congress endowed BDCs with the ability to issue derivative securities to employees in order to ensure that BDCs
would be able to compete for skilled personnel in light of compensation practices as they existed in 1980. In the late 1970s, direct
grants of stock were not a widely used form of compensation. In fact, publications in the late 1970s indicate that it was stock options
— which the 1980 Amendments made permissible for use by BDCs — that were the most widely used type of incentive compensation.15
14
See Section 61(a)(4)(B) of the Act.
15 See “Successors to the Qualified Stock
Option” Harvard Business Review (Jan./Feb. 1978) stating: “Stock options predominate among the long-term incentives for
executives” and “Restricted stock, once widely used in executive compensation, declined in popularity after the 1969 tax
law changes and is now a rarity.” See also “Annual Survey of Executive
Compensation” Business Week (May 14, 1979) stating: “Most companies still use stock option grants and appreciation rights
as their predominant incentives.”
Prior Commission Orders Relating to Compensation for Employees and
Non-Employee Director
Applicant notes that the relief requested herein is substantially similar
to relief contained in orders issued by the Commission to Sutter Rock Capital Corp.,16
Hercules Capital, Inc.17 and Equus Total Return, Inc.18
Order Relating to the Use of Restricted Stock by a BDC
The important role that restricted stock can play in attracting and
retaining qualified personnel has been expressly recognized by the Commission with respect to BDCs.
Sutter Rock Capital Corp. On June 16, 2020, the Commission issued
an order granting Sutter Rock Capital Corp. (“Sutter Rock”) relief under Sections 6(c), 23(a), 23(b), 57(a)(4),
57(i) and 63 and Rule 17d-1 (the “Sutter Rock Order”). The Sutter Rock Order permits Sutter Rock (i) to issue
restricted shares of its common stock as part of the compensation package for certain of its employees, officers and all directors, including
non-employee directors, (ii) to withhold shares of its common stock or purchase shares of its common stock from certain of its employees,
officers and all directors, including non-employee directors, to satisfy tax withholding obligations relating to the vesting of restricted
shares of its common stock or the exercise of options to purchase shares of its common stock, and (iii) permit employees, officers and
directors to pay the exercise price of options that will be granted to them pursuant to the plan with shares of common stock.19
Hercules Capital, Inc. On January 30, 2019, the Commission issued
an order granting Hercules Capital, Inc. (“Hercules Capital”) relief under Sections 6(c), 23(a), 23(b), 23(c),
57(a)(4), 57(i) and 63 and Rule 17d-1 (the “Hercules Capital Order”). The Hercules Capital Order permits Hercules
Capital (i) to issue restricted shares of its common stock as part of the compensation package for certain of its employees, officers,
and directors, including non-employee directors, (ii) to withhold shares of its common stock or purchase shares of its common stock from
employees, officers, directors, and non-employee directors to satisfy tax withholding obligations relating to the vesting of restricted
shares or the exercise of options, and (iii) permit employees, officers, and directors to pay the exercise price of options that will
be granted to them pursuant to the plan with shares of common stock.20
Triangle Capital Corporation. On March 21, 2013, the Commission
issued an amended order granting Triangle relief under Sections 6(c), 23(a), 23(b), 57(a)(4), 57(i), and 63 and Rule 17d-1 (the “Amended
Triangle Order”). The Amended Triangle Order increases the number of restricted shares of common stock Triangle can issue
to its non-employee directors.21
Harris & Harris Group, Inc. On April 3, 2012,
the Commission issued an order granting Harris & Harris Group, Inc. (“Harris & Harris”) relief
under Sections 6(c), 23(a), 23(b), 57(a)(4), 57(i) and Rule 17d-1 (the “Harris & Harris Order”). The
Harris & Harris Order permits Harris & Harris, a BDC, (i) to issue restricted stock pursuant to its equity-based
employee and director compensation plan; (ii) to withhold shares of common stock or purchase shares of common stock from directors,
officers, and other employees to satisfy tax withholding obligations; and (3) to allow such individuals to pay the exercise price
of Options that were granted to them pursuant to a predecessor plan.22
16
Sutter Rock Capital Corp., Investment Company Act Release No. 33894 (June 16, 2020).
17
Hercules Capital Inc., Investment Company Act Release No. 33360 (Jan. 30, 2019).
18
Equus Total Return, Inc., Investment Company Act Release No. 32421 (Jan. 10, 2017).
19
Sutter Rock Capital Corp., Investment Company Act Release No. 33894 (June 16, 2020).
20
Hercules Capital Inc., Investment Company Act Release No. 33360 (Jan. 30, 2019).
21
Triangle Capital Corporation, Investment Company Act Release No. 30432 (March 21, 2013).
22
Harris & Harris Group, Inc., Investment Company Act Release No. 30027 (April 3, 2012).
Medallion Financial Corp. On April 26, 2010, the Commission
issued an order granting Medallion Financial Corp. (“Medallion”) relief under Sections 6(c), 23(a), 23(b), 57(a)(4),
57(i), and 63 and Rule 17d-1 (the “Medallion Order”). The Medallion Order permits Medallion, a BDC, to issue
restricted shares of its common stock, pursuant to an equity compensation plan, as part of compensation packages for certain of its employees
and certain employees of its wholly owned subsidiaries.23
Triangle Capital Corporation. On March 18, 2008, the Commission
issued an order granting Triangle Capital Corporation (“Triangle”) relief under Sections 6(c), 57(a)(4) and
57(i) and Rule 17d-1 (the “Triangle Order”). The Triangle Order permits Triangle, a BDC, to issue restricted
stock pursuant to its equity-based employee and director compensation plan.24
Main Street Capital Corporation. On January 16, 2008, the
Commission issued an order granting Main Street Capital Corporation and certain affiliated entities relief under Sections 6(c), 57(a)(4)
and 57(i) and Rule 17d-1 (the “Main Street Order”). The Main Street Order permits Main Street Capital Corporation
and certain affiliated entities to issue restricted stock pursuant to its equity-based employee compensation plan.25
MCG Capital Corporation. On April 4, 2006, the Commission
issued an order granting MCG Capital Corporation (“MCG Capital”) relief under Sections 6(c), 57(a)(4) and 57(i)
and Rule 17d-1 (the “MCG Order”). The MCG Order permits MCG Capital Corporation, a BDC, to issue restricted
stock pursuant to its equity-based employee and director compensation plans.26
Orders Relating to Use of Equity-Based Compensation by Internally
Managed Closed-End Investment Companies
The important role that equity compensation can play in attracting
and retaining qualified personnel has been expressly recognized by the Commission with respect to internally managed closed-end investment
companies.
Baker, Fentress & Company and Adams Express Company, et
al. In 1998, the Commission issued an order granting Baker, Fentress & Company exemptive relief from Sections 17(a) and (d),
18(d), and 23(a), (b), and (c) and Rule 17d-1. More recently, in 2005, the Commission issued a similar order granting Adams Express
Company and Petroleum and Resources Corporation (“Adams Express”) exemptive relief from Sections 17(d), 18(d),
and 23(a), (b), and (c) and Rule 17d-1. These orders permitted the companies to implement broad equity-based compensation plans that
included the issuance of restricted stock to their employees.27
Although each of the plans permitted under the Adams Express Order
and Baker Fentress Order provides a distinct method of providing for equity-based compensation, the fundamental purpose of each is similar;
awarding individuals equity-based compensation for competitive purposes, and each was deemed ultimately to benefit the stockholders of
the underlying investment company. Importantly, relief in each of the above cases was granted to closed-end funds that had not elected
BDC status and, thus, were not within the class of entities that, like Applicant, Congress had determined should be allowed to issue equity
compensation to officers, employees and directors.
23
Medallion Financial Corp., Investment Company Act Release No. 29258 (April 26, 2010).
24
In the Matter of Triangle Capital Corporation, Investment Company Act Release No. 28196 (March 18, 2008).
25
Main Street Capital Corporation, Investment Company Act Release No. 28120 (January 16, 2008).
26
MCG Capital Corporation, Investment Company Act Release No. 27280 (April 4, 2006).
27
See Baker, Fentress & Company, Investment Company Act Release No. 23619 (Dec. 22, 1998) and Adams Express Company,
et. al, Investment Company Act Release No. 26780 (March 8, 2005) (the “Adams Express Order”). Applicant
notes that, in each of their respective applications, Adams Express and Baker Fentress cited the legislative history of the 1980 Amendments
as standing for the idea that Congress had recognized the importance of equity-based compensation as a means of attracting and retaining
qualified management personnel. Both Adams Express and Baker Fentress received orders from the Commission permitting the issuance of equity-based
compensation, including direct grants of stock. Baker Fentress and Adams Express were also granted relief to issue stock options to their
Non-Employee Directors.
Standards for Exemption under Section 6(c)
Section 6(c), which governs Applicant’s request for exemptive
relief from Section 23 provides, in part, that the Commission may, by order upon application, conditionally or unconditionally exempt
any person, security, or transaction, or any class or classes thereof, from any provisions of the Act, if and to the extent that such
exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended
by the Act’s policy and provisions.28
Necessary or Appropriate in the Public Interest
As indicated above, both the Commission and Congress have long recognized
the importance of equity-based compensation in attracting and retaining qualified personnel. Applicant submits that maintaining the ability
of a BDC that identifies, invests in and actively works with early stage growth oriented companies to attract and retain highly qualified
personnel is in the public interest, including the interests of Applicant’s stockholders. Applicant competes for talent with commercial
banks, investment banks, and other publicly traded companies that also are not investment companies registered under the Act and are not
subject to the limitations of the Act. These organizations are able to offer all types of equity-based compensation to their employees
and directors, including restricted stock, and, therefore, have an advantage over Applicant and its subsidiaries in attracting and retaining
highly qualified personnel. For Applicant to compete on a more equal basis with such organizations, it must be able to attract and retain
talented personnel and offer them comparable compensation packages.
With respect to Applicant’s primary competition, private equity
funds, Applicant has proportionately greater overhead unrelated to its investment personnel and therefore cannot pay total salaries and
bonuses as high as those of its competition without increasing its total overhead. Availability of Restricted Stock would enable Applicant
to substitute Restricted Stock for overall cash compensation, and compensate for the loss of the carried interest that our investment
professionals would receive at a private equity firm, among other things. The Plans will enhance the ability of Applicant to compensate
its personnel and Non-Employee Directors competitively, while also aligning the interests of its personnel and Non-Employee Directors
with the success of the company and the interests of its stockholders and preserving cash for further investment.
Consistency with the Protection of Investors
Investors will be protected to at least the same extent that they are
currently protected under Section 61(a)(4). The Plans will be approved by stockholders in accordance with Section 61(a)(4)(A)(iv).
A proxy statement submitted to Applicant’s stockholders will contain a concise “plain English” description of the Plans
and their potential dilutive effect. If a Plan is not approved by stockholders, it will not be implemented. Furthermore, each grant of
Restricted Stock will be approved by the Required Majority on the basis that the issuance is in the best interests of Applicant and its
stockholders. Applicant is subject to the standards and guidelines adopted by the Financial Accounting Standards Board for operating companies
relating to the accounting for and disclosure of the Restricted Stock, and the Securities Exchange Act of 1934 (“Exchange
Act”) requirements relating to executive compensation disclosure.
Based on the manner in which the issuance of Restricted Stock pursuant
to the Plans will be administered, the Restricted Stock will be no more dilutive than if Applicant were to issue only Options to Employee
Participants, as is permitted by Section 61(a)(4). Because it takes fewer shares of Restricted Stock, as compared with Options, to
compensate an employee at the same level, the number of shares of Restricted Stock awarded would be fewer than the number of shares on
which an employee would have to be given an Option. Furthermore, there is a limit on the total number of shares that Applicant can issue
under the Plans. Applicant acknowledges that awards granted under the Plans may have a dilutive effect on the stockholders’ equity
per share in Applicant, but believes that effect would be outweighed by the anticipated benefits of the Plans to Applicant and its stockholders.
Section 61(a)(4) provides that the amount of voting securities
that would result from the exercise of all of a BDC’s outstanding warrants, options, or rights, at the time of issuance, may not
exceed 25 percent of the outstanding voting securities of such BDC, except that if the amount of voting securities that would result
from the exercise of all outstanding warrants, options, and rights issued to such BDC’s directors, officers, and employees, would
exceed 15 percent of the outstanding voting securities of such BDC, then the total amount of voting securities that would result
from the exercise of all outstanding warrants, options, and rights, at the time of issuance shall not exceed 20 percent of the outstanding
voting securities of such BDC. Under the Plans, the maximum amount of Restricted Stock that may be outstanding at any particular time
will be ten percent of the Applicant’s voting securities. For purposes of determining Applicant’s compliance with the limits
in Section 61(a)(4), Applicant will treat Restricted Stock issued under the Plans as voting securities that would result from the
exercise of all outstanding warrants, options and rights issued to directors, officers and employees.29
28
We note that the staff has previously stated that it would not recommend enforcement action to the Commission under Section 23(a)
if closed-end funds directly compensate their directors with fund shares, provided that the directors’ services are assigned a fixed
dollar value prior to the time that the compensation is payable. Statement of Staff Position, Interpretive Matters Concerning Independent
Directors of Investment Companies (Oct. 14, 1999).
29
For purposes of calculating compliance with this limit, the Applicant will count as Restricted Stock all shares of its common stock that
are issued under the Plans less any shares that are forfeited back to the Applicant and cancelled as a result of forfeiture restrictions
not lapsing.
Consistency with the Purposes of the Act
As indicated earlier, Applicant is at a disadvantage in competing with
other financial services companies, particularly private equity firms, in attracting and retaining management personnel because it cannot
offer shares of the company in the form of Restricted Stock as part of a compensation plan that would have a long-term capital gain component
and its overhead associated with being publicly held reduces the cash compensation it can pay to its employees. In addition, Applicant
believes it also competes directly for experienced executives and other professionals with other public companies and non-public companies,
many of which offer restricted stock as part of their equity incentive plans.
The Commission previously recognized the problem of restricting equity
compensation in the context of small business investment companies in 1971 and granted a limited exemption from the Act’s provisions
to permit them to issue qualified stock options. Congress amended the Act in 1980 to permit BDCs also to issue warrants, options, and
rights subject to certain conditions and limitations. The Commission again recognized these problems in the context of closed-end investment
companies in 1985 and granted a limited exemption from the Act’s provisions to permit certain internally managed closed-end investment
companies to issue incentive stock options. In 1998, the Commission issued the Baker Fentress Order and in 2005, the Commission issued
the Adams Express Order, both Orders permitting numerous types of equity compensation, including the issuance of restricted stock by a
registered closed-end investment company. Finally, the SEC issued the MCG Order, the Main Street Order and Triangle Order permitting BDCs
to issue restricted stock. In each of these instances, it was found that equity compensation would not offend the Act’s policies
and purposes.
In the present case, Applicant is requesting that it be allowed to
issue Restricted Stock in a similar manner. Applicant notes if the Order is granted, it would be subject to greater restrictions as to
the number of shares of Restricted Stock that may be issued as compared to the number of Options. The Commission has, by way of exemptive
order, permitted other BDCs to issue restricted stock to employees and directors and numerous BDCs to issue warrants, options and rights
to purchase to directors.
Applicant further submits that the Plans would not violate the purposes
behind Sections 23(a) and (b). The concerns underlying the enactment of those provisions included (i) preferential treatment of investment
company insiders and the use of options and other rights by insiders to obtain control of the investment company; (ii) complication
of the investment company’s structure that made it difficult to determine the value of the company’s shares; and (iii) dilution
of stockholders’ equity in the investment company.30
The Restricted Stock element of the Plans does not raise concerns about
preferential treatment of Applicant’s insiders because this element is a bona fide compensation plan of the type that is common
among corporations generally, and that is contemplated by Section 61 and approved by the Commission in the orders given to MCG Capital,
Main Street, Triangle, Baker Fentress and Adams Express. Applicant also asserts that the issuance of Restricted Stock would not become
a means for insiders to obtain control of Applicant because the maximum amount of Restricted Stock that may be issued under the Plans
at any one time will be ten percent of the outstanding shares of common stock of Applicant.
Applicant further states that the Restricted Stock feature will not
unduly complicate Applicant's capital structure because equity-based incentive compensation arrangements are widely used among corporations
and commonly known to investors. Applicant also states that on an ongoing basis it will comply with the proxy disclosure requirements
in Item 10 of Schedule 14A under the Exchange Act. Applicant further notes that the Plans will be disclosed to investors in accordance
with the requirements of the Form N-2 registration statement for closed-end investment companies and the standards and guidelines adopted
by the Financial Accounting Standards Board for operating companies. Applicant thus concludes that the Plans will be adequately disclosed
to investors and appropriately reflected in the market value of Applicant’s shares. Applicant states that its stockholders will
be further protected by the conditions to the requested order that assure continuing oversight of the operation of the Plans by the Board.
30
Capital Southwest Corporation, Investment Company Release No. 29491 (October 26, 2010).
Standards for an Order under Rule 17d-1
Rule 17d-l, made applicable to BDCs by Section 57(i), provides
that the Commission may, by order upon application, grant relief under Section 57(a)(4) and Rule 17d-1 permitting certain joint enterprises
or arrangements and profit-sharing plans. Rule 17d-1(b) further provides that in passing upon such an application, the Commission will
consider (i) whether the participation of the BDC in such enterprise, arrangement or plan is consistent with the policies and purposes
of the Act and (ii) the extent to which such participation is on a basis different from or less advantageous than that of other participants.
Consistency with the Act’s Policies and Purposes
The arguments as to why the Plans are consistent with the Act are almost
identical to the standards for exemptions under Section 6(c) and have been set forth above. Additionally, Section 57(j)(1) expressly
permits any director, officer or employee of a BDC to acquire warrants, options and rights to purchase voting securities of such BDC,
and the securities issued upon the exercise or conversion thereof, pursuant to an executive compensation plan which meets the requirements
of Section 61(a)(4)(B). Applicant submits that the issuance of Restricted Stock pursuant to the Plans poses no greater risk to stockholders
than the issuances permitted by Section 57(j)(1).
Differences in Participation
Applicant’s role is necessarily different from that of other
Participants in the Plans since the other Participants in the Plans are its directors, officers and employees. Since the Applicant and
the Employee Participants are in an employer/employee relationship, their respective rights and duties are different and not comparable.
Likewise, the respective rights and duties of the Applicant and its Non-Employee Directors are different and not comparable. However,
Applicant’s participation with respect to the Plans will not be “less advantageous” than that of the Participants. Applicant,
either directly or indirectly, is responsible for the compensation of the Participants; the Plans are simply Applicant’s chosen
method of providing such compensation. Moreover, Applicant believes that the Plans will benefit Applicant by enhancing its ability to
attract and retain highly qualified personnel. The Plans, although benefiting the Participants and the Applicant in different ways, are
in the interest of the Applicant’s stockholders, because it will help align the interests of Applicant’s employees with those
of its stockholders, which will encourage conduct on the part of those employees designed to produce a better return for Applicant’s
stockholders.
Applicant’s Conditions with Respect to Issuance of Restricted
Stock
Applicant agrees that the order granting the requested
relief will be subject to the following conditions:
|
1.
|
The Plans will be authorized by Applicant’s stockholders.
|
|
2.
|
Each issuance of Restricted Stock to an Employee Participant or Non-Employee Director will be approved
by the Required Majority of Applicant’s directors on the basis that such grant is in the best interest of Applicant and its stockholders.
|
|
3.
|
The amount of voting securities that would result from the exercise of all of the Applicant’s outstanding
warrants, options and rights, together with any Restricted Stock issued pursuant to the under the Plans, at the time of issuance shall
not exceed 25% of the outstanding voting securities of the Applicant, except that if the amount of voting securities that would result
from the exercise of all of the Applicant’s outstanding warrants, options and rights issued to the Applicant’s directors,
officers and employees, together with any Restricted Stock issued pursuant to the Plans, would exceed 15% of the outstanding voting securities
of the Applicant, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options
and rights, together with any Restricted Stock issued pursuant to the Plans, at the time of issuance shall not exceed 20% of the outstanding
voting securities of the Applicant.
|
|
4.
|
The amount of Restricted Stock issued and outstanding will not at the time of issuance of any shares of
Restricted Stock exceed ten percent of Applicant’s outstanding voting securities.
|
|
5.
|
The Board will review the Plans at least annually. In addition, the Board will review periodically the potential impact that the issuance of Restricted Stock under the Plans could have on Applicant’s earnings and net asset value per share, such review to take place prior to any decisions to grant Restricted Stock under the Plans, but in no event less frequently than annually. Adequate procedures and records will be maintained to permit such review. The Board will be authorized to take appropriate steps to ensure that the issuance of Restricted Stock under the Plans will be in the best interest of Applicant’s stockholders. This authority will include the authority to prevent or limit the granting of additional Restricted Stock under the Plans. All records maintained pursuant to this condition will be subject to examination by the Commission and its staff.
|
|
|
IV.
|
TAX WITHHOLDING OBLIGATIONS AND PARTICIPANTS TO PAY THE EXERCISE PRICE OF OPTIONS WITH STOCK ALREADY OWNED
|
Requested Order
Applicant requests an order of the Commission for relief under Section 23(c)
to permit Applicant to withhold shares of its common stock or purchase shares of Applicant’s common stock from participants to satisfy
tax withholding obligations related to the vesting of Restricted Stock or the exercise of Options to purchase shares of Applicant’s
common stock that will be granted pursuant to the Long Term Incentive Plan. In addition, Applicant requests an exemption from Section 23(c)
to permit participants to pay the exercise price of Options to purchase shares of Applicant’s common stock that will be granted
to them pursuant to the Long Term Incentive Plan with shares of Applicant’s stock.
Tax Consequences of Restricted Stock
Generally, a grant under the Plans of Restricted Stock will not result
in taxable income to the recipient for U.S. federal income tax purposes at the time of the grant. Instead, the value of the Restricted
Stock will generally be taxable to the recipient as ordinary income in the years in which the restrictions on the shares lapse. Such value
will be the fair market value of the shares on the dates the restrictions lapse. Any recipient, however, may elect pursuant to Section 83(b)
of the Code to treat the fair market value of the shares on the date of grant as ordinary income in the year of the grant, provided the
recipient makes the election within 30 days after the date of the grant. Generally, participants forego such elections in order to avoid
the risk of being taxed on compensation they never realize, either because they forfeit the Restricted Stock or the value of the Restricted
Stock drops prior to vesting.
On the date the Restricted Stock vests (assuming no Section 83(b)
election has been made), the shares are released to the Participant and available for sale or transfer (subject to the Applicant’s
share retention guidelines). In accordance with the applicable regulations of the IRS, the Applicant requires the recipient to pay to
it an amount sufficient to satisfy withholding taxes in respect of such compensation income at the time the restrictions on the shares
lapse or the recipient makes a Section 83(b) election. Where the cumulative withholding for all employees exceeds $100,000, the amounts
withheld generally must be deposited with the IRS by the next business day, therefore procedures generally must be implemented to collect
the withholding from employees on the vesting date itself or as soon as possible thereafter. In lieu of receiving a cash payment or withholding
other compensation from a participant, typically a stock plan will provide for withholding of shares equal in value at the vesting date
to the monetary amount of the company’s withholding obligation, sometimes referred to as a “net share settlement.” In
this scenario, shares with value equal to the tax payment are withheld from the award and may be returned to the plan reserve, if permitted
under the terms of the plan or award agreement. If the Applicant withholds shares to satisfy this withholding tax obligation, instead
of cash, the recipient nonetheless will be required to include in income the fair market value of the shares withheld.
The Plans incorporate this concept of “net share settlement.”
Specifically, the Plans provide that Applicant has the right to withhold stock (in whole or in part) from any award of Restricted Stock
to satisfy all withholding tax obligations. However, no such withholding of shares will take place except pursuant to written assurance
from the staff of the Commission or exemptive relief from the Commission.
Tax Consequences of Stock Option Awards
Non-Statutory Stock Options may be granted under the Long Term Incentive
Plan. Non-Statutory Stock Options granted under the Long Term Incentive Plan will not be taxable to a recipient at the time of grant.
Upon the exercise of a Non-Statutory Stock Option, the amount by which the fair market value of the shares of the Applicant’s common
stock received, determined as of the date of exercise, exceeds the exercise price will be treated as ordinary income to the recipient
of the option in the year of exercise. In accordance with applicable regulations of the IRS, Applicant requires the optionee to pay to
it an amount sufficient to satisfy taxes required to be withheld in respect of such compensation income at the time of the exercise of
the option. If Applicant withholds shares to satisfy this withholding tax obligation, instead of cash, the optionee nonetheless will be
required to include in income the fair market value of the shares withheld. When the optionee sells the shares of common stock received
upon exercise of the Non-Statutory Stock Option, he or she will generally recognize a capital gain or loss (long-term or short-term, depending
upon the holding period of the stock sold) in an amount equal to the difference between the amount realized upon the sale of the shares
and his or her basis in the shares (i.e., the exercise price plus the amount taxed to the optionee as compensation income).
Applicable Law and Need for Relief
Section 23(c), which is made applicable to BDCs by Section 63,
generally prohibits a BDC from purchasing any securities of which it is the issuer except in the open market pursuant to tenders, or “under
such other circumstances as the Commission may permit by rules and regulations or orders for the protection of investors in order to insure
that such purchases are made in a manner or on a basis which does not unfairly discriminate against any holders of the class or classes
of securities to be purchased.” No rule addresses “purchases” by a BDC in the circumstances described in this Application.
Thus, to the extent that the transactions between Applicant and the Participants described in this Application with respect to the Plans
constitute “purchases” by Applicant of its own securities, Section 23(c) would prohibit these transactions.
Applicant’s Legal Arguments
Section 23(c)(3) permits a BDC to purchase securities of which it is
the issuer “under such circumstances as the Commission may permit by orders for the protection of investors in order
to insure that such purchases are made in a manner or on a basis which does not unfairly discriminate against any holders of the class
or classes of securities to be purchased.” As noted above, the transactions between Applicant and the participants described in
this Application with respect to the Plans may entail “purchases” by Applicant of its own securities within the meaning of
Section 23(c). However, the Applicant submits that any such purchases will be made in a manner that does not unfairly discriminate against
Applicant’s other stockholders. In that regard, Applicant will use the closing sales price of its shares of common stock on any
applicable stock exchange or national market system on which its shares may be listed as the “fair market value” of its common
stock under the Plans (i.e., the public market price on the date of grant of Restricted Stock and the date of grant of Options). The shares
of the Applicant’s common stock used to satisfy tax withholding will be valued based on the current fair market value on the date
of the transaction. Because all of the transactions between the Applicant and the participants described in this Application with respect
to the Plans will take place at the public market price for the Applicant’s common stock, these transactions will not be significantly
different than could be achieved by any stockholder selling in a transaction on any applicable stock exchange or national market system
on which its shares of common stock may be listed. Moreover, these transactions may be made only as permitted by the Plans, which will
be approved by the Applicant’s stockholders prior to any application of the relief. These transactions permit Applicant to deliver
only shares net of the required tax withholding to the award recipients, thereby reducing the number of shares issued in connection with
awards granted under the Plans. The resulting reduction in dilution using these transactions should benefit all of Applicant’s stockholders.
Finally, without the relief sought hereby, Applicant’s executives and employees may be forced to sell more shares in the open market
or a portion of the non-cash awards that vest or are delivered under the Plans to satisfy their tax withholding obligations. A large influx
of Applicant shares into the open market over a short period of time would not be beneficial to the Applicant’s stockholders. No
transactions will be conducted pursuant to the requested Order on days where there are no reported market transactions involving Applicant’s
shares. Moreover, the withholding provisions in the Plans do not raise concerns about preferential treatment of Applicant’s insiders
because each Plan is a bona fide compensation plan of the type that is common among corporations generally. Finally, the vesting schedule
is determined at the time of the initial grant of the Restricted Stock and the option exercise price is determined at the time of the
initial grant of the Options.
In light of the foregoing, Applicant believes that the requested relief
meets the standards of Section 23(c)(3). Moreover, the important role that equity compensation can play in attracting and retaining
qualified personnel has been expressly recognized by the Commission with respect to certain types of investment companies, including closed-end
investment companies, small business investment companies and BDCs. Applicant believes that its request for an Order is consistent with
the policies underlying the provisions of the Act permitting the use of equity compensation as well as prior exemptive relief granted
by the Commission for relief under Section 23(c).
Precedent
The Commission has previously granted exemptive relief from Section 23(c)
to BDCs in substantially similar circumstances, and, in particular, the Commission previously granted substantially similar relief to
Sutter Rock Capital Corp.,31 Hercules Capital Inc.,32
to Newtek Business Services Corp,33 to Equus Total Return,
Inc.34 and to Capital Southwest Corporation.35
Additionally, on April 3, 2012, the Commission issued an order for an exemption from Section 23(c) to permit Harris &
Harris to withhold shares of its common stock from participants and to permit participants to pay the exercise price of options that were
granted to them pursuant to a predecessor plan with shares of common stock.36
On April 20, 2010, the Commission issued an order for an exemption from Section 23(c) permitting MCG Capital to withhold shares
of its common stock or purchase shares of its common stock from the participants to satisfy tax withholding obligations related to the
vesting of Restricted Stock that were or will be granted pursuant to its incentive compensation plans.37
On May 5, 2009, the Commission issued an order granting Triangle exemptive relief from Section 23(c) in connection with withholding
obligations related to vesting Restricted Stock and option exercises, and the payment of an option exercise price with shares of common
stock already held by the participant.38
31
Sutter Rock Capital Corp., Investment Company Act Release No. 33894 (June 16, 2020).
32
Hercules Capital, Inc., Investment Company Act Release No. 33360 (Jan. 30, 2019).
33
Newtek Business Services Corp., Investment Company Act Release No. 32109 (May 10, 2016).
34
Equus Total Return, Inc., Investment Company Act Release No. 32421 (Jan 10, 2017).
35
Capital Southwest Corporation, Investment Company Act Release No. 32787 (Aug. 22, 2017).
36
Harris & Harris Group, Inc., Investment Company Act Release No. 30027 (April 3, 2012).
37
See MCG Capital Corporation, Investment Company Act Release No. 29210 (April 20, 2010).
38
See Triangle Capital Corporation, Investment Company Act Release No. 28718 (May 5, 2009).
Additionally, in 1998, the Commission issued Baker Fentress and Adams
Express exemptive relief from Section 23(c) in connection with the payment of a stock option exercise price with previously acquired
stock.
Because the exemptive relief sought by this Application is substantially
identical to those in a number of orders granted by the Commission permitting comparable arrangements, including the orders issued to
Triangle and MCG Capital discussed above, Applicant respectfully requests that the Commission grant the exemptive relief requested by
this Application.
In addition, it is important to highlight that that stock withholding
provisions and the other provisions contained in the Plans described in this Application are common features found in the equity compensation
plans of many public companies not regulated under the Act with which the Applicant competes for personnel resources.
Accordingly, Applicant respectfully requests that the Commission issue
an order under Section 23(c) to permit (1) Applicant to withhold shares of its common stock or purchase shares of Applicant’s
common stock from Participants to satisfy tax withholding obligations related to the vesting of Restricted Stock or the exercise of Options
to purchase shares of Applicant’s common stock that were granted will be granted pursuant to the Long Term Incentive Plan, and (2) Participants
to pay the exercise price of Options to purchase shares of Applicant’s common stock that were will be granted to them pursuant to
the Long Term Incentive Plan with shares of Applicant’s stock.
For the reasons set forth above, Applicant believes that granting an
exemption from the above provisions would be appropriate in the public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act. It would not involve any overreaching and the terms are fair and reasonable.
Communications
Please address all communications concerning this
Application and the Notice and Order to:
Steven L. Brown
Chief Executive Officer
Trinity Capital Inc.
3075 West Ray Road, Suite 525
Chandler, Arizona 85226
sstanton@trincapinvestment.com
Please address any questions, and a copy of any
communications, concerning this Application, the Notice and Order to:
Cynthia M. Krus, Esq.
Stephani M. Hildebrandt, Esq.
Anne G. Oberndorf, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street NW, Suite 700
Washington, DC 20001
Authorizations
The verification required by Rule 0-2(d) under
the Act is attached as Exhibit C. The filing of this Application has been specifically authorized by a resolution of the Board of Directors
of Applicant dated October 17, 2019. A copy of this resolution, which remains in full force and effect, is attached to this Application
as Exhibit D.
Applicant has caused this Application to be duly
signed on its behalf on the 29th day of April, 2021.
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By:
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/s/ Steven L. Brown
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Steven L. Brown
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Chief Executive Officer
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EXHIBIT A
Trinity
Capital Inc.
2019
NON-EMPLOYEE Director Restricted Stock Plan
1. PURPOSE OF THE PLAN
The purpose of this Trinity Capital Inc. 2019
Non-Employee Director Restricted Stock Plan (this “Plan”) is to advance the interests of Trinity Capital Inc. (the “Company”)
by providing to members of the Company’s Board of Directors who are not employees of the Company (“Non-Employee Directors”)
additional incentives, to the extent permitted by law, to exert their best efforts on behalf of the Company, and to provide a means to
attract and retain persons of outstanding ability to the service of the Company. It is recognized that the Company’s efforts to
attract or retain these individuals will be facilitated with this additional form of compensation.
2. ADMINISTRATION
This Plan shall be administered by the Compensation
Committee (the “Committee”) of the Company’s Board of Directors (“Board”), which is comprised solely of
directors who are not interested persons of the Company within the meaning of Section 2(a)(19) of the Investment Company Act of 1940,
as amended (the “Act”). The Committee shall interpret this Plan and, to the extent and in the manner contemplated herein,
shall exercise the discretion reserved to it hereunder. The Committee may prescribe, amend and rescind rules and procedures relating to
this Plan and make all other determinations necessary for its administration. The decision of the Committee on any interpretation of this
Plan or administration hereof, if in compliance with the provisions of the Act and regulations promulgated thereunder, shall be final
and binding with respect to the Company and the Non-Employee Directors.
3. SHARES SUBJECT TO THE PLAN
The shares subject to this Plan shall be shares
of the Company’s common stock, par value $0.001 per share (“Shares”). Subject to the provisions hereof
concerning adjustment, the total number of Shares that may be awarded as restricted stock under this Plan shall not exceed sixty thousand
(60,000) Shares. Any Shares that were granted pursuant to an award of restricted stock under this Plan but that are forfeited pursuant
to the terms of the Plan or an award agreement shall again be available under this Plan. Shares used for tax withholding shall not again
be available under this Plan. Shares may be made available from authorized, un-issued or reacquired stock or partly from each.
4. AWARDS
(A) Non-Employee Directors may, in the discretion
of the Board, each receive a grant of shares of restricted stock at or about the beginning of each one-year term of service on the Board,
for which forfeiture restrictions will lapse at the end of that year; provided that the Board may provide in any award agreement,
or may determine in any individual case, that restrictions or forfeiture conditions relating to restricted stock will be waived in whole
or in part in the event of terminations resulting from any cause, and the Board may in other cases waive in whole or in part the forfeiture
of restricted stock. The number of shares of restricted stock granted to each Non-Employee Director each year will be determined in the
discretion of the Board.
(B) All restricted stock granted under this Plan
will be evidenced by an agreement. The agreement documenting the award of any restricted stock granted pursuant to this Plan shall contain
such terms and conditions as the Committee shall deem advisable, including but not limited to the lapsing of forfeiture restrictions.
Agreements evidencing awards made to different participants or at different times need not contain similar provisions. In the case of
any discrepancy between the terms of this Plan and the terms of any award agreement, the Plan provisions shall control.
(C) Holders of restricted stock shall have all
the rights of a holder upon issuance of the restricted stock award including, without limitation, voting rights and the right to receive
dividends.
5. LIMITATIONS ON RESTRICTED STOCK AWARDS
Grants of restricted stock awards shall be subject
to the following limitations:
(A) The total number of shares that may be outstanding
as restricted stock under all of the Company’s compensation plans shall not exceed ten (10) percent of the total number of
shares outstanding on the effective date of the Plan and the Company’s 2019 Long Term Incentive Plan (together, the “Plans”)
plus 10% of the number of shares of stock issued or delivered by the Company (other than pursuant to compensation plans) during the term
of the Plans.
(B) The amount of voting securities that would
result from the exercise of all of the Company’s outstanding warrants, options, and rights, together with any restricted stock issued
pursuant to this Plan and any other compensation plan of the Company, at the time of issuance shall not exceed twenty-five (25) percent
of the outstanding voting securities of the Company, provided, however, that if the amount of voting securities that would result
from the exercise of all of the Company’s outstanding warrants, options, and rights issued to the Company’s directors, officers,
and employees, together with any restricted stock issued pursuant to this Plan and any other compensation plan of the Company, would exceed
fifteen (15) percent of the outstanding voting securities of the Company, then the total amount of voting securities that would result
from the exercise of all outstanding warrants, options, and rights, together with any restricted stock issued pursuant to this Plan and
any other compensation plan of the Company, at the time of issuance shall not exceed twenty (20) percent of the outstanding voting securities
of the Company.
6. TRANSFERABILITY OF RESTRICTED STOCK
While subject to forfeiture provisions, restricted
stock shall not be transferable other than to the spouse or lineal descendants (including adopted children) of the participant, any trust
for the benefit of the participant or the benefit of the spouse or lineal descendants (including adopted children) of the participant,
or the guardian or conservator of the participant (“Permitted Transferees”).
7. EFFECT OF CHANGE IN STOCK SUBJECT
TO THE PLAN
In the event of a stock dividend, stock split
or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure,
the Board will make appropriate adjustments to the maximum number of shares that may be delivered under this Plan, to the maximum per-participant
share limit, and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards then
outstanding or subsequently granted and any other provision of awards affected by such change. To the extent consistent with continued
exclusion from or compliance with Section 409A of the Internal Revenue Code of 1986, as amended and in effect, or any successor statute
as from time to time in effect, and other applicable law, the Board may also make adjustments of the type described in the preceding sentence
to take into account distributions to stockholders other than those provided for in such sentence, or any other event, if the Board determines
that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of awards granted hereunder.
Except as otherwise provided in an award, in the
event of a Change in Control (as defined below) in which there is an acquiring or surviving entity, the Board may provide for the assumption
of some or all outstanding awards, or for the grant of new awards in substitution therefor, by the acquirer or survivor or an affiliate
of the acquirer or survivor, in each case on such terms and subject to such conditions as the Board determines. In the absence of such
an assumption or if there is no substitution, except as otherwise provided in the award, each award will become fully vested or exercisable
prior to the Change in Control on a basis that gives the holder of the award a reasonable opportunity, as determined by the Board, to
participate as a stockholder in the Change in Control following vesting or exercise, and the award will terminate upon consummation of
the Change in Control.
A “Change in Control” means an event
set forth in any one of the following paragraphs:
(i) any
“person” or group (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (as amended, and including the rules
and regulations promulgated thereunder, the “Exchange Act”), and as modified in Section 13(d) and 14(d) of the Exchange Act),
together with their affiliates and associates (both as defined in Rule 12b-2 under the Exchange Act) other than (i) the Company
or any of its subsidiaries, (ii) any employee benefit plan of the Company or any of its subsidiaries, or the trustee or other fiduciary
holding securities under any such employee benefit plan, (iii) a company owned, directly or indirectly, by stockholders of the Company
in substantially the same proportions as their ownership of the Company or (iv) an underwriter temporarily holding securities pursuant
to an offering of such securities by the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange
Act), directly or indirectly, of more than 30% of combined voting power of the voting securities of the Company then outstanding; or
(ii) individuals
who, as of the effective date of the Plan, constitute the Board (the “Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that for purposes of this definition of Change in Control, any individual
becoming a director subsequent to the effective date of the Plan whose appointment or nomination for election to the Board was approved
by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were
a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result
of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf
of a person other than the Board; or
(iii) the
consummation of any merger, reorganization, business combination or consolidation of the Company or one of its subsidiaries (a “Business
Combination”) with or into any other entity, other than a merger, reorganization, business combination or consolidation a
result of which (or immediately after which) the holders of the voting securities of the Company outstanding immediately prior thereto
holding securities would represent immediately after such merger, reorganization, business combination or consolidation more than a majority
of the combined voting power of the voting securities of the Company or the surviving entity or the parent of such surviving entity; or
(iv) the
consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale
or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately
thereafter which represent more than a majority of the combined voting power of the voting securities of the acquirer, or parent of the
acquirer, of such assets; or
(v) the
stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a “Change
in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions
immediately following which the record holders of the stock of the Company immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions.
8. MISCELLANEOUS PROVISIONS
(A) The Committee is authorized to take appropriate
steps to ensure that neither the grant of nor the lapsing of the forfeiture restrictions on awards under this Plan would have an effect
contrary to the interests of the Company’s stockholders. This authority includes the authority to prevent or limit the granting
of additional awards under this Plan.
(B) The granting of any award under the Plan shall
not impose upon the Company any obligation to appoint or to continue to appoint as a director or employee any participant, and the right
of the Company and its subsidiaries to terminate the employment of any employee, or service of any director, shall not be diminished or
affected by reason of the fact that an award has been made under the Plan to such participant.
(C) The Company may make such provisions as it
deems appropriate to withhold any taxes the Company determines it is required to withhold with respect to any award, including without
limitation, in its sole discretion, by withholding the number of vested Shares awarded under this Plan as restricted stock with a Fair
Market Value as of the date of such transaction equal to such required withholding amounts (“net share settlement”). For purposes
of this Section 8(C), the “Fair Market Value” of a Share as of a certain date shall be (i) if Shares are listed on any stock
exchange or national market system, the listed price per Share as of such date, and (ii) if Shares are not listed on any stock exchange
or national market system, the current market value of, or if no such market value exists, the current net asset value of, a Share as
determined in good faith by the Board. Shares that are used to settle tax withholding obligations pursuant to this Section 8(C) shall
be included as “restricted stock” for purposes of the calculations set forth in Section 3.
(D) The Plan and all awards and actions taken
hereunder shall be governed by the laws of the State of Maryland, without regard to the choice of law principles of any jurisdiction.
9. AMENDMENT AND TERMINATION
(A) The Board may modify, revise or terminate
this Plan at any time and from time to time, subject to applicable requirements in (a) the Company’s articles of incorporation or
by-laws and (b) applicable law and orders. The Board shall seek stockholder approval of any action modifying a provision of the Plan where
it is determined that such stockholder approval is appropriate under the provisions of (a) applicable law or orders, or (b) the Company’s
articles of incorporation or by-laws. Any amendment required to be approved by stockholders under the laws of Maryland, applicable securities
laws or the rules of any stock exchange or national market system will not be effective until so approved. Any amendments required to
be approved by the Securities and Exchange Commission will not be effective until so approved.
(B) Unless sooner terminated, the Plan shall terminate
on the day before the tenth (10th) anniversary of the date the Plan is initially adopted by the Board or approved by the stockholders
of the Company, whichever is later. Notwithstanding the termination of the Plan, awards granted prior to termination of the Plan shall
continue to be effective and shall be governed by the Plan.
10. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon the latest
to occur of (1) adoption by the Board, and (2) approval of this Plan by the shareholders of the Company;
provided, however, that the Plan shall not be effective with respect to any award to a Non-Employee
Director unless the Company has received an order from the Securities and Exchange Commission that permits such award.
Adopted: ________, 2019; Effective: ________, 2020
EXHIBIT B
2019 TRINITY CAPITAL INC.
LONG TERM INCENTIVE PLAN
(A) General Purpose. The
Plan has been established to advance the interests of Trinity Capital Inc. (the “Company”) by providing for the grant of Awards
to Participants. At all times during such periods as the Company qualifies or is intended to qualify as a “business development
company” under the 1940 Act, the terms of the Plan shall be construed so as to conform to the stock-based compensation requirements
applicable to “business development companies” under the 1940 Act. An Award or related transaction will be deemed to
be permitted under the 1940 Act if permitted by any exemptive or “no-action” relief granted by the Commission or its staff.
(B) Available Awards. The
purpose of the Plan is to provide a means by which eligible recipients of Awards may be given an opportunity to benefit from increases
in the value of the Company’s Stock through the granting of Restricted Stock, Restricted Stock Unit, Incentive Stock Options, Non-statutory
Stock Options, Performance Awards, Dividend Equivalent Rights and Other Stock-Based Awards.
(C) Eligible Participants. All
key Employees and all Employee Directors are eligible to be granted Awards by the Board under the Plan; provided that, no person shall
be granted Awards of Restricted Stock unless such person is an Employee of the Company or an Employee of a wholly-owned subsidiary of
the Company.
(A) “1940 Act” means
the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.
(B) “Affiliate”
means any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation
or other entity being treated as one employer under Section 414(b) or Section 414(c) of the Code, except that in determining
eligibility for the grant of an Option by reason of service for an Affiliate, Sections 414(b) and 414(c) of the Code shall be applied
by substituting “at least 50%” for “at least 80%” under Section 1563(a)(1), (2) and (3) of the
Code and Treas. Regs. § 1.414(c)-2. The Company may at any time by amendment provide that different ownership thresholds
(consistent with Section 409A) apply. Notwithstanding the foregoing provisions of this definition, except as otherwise determined
by the Board, a corporation or other entity shall be treated as an Affiliate only if its employees would be treated as employees of the
Company for purposes of the rules promulgated under the Securities Act of 1933, as amended, with respect to the use of Form S-8.
(C) “Award” means
an award of Restricted Stock, Restricted Stock Unit, Incentive Stock Options, Non-statutory Stock Options, Performance Awards, Dividend
Equivalent Rights or Other Stock-Based Awards granted pursuant to the Plan.
(D) “Board” means
the Board of Directors of the Company.
(E) “Code” means
the Internal Revenue Code of 1986, as amended and in effect, or any successor statute as from time to time in effect. Any reference to
a provision of the Code shall be deemed to include a reference to any applicable guidance (as determined by the Board) with respect to
such provision.
(F) “Commission”
means the Securities and Exchange Commission.
(G) “Committee”
means a committee of two or more members of the Board appointed by the Board in accordance with Section 3(C) of this Plan.
(H) “Company” means
Trinity Capital Inc., a Maryland corporation.
(I) “Continuous Service”
means the Participant’s uninterrupted service with the Company or an Affiliate, whether as an Employee or Employee Director.
(J) “Covered Transaction”
means any of (i) a consolidation, merger, stock sale or similar transaction or series of related transactions in which the Company
is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding
common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of
all or substantially all the Company’s assets, (iii) a dissolution or liquidation of the Company or (iv) following such
time as the Company has a class of equity securities listed on a national securities exchange or quoted on an inter-dealer quotation system,
a change in the membership of the Board for any reason such that the individuals who, as of the Effective Date, constitute the Board of
Directors of the Company (the “Continuing Directors”) cease for any reason to constitute at least a majority of the
Board (a “Board Change”); provided, however, that any individual becoming a director after the Effective Date whose
election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the Continuing
Directors will be considered as though such individual were a Continuing Director, but excluding for this purpose any such individual
whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended) or other actual or threatened solicitation of
proxies or consents by or on behalf of any person or entity other than the Board. Where a Covered Transaction involves a tender offer
that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Board), the Covered Transaction
shall be deemed to have occurred upon consummation of the tender offer.
(K) “Dividend Equivalent Rights”
has the meaning set forth in Section 13.
(L) “Effective Date”
has the meaning set forth in Section 15.
(M) “Employee” means
any person employed by the Company or an Affiliate.
(N) “Employee Director”
means a member of the Board of Directors of the Company who is also an Employee of the Company.
(O) “Family Member”
means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the
Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial
interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these
persons (or the Participant) own more than fifty percent of the voting interests.
(P) “Incentive Stock Option”
means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
(Q) “Non-Employee Director
Plan” means the Trinity Capital Inc. 2019 Non-Employee Director Restricted Stock Plan, as from time to time amended and in effect.
(R) “Non-statutory Stock Option”
means an Option that is not an Incentive Stock Option.
(S) “Option” means
an Incentive Stock Option or a Non-statutory Stock Option granted pursuant to the Plan.
(T) “Other Stock-Based Award”
means an Award described in Section 10 of this Plan that is not covered by another section of this Plan.
(U) “Participant”
means a person to whom an Award is granted pursuant to the Plan.
(V) “Performance Award”
means any Award granted pursuant to Section 9 of this Plan.
(W) “Permitted Transferee”
means a Family Member of a Participant to whom an Award has been transferred by gift.
(X) “Plan” means
this 2019 Trinity Capital Inc. Long Term Incentive Plan, as from time to time amended and in effect.
(Y) “Restricted Stock”
means an Award of Stock for so long as the Stock remains subject to restrictions requiring that it be forfeited to the Company if specified
conditions are not satisfied.
(Z) “Restricted Stock Unit”
means any Award granted under Section 8 of the Plan that is not an Award of Restricted Stock. A Restricted Stock Unit may be a “Performance
Restricted Stock Unit,” which is a Restricted Stock Unit that vests only upon the attainment of performance conditions and/or
performance objectives as specified in the applicable Award.
(AA) “Securities Act” means
the Securities Act of 1933, as amended.
(AB) “Stock” means
the common stock of the Company, par value $.01 per share.
(A) Administration
By Board. The Board shall administer the Plan unless and until it delegates administration to a Committee, as provided
in Section 3(C).
(B) Powers of the Board. The
Board shall have the power, subject to the express provisions of the Plan and applicable law:
(i) To determine from time to time
which of the persons eligible under the Plan shall be granted Awards; when and how each Award shall be granted and documented; what type
or combination of types of Awards shall be granted; the provisions of each Award granted, including the time or times when a person shall
be permitted to exercise an Award; and the number of shares of Stock with respect to which an Award shall be granted to each such person;
(ii) To construe and interpret the
Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise
of this power, may correct any defect, omission or inconsistency in the Plan or in any Award documentation, in such manner and to such
extent as it shall deem necessary or expedient to make the Plan fully effective;
(iii) To amend the Plan or an Award
as provided in Section 14;
(iv) To take any actions to preserve
the tax treatment of Awards under the Plan;
(v) To terminate or suspend the Plan
as provided in Section 15; and
(vi) Generally, to exercise such powers
and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict
with the provisions of the Plan.
(C) Delegation to Committee. The
Board may delegate the administration of the Plan to a Committee or Committees composed of not less than two members of the Board, each
of whom shall be (i) a “non-employee director” for purposes of Exchange Act Section 16 and Rule 16b-3 thereunder,
(ii) an “outside director” for purposes of Section 162(m) and the regulations promulgated under the Code, and each of
whom shall be, subject to any applicable transitional rules for newly public issuers, “independent” within the meaning of
the listing standards of any applicable stock exchange or national market system, and the term “Committee” shall apply
to any persons to whom such authority has been delegated; provided that a “required majority,” as defined in Section 57(o)
of the 1940 Act, must approve each issuance of Awards and Dividend Equivalent Rights in accordance with Section 61(a)(4)(A)(iv) of
the 1940 Act. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan,
the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the
Committee is authorized to exercise (and references in this Plan to the Board, other than the Board reference at the end of this sentence
and the Board references in the last sentence of this subsection (C), shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the administration of the Plan, unless such actions are prohibited
by the condition of exemptive relief obtained from the Commission.
(D) Effect of the Board’s
Decision. Determinations, interpretations and constructions made by the Board in good faith shall not be subject to review
by any person and shall be final, binding and conclusive on all persons.
All Awards granted under the Plan will be evidenced
by an agreement. The agreement documenting the Award shall contain such terms and conditions as the Board shall deem advisable. Agreements
evidencing Awards made to different participants or at different times need not contain similar provisions. In the case of any discrepancy
between the terms of the Plan and the terms of any Award agreement, the Plan provisions shall control.
5.
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SHARES SUBJECT TO THE PLAN; CERTAIN LIMITS.
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(A) Share Reserve. The
maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to grants of Restricted Stock or Other Stock-Based
Awards or the exercise of Options is three million six hundred thousand (3,600,000) shares.
(B) Reversion of Shares
to the Share Reserve. If any Award shall for any reason expire or otherwise terminate, in whole or in part, the shares
of Stock not acquired under such Award shall revert to and again become available for issuance under the Plan.
(C) Type of Shares. The
shares of Stock subject to the Plan may be unissued shares or reacquired shares bought on the market or otherwise. No fractional shares
of Stock will be delivered under the Plan.
(D) Limits on Individual
Grants. The maximum number of shares of Stock for which any Employee or Employee Director may be granted Awards in any
calendar year is three hundred thousand (300,000) shares.
(E) Limits on Grants
of Restricted Stock. The combined maximum amount of Restricted Stock that may be issued under the Plan and the Non-Employee
Director Plan will be 10% of the outstanding shares of Stock on the effective date of the plans plus 10% of the number of shares of Stock
issued or delivered by the Company (other than pursuant to compensation plans) during the term of the plans. No one person shall be granted
Awards of Restricted Stock relating to more than 25% of the shares available for issuance under this Plan.
(F) No Grants in Contravention
of 1940 Act. At all times during such periods as the Company qualifies or is intended to qualify as a “business development
company,” no Award may be granted under the Plan if the grant of such Award would cause the Company to violate the 1940 Act, including,
without limitation, Section 61(a)(4), and, if otherwise approved for grant, shall be void and of no effect.
(G) Limits on Number
of Awards. The amount of voting securities that would result from the exercise of all of the Company’s outstanding
warrants, options, and rights, together with any Restricted Stock issued pursuant to this Plan and the Non-Employee Director Plan, at
the time of issuance shall not exceed 25% of the outstanding voting securities of the Company, except that if the amount of voting securities
that would result from the exercise of all of the Company’s outstanding warrants, options, and rights issued to the Company’s
directors, officers, and employees, together with any Restricted Stock issued pursuant to this Plan and the Non-Employee Director Plan,
would exceed 15% of the outstanding voting securities of the Company, then the total amount of voting securities that would result from
the exercise of all outstanding warrants, options, and rights, together with any Restricted Stock issued pursuant to this Plan and the
Non-Employee Director Plan, at the time of issuance shall not exceed 20% of the outstanding voting securities of the Company.
(H) Date of Award’s
Grant: The date on which the “required majority,” as defined in Section 57(o) of the 1940 Act,
approves the issuance of an Award will be deemed the date on which such Award is granted.
Incentive Stock Options may be granted to Employees
or Employee Directors of the Company or a “parent” or “subsidiary” corporation of the Company as those terms are
used in Section 424 of the Code. Awards other than Incentive Stock Options may be granted to both Employees and Employee Directors.
By accepting any Award granted hereunder, the Participant agrees to the terms of the Award and the Plan. Notwithstanding any provision
of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition
may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Board.
Each Option shall be evidenced by a written agreement
containing such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options
or Non-statutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be
issued for shares of Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but,
to the extent relevant, each Option shall include (through incorporation by reference or otherwise) the substance of each of the following
provisions:
(A) Time and Manner
of Exercise. Unless the Board expressly provides otherwise, an Option will not be deemed to have been exercised until the
Board receives a notice of exercise (in a form acceptable to the Board) signed by the appropriate person and accompanied by any payment
required under the Award, as further described below. If the Option is exercised by any person other than the Participant, the Board may
require satisfactory evidence that the person exercising the Option has the right to do so. No Option shall be exercisable after the expiration
of ten (10) years from the date on which it was granted.
Each exercise of an Option hereunder shall be
subject to the Participant’s having made arrangements satisfactory to the Board for the full and timely payment of the applicable
exercise price for such Option. Without limiting the generality of the foregoing, the Participant may satisfy the applicable exercise
price requirements under an Option Award by tendering a check (acceptable to the Board) for the full amount of such exercise price. Additionally,
the Company may, in its sole discretion, permit the satisfaction of the applicable exercise price requirements (or a portion thereof)
under an Option Award by withholding from the Option, the number of vested shares of Stock awarded under the Option with a Fair Market
Value (as defined below) as of the date of such transaction equal to such exercise price (“cashless exercise”). Shares that
are used to settle exercise price obligations pursuant to this Section 7(A) shall be included as “shares of Stock” for
purposes of the calculations set forth in Section 5.
(B) Exercise Price
of an Option. The exercise price of each Option shall be not less than (i) if Shares are listed on any stock exchange or
national market system, the listed price per Share as of such date, and (ii) if Shares are not listed on any stock exchange or national
market system, the current market value of, or if no such market value exists, the current net asset value of, the stock subject to the
Option as determined in good faith by the Board on the date the Option is granted provided, however, that in any event the current market
value will be determined in a manner consistent with the provisions of the Section 409A regulations excluding certain options from being
subject to Section 409A (the “Fair Market Value”). In the case of an Option granted to a 10% Holder and intended to
qualify as an Incentive Stock Option, the exercise price will not be less than 110% of the Fair Market Value determined as of the date
of grant. A “10% Holder” is an individual owning stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or its parent or subsidiary corporations. No such Stock Option, once granted, may be repriced other
than in accordance with the 1940 Act and the applicable stockholder approval requirements of any stock exchange or national market system
on which the Shares are listed, and in a manner that would continue to exclude the option from being subject to Section 409A of the Code.
(C) Consideration. The
purchase price for Stock acquired pursuant to an Option shall be paid in full at the time of exercise either (i) in cash, or, if
so permitted by the Board and if permitted by the 1940 Act and otherwise legally permissible, (ii) through a broker-assisted exercise
program acceptable to the Board, (iii) by such other means of payment as may be acceptable to the Board, or (iv) in any combination
of the foregoing permitted forms of payment.
(D) Transferability
of an Incentive Stock Option. An Incentive Stock Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the Participant only by the Participant.
(E) Transferability
of a Non-statutory Stock Option. A Non-statutory Stock Option shall be transferable by will or by the laws of descent and
distribution, or, to the extent provided by the Board, by gift to a Permitted Transferee, and a Non-statutory Stock Option that is nontransferable
except at death shall be exercisable during the lifetime of the Participant only by the Participant.
(F) Limitation on Repurchase
Rights. If an Option gives the Company the right to repurchase shares of Common Stock issued pursuant to the Plan upon
termination of employment of such Participant, the terms of such repurchase right must comply with the 1940 Act.
(G) Exercisability. The
Board may determine the time or times at which an Option will vest or become exercisable and the terms on which an Option requiring exercise
will remain exercisable. Options may further be subject to such forfeiture conditions as the Board may choose to impose.
(H) Termination
of Continuous Service. Unless the Board expressly provides otherwise, immediately upon the cessation of a Participant’s
Continuous Service that portion, if any, of any Option held by the Participant or the Participant’s Permitted Transferee that is
not then exercisable will terminate and the balance will remain exercisable for the lesser of (i) a period of three months or (ii) the
period ending on the latest date on which such Option could have been exercised without regard to this Section 6(H), and will thereupon
terminate, provided that, if the Board in its sole discretion determines that the cessation of a Participant’s Continuous Service
resulted for reasons that cast such discredit on the Participant as to justify immediate termination of his or her Options, all Options
then held by the Participant or the Participant’s Permitted Transferee will immediately terminate.
8.
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RESTRICTED STOCK AND RESTRICTED STOCK UNIT PROVISIONS.
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Each grant of Restricted Stock and Restricted
Stock Units shall be evidenced by a written agreement containing such terms and conditions as the Board shall deem appropriate. The provisions
of separate grants of Restricted Stock and Restricted Stock Units need not be identical, but, to the extent relevant, each grant shall
include (through incorporation by reference or otherwise) the substance of each of the following provisions:
(A) Consideration. To
the extent permitted by the 1940 Act, Awards of Restricted Stock and Restricted Stock Units may be made in exchange for past services
or other lawful consideration.
(B) Transferability
of Restricted Stock. Except as the Board otherwise expressly provides, Restricted Stock and Restricted Stock Unit Awards
shall not be transferable other than by will or by the laws of descent and distribution.
(C) Vesting. The
Board may determine the time or times at which shares of Restricted Stock will vest.
(D) Termination of Continuous
Service. Unless the Board expressly provides otherwise, immediately upon the cessation of a Participant’s Continuous
Service that portion, if any, of any Restricted Stock held by the Participant or the Participant’s Permitted Transferee that is
not then vested will thereupon terminate and the unvested shares will be returned to the Company and will be available to be issued as
Awards under this Plan.
(E) Payment of Restricted Share Units.
Each Restricted Stock Unit shall have a value equal to the Fair Market Value of a share of Stock. Restricted Stock Units shall be paid
in cash, shares of Stock, other securities or other property, as determined in the sole discretion of the Board, upon the lapse of the
restrictions applicable thereto, or otherwise in accordance with the applicable Award agreement. The applicable Award agreement will specify
whether a Participant will be entitled to receive Dividend Rights in respect of Restricted Stock Units at the time of any payment of dividends
to stockholders on shares of Stock. If the applicable Award agreement specifies that a Participant will be entitled to receive dividend
rights, (i) the amount of any such dividend right shall equal the amount that would be payable to the Participant as a stockholder in
respect of a number of shares of Stock equal to the number of Restricted Stock Units then credited to the Participant, (ii) any such dividend
right shall be paid in accordance with the Company’s payment practices as may be established from time to time and as of the date
on which such dividend would have been payable in respect of outstanding shares of Stock, and (iii) the applicable Award Agreement will
specify whether dividend equivalents shall be paid in respect of Restricted Share Units that are not yet vested. Except as otherwise determined
by the Committee at or after grant, Restricted Share Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of, and all Restricted Share Units and all rights of the grantee to such Restricted Share Units shall terminate,
without further obligation on the part of the Company, unless the grantee remains in continuous employment of the Company for the entire
restricted period in relation to which such Restricted Share Units were granted and unless any other restrictive conditions relating to
the Restricted Share Unit Award are met.
9. Performance restricted
stock unit and other PERFORMANCE-based Awards.
(A) Grant. The Committee shall have sole
and complete authority to determine the Participants who shall receive a Performance Award, which shall consist of a right that is (i) denominated
in cash or shares of Stock (including, but not limited to, Restricted Stock and Performance Restricted Stock Units), (ii) valued and/or
vested, as determined by the Committee, in accordance with the achievement of such performance goals during such performance periods as
the Committee shall establish, and (iii) settled or payable at such time and in such form as the Committee shall determine.
(B) Terms and
Conditions. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the performance goals
and/or objectives to be achieved during any performance period, the length of any performance period, the amount of any Performance Award
and the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and may amend specific provisions of
the Performance Award.
(C) Payment of Performance Awards. Performance
Awards may be paid or settled in a lump sum or in installments following the close of the performance period or, in accordance with the
procedures established by the Committee, on a deferred basis. Termination of employment prior to the end of any performance period will
result in the forfeiture of the Performance Award unless the Award agreement provides otherwise, and no payments will be made. A Participant’s
rights to any Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of in
any manner, except by will or the laws of descent and distribution, and/or except as the Committee may determine at or after grant.
10.
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Other Stock-Based Awards.
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The Board shall have the authority to determine
the Participants who shall receive Other Stock-Based Awards, which shall consist of any right that is (i) not an Award described
in above and (ii) an Award of shares of Stock or an Award denominated or payable in, valued in whole or in part by reference to,
or otherwise based on or related to, shares of Stock (including, without limitation, securities convertible into shares of Stock), as
deemed by the Board to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award agreement,
the Board shall determine the terms and conditions of any such Other Stock-Based Award.
(A) Acceleration. The
Board shall have the power to accelerate the time at which an Award or any portion thereof vests or may first be exercised, regardless
of the tax or other consequences to the Participant or the Participant’s Permitted Transferee resulting from such acceleration.
(B) Stockholder Rights. No
Participant or other person shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares
of Stock subject to an Option or Restricted Stock Unit Award unless and until such Award has been delivered to the Participant or other
person upon exercise of the Award. Holders of Restricted Stock shall have all the rights of a holder upon issuance of the Restricted Stock
Award including, without limitation, voting rights and the right to receive dividends.
(C) No Employment or
Other Service Rights. Nothing in the Plan or any instrument executed or Award granted pursuant thereto shall confer upon
any Participant any right to continue in the employment of, or to continue to serve as a director of, the Company or an Affiliate or shall
affect the right of the Company or an Affiliate to terminate (i) the employment of the Participant (if the Participant is an Employee)
with or without notice and with or without cause or (ii) the service of an Employee Director (if the Participant is an Employee Director)
pursuant to the Bylaws of the Company or an Affiliate and any applicable provisions of the corporate law of the state in which the Company
or the Affiliate is incorporated. Nothing in the Plan will be construed as giving any person any rights as a stockholder except as to
shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages
in the event of termination of service for any reason, even if the termination is in violation of an obligation of the Company or an Affiliate
to the Participant.
(D) Legal Conditions
on Delivery of Stock. The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove
any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters
in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is at
the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized
to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied
or waived. If the sale of Stock has not been registered under the Securities Act, the Company may require, as a condition to the grant
or the exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation
of the Securities Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting
any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.
(E) Withholding Obligations. Each
grant or exercise of an Award granted hereunder shall be subject to the Participant’s having made arrangements satisfactory to the
Board for the full and timely satisfaction of all federal, state, local and other tax withholding requirements applicable to such grant,
exercise or exchange. Without limiting the generality of the foregoing, the Participant may satisfy such withholding requirements by tendering
a check (acceptable to the Board) for the full amount of such withholding. Additionally, the Company may, in its sole discretion, satisfy
any withholding requirements (or a portion thereof) by withholding from an Award, vested Shares awarded under this Plan, with a Fair Market
Value as of the date of such transaction equal to such required withholding amounts (“net share settlement”). Shares that
are used to settle tax withholding obligations pursuant to this Section 11(E) shall be included as “shares of Stock”
for purposes of the calculations set forth in Section 5.
In the event the Company or an Affiliate becomes
liable for tax withholding with respect to an Option prior to the date of exercise, the Company may require the Participant to remit the
required tax withholding by separate check acceptable to the Company or may make such other arrangements (including withholding from other
payments to the Participant or net share settlement) for the satisfaction of such withholding as it determines.
(F) Section 409A. Awards
under the Plan are intended either to qualify for an exemption from Section 409A or to comply with the requirements thereof, and
shall be construed accordingly.
12.
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ADJUSTMENTS UPON CHANGES IN STOCK.
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(A) Capitalization
Adjustments. In the event of a stock dividend, stock split or combination of shares (including a reverse stock split),
recapitalization or other change in the Company’s capital structure, the Board will make appropriate adjustments to the maximum
number of shares specified in Section 5(A) that may be delivered under the Plan, to the maximum per-participant share limit described
in Section 5(D) and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards
then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.
To the extent consistent with qualification of Incentive Stock Options under Section 422 of the Code and continued exclusion from
or compliance with Section 409A of the Code, where applicable, the Board may also make adjustments of the type described in the preceding
sentence to take into account distributions to stockholders other than those provided for in such sentence, or any other event, if the
Board determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards
granted hereunder; provided, however, that the exercise price of Awards granted under the Plan will not be adjusted unless the Company
receives an exemptive order from the Securities and Exchange Commission or written confirmation from the staff of the Securities and Exchange
Commission that the Company may do so.
(B) Covered Transaction. Except
as otherwise provided in an Award, in the event of a Covered Transaction, each Award will become fully vested or exercisable prior to
the Covered Transaction on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Board, to participate
as a stockholder in the Covered Transaction following vesting or exercise, and the Award will terminate upon consummation of the Covered
Transaction.
13.
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DIVIDEND EQUIVALENT RIGHTS.
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The Board may provide for the payment of amounts
in lieu of cash dividends or other cash distributions (“Dividend Equivalent Rights”) with respect to Stock subject
to an Award; provided, however, that grants of Dividend Equivalent Rights must be approved by order of the Securities and Exchange Commission.
The Board may impose such terms, restrictions and conditions on Dividend Equivalent Rights, including the date such rights will terminate,
as it deems appropriate, and may terminate, amend or suspend such Dividend Equivalent Rights at any time without the consent of the Participant
or Participants to whom such Dividend Equivalent Rights have been granted, if any.
14.
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AMENDMENT OF THE PLAN AND AWARDS.
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The Board may at any time or times amend the Plan
or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future
grants of Awards; provided, that except as otherwise expressly provided in the Plan the Board may not, without the Participant’s
consent, alter the terms of an Award so as to affect substantially and adversely the Participant’s rights under the Award, unless
the Board expressly reserved the right to do so at the time of the grant of the Award. Any amendments to the Plan shall be conditioned
upon stockholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange
requirements), as determined by the Board.
Any amendment required to be approved by stockholders
under the laws of Maryland, applicable securities laws or the rules of any stock exchange or national market system will not be effective
until so approved. Any amendments required to be approved by the Securities and Exchange Commission will not be effective until so approved.
15.
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TERMINATION OR SUSPENSION OF THE PLAN.
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(A) Plan Term. The
Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary
of the date the Plan is initially adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Awards
may be granted under the Plan while the Plan is suspended or after it is terminated.
(B) No Impairment of
Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Awards granted while the
Plan is in effect except with the written consent of the Participant.
16.
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EFFECTIVE DATE OF PLAN.
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The Plan shall become effective upon approval
by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted
by the Board; provided, however, that the Plan shall not be effective with respect to an Award of Restricted Stock or the grant of Dividend
Equivalent Rights unless the Company has received an order of the Commission that permits such Award or grant (the “Effective
Date”).
No provision of this Plan is intended to contravene
any portion of the 1940 Act, and in the event of any conflict between the provisions of the Plan or any Award and the 1940 Act, the applicable
Section of the 1940 Act shall control and all Awards under the Plan shall be so modified. All Participants holding such modified Awards
shall be notified of the change to their Awards and such change shall be binding on such Participants.
18.
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INFORMATION RIGHTS OF PARTICIPANTS
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The Company shall provide to each Participant
who acquires Stock pursuant to the Plan, not less frequently than annually, copies of annual financial statements (which need not be audited).
The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their
access to equivalent information.
If any provision of this Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Participant or Award, or would disqualify
this Plan or any Award under any applicable law, such provision shall be construed or deemed amended to conform to the applicable laws,
or if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of this Plan
or the Award, such provision shall be stricken as to such jurisdiction, Participant or Award and the remainder of this Plan and any such
Award shall remain in full force and effect.
20.
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OTHER COMPENSATION ARRANGEMENTS
|
The existence of the Plan or the grant of any
Award will not in any way affect the Company’s right to award a person bonuses or other compensation in addition to Awards under
the Plan.
21.
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WAIVER OF JURY TRIAL.
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By accepting an Award under the Plan, each Participant
waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under
any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection
therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting
an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly
or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.
22.
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LIMITATION ON LIABILITY.
|
Notwithstanding anything to the contrary in the
Plan, neither the Company nor the Board, nor any person acting on behalf of the Company or the Board, shall be liable to any Participant
or to the estate or beneficiary of any Participant by reason of any acceleration of income, or any additional tax, asserted by reason
of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the
Code; provided, that nothing in this Section 21 shall limit the ability of the Board or the Company to provide by express agreement
with a Participant for a gross-up payment or other payment in connection with any such tax or additional tax.
The Plan and all Awards and actions hereunder shall
be governed by the laws of the state of Maryland, with regard to the choice of law principles of any jurisdiction.
EXHIBIT C
Verification Required by Rule 0-2(d)
The undersigned states that he has duly executed the attached Application
for an Order Pursuant to Section 6(c) of the Investment Company Act of 1940 granting an exemption from Sections 23(a), 23(b), and 63 of
the Act, and pursuant to Sections 57(a)(4)and 57(i) of the Act and Rule 17d-l under the Act authorizing certain joint transactions otherwise
prohibited by Section 57(a)(4) of the Act, and pursuant to Section 23(c)(3) of the Act granting an exemption from Section 23(c) of the
Act for and on behalf of Trinity Capital Inc.; that he or she is the Chief Executive Officer of such company; and that all action by stockholders,
directors, and other bodies necessary to authorize deponent to execute and file such instrument has been taken. Deponent further says
that he is familiar with such instrument, and the contents thereof, and that the facts therein set forth are true to the best of his knowledge,
information and belief.
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By:
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/s/ Steven L.
Brown
|
|
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Chief Executive Officer
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EXHIBIT D
Board Resolutions Approving of SEC Exemptive
Application Related to Incentive Plans
WHEREAS, Trinity Capital
Inc. (the “Company”) and the Board of Directors of the Company (the “Board”) have
adopted and approved the 2019 Trinity Capital Inc. Long-Term Incentive Plan (the “Long Term Incentive Plan”),
pursuant to which the Company may grant awards in the form of restricted stock, restricted and performance stock unit awards, incentive
stock options, non-statutory stock options, performance awards, dividend equivalent rights and other stock based awards to its executive
officers and other key employees, and the Trinity Capital Inc. 2019 Non-Employee Director Restricted Stock Plan (the “Non-Employee
Director Plan”), pursuant to which the Company may grant restricted stock to its independent directors; and
WHEREAS, it is necessary to obtain
exemptive relief from the U.S. Securities and Exchange Commission (the “SEC”) in order to issue certain of such
securities under the Long Term Incentive Plan and the Non-Employee Director Plan; and
WHEREAS, the Company has prepared
an exemptive application to be filed with the SEC asking for an order to permit it to issue such securities under the Long Term Incentive
Plan and the Non-Employee Director Plan; and
WHEREAS, the Board has received
and reviewed the draft exemptive application (the “Exemptive Application”), in substantially the form provided
to the Board.
NOW, THEREFORE, BE IT RESOLVED,
that that the Board, hereby approves and authorizes the Exemptive Application, in substantially the form provided to the Board; and
FURTHER RESOLVED, that the Authorized
Officers (as such term is defined herein) be, and each of them hereby is, authorized and directed to take all actions necessary to enable
the Company to issue such securities, including, without limitation, the filing of the Exemptive Application with the SEC; and
FURTHER
RESOLVED, that the Authorized Officers be, and each of them hereby is, authorized, empowered and directed, in the name and on behalf
of the Company, to execute and file, or cause it to be filed, the Exemptive Application with the SEC and any amendments thereto, with
such modifications as the Authorized Officer executing the same, with the advice of counsel, deems necessary or advisable to carry out
the intent of the foregoing resolutions or as may be required to conform with the requirements of applicable law, such determination to
be conclusively evidenced by the execution and/or filing thereof with the SEC, as applicable; and
FURTHER RESOLVED, that the Authorized
Officers are hereby directed to submit the Long Term Incentive Plan and Non-Employee Director Plan to the Company’s stockholders
for their consideration and approval at the next annual or special meeting of stockholders; and
FURTHER
RESOLVED, that any and all actions previously taken by the Company or any of its Directors or Authorized Officers in connection with
the actions contemplated by the foregoing resolutions be, and each of them hereby is, ratified, confirmed, and approved in all respects
as and for the acts and deeds of the Company; and
FURTHER RESOLVED, that for purposes
of the foregoing resolutions, the Authorized Officers of the Company shall be the Chief Executive Officer, the President, the Chief Financial
Officer, an Executive or Senior Vice President, the General Counsel and the Corporate Secretary of the Company and any of their respective
designees (collectively, the “Authorized Officers”).
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