Document:

exhibit1020bryanphillips

EXHIBIT 10.20    EXECUTIVE EMPLOYMENT AGREEMENT  This EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is made and entered  into as of October 14, 2020 (the “Effective Date”), by and between Inspire Medical Systems, Inc.  (“Inspire” or the “Company”), a Delaware corporation, and Bryan Phillips (“Executive”).   WHEREAS, Executive desires to provide services to the Company on the terms herein  provided.  NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants  and obligations of this Agreement, the receipt and sufficiency of which are hereby acknowledged,  the parties agree as follows:  1. Employment. Subject to all of the terms and conditions of this Agreement, Inspire  agrees to employ Executive, and Executive agrees to accept employment with Inspire, as the  Company’s Senior Vice President, General Counsel, and Secretary, and Chief Compliance Officer,  reporting to the Company’s President and Chief Executive Officer. It is understood that Executive  and Executive’s employment with Inspire will be subject to the policies and terms (as they may be  amended from time to time by Inspire) as adopted by Inspire’s Board of Directors (the “Board”)  or its President and Chief Executive Officer, Inspire’s employee handbook and other policies in  effect for salaried employees of Inspire, except as otherwise specifically provided in this  Agreement.  Executives anticipated start date will be February 1, 2021.  2. Duties. The services of Executive shall be exclusive to Inspire, except as otherwise  agreed to in writing by Inspire. Executive shall assume primary responsibility for and perform the  duties of the Executive’s position and such other duties as may be mutually agreed upon by  Executive and the Company’s President and Chief Executive Officer, shall exert Executive’s  energy and full business time to the prosecution of Executive’s duties, and shall promptly and  faithfully perform all these duties which pertain to that employment. Executive will perform  Executive’s obligations in a competent and professional manner, consistent with the expectations  of Inspire’s Board and its President and Chief Executive Officer. Executive may serve on outside  boards of directors or committees of public or private organizations if the outside activities are  first disclosed to and approved in writing by Inspire’s Board or its President and Chief Executive  Officer. That approval will not be granted if the outside activities are deemed by the Board or  Inspire’s President and Chief Executive Officer to conflict in any way with the provisions of this  Agreement, to impair Executive’s ability to perform Executive’s duties under this Agreement, or  to otherwise conflict in any way with business interests of Inspire.  Notwithstanding the foregoing,  the Executive may participate in the activities set forth on Exhibit A and may without advance  approval participate in charitable activities (including, but not limited to, service on the boards of  charitable or nonprofit organizations), and engage in personal investment activities, in each case,  to the extent that such activities, individually or in the aggregate, do not materially interfere with  the performance of the Executive’s duties under this Agreement, create a conflict of interest or  violate any provision of this Agreement.  3. Term of Employment. This Agreement is not intended to establish any minimum  or maximum period for Executive’s employment. Executive and Inspire have an “at-will”  employment relationship, which means that either party has the right to terminate the employment  

 

    relationship at any time and for any reason, with or without Cause. The reason for and timing of  the termination, as set forth in Paragraph 5, will determine the amount of post-termination  payments and benefits, if any, as set forth in Paragraph 6.    4. Compensation, Reimbursement and Benefits. As compensation for all of  Executive’s services under this Agreement, the Company agrees to provide Executive the  following compensation, reimbursements and benefits:  a. Base Salary. The Company will pay Executive a base salary, payable in  accordance with Inspire’s standard payroll practices. The annualized Base Salary shall be in the  gross amount of $375,000. The Base Salary shall be subject to annual performance review and  possible adjustments as determined by Inspire’s Compensation Committee or Board in its  discretion (as increased, from time to time, the “Base Salary”).   b. Sign-On Bonus. In consideration for Executive commencing employment  with the Company, on the first regular payroll date following the Effective Date, the Company  shall pay to Executive a one-time cash bonus in an amount equal to $75,000, less applicable  withholdings and deductions (the “Signing Bonus”).  In the event that Executive’s employment is  terminated by the Executive without Good Reason or by the Company for Cause: (i) prior to the  twelve (12)-month anniversary of the Effective Date, then Executive hereby agrees to repay the  net after-tax Signing Bonus, or (ii) on or after the twelve (12)-month anniversary of the Effective  Date but prior to the twenty-four (24) month-anniversary of the Effective Date, then Executive  hereby agrees to repay fifty percent (50%) of the net after-tax Signing Bonus. Such repayment of  the Signing Bonus shall occur no later than thirty (30) days after the Executive’s termination date.  For purposes of this Agreement, “Good Reason” shall mean:    i. A material reduction, without Executive’s consent, in Executive’s  duties or responsibilities;  ii. A material reduction, without Executive’s consent, of the Base  Salary, unless such reduction is part of an overall reduction in salary for executive employees and  Executive’s reduction is proportionate to the overall reduction in salary;   iii. The Company’s moving Executive’s place of employment, without  Executive’s consent, more than fifty (50) miles from the place of Executive’s employment prior  to such move, although business travel shall not be deemed to be a move of Executive’s place of  employment; or  iv. The Company’s material breach of this Agreement.  Notwithstanding the foregoing, Executive may only terminate Executive’s employment for Good  Reason within two (2) years following the occurrence of one or more of the foregoing conditions,  subject to Executive first providing thirty (30) days written notice of Executive’s claimed Good  Reason to the Company within ninety (90) days after the initial existence of such condition and  the Company failing to cure the basis for such claimed Good Reason within thirty (30) days  following such notice.  

 

    c. Incentive Awards. As additional compensation, Executive will be eligible  to receive discretionary annual bonuses and/or long term incentive compensation (“Incentive  Awards”) pursuant to the terms and conditions of Inspire’s management incentive program (the  “MIP”) and/or Inspire’s long term incentive plan (jointly, “Incentive Plans”) which may be  adopted, amended, supplemented, terminated and/or replaced by Inspire from time to time. With  reference to the Incentive Plans, the parties understand as follows:  i. Annual Bonus Compensation.  For each fiscal year completed  during the Executive’s employment under this Agreement, Executive will be eligible to earn an  annual bonus (each, an “Annual Bonus”) under the MIP, or such other successor plan or program  as may be in effect from time to time.  The Executive’s target Annual Bonus shall be 50% of the  Base Salary (the “Target Bonus Amount”), provided that Executive and Inspire have achieved  certain performance goals and objectives. The current fiscal year MIP is expected to be paid in the  range of 60% - 100% of Base Salary.  Any Annual Bonus for the Executive’s initial year of  employment with the Company shall be prorated based on the Effective Date.  Except as otherwise  set forth in Paragraph 6(c), to be eligible for an Incentive Award, the employee must be employed  on the last day of the calendar year.  ii. Initial Equity Awards.  On the last trading date in the month of  following the commencement of employment (the “Grant Date”), Executive will be granted 2,275  restricted stock units (the “RSUs”) and an option to purchase 15,000 shares of the Company’s  common stock (the “Option”) (collectively, the “Equity Awards”) in accordance with the Inspire  2018 Incentive Award Plan (the “2018 Plan”). 25% of the RSUs will vest on each of the first four  (4) anniversaries of the Grant Date, subject to Executive’s continuous employment through such  dates. The Option will vest over four (4) years, with 25% vesting on the first-year anniversary of  the Grant Date, and the remaining 75% vesting on a pro rata monthly basis thereafter, subject to  Executive’s continuous employment through such dates.  In accordance with the 2018 Plan, the  vesting of the Equity Awards will be subject to “double trigger” acceleration, which will provide  for full accelerated vesting of the awards if there is a (i) a Change of Control (as defined in the  2018 Plan) and (ii) a termination of your employment by the Company (or its successor) without  Cause or by Executive for Good Reason, in either case, within twelve (12) months following such  Change of Control. Each award will be subject to the terms and conditions of the 2018 Plan and  an individual equity award agreement.  iii. General Terms.  (A) Executive’s eligibility to receive Incentive Awards will be  determined by the Board or such other committee as may have responsibility for making that  determination, in its sole discretion.  (B) The Incentive Plans are not necessarily all-inclusive because  circumstances which Inspire has not anticipated may arise. Inspire may interpret or vary from the  Incentive Plans if, in its opinion, the circumstances warrant it. Further, Executive’s eligibility to  receive Incentive Awards may be affected in the event Inspire has determined that such Incentive  Awards would be in violation of law or reasonably create an adverse effect on Inspire or its  obligations or agreements including, without limitation, leaving Inspire with insufficient liquidity  (including adequate reserves) to carry on its business and pay its debt in the ordinary course.  

 

    (C) Inspire reserves the right to make any changes at any time to  the Incentive Plans by adding to, deleting from or otherwise amending any portion of them, with  or without notice to Executive, provided, however, that if Executive has been awarded non-cash  compensation pursuant to such plans, then Executive shall receive notice of any changes to the  plan as may be required by applicable law, and provided, further, that any such changes are  applicable to participants in the Incentive Plans generally and not specific to Executive.  (D) Any questions regarding the computation of Incentive  Awards under the Incentive Plans will be conclusively determined by the Incentive Plan  administrator, as defined therein, pursuant to the terms and conditions of the Incentive Plans.  d. Expenses. Inspire will reimburse Executive for any and all ordinary,  necessary and reasonable business expenses that Executive incurs in connection with the  performance of Executive’s duties under this Agreement, including entertainment, telephone,  travel and miscellaneous expenses. Executive must obtain proper approval for such expenses  pursuant to the Company’s policies and procedures and Executive must provide the Company with  documentation for such expenses in a form sufficient to sustain Inspire’s deduction for such  expenses under the Internal Revenue Code of 1986, as amended (the “Code”).  e. Time Off. Executive will be entitled to time off with or without pay in  accordance with Inspire’s policies in effect at any particular time.  f. Health, Disability and Life Insurance, and Other Executive Benefit Plans.  Inspire will provide Executive with the same health, disability, and life insurance coverage  provided generally to other full-time salaried employees of Inspire, and with other employee  benefit plans which are presently existing or which may be established in the future by Inspire for  its full-time salaried employees, subject to the terms and conditions of the applicable benefit plans.  g. Indemnification. Inspire will defend, indemnify and hold Executive  harmless from costs, expenses, damages and other liability incurred by Executive as a result of  performing services to Inspire, subject to the limitations and other terms and conditions of  applicable Delaware statutes and Inspire’s Articles of Incorporation or Bylaws.  h. Changes in Benefit Plans. It is understood that no references in this  Agreement to particular employee benefit plans established or maintained by Inspire are intended  to change the terms and conditions of these plans or to preclude Inspire from amending or  terminating any such benefit plans.  i. Withholding; Taxes. Inspire may withhold from any compensation,  reimbursements and benefits payable to Executive all federal, state, city and other taxes as shall  be required pursuant to any law or governmental regulation or ruling, as well as other standard  withholdings and deductions. Executive recognizes that some of the payments and some of the  benefits which Executive receives under this Agreement will constitute compensation, and will be  fully taxable to Executive. Executive agrees to properly report such payments and benefits on  Executive’s applicable income tax returns and to pay all appropriate taxes.  5. Termination. Executive’s employment may be terminated at any time as follows:  

 

    a. Death. Executive’s employment shall automatically terminate upon  Executive’s death.  b. Disability. Either party may terminate Executive’s employment at any time,  upon written notice to the other party if Executive sustains a disability which precludes Executive  from performing the essential functions of Executive’s job, with or without reasonable  accommodations, as defined by applicable state and federal disability laws. Executive shall be  presumed to have such a disability for purposes of this Agreement if Executive qualifies, because  of illness or incapacity, to begin receiving disability income insurance payments under any long  term disability income insurance policy that Inspire maintains for the benefit of Executive. If  Executive does not qualify for such payments, Executive shall nevertheless be presumed to have  such a disability if Executive is substantially incapable of performing the essential functions of  Executive’s job for a period of more than twenty six (26) consecutive weeks, with or without a  reasonable accommodation, or for shorter non-consecutive periods aggregating thirty six (36)  weeks in any twelve (12) month period.  c. With Cause. Inspire may terminate Executive’s employment at any time,  with “Cause”, upon written notice to Executive. “Cause” shall be defined as:  i. Executive’s material breach of any of Executive’s obligations under  this Agreement, or Executive’s repeated failure or refusal to perform or observe Executive’s duties,  responsibilities and obligations as an Executive of Inspire, for reasons other than disability;  ii. Any material dishonesty or other breach of the duty of loyalty of  Executive affecting Inspire or any customer, vendor or employee of Inspire;  iii. Use of alcohol or other drugs in a manner which affects the  performance of Executive’s duties, responsibilities and obligations as an employee of Inspire;  iv. Conviction of, or a plea of guilty or nolo contendere to, a charge of  commission of a felony or of any crime involving misrepresentation, moral turpitude or fraud;  v. Commission by Executive of any other willful or intentional act  which injures the reputation, business or business relationships of Inspire; or  vi. The existence of any court order or settlement agreement prohibiting  Executive’s continued employment with Inspire.   A matter of the type described in this Paragraph 5(c) shall be “material” if such matter, alone or  together with other such matters, is material.  d. Without Cause. Inspire may terminate Executive’s employment at any time,  without Cause, upon one (1) month’s written notice to Executive. Inspire may, in its sole  discretion, opt not to have Executive provide active employment services during some or all of the  notice period, and place Executive on a paid leave of absence for some or all of the notice period.  e. Voluntary Resignation. Executive may, upon two (2) weeks’ written notice  to Inspire, terminate Executive’s employment at any time for no reason.  

 

    6. Payments and Benefits Upon Termination. Upon the termination of Executive’s  employment, Executive shall only be entitled to the following payments and benefits:  a. Disability; Death. If Executive’s employment is terminated due to the  disability or death of Executive, regardless of the date of termination, Executive or Executive’s  estate or heirs, as appropriate, shall be paid (i) any portion of Base Salary  through the date of  termination not theretofore paid; (ii) any cash bonus either accrued in accordance with the terms  of the relevant plan or previously awarded but not yet paid to Executive at the time of Executive’s  death or disability; (iii) any benefits payable under any disability or life insurance policy  maintained by Inspire for the benefit of Executive at the time of the termination of employment,  subject to the terms and conditions of such policies; (iv) any unpaid expense reimbursement; and  (v) Executive’s or Executive’s estate or heirs, as appropriate, other vested benefits, if any, under  any of Inspire’s Incentive Plans or any of Inspire’s other employee benefit plans (e.g., 401(k) plan),  subject to the terms and conditions of those plans.  b. Termination by Inspire For Cause; Voluntary Resignation. If Inspire  terminates Executive’s employment for Cause, or if Executive resigns, regardless of the date of  termination, Executive shall be paid (i) any portion of Base Salary  through the date of termination  not theretofore paid; (ii) any unpaid expense reimbursement; and (iii) Executive’s other vested  benefits, if any, under any of Inspire’s Incentive Plans or any of Inspire’s other employee benefit  plans (e.g., 401(k) plan), subject to the terms and conditions of those plans.  c. Termination by Inspire Without Cause. If the Company terminates  Executive’s employment without Cause, regardless of the date of termination, Executive shall be  paid the same payments and benefits as set forth in Paragraph 6(a) above. In addition, Inspire shall,  subject to Paragraph 10 and subject to Executive’s execution and non-revocation of a release of  claims, to the full extent permitted by law, in a form reasonably satisfactory to Inspire in  accordance with Paragraph 10(c) (the “Release”), which assures, among other things, that  Executive will not commence any type of litigation or assert other claims as a result of the  termination (except to enforce Executive’s rights under this Agreement):  i. Pay to the Executive an amount equal to the sum of (A) nine (9)  months of the Base Salary as of the date of termination and (B) a prorated portion of the Target  Bonus Amount based on the ratio of the number of days during the period commencing on the first  day of the fiscal year and ending on the date of termination to 365, in substantially equal  installments during the period beginning on the date of termination and ending on the nine (9)- month anniversary of the date of termination in accordance with the Company’s regular payroll  practice as of the date of termination; provided that, notwithstanding anything to the contrary in  this Paragraph 6(c)(i), if such termination of employment occurs within the twelve (12)-month  period immediately following a Change of Control (as defined below) (such period, the “COC  Period”), then, in lieu of the foregoing payments set forth in this Paragraph 6(c)(i), Inspire shall  pay to the Executive the sum of (A) twelve (12) months of the Base Salary and (B) the Target  Bonus Amount, in substantially equal installments during the period beginning on the date of  termination and ending on the twelve-month anniversary of the date of termination in accordance  with the Company’s regular payroll practice as of the date of termination;  

 

    ii. Continue to provide, subject to the Executive’s valid election to  continue healthcare coverage under COBRA, the Executive and the Executive’s eligible  dependents with payment of premiums for any COBRA benefits during the period commencing  on the date of termination and ending on the nine (9)-month anniversary of the date of termination  (if such termination of employment occurs within the COC Period, the twelve (12)-month  anniversary of the date of termination).  iii. In the event that such termination of employment occurs within the  COC Period, cause each of Executive’s equity awards that are granted on or following the Effective  Date shall immediately become fully vested.  For the avoidance of doubt, the foregoing shall not  apply to any of Executive’s equity awards that were granted prior to the Effective Date.  d. Change of Control Definition.  For purposes of this Agreement, “Change of  Control” means the occurrence of any of the following: (1) a sale by shareholders of the Company  of a substantial portion of their stock in the Company, or a merger, reorganization or consolidation,  whereby the Company’s equity holders existing immediately prior to such sale, merger,  reorganization or consolidation do not, immediately after consummation of such sale,  reorganization, merger or consolidation, own more than fifty percent (50%) of the combined voting  power of the surviving entity’s then outstanding voting securities entitled to vote generally in the  election of directors, but only if such event results in a change in Board composition such that the  directors immediately preceding such events do not comprise a majority of the Board following  such event; or (2) the sale or other disposition of all or substantially all of the Company’s assets to  an entity in which the Company, any subsidiary of the Company, or the Company’s equity holders  existing immediately prior to such sale beneficially own less than fifty percent (50%) of the  combined voting power of such acquiring entity’s then outstanding voting securities entitled to  vote generally in the election of directors but only if such event results in a change in Board  composition such that the directors immediately preceding such events do not comprise a majority  of the Board following such event.  7. Business Protections. Inspire has many confidential and proprietary business  interests and other information relating to its products, services and customers, which it needs to  adequately protect. For this reason, its willingness to enter into this Agreement is contingent upon  Executive’s acceptance of the covenants set forth in Paragraph 8 below. Executive understands  that the business protections in Paragraph 8 will apply throughout Executive’s employment, and  will continue to apply thereafter even if Executive’s employment is terminated under Paragraph 5  of this Agreement, regardless of the reason for or timing of the termination.  8. Post-Employment Restrictions.  a. Restrictions on Competition. Executive agrees that while employed by  Inspire, and for twelve (12) months after the last day Executive is employed by Inspire, Executive  will not be employed by or otherwise perform services for an organization which is engaged in the  research and development, marketing, or distribution of a product or treatment which is the same  as or which competes with any product or treatment offered or being developed by Inspire during,  or as of the date of termination of, Executive’s employment with Inspire.  

 

    b. Prohibition on Solicitation of Inspire Employees. Executive agrees that at  all times while employed by Inspire, and for twelve (12) months thereafter, Executive will not  solicit, cause to be solicited, or participate in or promote the solicitation of any person to terminate  that person’s employment with Inspire or to breach that person’s employment agreement with  Inspire.  c. Post-Employment Disclosure. In the event Executive’s employment with  Inspire terminates, Executive agrees that during the term of the restrictions described in Paragraph  8(a) above, Executive will promptly inform Inspire of the identity of any new employer, the job  title of Executive’s new position, and a description of any services to be rendered to that employer.  In addition, Executive agrees to respond within ten (10) days to any written request from Inspire  for further information concerning Executive’s work activities sufficient to provide Inspire with  assurances that Executive is not violating any of the obligations Executive has undertaken in this  Agreement.  d. Prohibition on Disclosure of Confidential Information. Executive shall hold  the “Confidential Information”, as defined in Paragraph 8(e), including trade secrets and/or data,  in the strictest confidence and will never, without prior written consent of the Company, directly  or indirectly disclose, assign, transfer, convey, communicate to or use for Executive’s own or  another’s benefit, or directly or indirectly disclose, assign, transfer, convey, communicate to or use  by a competitor of the Company or any other person or entity, including, but not limited to, the  press, other professionals, corporations, partnerships or the public, at any time during Executive’s  employment with the Company or at any time after Executive’s termination of employment with  the Company, regardless of the reason for the Executive’s termination, whether voluntary or  involuntary. Executive further promises and agrees that he will faithfully abide by any rules,  policies, practices or procedures existing or which may be established by the Company for insuring  the confidentiality of the Confidential Information, including, but not limited to, rules, policies,  practices or procedures:  i) Limiting access to authorized personnel;  ii) Limiting copying of any writing, data or recording;  iii) Requiring storage of property, documents or data in secure facilities  provided by the Company and limiting safe or vault lock combinations or keys to  authorized personnel; and/or  iv) Checkout and return or other procedures promulgated by the  Company from time to time.  The Executive acknowledges that the Company has provided the Executive with the following  notice of immunity rights in compliance with the requirements of the Defend Trade Secrets Act of  2016: (A) the Executive shall not be held criminally or civilly liable under any federal or state  trade secret law for the disclosure of Confidential Information that is made in confidence to a  federal, state or local government official or to an attorney solely for the purpose of reporting or  investigating a suspected violation of law, (B) the Executive shall not be held criminally or civilly  liable under any federal or state trade secret law for the disclosure of Confidential Information that  

 

    is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is  made under seal and (C) if the Executive files a lawsuit for retaliation by the Company for  reporting a suspected violation of law, the Executive may disclose the Confidential Information to  the Executive’s attorney and use the Confidential Information in the court proceeding, if the  Executive files any document containing the Confidential Information under seal, and does not  disclose the Confidential Information, except pursuant to court order.  e. Definition of Confidential Information. For the purposes of this Agreement,  “Confidential Information” means any information not generally known to the public and  proprietary to or in the possession of the Company and includes, without limitation, trade secrets,  inventions, and information pertaining to research, development, purchasing, marketing, selling,  accounting, licensing, business systems, business techniques, customer lists, prospective customer  lists, price lists, business strategies and plans, pending patentable materials and/or designs, design  documentation, documentation of meetings, tests and/or test standards, or manuals whether in  document, electronic, computer or other form. For example, Confidential Information may be  contained in the Company’s customer lists, prospective customer lists, the particular needs and  requirements of customers, the particular needs and requirements of prospective customers, and  the identity of customers or prospective customers. Information shall be treated as Confidential  Information irrespective of its source and any information which is labeled or marked as being  “confidential” or “trade secret” shall be presumed to be Confidential Information. The definition  of “Confidential Information” as set forth in this paragraph is not intended to be complete. From  time to time during the term of Executive’s employment, Executive may gain access to other  information not generally known to the public and proprietary to or in the possession of the  Company concerning the Company’s businesses that is of commercial value to the Company,  which information shall be included in the definition in this paragraph, even though not specifically  listed above. The definition of Confidential Information applies to any form in which the subject  information, trade secrets, or data may appear, whether written, oral, or any other form of recording  or storage.  f. Restrictions. The restrictions herein provided shall not apply with respect to  “Confidential Information” which: (A) is or becomes a part of the public domain without breach  of this Agreement by the Executive; or (B) is disclosed pursuant to judicial action or government  regulations, provided the Executive notifies the Company prior to such disclosure and cooperates  with the Company in the event the Company elects to legally contest and avoid such disclosure.  g. Certain Company Remedies. The Executive acknowledges that the  Company will suffer irreparable harm if the Executive breaches Paragraphs 8(a), 8(b) and/or 8(d).  Accordingly, the Company shall be entitled to equitable relief, including but not limited to, an  injunction, enjoining or restraining Executive from any violation of Paragraphs 8(a), 8(b) and/or  8(d) of this Agreement, in addition to any other remedies the Company is entitled to at law or in  equity. In the event the Company pursues any remedies pursuant to this Paragraph 8(f) and prevails  in such a proceeding, the Executive shall pay the Company’s reasonable attorneys’ fees in  connection with such proceeding. Should the Company not prevail in such a proceeding, the  Company shall pay the Executive’s reasonable attorneys’ fees in connection with such proceeding.  Furthermore, should a court of competent jurisdiction determine that the Executive has breached  Paragraphs 8(a), 8(b), and/or 8(d), the restrictions in such Paragraphs will be extended by the  period during which the Executive was in breach.  

 

    9. Parachute Payments.   a. Notwithstanding any other provisions of this Agreement, in the event that  any payment or benefit by the Company or otherwise to or for the benefit of the Executive, whether  paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise  (all such payments and benefits, including the payments and benefits under Paragraph 6 above,  being hereinafter referred to as the “Total Payments”), would be subject (in whole or in part) to  the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Total Payments  shall be reduced (in the order provided in Paragraph 9(b) below) to the minimum extent necessary  to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of  such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local  income and employment taxes on such reduced Total Payments and after taking into account the  phase out of itemized deductions and personal exemptions attributable to such reduced Total  Payments), is greater than or equal to (ii) the net amount of such Total Payments without such  reduction (but after subtracting the net amount of federal, state and local income and employment  taxes on such Total Payments and the amount of the Excise Tax to which the Executive would be  subject in respect of such unreduced Total Payments and after taking into account the phase out of  itemized deductions and personal exemptions attributable to such unreduced Total Payments).  b. The Total Payments shall be reduced in the following order:  (i) reduction  on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code  (“Section 409A”), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits  that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or  benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits  otherwise payable to the Executive on a pro-rata basis or such other manner that complies with  Section 409A; provided, in case of subclauses (ii), (iii) and (iv), that reduction of any payments  attributable to the acceleration of vesting of Company equity awards shall be first applied to  Company equity awards that would otherwise vest last in time.  c. The Company will select an adviser with experience in performing  calculations regarding the applicability of Section 280G of the Code and the Excise Tax, provided  that the adviser’s determination shall be made based upon “substantial authority” within the  meaning of Section 6662 of the Code, (the “Independent Advisors”) to make determinations  regarding the application of this Paragraph 9.  The Independent Adviser shall provide its  determination, together with detailed supporting calculations and documentation, to the Executive  and the Company within fifteen (15) business days following the date on which the Executive’s  right to the Total Payments is triggered, if applicable, or such other time as requested by the  Executive (provided, that the Executive reasonably believes that any of the Total Payments may  be subject to the Excise Tax) or the Company.  The costs of obtaining such determination and all  related fees and expenses (including related fees and expenses incurred in any later audit) shall be  borne by the Company.  Any good faith determinations of the Independent Adviser made  hereunder shall be final, binding and conclusive upon the Company and the Executive.  d. In the event it is later determined that to implement the objective and intent  of this Paragraph 9, (i) a greater reduction in the Total Payments should have been made, the excess  amount shall be returned promptly by the Executive to the Company or (ii) a lesser reduction in  the Total Payments should have been made, the excess amount shall be paid or provided promptly  

 

    by the Company to the Executive, except to the extent the Company reasonably determines would  result in imposition of an excise tax under Section 409A.  10. Section 409A.  a. General.  The parties hereto acknowledge and agree that, to the extent  applicable, this Agreement shall be interpreted in accordance with, and incorporate the terms and  conditions required by, Section 409A.  Notwithstanding any provision of this Agreement to the  contrary, in the event that the Company determines that any amounts payable hereunder will be  immediately taxable to the Executive under Section 409A, the Company reserves the right (without  any obligation to do so or to indemnify the Executive for failure to do so) to (i) adopt such  amendments to this Agreement and appropriate policies and procedures, including amendments  and policies with retroactive effect, that the Company determines to be necessary or appropriate  to preserve the intended tax treatment of the benefits provided by this Agreement, to preserve the  economic benefits of this Agreement and to avoid less favorable accounting or tax consequences  for the Company and/or (ii) take such other actions as the Company determines to be necessary or  appropriate to exempt the amounts payable hereunder from Section 409A or to comply with the  requirements of Section 409A and thereby avoid the application of penalty taxes thereunder.  No  provision of this Agreement shall be interpreted or construed to transfer any liability for failure to  comply with the requirements of Section 409A from the Executive or any other individual to the  Company or any of its affiliates, employees or agents.    b. Separation from Service under Section 409A.  Notwithstanding any  provision to the contrary in this Agreement:  (i) no amount that constitutes “nonqualified deferred  compensation” under Section 409A shall be payable pursuant to Paragraph 6 unless the termination  of the Executive’s employment constitutes a “separation from service” within the meaning of  Section 1.409A-1(h) of the Department of Treasury Regulations; (ii) for purposes of Section 409A,  any right to receive installment payments pursuant to this Agreement shall be treated as a right to  receive a series of separate and distinct payments; and (iii) to the extent that any reimbursement of  expenses or in-kind benefits constitutes “deferred compensation” under Section 409A, such  reimbursement or benefit shall be provided no later than December 31 of the year following the  year in which the expense was incurred.  The amount of expenses reimbursed in one year shall not  affect the amount eligible for reimbursement in any subsequent year.  The amount of any in-kind  benefits provided in one year shall not affect the amount of in-kind benefits provided in any other  year. Notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed  at the time of Executive’s separation from service to be a “specified employee” for purposes of  Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the  termination benefits to which the Executive is entitled under this Agreement is required in order  to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the  Executive’s termination benefits shall not be provided to the Executive prior to the earlier of (A)  the expiration of the six-month period measured from the date of the Executive’s “separation from  service” with the Company (as such term is defined in the Treasury Regulations issued under  Section 409A of the Code) or (B) the date of the Executive’s death; upon the earlier of such dates,  all payments deferred pursuant to this sentence shall be paid in a lump sum to the Executive, and  any remaining payments due under the Agreement shall be paid as otherwise provided herein.   

 

    c. Release.   Notwithstanding anything to the contrary in this Agreement, to  the extent that any payments of “nonqualified deferred compensation” (within the meaning of  Section 409A) due under this Agreement as a result of the Executive’s termination of employment  are subject to the Executive’s execution and delivery of a Release, (i) the Company shall deliver  the Release to the Executive within seven (7) days following the date of termination, and (ii) if the  Executive fails to execute the Release on or prior to the Release Expiration Date (as defined below)  or timely revokes Executive’s acceptance of the Release thereafter, the Executive shall not be  entitled to any payments or benefits otherwise conditioned on the Release.  For purposes of this  Paragraph 10(c), “Release Expiration Date” shall mean the date that is twenty-one (21) days  following the date upon which the Company timely delivers the Release to the Executive, or, in  the event that the Executive’s termination of employment is “in connection with an exit incentive  or other employment termination program” (as such phrase is defined in the Age Discrimination  in Employment Act of 1967), the date that is forty-five (45) days following such delivery date.  To  the extent that any payments of nonqualified deferred compensation (within the meaning of  Section 409A) due under this Agreement as a result of the Executive’s termination of employment  are delayed pursuant to this Paragraph 10(c), such amounts shall be paid in a lump sum on the first  payroll date to occur on or after the 60th day following the date of Executive’s termination of  employment, provided that Executive executes and does not revoke the Release prior to such 60th  day (and any applicable revocation period has expired).    11. Compensation Recovery. The Executive acknowledges and agrees that, to the  extent the Company adopts any clawback or similar policy in connection with or otherwise as a  result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and any rules and  regulations promulgated thereunder (including, without limitation, any listing rules or standards  resulting therefrom), he or she shall, during the Executive’s term of employment and thereafter,  take all action necessary or appropriate to comply with such policy, as may be amended from time  to time in the Company’s sole discretion (including, without limitation, entering into any further  agreements, amendments or policies necessary or appropriate to implement and/or enforce such  policy). The Executive’s obligations under this Paragraph 11 shall survive the termination of this  Agreement.  12. Inventions. “Inventions” shall mean any and all inventions, discoveries, ideas,  processes, writings, works of authorship, designs, developments and improvements, whether or  not protectable under the applicable patent, trademark or copyright statutes, generated, conceived  or reduced to practice by the Executive, alone or in conjunction with others, while employed by  Inspire.  a. Disclosure. Executive agrees to promptly disclose to Inspire in writing all  Inventions.  b. Ownership, Assignment and Recordkeeping. All Inventions shall be the  exclusive property of Inspire. Executive hereby assigns all Inventions to Inspire. Executive agrees  to keep accurate, complete and timely records of Executive’s Inventions, which records shall be  the property of Inspire and shall be retained on Inspire’s premises.  c. Cooperation. During and after the termination of Executive’s employment,  Executive agrees to give Inspire all cooperation and assistance necessary to perfect, protect, and  

 

    use its rights to Inventions. Without limiting the generality of the foregoing, Executive agrees to  sign all documents, do all things, and supply all information that Inspire may deem necessary to  (i) transfer or record the transfer of Executive’s entire right, title and interest in Inventions, and (ii)  enable Inspire to obtain patent, copyright or trademark protection for Inventions anywhere in the  world.  d. Attorney-in-Fact. Executive irrevocably designates and appoints Inspire  and its duly authorized officers and agents as attorney-in-fact to act for and in Executive’s behalf  and stead to execute and file any lawful and necessary documents, and to do all other lawfully  permitted acts, required for the assignment of, application for, or prosecution of any United States  or foreign application for letters patent, copyright or trademark with the same legal force and effect  as if executed by Executive.  e. Waiver. Executive hereby waives and quitclaims to Inspire any and all  claims, or any nature whatsoever, which Executive may now have or may hereafter have for  infringement of any patent, copyright, or trademark resulting from any Inventions.  f. Future Patents. Any Invention relating to the business of Inspire with  respect to which Executive files a patent application within one (1) year following termination of  Executive’s employment shall be presumed to cover Inventions conceived by Executive during  the term of Executive’s employment, subject to proof to the contrary by Executive by good faith,  contemporaneous, written and duly corroborated records establishing that such Invention was  conceived and made following termination of employment and without using Confidential  Information.  g. Release or License. If an Invention does not relate to the existing or  reasonable foreseeable business interests of Inspire, Inspire may, in its sole and unreviewable  discretion, release or license the Invention to the Executive upon written request by the Executive.  No release or license shall be valid unless in writing signed by Inspire’s general counsel.  h. Notice. Executive is hereby notified that this Agreement and this Paragraph  12 do not apply to any Invention for which no equipment, supplies, facility or trade secret  information of Inspire was used and which was developed entirely on the Executive’s own time,  and (1) which does not relate (i) directly to the business of Inspire or (ii) to Inspire’s actual or  demonstrably anticipated research or development, or (2) which does not result from any work  performed by the Executive for Inspire.  13. Miscellaneous.  a. Entire Agreement. The terms of this Agreement (together with any other  agreements and instruments contemplated by this Agreement or referred to herein) is intended by  the parties hereto to be the final expression of their agreement with respect to the employment of  Executive by the Company, and supersedes and may not be contradicted by evidence of any prior  or contemporaneous agreement. The parties hereto further intend that this Agreement shall  constitute the complete and exclusive statement of its terms and that no extrinsic evidence  whatsoever may be introduced in any judicial, administrative or other legal proceeding to vary the  terms of this Agreement.   

 

    b. Construction. Each provision of this Agreement shall be interpreted so that  it is valid and enforceable under applicable law. If any provision of this Agreement is to any extent  invalid or unenforceable under applicable law, that provision will still be effective to the extent it  remains valid and enforceable. The remainder of this Agreement also will continue to be valid and  enforceable, and the entire Agreement will continue to be valid and enforceable in other  jurisdictions. In the event that a court of competent jurisdiction determines that any of the  provisions of Paragraphs 8 or 12 of this Agreement are not enforceable for any reason, such court  shall reform such provisions to the minimum extent necessary to make them enforceable, it being  the intention of the parties that such provisions be enforced to the maximum extent permitted by  applicable law.  c. Waivers. No term or condition of this Agreement shall be deemed to have  been waived, nor shall there be any estoppel to enforce any provisions of this Agreement, except  by a statement in writing signed by the party against who enforcement of the waiver or estoppel is  sought. A waiver shall operate only as to the specific term or condition waived. No waiver shall  constitute a continuing waiver or a waiver of such term or condition for the future unless  specifically stated. No single or partial exercise of any right or remedy under this Agreement shall  preclude any party from otherwise or further exercising such rights or remedies, or any other rights  or remedies granted by law or any other document.  d. Captions. The headings in this Agreement are for convenience of reference  only and do not affect the interpretation of this Agreement.  e. Modifications. This Agreement may not be altered, modified or amended  except by an instrument in writing signed by each of the parties hereto.  f. Governing Law. The laws of the State of Minnesota shall govern the  validity, construction and performance of this Agreement, to the extent not pre-empted by federal  law. Any legal proceeding related to this Agreement shall be brought in an appropriate Minnesota  court, and each of the parties hereto hereby consents to the exclusive jurisdiction of the courts of  the State of Minnesota for this purpose.  g. Notices. All notices and other communications required or permitted under  this Agreement shall be in writing and provided to the other party either in person, by fax, or by  certified mail. Notices to Inspire must be provided or sent to its President and Chief Executive  Officer; notices to Executive must be provided or sent to Executive in person or at Executive’s  home.  h. Survival. Notwithstanding the termination of Executive’s employment and  the termination of this Agreement, the terms of this Agreement which relate to periods, activities,  obligations, rights or remedies of the parties upon or subsequent to such termination shall survive  such termination and shall govern all rights, disputes, claims or causes of action arising out of or  in any way related to this Agreement.  i. Successors and Assigns. This Agreement shall be binding on and inure to  the benefit of Inspire’s successors and assigns.  

 

  [Signature Page to Executive Employment Agreement]    IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective  Date.    INSPIRE MEDICAL SYSTEMS, INC.  /s/ Bryan Phillips  /s/ Timothy P. Herbert  By: Bryan Phillips     By: Timothy P. Herbert   President and Chief Executive Officer       

 

    Exhibit A: Outside Activities    Chair of the Board of the Science Museum of MinnesotaEX-4.2

 Exhibit 4.2 

DESCRIPTION OF SECURITIES 
 The following
is a brief description of the securities of Solar Senior Capital Ltd. (the “Company,” “we,” “our” or “us”), registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). This description of the terms of our stock does not purport to be complete and is subject to and qualified in its entirety by reference to the applicable provisions of Maryland General Corporation Law, and the full text of
our charter and bylaws. As of December 31, 2020 and the date hereof, our common stock is the only class of our securities registered under Section 12 of the Exchange Act. 

Common Stock 
 As of December 31, 2020, our
authorized stock consisted of 200,000,000 shares of stock, par value $0.01 per share, all of which are initially designated as common stock. Our common stock is listed on the NASDAQ Global Select Market under the ticker symbol “SUNS”.
There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under the Maryland General Corporation Law, our stockholders generally are not personally liable for
our debts or obligations. 
 Under our charter, our board of directors is authorized to classify and reclassify any unissued shares of stock into other
classes or series of stock without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our charter provides that the board of directors, without any action by our stockholders, may amend the charter from time to
time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. 

All shares of our common stock have equal rights as to earnings, assets, voting, and distributions and, when they are issued, will be duly authorized, validly
issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our board of directors and declared by us out of assets legally available therefor. Shares of our common stock have no
preemptive, conversion or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our
common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred
stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock,
the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock can elect all of our directors, and
holders of less than a majority of such shares will be unable to elect any director. 
 Certain Provisions of the Maryland General Corporation Law and
Our Charter and Bylaws 
 The Maryland General Corporation Law and our charter and bylaws contain provisions that could make it more difficult for a
potential acquiror to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control
of us to negotiate first with our board of directors. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals
may improve their terms. 
 Classified Board of Directors 

Our board of directors is into three classes of directors serving staggered three-year terms. The current terms of the first, second and third classes expire
at the annual meeting of stockholders in 2021, 2022 and 2023, respectively, and in each case, those directors will serve until their successors are duly elected and qualify. Upon expiration of their current terms, directors of each class will be
elected to serve for three-year terms and until their successors are duly elected and qualify and each year one class of directors will be elected by the stockholders. A classified board may render a change in control of us or removal of our
incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified board of directors will help to ensure the continuity and stability of our management and policies. 

 Election of Directors 

Under our charter and bylaws, the affirmative vote of the holders of a plurality of all the votes cast in the election of directors at a meeting of
stockholders duly called and at which a quorum is present will be required to elect a director. Pursuant to our charter and bylaws our board of directors may amend the bylaws to alter the vote required to elect directors. 

Number of Directors; Vacancies; Removal 
 Our
charter provides that the number of directors will be set only by the board of directors in accordance with our bylaws. Our bylaws provide that a majority of our entire board of directors may at any time increase or decrease the number of directors.
However, the number of directors may never be less than one nor more than twelve unless our bylaws are amended in which case we may have more than twelve directors but never less than one. Our charter provides that, at such time as we have at least
three independent directors and our common stock is registered under the Exchange Act, we elect to be subject to the provision of Subtitle 8 of Title 3 of the Maryland General Corporation Law regarding the filling of vacancies on the board of
directors. Accordingly, except as may be provided by the board of directors in setting the terms of any class or series of preferred stock, any and all vacancies on the board of directors may be filled only by the affirmative vote of a majority of
the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a
successor is duly elected and qualifies, subject to any applicable requirements of the Investment Company Act of 1940 (the “1940 Act”). 
 Our
charter provides that, subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed only for cause, as defined in our charter, and then only by the
affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors. 

Action by Stockholders 
 Under the Maryland General
Corporation Law, stockholder action can be taken only at an annual or special meeting of stockholders or (with respect to the holders of common stock, unless the charter provides for stockholder action by less than unanimous written consent, which
our charter does not) by unanimous written consent in lieu of a meeting. These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the
effect of delaying consideration of a stockholder proposal until the next annual meeting. 
 Advance Notice Provisions for Stockholder Nominations and
Stockholder Proposals 
 Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the board
of directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by the board of directors or (3) by a stockholder who was a stockholder of record both at the
time of giving notice and at the time of the meeting who is entitled to vote at the meeting and who has complied with the advance notice procedures of our bylaws. With respect to special meetings of stockholders, only the business specified in our
notice of the meeting may be brought before the meeting. Nominations of persons for election to the board of directors at a special meeting may be made only (1) by the board of directors or (2) provided that the board of directors has
determined that directors will be elected at the meeting, by a stockholder who was a stockholder of record both at the time of giving notice and at the time of the meeting who is entitled to vote at the meeting and who has complied with the advance
notice provisions of the bylaws. 
 The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board
of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform stockholders and
make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our board of directors any power to disapprove stockholder
nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the 

 
consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders. 

Calling of Special Meetings of Stockholders 
 Our
bylaws provide that special meetings of stockholders may be called by our board of directors and certain of our officers. Additionally, our bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the
stockholders requesting the meeting, a special meeting of stockholders will be called by the secretary of the corporation upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such
meeting. 
 Approval of Extraordinary Corporate Action; Amendment of Charter and Bylaws 

Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert, sell all or substantially all of its assets, engage in
a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes
entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter
generally provides for approval of charter amendments and extraordinary transactions by the stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. Our charter also provides that the following matters
require the approval of stockholders entitled to cast at least 80% of the votes entitled to be cast: (i) certain charter amendments; (ii) any proposal for our conversion, whether by merger or otherwise, from
a closed-end company to an open-end company; (iii) any proposal for our liquidation or dissolution; (iv) any proposal regarding a merger,
consolidation, share exchange or sale or exchange of all or substantially all of our assets that the Maryland General Corporation Law requires to be approved by our stockholders; or (v) any transaction between us and a person, or group of
persons acting together (including, without limitation, a “group” for purposes of Section 13(d) of the Exchange Act), and any person controlling, controlled by or under common control with any such person or member of such group, that
is entitled to exercise or direct the exercise, or acquire the right to exercise or direct the exercise, directly or indirectly, other than solely by virtue of a revocable proxy, of one-tenth or more of the
voting power in the election of directors generally. However, if such amendment or proposal is approved by a majority of our continuing directors (in addition to approval by our board of directors), such amendment or proposal may be approved by a
majority of the votes entitled to be cast on such a matter, provided that with respect to any transaction referred to in (v) above, if such transaction is approved by the continuing directors, by a vote of at least two-thirds of such continuing directors, no stockholder approval of such transaction is required unless the Maryland General Corporation Law or another provision of our charter or bylaws otherwise requires such
approval. The “continuing directors” are defined in our charter as (1) our current directors, (2) those directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved
by a majority of our current directors then on the board of directors or (3) any successor directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved by a majority of continuing
directors or the successor continuing directors then in office. 
 Our charter and bylaws provide that the board of directors will have the exclusive power
to make, alter, amend or repeal any provision of our bylaws. 
 No Appraisal Rights 

Except with respect to appraisal rights arising in connection with the Control Share Act (defined and discussed below), as permitted by the Maryland General
Corporation Law, our charter provides that stockholders will not be entitled to exercise appraisal rights unless a majority of the board of directors shall determine such rights apply. 

Control Share Acquisitions 
 The Maryland General
Corporation Law provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights with respect to those shares except to the extent approved by a vote
of two-thirds of the votes entitled to be cast on the matter, or the Control Share Act. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded
from shares entitled to vote 

 
on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or
direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: 

 

	 	•	 	 one-tenth or more but less than
one-third; 

  

	 	•	 	 one-third or more but less than a majority; or 

 

	 	•	 	 a majority or more of all voting power. 

The requisite stockholder approval must be obtained each time an acquiror crosses one of the thresholds of voting power set forth above. Control shares do not
include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of issued and outstanding control shares, subject to certain exceptions.

 A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting. 
 If voting
rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which
voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations, including, as provided in our bylaws, compliance with the 1940 Act. Fair value is determined,
without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved.
If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. 
 The
Control Share Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the Control Share Act any and all acquisitions by any person of our shares of stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future. However, we
will amend our bylaws to be subject to the Control Share Act only if the board of directors determines that it would be in our best interests, including in light of the fiduciary obligations of the board of directors, applicable federal and state
laws, and the particular facts and circumstances surrounding the decision of the board of directors. 
 Business Combinations 

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder
are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder (the “Business Combination Act”). These business combinations include a merger, consolidation, share exchange
or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as: 
  

	 	•	 	 any person who beneficially owns 10% or more of the voting power of the corporation’s outstanding voting
stock; or 

  

	 	•	 	 an affiliate or associate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. 

 A person is not an interested stockholder under this statute if the board of directors approved in advance
the transaction by which the stockholder otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval,
with any terms and conditions determined by the board. 
 After the five-year prohibition, any business combination between the Maryland corporation and an
interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least: 
  

	 	•	 	 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

  

	 	•	 	 two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. 

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for
their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. 
 The statute
permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our board of directors has adopted a
resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the board of directors, including a majority of the
directors who are not interested persons as defined in the 1940 Act. This resolution may be altered or repealed in whole or in part at any time; however, our board of directors will adopt resolutions so as to make us subject to the provisions of the
Business Combination Act only if the board of directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Business Combination Act does not conflict with the
1940 Act. If this resolution is repealed, or the board of directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. 

Conflict with 1940 Act 
 Our bylaws provide that,
if and to the extent that any provision of the Maryland General Corporation Law, including the Maryland Control Share Acquisition Act (if we amend our bylaws to be subject to such Act) and the Business Combination Act, or any provision of our
charter or bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.

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