Document:

Exhibit

Exhibit 4.2

DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

Morningstar, Inc. (the “Company,” “we,” “us” or “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): its common stock. The following description of the material terms of the Company’s capital stock and certain provisions of our Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) and our By-Laws (the “By-Laws”) is a summary. The summary is not complete, and is qualified in its entirety by reference to the provisions of our Articles of Incorporation and By-Laws, each of which is included as an exhibit to our Annual Report on Form 10-K, and to all applicable provisions of the Illinois Business Corporation Act (“IBCA”).  

Capitalization

Our authorized capital stock consists of 200 million shares of common stock, no par value per share, and 5 million shares of preferred stock, no par value per share. 
Common Stock 

Subject to the rights of the holders of any preferred stock the Company may designate and issue at any time in the future, the holders of our common stock are entitled to receive dividends if the Company’s Board of Directors (the “Board”) decides to declare any dividends. Upon liquidation, dissolution, or winding up of the Company, the holders of our common stock are entitled to receive, pro rata, our assets that are legally available for distribution, after payment of all debts and other liabilities. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of shareholders. The affirmative vote of the majority of the shares represented in person or by proxy at a shareholders meeting and entitled to vote on a matter is required for all actions to be taken by shareholders. Holders of our common stock do not have cumulative voting rights in the election of directors and have no preemptive, subscription, redemption, sinking fund or conversion rights. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future. 

Preferred Stock 

Our Articles of Incorporation authorize the issuance of 5 million shares of preferred stock, no par value per share. The Board is authorized to provide for the issuance of shares of preferred stock in one or more series, and to fix for each series voting rights, if any, designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations and restrictions as provided in a resolution adopted by the Board. 

Anti-Takeover Effects of Illinois Law and our Articles of Incorporation and By-Laws 

Illinois law and our Articles of Incorporation and By-Laws contain several provisions that may make it more difficult for another person to acquire control of us by means of tender offer, open market purchases, proxy contest, or otherwise. Set forth below is a description of those provisions. 
Authorized But Unissued Shares 

The authorized but unissued shares of common stock and preferred stock are generally available for future issuance without shareholder approval. These additional shares may be utilized for a variety of corporate purposes, including future financings to raise additional capital, corporate acquisitions, and employee benefit plans. The shares could be issued to purchasers sympathetic with our management or others in such a way as to render more difficult or to discourage a merger, tender offer, proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent officers or directors. 
Number of Directors; Removal; Vacancies 

Our By-Laws provide that we will have no fewer than 7 and no more than 12 directors, as may be determined by resolution of the Board. Vacancies on the Board, or any directorship to be filled by reason of an increase in the number of directors, may be filled by the Board. Under Illinois law, one or more directors may be removed, with or without cause, at meetings of shareholders by the affirmative vote of the holders of a majority of the outstanding shares that are entitled to vote at an election of directors. 

Special Meetings of Shareholders 

Our By-Laws provide that special meetings of our shareholders may be called only by our chairman of the Board, our chief executive officer, our Board, or the holders of not less than one-fifth of all the outstanding shares entitled to vote on the matter for which the meeting is being called or the purpose or purposes stated in the meeting notice. 

Advance Notification of Shareholder Nominations and Proposals
Under our By-Laws, to be properly brought before an annual meeting of shareholders, any shareholder proposal or nomination for election to our Board must be delivered to the Company’s Secretary not less than 90 days nor more than 120 days prior to the first anniversary of the prior year’s annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the annual meeting is called for a date that is not within 30 days from the anniversary date of the preceding year’s annual meeting date, written notice by a shareholder must be delivered not later than the close of business on the 10th day following the day on which first public disclosure of the date of the annual meeting was made. Such notice must contain information specified in our By-Laws, including the director nominee or proposal of other business, information about the shareholder making the nomination or proposal and the beneficial owner, if any, on behalf of whom the nomination or proposal is made. Our By-Laws also allow for proxy access, which requires the Company to include in its annual proxy statement nominees constituting up to the greater of (i) two directors or (ii) 20% of the number of directors that the holders of our common stock are entitled to elect. To be eligible to nominate directors for election, a shareholder or limited group of shareholders must have owned 3% or more of the Company’s common stock for at least three years as of the applicable nomination deadline, among other requirements.  
Illinois Law 

We are subject to Section 7.85 of the IBCA. Section 7.85 prohibits a publicly held Illinois corporation from engaging in a business combination unless, in addition to any affirmative vote required by law or the articles of incorporation of the company, the proposed business combination: 
		
	•
	receives the affirmative vote of the holders of at least 80% of the combined voting power of the then outstanding shares of all classes and series of the corporation entitled to vote generally in the election of directors voting together as a single class (the voting shares), and the affirmative vote of a majority of the voting shares held by disinterested shareholders; 

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	•
	is approved by at least two-thirds of the disinterested directors; or 

		
	•
	provides for consideration offered to shareholders that meets certain fair price standards and satisfies certain procedural requirements.

Such fair price standards require that the fair market value per share of the consideration offered be equal to or greater than the higher of: 
		
	•
	the highest per share price paid by the interested shareholder during the two-year period immediately prior to the first public announcement of the proposed business combination or in the transaction by which the interested shareholder became an interested shareholder; and 

		
	•
	the fair market value per common share on the first trading date after the first public announcement of the proposed business combination or on the first trading date after the date of the first public announcement that the interested shareholder has become an interested shareholder.

For purposes of Section 7.85, disinterested director means any member of the board of directors of the corporation who:
		
	•
	is neither the interested shareholder nor an affiliate or associate of the interested shareholder;

		
	•
	was a member of the board of directors prior to the time that the interested shareholder became an interested shareholder or was a director of the corporation before January 1, 1997, or was recommended to succeed a disinterested director by a majority of the disinterested directors then in office; and 

		
	•
	was not nominated for election as a director by the interested shareholder or any affiliate or associate of the interested shareholder.

For purposes of Section 7.85 and Section 11.75 described below, a business combination generally includes a merger, asset sale, or other transaction resulting in a financial benefit to an interested shareholder, and an interested shareholder is generally a person who, together with affiliates and associates, owns (or within the prior three years, did own) 15% of the voting shares. 

We are also subject to Section 11.75 of the IBCA, which prohibits business combinations with interested shareholders for a period of three years following the date that such shareholder became an interested shareholder, unless: 
		
	•
	prior to such date, the board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder; 

		
	•
	upon consummation of such transaction, the interested shareholder owned at least 85% of the voting shares outstanding at the time such transaction commenced (excluding shares owned by directors who are also officers, and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or 

		
	•
	on or after such date, the business combination is approved by the board of directors and authorized at a meeting of the shareholders by at least 66 2/3% of the outstanding voting shares not owned by the interested shareholder.

 

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Illinois law requires the affirmative votes of at least two-thirds of the shares entitled to vote to approve or authorize any: 
		
	•
	merger or consolidation of us with or into another corporation; 

		
	•
	sale, lease, or other disposition of all or substantially all of our assets; 

		
	•
	our dissolution; or 

		
	•
	amendment of our Articles of Incorporation.

The two-thirds voting requirement may delay, deter, or prevent a change of control of us if the proposed change is not favored by a shareholder or group of shareholders holding more than one-third of our outstanding voting stock. 

4Exhibit

 EXHIBIT 10.17
 

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (the “Agreement”) is made by and between Tricia Rothschild and his/her heirs, agents, and assigns (hereinafter, “Employee”) and Morningstar, Inc. and its affiliates, directors, officers, employees, agents, successors and assigns (hereinafter, the “Company”).
In consideration of the mutual promises contained herein, the parties agree to the following terms:
		
	1.
	Termination of Employment.  Employee’s employment with the Company shall terminate effective December 31, 2019 (the “Termination Date”).  Employee acknowledges that his/her right to compensation and benefits from the Company will terminate on the Termination Date, except as specifically set forth in this Agreement, except as vested under the terms of any employee benefit plan in which Employee is a participant, and except as required by law.

		
	2.
	Waiver and Release by Employee.  In exchange for the payments and benefits described herein and except as set forth in this Agreement, Employee waives and releases all claims and causes of action he/she may have, whether known or unknown, through the date he/she signs this Agreement, including but not limited to any claims against the Company arising out of his/her employment or separation from employment.  This includes, but is not limited to, all claims and causes of action alleging that the Company has:

		
	a.
	violated public policy, the Company’s personnel policies, handbooks or any contract of employment; 

		
	b.
	has defamed Employee, invaded his/her privacy, inflicted emotional distress upon him/her, or committed any other violation of state common law;

		
	c.
	has discriminated against Employee on the basis of any characteristic protected by law or otherwise violated his/her rights, including any right arising under the federal Age Discrimination in Employment Act, Title VII of the Civil Rights Act, the Equal Pay Act, the Americans With Disabilities Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act, any state or local anti-discrimination law, or any other federal, state, or local law, regulation, or ordinance, to the extent allowed by law.

Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall be construed to release Employee’s rights under any retirement benefit plan maintained by the Company of which Employee is a participant, or to the payments and benefits as provided in this Agreement.  Further, notwithstanding the foregoing, Employee does not waive any rights of indemnification that she may have against the Company pursuant to Section 8.75 of the Illinois Business 

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 EXHIBIT 10.17
 

Corporation Act of 1953, as amended, pursuant to the Company’s Bylaws in effect on the date hereof, or any agreement between the Company and Employee providing for indemnification in her capacity as an officer, employee or agent of the Company. 
		
	3.
	Waiver and Release by Company.   In exchange for the waivers and releases described hereinabove, the Company waives and releases all claims and causes of action it may have against Employee of any kind or nature, whether known or unknown, through the date it signs this Agreement, except claims based on fraud, willful misconduct, bad faith, gross negligence, breach of the fiduciary duty of loyalty, and breach of Employee’s obligations under this Agreement.

		
	4.
	Employee Acknowledgements.  Employee further acknowledges that:

		
	a.
	He/she is entering into this Agreement knowingly and voluntarily;

		
	b.
	He/she has been advised by the Company to consult an attorney; and

		
	c.
	He/she has been offered 21 days from the date he/she received this Agreement to consider whether to sign it.

		
	5.
	Revocation.  After Employee signs this Agreement, he/she will have seven (7) days to revoke it.  If Employee chooses to revoke this Agreement, he/she must deliver a written revocation to the Company representative indicated below within seven (7) days after he/she signs it.

		
	6.
	Payments and Benefits.  In consideration of the promises and releases set forth in this Agreement, the Company has agreed to provide certain payments and benefits to Employee, as follows:

		
	a.
	The Company agrees to pay Employee a bonus for 2019.  The amount of the bonus will be determined by multiplying (i) Employee’s 2019 target bonus by (ii) the 2019 bonus funding rate applicable to Employee, as determined under the Morningstar, Inc. Incentive Plan, and (iii) a percentage that considers the Employee’s individual performance and contributions during 2019.  This payment will be made no later than February 28, 2020.

		
	b.
	The Company agrees that, subject to i) approval by the Compensation Committee of the Board of Directors and ii) Employee’s compliance with his/her obligations under this Agreement, Employee’s unvested Restricted Stock Units (RSU) and Market Stock Units (MSU) that were granted more than one year prior to the Termination Date shall not terminate as a result of the termination of Employee’s employment with the Company on the Termination Date and shall continue to vest as if Employee remained employed (collectively, the “Retained Units”). Specifically, Employee’s unvested RSUs will continue to vest and be released to Employee on the dates that they would have been released had he/she remained employed.  

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 EXHIBIT 10.17
 

Similarly, Employee’s unvested MSUs will remain outstanding and the number of MSUs Employee earns will vest and be released to Employee after the end of the performance period and based on the final performance and corresponding payout factor as they would have if Employee had remained employed.  (Note: Employee may have tax obligations due prior to when they would have come due if he/she had remained employed.) 
		
	c.
	Employee acknowledges that the payments and benefits set forth in paragraphs 5(a) and (b) above exceed those to which he/she would otherwise be entitled upon separation of employment from the Company.

		
	7.
	No Admission.  Employee agrees that this Agreement does not constitute any admission of fault, responsibility, or liability on the part of the Company or Employee.

		
	8.
	Company Property.  Employee agrees that he/she will return all Company property to the Company, on or before the Termination Date.

		
	9.
	Non-Disparagement.  Employee agrees not to defame or disparage, either orally or in writing, the Company or its products and services.  The Company agrees that it will not defame or disparage, either orally or in writing, Employee.  This provision is not intended to and does not limit either party’s right to communicate directly with any government agency or entity or cooperate fully in any government investigation or other legal proceeding.  Additionally, it is not intended to and does not limit Employee’s right to engage in activity protected by law, including filing a complaint or charge with a government agency or entity.  Furthermore, it does not limit Employee’s right to make truthful disclosures or statements relating to unlawful employment or other business practices.

		
	10.
	Non-Compete and Non-Solicitation.  For the duration of Employee’s employment with the Company and prior to May 16, 2022, Employee agrees not to:

		
	a.
	Provide services of any kind, whether as an employee or independent contractor, to the following competitors of the Company: Envestnet, Factset, Refinitiv, Bloomberg, Financial Express, and Orion.

		
	b.
	Directly or indirectly solicit, recruit, or attempt to persuade any employee of the Company to cease employment with the Company.  Similarly, Employee will not directly or indirectly solicit, recruit, or attempt to persuade any employee of the Company to accept employment or enter into an independent contractor relationship with the competitors of the Company listed in the preceding paragraph.

The parties acknowledge that the sole and exclusive remedy of the Company for Employee’s violation of the covenant set forth in Paragraph 10(a) above is the cessation of Employee’s further vesting in the Retained Units; provided, however, 

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 EXHIBIT 10.17
 

the Company retains the right to pursue all legal and equitable remedies for any violation of Employee’s other obligations under this Agreement.  
		
	11.
	Confidential Information.  Employee acknowledges and agrees that, during the course of his/her employment with the Company, he/she has come into contact with and become aware of certain confidential information and/or trade secrets of the Company and its customers.  

		
	a.
	Consequently, Employee covenants and agrees that he/she will not, directly or indirectly, use or disclose to any person or entity, any confidential information or trade secrets of the Company, or any customer of the Company, without prior written authorization of the Company, before, on, or after the Termination Date.

		
	b.
	For purposes of this Agreement, "Confidential information" shall mean the following, whether or not in written form or marked "Confidential," whether developed by the Company or others, which relate to the Company’s business, operations, research, developments, products or activities and which are not otherwise generally available to the public:

		
	(i)
	proprietary or technical data, know‐how, trade secrets, inventions, processes, designs, specifications, models, plans, diagrams, reports, drawings, and patterns;

		
	(ii)
	personnel, purchasing, financial, marketing, distribution and other information;

		
	(iii)
	customer lists and other customer relations information; and

		
	(iv)
	personnel and employment matters relating to the Company’s employees.

		
	c.
	This provision is not intended to and does not limit Employee’s right to communicate directly with any government agency or entity or cooperate fully in any government investigation or other legal proceeding.  Additionally, it is not intended to any does not limit Employee’s right to engage in activity protected by law, including filing a complaint or charge with a government agency.  Furthermore, it does not limit Employee’s right to make truthful disclosures or statements relating to unlawful employment or other business practices.

		
	12.
	Employee Cooperation.  Employee further agrees that he/she will reasonably cooperate with the Company in matters in which he/she was involved while employed, if requested by the Company to do so, provided that such cooperation shall not shall not conflict with the legal or ethical obligation that Employee has with any third party.  

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 EXHIBIT 10.17
 

		
	13.
	Severability.  The parties agree that if any part of this Agreement is found to be illegal or invalid, the remainder of the Agreement will be enforceable.

		
	14.
	Entire Agreement.  This Agreement comprises the entire agreement between Employee and the Company and cancels all previous negotiations and agreements in connection with the subject matter of this Agreement.  This Agreement may not be modified or supplemented except in writing and signed by Employee and the Company’s Head of Talent & Culture.

		
	15.
	Choice of Law and Venue.  The provisions of this Agreement shall be governed by the laws of the State of Illinois.  Any proceeding to enforce the terms of this Agreement shall be brought in a court of competent jurisdiction located in Cook County, Illinois. 

		
	16.
	Effectiveness of Agreement.  This Agreement shall automatically terminate and neither party shall have any further duty or obligation hereunder unless the Company’s Compensation Committee of the Company’s Board of Directors approves this Agreement (including the provisions of Paragraph 5(b) relating to the Retained Units) on or before December 31, 2019. 

The undersigned state that they have carefully read this Agreement, that they know and understand its terms, and that they sign it freely.

/s/ Tricia Rothschild                                10/30/2019
Employee                                    Date
    
    
FOR COMPANY:

/s/ Bevin Desmond                                10/30/2019
            Bevin Desmond, Head of Talent & Culture                    Date

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