Document:

Exhibit
10.42

THERAVANCE,
INC. 2004 EQUITY INCENTIVE PLAN

NOTICE
OF RESTRICTED STOCK UNIT AWARD

You have been granted the number of restricted stock
units indicated below by Theravance, Inc. (the “Company”)
on the following terms:

	
  Name:

  	
  «Name»

  

 

Restricted Stock Unit Award
Details:

	
  Date of Grant:

  	
   

  	
  «DateGrant»

  
	
  Restricted Stock Units:

  	
   

  	
  «TotalShares»

  
	
  Vesting Commencement Date:

  	
   

  	
  «VestComDate»

  

 

Each
restricted stock unit (the “Restricted Stock Unit”)
represents the right to receive one share of the Company’s Common 

Stock subject to the terms and conditions contained in the Restricted
Stock Unit Agreement.

Vesting Schedule:

Vesting is dependent upon continuous service as an employee of the
Company, a Parent, a Subsidiary or an Affiliate (“Service”)
throughout the vesting period.  A certain
number of Restricted Stock Units shall vest on «FinalVestDate» (the final day
of the vesting period), provided you have remained in continuous Service from
the Date of Grant through the final day of the vesting period and provided
further that one or more of the following performance targets have been
achieved on or before their related deadlines. 
The number of shares to be issued upon vesting of the units will be
equal to the number of units set forth below based on the timely achievement of
the respective performance targets:

Performance targets:

	
  Deadline for 

  Achieving Target

  	
   

  	
  Target

  	
   

  	
  Number of Units for each Target

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  «TargetDate1»

  	
   

  	
  «Target1»

  	
   

  	
  «%1TotalShares»

  
	
  «TargetDate2»

  	
   

  	
  «Target2»

  	
   

  	
  «%2TotalShares»

  
	
  «TargetDate3»

  	
   

  	
  «Target3»

  	
   

  	
  «%3TotalShares»

  
	
  «TargetDate4»

  	
   

  	
  «Target4»

  	
   

  	
  «%4TotalShares»

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Possible Shares:

  	
   

  	
  «TotalShares»

  

 

In addition, in the event that
your Service terminates because of death or total and permanent disability (as
defined in the Restricted Stock Unit Agreement), then the number of units that
correspond to any performance target that has been achieved on or before the
applicable deadline as of the date your Service terminates will accelerate and
vest immediately.

In addition, if the Company is
subject to an Acquisition before your Service terminates, then the number of units that corresponds to (A) all
targets that have been achieved as of the date of the Acquisition and (B) the next target
(i) that has not been achieved as of the date of the Acquisition and (ii) the deadline for 

which has not come to pass shall vest immediately on
the date the Acquisition is
consummated.  Thereafter, the balance of
the units will be forfeited on the date the Acquisition
is consummated.

An Acquisition shall mean a “Change in Control” (as defined in the 2004
Equity Incentive Plan (the “Plan”)) by an entity other than GSK (as defined in the Plan) or by GSK in a transaction that is
accomplished in a manner that is currently prohibited by the Governance
Agreement (as defined in the Plan).

If you are a participant in the Company’s Change in
Control Severance Plan, then the foregoing acceleration on Acquisition shall be
applicable to you and will replace any acceleration of vesting of the units
that may otherwise occur under the Company’s Change in Control Severance Plan.  However, in the event of a GSK Change in
Control (as defined in the Company’s
Change in Control Severance Plan),
then the provisions of the Company’s Change in Control Severance Plan will
govern your right to accelerated vesting.

By
your signature and the signature of the Company’s representative below, you and
the Company agree that your right to receive the units is granted under and
governed by the terms and conditions of the Plan and of the Restricted Stock
Unit Agreement that is attached to and made a part of this document.  Capitalized terms not defined herein have the meaning ascribed to such
terms in the Plan.

You agree that the Company may deliver by email all
documents relating to the Plan or this award (including, without limitation,
prospectuses required by the Securities and Exchange Commission) and all other
documents that the Company is required to deliver to its security holders
(including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver
these documents by posting them on a web site maintained by the Company or by a
third party under contract with the Company. 
If the Company posts these documents on a web site, it will notify you
by email.

By
your signature below, you agree to cover the applicable withholding taxes as
set forth more fully herein.

	
  RECIPIENT:

  	
  THERAVANCE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
  Print Name

  	
   

  
						

 

THERAVANCE,
INC. 2004 EQUITY INCENTIVE PLAN:

RESTRICTED STOCK UNIT AGREEMENT

	
  Payment for Shares

  	
   

  	
  No payment is required for the restricted stock
  units you are receiving.

  
	
   

  	
   

  	
   

  
	
  Nature of Units

  	
   

  	
  Your units are bookkeeping entries. They represent
  only the Company’s unfunded and unsecured promise to issue shares of Common
  Stock on a future date. As a holder of units, you have no rights other than
  the rights of a general creditor of the Company.

  
	
   

  	
   

  	
   

  
	
  Settlement of Units

  	
   

  	
  Each of your units will be settled when it vests
  (unless you and the Company have agreed to a later settlement date pursuant
  to procedures that the Company may prescribe at its discretion). 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  At the time of settlement, you will receive one
  share of the Company’s Common Stock for each vested unit.

  
	
   

  	
   

  	
   

  
	
  Vesting

  	
   

  	
  The restricted stock units
  that you are receiving will vest as shown in the Notice of Restricted Stock
  Unit Award. For all purposes under this Agreement, “total and permanent disability” means that you are unable
  to engage in any substantial gainful activity by reason of any medically
  determinable physical or mental impairment which can be expected to result in
  death or which has lasted, or can be expected to last, for a continuous
  period of not less than one year. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  No additional units vest after your Service has terminated for any
  reason, except as set forth on the
  Notice of Restricted Stock Unit Award. It is intended that vesting in the restricted stock units is commensurate
  with a full-time work schedule. For possible adjustments that may be made by
  the Company, see the Section below entitled “Leaves of Absence and Part-Time
  Work.”

  
	
   

  	
   

  	
   

  
	
  Forfeiture

  	
   

  	
  If your Service terminates for any reason, then your
  restricted stock units that have not vested before the termination date and
  do not vest (whether immediately or on a deferred basis) as a result of the
  termination pursuant to this Agreement or as set forth on the Notice of
  Restricted Stock Unit Award, will be forfeited immediately. This means that
  the restricted stock units will immediately revert to the Company. You
  receive no payment for restricted stock units that are forfeited. The Company
  determines when your Service terminates for this purpose. On the final day of
  the vesting period as defined in the Notice of Restricted Stock Unit Award,
  any restricted stock units that are not vested will be forfeited immediately.

  
	
   

  	
   

  	
   

  
	
  Leaves of Absence

  	
   

  	
  For purposes of this award, your Service does not
  terminate when you go

  

 

 

	
  and Part-Time Work

  	
   

  	
  on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by
  the Company in writing. But your Service terminates when the approved leave
  ends, unless you immediately return to active work.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If you and the Company agree to a reduction in your
  scheduled work hours, then the Company reserves the right to modify the rate
  at which the restricted stock units vest, so that the rate of vesting is
  commensurate with your reduced work schedule. Any such adjustment shall be
  consistent with the Company’s policies for part-time or reduced work
  schedules or shall be pursuant to the terms of an agreement between you and
  the Company pertaining to your reduced work schedule. 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Company shall not be required to adjust any
  vesting schedule pursuant to this subsection.

  
	
   

  	
   

  	
   

  
	
  Stock Certificates

  	
   

  	
  No shares of Common Stock shall be issued to you
  prior to the date on which the restricted stock units vest. After any
  restricted stock units vest pursuant to this Agreement, the Company shall
  promptly cause to be issued in book-entry form, registered in your name or in
  the name of your legal representatives, beneficiaries or heirs, as the case
  may be, the number of shares of Common Stock representing your vested
  restricted stock units. No fractional shares shall be issued.

  
	
   

  	
   

  	
   

  
	
  Stockholder Rights

  	
   

  	
  The restricted stock units do not entitle you to any
  of the rights of a stockholder of Common Stock. Upon settlement of the
  restricted stock units into shares of Common Stock, you will obtain full
  voting and other rights as a stockholder of the Company.

  
	
   

  	
   

  	
   

  
	
  Units Restricted

  	
   

  	
  You may not sell, transfer, pledge or otherwise
  dispose of any restricted stock units or rights under this Agreement other
  than by will or by the laws of descent and distribution. Notwithstanding the
  foregoing, you may designate a beneficiary or beneficiaries to receive any
  property distributable with respect to the restricted stock units upon your
  death.

  
	
   

  	
   

  	
   

  
	
  Withholding Taxes

  	
   

  	
  No shares will be distributed to you unless you have
  made arrangements acceptable to the Company to pay any withholding taxes that
  may be due as a result of the settlement of this award. With the Company’s consent, these arrangements
  may include (a) withholding shares of Common Stock that otherwise would
  be issued to you when the units are settled, (b) surrendering shares
  that you previously acquired, (c) the payment of withholding
  taxes from the proceeds of an approved sale of shares through a
  Company-approved broker or
  (d) your delivery of cash to the
  Company. The fair
  market value of withheld or surrendered shares, determined as of the date
  taxes otherwise would have been withheld in cash, will be applied against the
  withholding

  

 

 

	
  

  	
   

  	
  taxes.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Issuance

  	
   

  	
  The Company will not issue shares to you if the
  issuance of shares at that time would violate any law or regulation.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Resale

  	
   

  	
  You agree not to sell any shares of Common Stock you
  receive under this Agreement at a time when applicable laws, regulations,
  Company trading policies (including the Company’s Insider Trading Policy, a
  copy of which can be found on the Company’s intranet) or an agreement between
  the Company and its underwriters prohibit a sale. This restriction will apply
  as long as your Service continues and for such period of time after the
  termination of your Service as the Company may specify.

  
	
   

  	
   

  	
   

  
	
  No Retention Rights

  	
   

  	
  Your award or this Agreement does not give you the
  right to be employed or retained by the Company (or a Parent or Subsidiary)
  in any capacity. The Company and its Parent and its Subsidiaries reserve the
  right to terminate your Service at any time, with or without cause.

  
	
   

  	
   

  	
   

  
	
  Beneficiary Designation

  	
   

  	
  You may dispose of your units in a written
  beneficiary designation. A beneficiary designation must be filed with the
  Company on the proper form. It will be recognized only if it has been
  received at the Company’s headquarters before your death. If you file no
  beneficiary designation or if none of your designated beneficiaries survives
  you, then your estate will receive any vested units that you hold at the time
  of your death.

  
	
   

  	
   

  	
   

  
	
  Adjustments

  	
   

  	
  In the event of a stock split, a stock dividend or a
  similar change in Common Stock, the number of restricted stock units that
  will vest in any future installments will be adjusted accordingly.

  
	
   

  	
   

  	
   

  
	
  Applicable Law

  	
   

  	
  This Agreement will be interpreted and enforced with
  respect to issues of contract law under the laws of the State of Delaware.

  
	
   

  	
   

  	
   

  
	
  The Plan and Other Agreements

  	
   

  	
  The text of the Plan is incorporated in this
  Agreement by reference. A copy of the Plan is available on the Company’s
  intranet or by request to the Finance Department. This Agreement, the Notice of Restricted Stock Unit Award, and the
  Plan constitute the entire understanding between you and the Company
  regarding this award. Any prior agreements, commitments or negotiations
  concerning this award are superseded. This Agreement may be amended only by
  another written agreement between the parties.

  

BY SIGNING THE NOTICE OF
RESTRICTED STOCK UNIT AWARD, YOU AGREE TO

ALL OF THE TERMS AND CONDITIONS
DESCRIBED ABOVE AND IN THE PLAN.Exhibit 10.1

 

MORNINGSTAR, INC. INCENTIVE PLAN

 

(as amended May 22, 2007 to be effective
January 1, 2007)

 

ARTICLE 1

 

Statement of Purpose

 

The
compensation policies of Morningstar, Inc. (the “Company”) are intended to
support the Company’s overall objective of enhancing Shareholder value. In
furtherance of this philosophy, the Company has designed this Morningstar, Inc.
Incentive Plan (the “Plan”) to provide incentives for business performance,
reward contributions towards goals consistent with the Company’s business
strategy, and enable the Company to attract and retain highly qualified
Employees.

 

ARTICLE 2

 

Definitions

 

The
terms used in this Plan include the feminine as well as the masculine gender
and the plural as well as the singular, as the context in which they are used
requires. The following terms, unless the context requires otherwise, are
defined as follows:

 

2.1                                “Affiliate” means any parent, subsidiary or other entity
that is (directly or indirectly) controlled by, or controls, the Company.

 

2.2                                “Board” means the Morningstar, Inc. Board of
Directors.

 

2.3                                “Bonus” means the incentive compensation determined
under Section 4.4 of the Plan payable in cash.

 

2.4                                “Bonus Bank” means a bookkeeping account maintained by
the Company pursuant to Section 4.6(b) of the Plan.

 

2.5                                “Bonus Pool” means an amount
that may be allocated to a Business Unit, from which individual bonus amounts
may be allocated to Participants who are Employees of such Business Unit.

 

2.6                                “Business Unit” means an organizational unit of business
within the Company, as identified by the Company.

 

2.7                                “Code” means the Internal Revenue Code of 1986, as
amended.

 

2.8                                “Committee” means the Compensation Committee of the
Board or any successor committee with responsibility for compensation, or any
subcommittee, as long as the number of Committee members and their
qualifications shall at all times be sufficient to meet the applicable
requirements for “outside directors” under Section 162(m) and the regulations
thereunder and the independence requirements of the NASDAQ marketplace

 

 

rules
or any other applicable exchange on which Morningstar, Inc.’s common equity is
at the time listed, in each case as in effect from time to time.

 

2.9                                “Company” means Morningstar, Inc. and any of its
Subsidiaries that adopt this Plan or that have Employees who are participants
under this Plan.

 

2.10                          “Disability” means permanent and total disability as
defined in the Company’s long term disability plan, or if no such plan is then
in effect, as defined in Code Section 22(e)(3).

 

2.11                          “Effective Date” means January 1, 2005.

 

2.12                          “Employee” means any person employed on a full-time or
part-time basis by the Company or an Affiliate in a common law
employee-employer relationship, but shall not include any commissioned sales
employees, temporary employees, interns, leased employees, or independent
contractors. A Participant shall not cease to be an Employee for purposes of
this Plan in the case of (i) any leave of absence approved by the Company, or
(ii) transfers between locations of the Company or among the Company, its
Subsidiaries or any successor.

 

2.13                          “Executive Officer” means any Employee who is an “executive
officer” as defined in Rule 3b-7 promulgated under the Exchange Act.

 

2.14                          “Exchange Act” means the Securities Exchange Act of 1934,
as amended.

 

2.15                          “Participant”
means an Executive Officer or Employee as described in Article 3 of this Plan.

 

2.16                          “Performance Period” means the period for which a Bonus may be
paid. Unless otherwise specified by the Committee, the Performance Period shall
be a calendar year, beginning on January 1 and ending on December 31 of any
year.

 

2.17                          “Plan” means the Morningstar, Inc. Incentive Plan,
as it may be amended from time to time.

 

2.18                          “Retirement” means a Termination of Employment, after
appropriate notice to the Company, (a) on or after the earliest permissible
retirement date under a qualified pension or retirement plan of the Company, or
(b) upon such terms and conditions approved by the Committee, or officers of
the Company designated by the Board or the Committee.

 

2.19                          “SEC” means the U.S. Securities and Exchange
Commission.

 

2.20                          “Section 162(m)” means Code Section 162(m) and regulations
promulgated thereunder by the Secretary of the Treasury.

 

2.21                          “Termination of Employment” means (a) the termination of the Participant’s
active employment relationship with the Company, unless otherwise expressly
provided by the Committee, or (b) the occurrence of a transaction by which the
Participant’s employing Company ceases to be an Affiliate.

 

 

ARTICLE 3

 

Participation

 

An
Executive Officer or other Employee of the Company designated by the Committee
individually or by classification shall be a Participant in this Plan and shall
continue to be a Participant until any Bonus he may receive has been paid or
forfeited under the terms of this Plan. The amount of a Participant’s Bonus, if
any, will be governed by Article 4.

 

ARTICLE 4

 

Incentive Bonuses

 

4.1                                Objective Performance Goals. The Committee shall establish written,
objective performance goals for a Performance Period not later than 90 days
after the beginning of the Performance Period (but not after more than 25% of
the Performance Period has elapsed). The objective performance goals shall be
stated as specific amounts of, or specific changes in, one or more of the
financial measures described in Section 4.2. Objective performance goals may
also include operational goals such as: productivity, safety, other strategic
objectives and individual performance goals. The objective performance goals
need not be the same for different Performance Periods and for any Performance
Period may be stated: (a) as goals for Morningstar, Inc., for one or more of
its Subsidiaries, Business Units, divisions, organizational units, or for any
combination of the foregoing; (b) on an absolute basis or relative to the
performance of other companies or of a specified index or indices, or be based
on any combination of the foregoing; and (c) separately for one or more
Participants or Business Units, or in any combination of the two.

 

4.2                                Financial Measures. The Committee shall use any one or more of
the following financial measures to establish objective performance goals under
Section 4.1:  earnings before interest
and taxes (EBIT); earnings before interest, taxes, depreciation and
amortization (EBITDA); net earnings; operating earnings or income; earnings
growth; net income (absolute or competitive growth rates comparative); net
income per share; cash flow, including operating cash flow, free cash flow, discounted
cash flow return on investment, and cash flow in excess of cost of capital;
earnings per share; return on shareholders’ equity (absolute or peer-group
comparative); stock price (absolute or peer-group comparative); absolute and/or
relative return on common shareholders’ equity; absolute and/or relative return
on capital; absolute and/or relative return on assets; economic value added
(income in excess of cost of capital); customer satisfaction; expense
reduction; ratio of operating expenses to operating revenues; gross revenue or
revenue by pre-defined business segment (absolute or competitive growth rates
comparative); revenue backlog; margins realized on delivered services; total
Shareholder return; dept-to-capital ratio or 
market share. The Committee may specify any reasonable definition of the
financial measures it uses. Such definitions may provide for reasonable
adjustments and may include or exclude items, including but not limited
to:  realized investment gains and
losses; extraordinary, unusual or non-recurring items; gains or losses on the
sale of assets; changes in accounting principles or the application thereof;
currency fluctuations, acquisitions, divestitures, or necessary financing
activities;

 

 

recapitalizations, including stock splits and dividends; expenses for
restructuring or productivity initiatives; and other non-operating items.

 

4.3                                Performance Evaluation. Within a reasonable time after the close of a
Performance Period, the Committee shall determine whether the objective performance
goals established for that Performance Period have been met by the respective
Company, Business Unit, Executive Officers, Employees or otherwise subject to
such performance goals, and the extent to which such performance goals may have
been exceeded.

 

4.4                                Bonus. If the Committee has determined that
objective performance goals established for a Performance Period have been
satisfied, the Committee will determine in its discretion, or based on formulae
the Committee may establish for such Performance Period, the amount of
bonuses payable by the Company. Bonus amounts determined by the Committee may
be expressed as individual Bonuses payable to a Participant or as one or more
Bonus Pools, from which amounts may thereafter be allocated as individual Bonuses
to Participants employed in one or more Business Units in the discretion of the
senior executive of the Business Unit (or his or her designee) by which the
Participant is employed.

 

4.5                                Eligibility for Payments.

 

(a)                                  Except as otherwise provided in this Section
4.5, a Participant will be eligible to receive his or her Bonus only if
the Participant is employed by the Company continuously from the first day of
the Performance Period up to and including the last day of the Performance
Period.

 

(b)                                 Under Section 4.5(a), a leave of absence that
lasts less than three months and that is approved in accordance with applicable
Company policies is not a break in continuous employment. In the case of a
leave of absence of three months or longer: (1) the Committee shall determine
whether the leave of absence constitutes a break in continuous employment, and
(2) if a Participant is on a leave of absence on the last day of the
Performance Period, the Committee may require that the Participant return to
active employment with the Company at the end of the leave of absence as a
condition of receiving the Bonus or payment. Any determination as to a
Participant’s eligibility for a Bonus or payment under this Section 4.5(b) may
be deferred for a reasonable period after such Participant’s return to active
employment.

 

(c)                                  The Committee may determine, in its sole
discretion, that (i) a Bonus will be payable pro-rata for a Participant who
either becomes an Employee during the Performance Period or terminates his or
her employment with the Company during the Performance Period due to death,
Retirement or Disability.

 

4.6                                Payment, Bonus Bank or Deferral
of the Bonus.

 

(a)                                  As soon as practicable after the amount of a
Participant’s Bonus is determined under Section 4.4, the Company shall pay the
portion of the Bonus to the Participant that is not otherwise put in the Bonus Bank
or deferred under this Section 4.6. Payments under the Plan shall be made on or
before the date that is 2-1⁄2 months after the

 

 

end
of the calendar year which includes the end of the Performance Period. The
Company shall deduct from any Bonus, any applicable Federal, state and local
income and employment taxes, and any other amounts that the Company is
otherwise required to deduct. Any payment attributable to a deceased
Participant shall be made to the beneficiary designated in the Company’s
qualified 401(k) plan or, if no beneficiary is so designated, to his or her
spouse or, if none, to his or her estate.

 

(b)                                 The Committee may in its discretion designate
that any portion of a Participant’s Bonus for a Performance Period shall be
held in a Bonus Bank. Any Bonus held in a Bonus Bank shall become payable only
upon the satisfaction of objective performance goals identified and established
by the Committee for the following Performance Period. If such objective
performance goals are met in the following Performance Period, the Bonus held
in a Bonus Bank on behalf of such Participant shall be payable under Section
4.6(a), with interest at a risk-free rate as determined by the Committee. If
such objective performance goals are not met in the following Performance
Period, any Bonus held in a Bonus Bank on behalf of such Participant will be
forfeited unless otherwise determined by the Committee in its discretion.

 

(c)                                  Subject to the Committee’s approval and
applicable law, Participants may request that payments of a Bonus be deferred
under a deferred compensation arrangement maintained by the Company by making a
deferral election prior to or, as permitted, during the Performance Period
pursuant to such rules and procedures as the Committee may establish from time
to time with respect to such arrangement.

 

ARTICLE 5

 

Administration

 

5.1                                General Administration and
Delegation of Authority. This
Plan shall be administered by the Committee, subject to such requirements for
review and approval by the Board as the Board may establish. As permitted by
applicable law and the Company, the Committee may delegate any of its duties
and authority under the Plan.

 

5.2                                Administrative Rules. The Committee shall have full power and
authority to adopt, amend and rescind administrative guidelines, rules and
regulations pertaining to this Plan and to interpret this Plan and rule on any
questions respecting any of its provisions, terms and conditions.

 

5.3                                Committee Members Not Eligible. No member of the Committee shall be eligible
to participate in this Plan.

 

5.4                                Committee Members Not Liable. The Committee and each of its members shall
be entitled to rely upon certificates of appropriate officers of the Company
with respect to financial and statistical data in order to determine if the
objective performance goals for a Performance Period have been met. Neither the
Committee nor any member shall be liable for any action or determination made
in good faith with respect to this Plan or any Bonus paid hereunder.

 

 

5.5                                Decisions Binding. All decisions, actions and interpretations of
the Committee concerning this Plan shall be final and binding on Morningstar,
Inc. and its Subsidiaries and their respective boards of directors, and on all
Participants and other persons claiming rights under this Plan.

 

5.6                                Application of Section 162(m).

 

(a)                                  This Plan is intended to be administered,
interpreted and construed so that Bonus payments remain tax deductible to the
Company and unlimited by Section 162(m), which restricts under certain
circumstances the Federal income tax deduction for compensation paid by a
publicly held company to named executives in excess of $1 million per year. As
of this Plan’s Effective Date, Section 162(m) shall not apply because the
Company is not a “publicly held corporation” under Section 162(m). If the
Company should become publicly held, the Plan is intended to be exempted from
Section 162(m) based on Treasury Regulation Section 1.162-27(f), which
generally exempts from the application of Section 162(m) compensation paid
pursuant to a plan that existed before a company becomes publicly held. Under
such Treasury Regulation, this exemption is available to this Plan for the
duration of the period that lasts until the earlier of the expiration or
material modification of this Plan or the first meeting of Shareholders at
which directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which the Company first becomes
subject to the reporting obligations of Section 12 of the Exchange Act. The
Committee, or the Board, may, without Shareholder approval, amend this Plan
retroactively or prospectively to the extent it determines necessary to comply
with any subsequent amendment or clarification of Section 162(m) required to
preserve the Company’s Federal income tax deduction for compensation paid
pursuant to this Plan.

 

(b)                                 To the extent that the Committee determines
that Section 162(m) applies to a Bonus payable to an Executive Officer under
the Plan and the exemption described in Section 5.6(a) above is no longer
available, such Bonus:  (i) shall be
intended to satisfy the applicable requirements for the performance-based
compensation exception under Section 162(m); (ii) shall be contingent upon
Shareholder approval of this Plan in accordance with Section 162(m), the
regulations thereunder and other applicable U.S. Treasury regulations; (iii)
shall not originate from a Bonus Pool awarded to a Business Unit, but rather be
set forth as a specified formula that may be based on a percentage of
compensation applicable to the Executive Officer; (iv) shall not exceed
$5,000,000 for any Performance Period, (v) shall be payable only after the
Committee certifies in writing that the applicable performance goals for such
Performance Period have been achieved; and (vi) shall comply with such other
requirements as necessary to qualify as performance-based compensation under
Section 162(m).

 

 

ARTICLE 6

 

Amendments; Termination

 

This
Plan may be amended or terminated by the Board or the Committee. All amendments
to this Plan, including an amendment to terminate this Plan, shall be in
writing. An amendment to this Plan shall not be effective without the prior approval
of the Shareholders of Morningstar, Inc. if such approval is necessary to
qualify Bonuses as performance-based compensation under Section 162(m), or
otherwise under Treasury or SEC regulations, the rules of the New York Stock
Exchange, Inc. or any other applicable exchange or any other applicable law or
regulations. Unless otherwise expressly provided by the Board or the Committee,
no amendment to this Plan shall apply to potential Bonuses with respect to a
Performance Period that began before the effective date of such amendment.

 

ARTICLE 7

 

Other Provisions

 

7.1                                Bonuses Not Assignable. No Bonus or any right thereto shall be
assignable or transferable by a Participant except by will or by the laws of
descent and distribution. Any other attempted assignment or alienation shall be
void and of no force or effect.

 

7.2                                Participant’s Rights. The right of any Participant to receive any
Bonus granted or allocated to such Participant pursuant to the provisions of
this Plan shall be an unsecured claim against the general assets of the Company.
This Plan shall not create, nor be construed in any manner as having created,
any right by a Participant to any Bonus or portion of a Bonus Pool for a
Performance Period because of a Participant’s participation in this Plan for
any prior Performance Period or employment during such Performance Period. The
application of the Plan to one Participant shall not create, nor be construed
in any manner as having created, any right by another Participant to similar or
uniform treatment under the Plan.

 

7.3                                Termination of Employment. The Company retains the right to terminate
the employment of any Participant or other Employee at any time for any reason
or no reason, and a Bonus is not, and shall not be construed in any manner to be,
a waiver of such right.

 

7.4                                Exclusion from Benefits. Bonuses under this Plan shall not constitute
compensation for the purpose of determining participation or benefits under any
other plan of the Company unless specifically included as compensation in such
plan.

 

7.5                                Successors. Any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
Morningstar, Inc.’s business or assets, shall assume Morningstar, Inc.’
liabilities under this Plan and perform any duties and responsibilities in the
same manner and to the same extent that Morningstar, Inc. would be required to
perform if no such succession had taken place.

 

 

7.6                                Law Governing Construction. The construction and administration of this
Plan and all questions pertaining thereto shall be governed by the laws of the
State of Illinois, except to the extent that such law is preempted by Federal
law.

 

7.7                                Headings Not a Part Hereto. Any headings preceding the text of the
several Articles, Sections, subsections, or paragraphs hereof are inserted
solely for convenience of reference and shall not constitute a part of this
Plan, nor shall they affect its meaning, construction or effect.

 

7.8                                Severability of Provisions. If any provision of this Plan is determined
to be void by any court of competent jurisdiction, this Plan shall continue to
operate and, for the purposes of the jurisdiction of the court only, shall be
deemed not to include the provision determined to be void.

 

7.9                                Offsets. The Company shall have the
right to offset from any Bonus payable hereunder any amount that the
Participant owes to the Company or any Affiliate
without the consent of the Participant (or his Beneficiary, in the event of the
Participant’s death).

 

7.10                          Dispute Resolution. Notwithstanding any
employee agreement in effect between a Participant and the Company or any Affiliate, if a Participant or
Beneficiary brings a claim that relates to benefits under this Plan, regardless
of the basis of the claim (including but not limited to, actions under Title
VII, wrongful discharge, breach of employment agreement, etc.), such claim
shall be settled by final binding arbitration in accordance with the rules of
the American Arbitration Association (“AAA”) and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration
must be initiated by serving or mailing a written notice of the complaint to
the other party describing the facts and claims for each claim. Written notice
shall be provided within one year (365 days) after the day the complaining
party first knew or should have known of the events giving rise to the
complaint, unless the applicable statute of limitation provides for a longer
period of time. If the complaint is not properly submitted within the
appropriate time frame, all rights and claims that the complaining party has or may have against the other party shall be
waived and void. Notice will be deemed given according to the date of any
postmark or the date of time of any personal delivery. Each party may be
represented in the arbitration by an attorney or other representative selected
by the party. The Company or Affiliate shall be responsible for its own costs,
the AAA filing fee and all other fees, costs and expenses of the arbitrator and
AAA for administering the arbitration. The claimant shall be responsible for
his attorney’s or representative’s fees, if any. However, if any party prevails
on a statutory claim which allows the prevailing party costs and/or attorneys’
fees, the arbitrator may award costs and reasonable attorneys’ fees as provided
by such statute.

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