Document:

Exhibit

Exhibit 10.14
HYATT HOTELS CORPORATION
Performance Share Unit Award

The following sets forth the terms of your Hyatt Hotels Corporation Performance Share Unit (“PSU”) Award to you:
AWARD:
	
		
	Target Number of PSUs:
	_____

	Maximum Number of  PSUs:
	_____

	PSU Grant Identifier:
	[INSERT DATE] (the “Grant Date”)

PERFORMANCE CONDITIONS:
	
		
	Performance Period:
	[INSERT PERFORMANCE PERIOD]

	Vesting of Award and Payment Date:
	The PSUs are earned (or not) based on achievement relative to the Performance Goals set forth in this Agreement and subject to the Participant’s continued Service with the Company through the last day of the Performance Period (except as otherwise set forth in this Agreement). Except as otherwise provided upon a Change in Control, to the extent that the PSUs are earned, the earned PSUs shall be delivered to the Participant within thirty (30) days following the Determination Date (but in no event later than [INSERT DATE]).

The Performance Share Unit Award that is described and made pursuant to this Performance Share Unit Award Agreement (this “Award”) is issued under the Third Amended and Restated Hyatt Hotels Corporation Long-Term Incentive Plan (as may be amended from time to time, the “Plan”).  By electronically acknowledging and accepting this Award within 30 days after the date of the electronic mail notification to you of the grant of this Award (the “Electronic Notification Date”), you agree to be bound by the terms and conditions herein, the Plan and all conditions established by the Company in connection with awards issued under the Plan.  In order to vest in the Award you must accept this Award within 30 days of the Electronic Notification Date. If you fail to accept this Award within 30 days of the Electronic Notification Date, the Award will be cancelled and forfeited. 
The following terms and conditions apply to the Performance Share Units granted pursuant to this Award.
	
												
	Company; Defined Terms:
	Except as the context may otherwise require, references to the “Company” shall be deemed to include its subsidiaries and affiliates.
To the extent not defined herein, capitalized terms shall have the meanings ascribed to them in the Plan.

	
												
	Definitions:
	As used herein, the following terms shall have the following meanings:
“Adjusted ROGA Performance” means the straight average of Adjusted ROGA for each year of the Performance Period.  
“Adjusted ROGA” means, for each year of the Performance Period, Adjusted EBITDA divided by Average Gross Assets.
 “Adjusted EBITDA” means, for each year in the Performance Period, net income attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated hospitality ventures Adjusted EBITDA based on our ownership percentage of each venture, adjusted to exclude the following items: 
Interest expense
Provision for income taxes
Depreciation and amortization
Equity earnings (losses) from unconsolidated hospitality ventures
Stock-based compensation expense
Gains (losses) on sales of real estate 
Asset impairments
Other income (loss), net
Amortization of management and franchise agreement intangibles constituting payments to customers 
Other revenues and expenses from managed and franchised properties, including revenues and expenses related to reservations, marketing, and technology costs.
Adjusted EBITDA is calculated by adding the Adjusted EBITDA of each of Hyatt’s reportable segments to corporate and other Adjusted EBITDA. For the purposes of this Agreement, net income (loss) attributable to Hyatt Hotels Corporation will be calculated in accordance with accounting principles generally accepted in the United States (US GAAP) as in effect on the Date of Grant.
 “Average Gross Assets” means the average of the year-end prior year and year-end current year:
Total assets; plus  
Accumulated Depreciation of Property & Equipment.  
“Managed & Franchised Adjusted EBITDA” means, with respect to each fiscal year in the Performance Period, the sum of Adjusted EBITDA for the three management and franchising segments (Americas + ASPAC + EAME/SWAsia).
“Peer Group Companies” means, for the Performance Period, Hilton Hotels Corporation, Marriott International, Inc., InterContinental Hotels Group PLC, Host Hotels & Resorts, Inc., Sunstone Hotel Investors, Inc., and Park Hotels & Resorts Inc.
“Performance Goals” means (1) Adjusted ROGA Performance, (2) Managed and Franchised EBITDA Performance, and (3) Relative TSR Rank.
“Relative TSR Rank” means, the rank order (including Hyatt) of the 20-trading day average stock price prior to the beginning of the Performance Period, compared with last 20-trading day average, with dividends re-invested of each Peer Group Company over the Performance Period. 

	
												
	Determination of Number of Earned Performance Share Units:
	The number of PSUs earned, if any, for the Performance Period shall be determined as follows:
Earned PSUs = 
((Adjusted ROGA Payout Percentage x 60% of Target Number of PSUs)
+
 (3-Year Average Managed & Franchised Adjusted EBITDA Payout Percentage x 40% of Target Number of PSUs)) 
x 
Relative TSR Modifier
The “Adjusted ROGA Payout Percentage” is based on Adjusted ROGA Performance over the Performance Period, determined by the Committee following the end of the Performance Period, in accordance with the following table:

	 
	 
	Below Threshold
	Threshold
	Target
	Maximum

	 
	Adjusted ROGA Performance
	 
	 
	 
	 

	 
	Adjusted ROGA Payout Percentage
	0%
	37.5%
	100%
	166.7%

	 
	Achievement between threshold and target and between target and maximum will be interpolated linearly.  
The “Managed & Franchised Adjusted EBITDA Payout Percentage” is based on achievement, expressed as a percentage, of Managed & Franchised Adjusted EBITDA over each fiscal year of the Performance Period against the Managed & Franchised Adjusted EBITDA target applicable to such fiscal year (expressed in United States dollars and established by the Committee in its sole discretion within 90 days following the beginning of each fiscal year), averaged at the end of the Performance Period, as determined by the Committee in its sole discretion following the end of the Performance Period, in accordance with the following table: 

	 
	 
	Below Threshold
	Threshold
	Target
	Maximum

	 
	Managed & Franchised Adjusted EBITDA Performance
	 
	 
	 
	 

	 
	Managed & Franchised Adjusted EBITDA Payout Percentage
	0%
	37.5%
	100%
	166.7%

	 
	Achievement between threshold and target and between target and maximum will be interpolated linearly.  
The “Relative TSR Modifier” means the Company’s Relative TSR Rank compared to the Peer Group Companies, as determined by the Committee in its sole discretion:

	 
	Relative TSR Rank
	Relative TSR Modifier

	 
	1st
	120%

	 
	2nd
	110%

	 
	3rd
	100%

	 
	4th
	100%

	
												
	 
	5th
	100%

	 
	6th
	90%

	 
	7th
	80%

	 
	Notwithstanding anything in the foregoing to the contrary, if, during the Performance Period, any Peer Group Company undergoes a material change in corporate capitalization or a corporate transaction, or is otherwise no longer publicly traded on an applicable exchange, as determined by the Committee, then the Committee shall make such adjustments to the Peer Group Companies and/or the Relative TSR Modifier as the Committee deems, in its sole discretion, to be appropriate.
The Committee shall determine the number (if any) of PSUs that has been earned hereunder following the end of the Performance Period (such date of determination, the “Determination Date”). Subject to Participant’s continued Service through the last day of the Performance Period (except as otherwise provided herein), as of the Determination Date, Participant shall earn a number of PSUs based on the Committee’s determination of performance with respect to the Performance Goals.  In no event shall Participant earn a number of PSUs in excess of the Maximum PSUs indicated above.  All PSUs that are not earned as of the Determination Date shall be forfeited.

The attainment of Performance Goals under this agreement shall be determined by the Committee in accordance with GAAP (Generally Accepted Accounting Principles), as applicable, as in effect on the Grant Date and without regard to any changes in GAAP accounting that may occur subsequent thereto, unless otherwise determined by the Committee.
Adjustments:  Notwithstanding anything herein to the contrary, the Committee shall have the sole authority and discretion to adjust the achievement of the Performance Goals (including any individual component of any of the Performance Goals) by the Company to reflect any items that it deems appropriate, including (but not limited to), items relating to any unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions. 

	Settlement and Payment of PSUs:
	Except as otherwise provided upon a Change in Control, or the Participant’s death or Disability, any earned PSUs  shall be settled and shares of Common Stock delivered to the Participant within thirty (30) days following the Determination Date (but in no event later than [INSERT DATE]) (the “Payment Date”).
Except as otherwise provided below in the event of a Change in Control, settlement will be accomplished through the issuance of shares of Common Stock to the Participant equal to the number of PSUs earned and to be settled and paid.  The issuance of shares of Common Stock will be subject to tax withholding, as provided below.

	
												
	Termination of Service:
	Subject to the exceptions below, the earned PSUs will be payable only if the Participant remains in continuous Service (as defined below) with the Company from the Grant Date through the last day of the Performance Period. “Service” for purposes of this Award shall mean employment as an Employee, or service to the Company as a Director or Consultant. Except as provided below, all unearned PSUs will be forfeited and cancelled for no consideration upon Termination of Service.  Notwithstanding the foregoing, PSUs will not be forfeited or cancelled in the following circumstances:
•
In the event of the Participant’s death or Disability (as defined below) prior to the end of the Performance Period, the date of the most recent fiscal quarter end prior to the Participant’s death or Disability shall be the last day of the Performance Period, and the Participant shall be eligible to earn PSUs on a pro rata basis in an amount equal to the number of PSUs that would have been earned hereunder determined as of immediately prior to the Participant’s death or Disability based on actual performance of the Company against the Performance Goals through the most recent fiscal quarter end (projected through the remainder of the performance period based on actual performance), as determined and as may be adjusted by the Committee, multiplied by a fraction the numerator of which is the number of full months elapsed in the Performance Period through the Participant’s death or Disability and the denominator of which is 36; provided, that if such death or Disability occurs within the first calendar year of the Performance Period, the number of earned PSUs shall be determined without regard to the Relative TSR Modifier.  Any earned PSUs (and the Dividend Equivalents thereon) shall be settled within thirty (30) days following such death or Disability (which shall be deemed to be the Payment Date).  For this purpose “Disability” shall mean either (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (ii) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s long-term disability plan, or (iii) the Participant is determined to be totally disabled by the Social Security Administration. 
•
Notwithstanding the Amended and Restated Retirement Policy Regarding Equity Vesting adopted by Hyatt Hotels Corporation (the “Retirement Policy”), in the event of Participant’s Retirement (as defined in the Retirement Policy) prior to the end of the Performance Period, the Participant shall be eligible to earn PSUs on a pro rata basis in an amount equal to the number PSUs that would have been earned as of the Determination Date based on actual performance, multiplied by a fraction the numerator of which is the number of full months elapsed in the Performance Period through the Participant’s date of Retirement and the denominator of which is 36.  Notwithstanding the foregoing, if the Participant gives one year notice prior to such Retirement, the Participant shall be eligible to earn the full amount of PSUs that would have been earned as of the Determination Date based on actual performance (without proration).As described below, PSUs are subject to cancellation and forfeiture for no consideration in the event the Participant engages in certain “detrimental conduct” (as defined below).

	
												
	Change in Control:
	In the event of a Change in Control during the Performance Period, subject to Participant’s continued Service through the date of such Change in Control (or earlier termination due to Retirement), the date of the most recent fiscal quarter end shall be the last day of the Performance Period, and the number of PSUs earned hereunder will be determined as of immediately prior to the Change in Control based on actual performance of the Company against the Performance Goals through the most recent fiscal quarter end (projected through the remainder of the performance period based on actual performance), as determined and certified by the Committee; provided, that if such Change in Control occurs within the first calendar year of the Performance Period, the number of earned PSUs shall be determined without regard to the Relative TSR Modifier.  Settlement of PSUs will be accomplished through the issuance of shares of Common Stock or cash, as the Committee may determine, and any earned PSUs (and the Dividend Equivalents thereon) shall be settled immediately upon the Change in Control (which shall be deemed to be the Payment Date).  Any PSUs not earned upon a Change in Control shall be forfeited and cancelled for no consideration.  

	Rights of Ownership:
	The Participant shall not have any rights or privileges of a stockholder with respect to the PSUs subject to this Award unless and until shares of Common  Stock are delivered in respect hereof.

	Dividend Equivalent Rights:
	Each PSU granted hereunder is hereby granted in tandem with a corresponding Dividend Equivalent right that shall, while it remains outstanding, and to the extent that dividends are paid on Common Stock and subject to the terms set forth below, entitle the Participant to a cash payment in the amount of any such dividend(s) paid by the Company in respect of a share of Common Stock.  The Dividend Equivalent right shall remain outstanding from the Grant Date through the earlier to occur of (a) the termination or forfeiture for any reason of the PSU to which such Dividend Equivalent right corresponds, or (b) the delivery to the Participant of the share of Common Stock (or other payment) in respect of the PSU to which such Dividend Equivalent right corresponds (in any case, the “PSU Termination Date”).  Each Dividend Equivalent right will entitle the Participant to a cash payment in the amount of any dividend(s) paid by the Company in respect of a share of Common Stock to the extent that such dividend(s) are declared and have ex dividend date(s), in each case, that occur on or after the applicable Grant Date and on or prior to the applicable PSU Termination Date, payable upon the Payment Date in respect of the PSU to which such Dividend Equivalent right corresponds; provided, that with respect to any dividends meeting such criteria that are paid after the PSU Termination Date, the applicable Dividend Equivalent payment will be made if and when the Company pays the underlying dividend or, if later, on the Payment Date (but in no event later than March 15th of the year following the year in which the applicable ex dividend date occurs). For the avoidance of doubt, (i) if a PSU is not ultimately earned hereunder, no Dividend Equivalent payments shall be made with respect to such unearned PSU, and (ii) in no event shall a Dividend Equivalent payment be made that would result in the Participant receiving both the Dividend Equivalent payment (in respect of a dividend) and the actual dividend with respect to the same PSU and corresponding share of Common Stock. Dividend Equivalent rights and any amounts that may become distributable in respect thereof shall be treated separately from the PSUs and the rights arising in connection therewith for purposes of the designation of time and form of payments required by Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, “Section 409A”).

	
												
	Tax Withholding:
	Unless paid in cash by the Participant at the time of settlement, the Company will deduct or withhold from shares issuable upon settlement of the PSU a number of shares of Common Stock having a Share Value equal to the amount sufficient to satisfy the statutory federal, state, foreign and local taxes and any employment, disability, social welfare or other legally required withholdings (subject to any applicable limitation(s) in the Plan).  Notwithstanding anything to the contrary herein, if the tax obligation arises during period in which the Participant is prohibited from trading under any policy of the Company or by reason of the Securities Exchange Act of 1934, then the tax withholding obligation shall automatically be satisfied by the Company withholding shares of Common Stock.   
The Participant is encouraged to consult with a tax advisor regarding the tax consequences of participation in the Plan and acceptance of this Award.

	Transferability of PSUs:
	PSUs may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated; provided that in the event of the Participant’s death, shares deliverable or amounts payable with respect to the PSUs shall be delivered or paid, as applicable, to the Participant’s designated beneficiary.  The Administrator will advise Participants with respect to the procedures for naming and changing designated beneficiaries.

	Data Privacy:  
	By acceptance of this Award, the Participant acknowledges and consents to the collection, use, processing and transfer of personal data as described below and in accordance with the Hyatt Privacy Policy for Employees.  The Company, its affiliates and the Participant’s employer hold certain personal information, including the Participant’s name, home address and telephone number, date of birth, social security number or other employee tax identification number, salary, nationality, job title, and any equity compensation grants or Common Stock awarded, cancelled, purchased, vested, unvested or outstanding in the Participant’s favor, for the purpose of managing and administering the Plan (“Data”).  The Company and its affiliates will transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan.  These recipients may be located in the United States, the European Economic Area, or elsewhere.  The Participant hereby authorizes them to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing participation in the Plan, including any requisite transfer of such Data as may be required for the administration of the Plan on behalf of the Participant to a third party with whom the Participant may have elected to have payment made pursuant to the Plan.  The Participant may, at any time, review Data, require any necessary amendments to it or withdraw the consent herein in writing by contacting the Company; however, withdrawing the consent may affect the Participant’s ability to participate in the Plan and receive the benefits intended by this Award.  

	No Impact on Other Rights:
	Participation in the Plan is voluntary.  The value of the PSUs is an extraordinary item of compensation outside the scope of Participant’s normal employment and compensation rights, if any.  As such, the  PSUs are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pensions or retirement benefits or similar payments unless specifically and otherwise provided in the plans or agreements governing such compensation.  The Plan is discretionary in nature and may be amended, cancelled, or terminated by the Company, in its sole discretion, at any time.  The grant of PSUs under the Plan is a one-time benefit and does not create any contractual or other right to receive any other grant of PSUs or other awards under the Plan in the future.  Future grants, if any, will be at the sole discretion of the Company, including, but not limited to, the timing of the grant, the form of award, number of shares of Common Stock subject to an award, vesting, and exercise provisions, as relevant.

	Restrictive Covenants:
	As a condition of this RSU Award, to the extent Participant has not done so already, Participant agrees to execute and deliver the (i) Non-Competition Agreement, the (ii) Non-Solicitation & Non-Disparagement Agreement (iii) Confidentiality Agreement, and (iv) Invention Assignment Agreement in form and substance acceptable to the Company, and Participant agrees to be bound by the terms of those agreements.

	
												
	Effect of Detrimental Conduct:
	In the event the Participant engages in “detrimental conduct” (as defined below), the Participant shall forfeit all unvested shares of PSUs and all such awards shall be null and void as of the date such detrimental conduct first occurs and the Participant shall not receive any consideration therefor. 
Definition of Detrimental Conduct.  The Participant will be deemed to have engaged in detrimental conduct if in the reasonable, good faith determination of the Administrator, the Participant has engaged in conduct constituting (1) a felony; (2) gross negligence or willful misconduct in the performance of Participant’s duties and responsibilities to the Company; (3) willful violation of a material Company policy, including, without limitation, any policy relating to confidentiality, honesty, integrity and/or workplace behavior, which violation has resulted or may reasonably be expected to result in harm to the Company, its stockholders, directors, officers, employees or customers; (4) improper internal or external disclosure or use of confidential information or material concerning the Company or any of its stockholders, directors, officers, or employees which use or disclosure has resulted or may reasonably be expected to result in harm to the Company; (5) publicly disparaging the Company or any of its stockholders, directors, officers or employees; and/or (6) willful violation of any material agreements with the Company entered into by the Participant in connection with or pursuant to the Plan. 
Determination of Detrimental Conduct.  Upon a reasonable, good faith determination that detrimental conduct has occurred, the Administrator shall give the Participant written notice, which shall specify the conduct and the date of the conduct. Any dispute concerning the matters set forth in the notice shall be decided under the procedures in the Plan.

	409A:
	This Award is intended to comply with Section 409A or an available exemption therefrom.  However, notwithstanding any other provision of the Plan or this Award, if at any time the Administrator determines that the RSUs and/or Dividend Equivalents (or any portion thereof) may not be compliant with or exempt from Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify or to be responsible for damages to the Participant or any other person for failure to do so) to adopt such amendments to the Plan or this Award, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate to provide for the PSUs and/or Dividend Equivalents to either be exempt from the application of Section 409A or comply with the requirements of Section 409A; provided, however, that nothing herein shall create any obligation on the part of the Company to adopt any such amendment or take any other action.
Notwithstanding anything herein to the contrary, no payment hereunder shall be made to the Participant during the six (6)-month period following the Participant’s “separation from service” (within the meaning of Section 409A) to the extent that the Company determines that paying such amounts at the time set forth herein would be a prohibited distribution under Section 409A(a)(2)(B)(i).  If the payment of any such amounts is delayed as a result of the previous sentence, then  within thirty (30) days following the end of such six (6)-month period (or, if earlier, the Participant’s death), the Company shall pay the Participant the cumulative amounts that would have otherwise been payable to the Participant during such period, without interest.  For the avoidance of doubt, to the extent that any PSUs are “nonqualified deferred compensation” within the meaning of Section 409A, the settlement of PSUs hereunder upon a Change in Control shall only occur to the extent that such Change in Control is also a “change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation” within the meaning of Section 409A(a)(2)(A)(v). 

PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE PERFORMANCE SHARE UNITS AWARDED PURSUANT TO THIS AGREEMENT MAY BE EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR BEING GRANTED THIS AWARD) AND BY ACHIEVEMENT OF THE PERFORMANCE GOALS (AS DETERMINED AND CERTIFIED BY THE COMMITTEE) AND BY COMPLIANCE WITH PARTICIPANT’S VARIOUS OBLIGATIONS UNDER THIS AGREEMENT. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE PLAN SHALL CONFER UPON PARTICIPANT ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE PARTICIPANT’S EMPLOYMENT AT ANY TIME, FOR ANY REASON OR NO REASON, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT ADVANCE NOTICE EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.ex_171883.htm

Exhibit 4-I 

 

DESCRIPTION OF THE REGISTRANT’S SECURITIES 

REGISTERED PURSUANT TO SECTION 12 OF THE 

SECURITIES EXCHANGE ACT OF 1934 

 

As of December 31, 2019, the sole class of securities of Otter Tail Corporation (the “Company”) registered under Section 12 of the Securities Exchange Act of 1934, as amended, was the Company’s common shares.

 

Description of common shares

 

The following description of the Company’s common shares is only a summary and does not purport to be complete and is qualified by reference to the Company’s Restated Articles of Incorporation (the “Articles”) and Restated Bylaws (the “Bylaws”). The Articles and Bylaws have been incorporated by reference as exhibits to the Company’s most recent Annual Report on Form 10-K.

 

General

 

The Articles currently authorize the issuance of three classes of shares:

 

	 	
			●

				
			cumulative preferred shares, without par value (1,500,000 shares authorized),

			

 

	 	
			●

				
			cumulative preference shares, without par value (1,000,000 shares authorized), and

			

 

	 	
			●

				
			common shares, par value $5 per share (50,000,000 shares authorized).

			

 

As of December 31, 2019, there were no cumulative preferred shares or cumulative preference shares outstanding.

 

The Company’s Board of Directors is authorized to provide for the issue from time to time of cumulative preferred shares and cumulative preference shares in series and, as to each series, to fix the designation, annual dividend rate, quarterly dividend payment dates, redemption price or prices, voluntary and involuntary liquidation prices, conversion provisions, if any, and sinking fund provisions, if any, applicable to the shares of such series. As a result, the Board of Directors could, without shareholder approval, authorize the issuance of cumulative preferred shares or cumulative preference shares with dividend, redemption or conversion provisions that could have an adverse effect on the availability of earnings for distribution to the holders of common shares, or with voting, conversion or other rights that could proportionately reduce, minimize or otherwise adversely affect the voting power and other rights of holders of common shares.

 

The common shares do not have any redemption or sinking fund provisions and are not entitled to any conversion rights. Holders of common shares do not have any preemptive right to subscribe for additional securities the Company may issue. The Company’s outstanding common shares are, and any newly issued common shares will be, fully paid and non-assessable.

 

Dividend Rights

 

Subject to the prior dividend rights of any holders of the cumulative preferred shares and the cumulative preference shares and the other limitations set forth in the following paragraphs, dividends may be declared by the Board of Directors and paid from time to time upon the outstanding common shares from any funds legally available therefor.

 

If, and so long as, any cumulative preferred shares are outstanding, the Company shall not, without the consent of the holders of a majority of the aggregate voting power of the cumulative preferred shares of all series then outstanding (two-thirds if more than one-fourth vote negatively), declare, pay or set apart for payment any dividend on or purchase, redeem or otherwise acquire any common shares of the Company unless, after giving effect thereto (a) Common Share Equity shall equal at least 25% of Total Capitalization and (b) the earned surplus of the Company shall not be less than $831,398.

 

“Common Share Equity” is the sum of

 

	 	
			●

				
			the corporation’s stated capital applicable to its common shares and to all other shares ranking junior to the cumulative preferred shares with respect to the payment of dividends or the distribution of assets (collectively “Subordinate Shares”), including any shares proposed to be issued substantially contemporaneously,

			

 

 

 

 

	 	
			●

				
			capital surplus to the extent of premium on the corporation’s common shares and on all other Subordinate Shares, including any premium on any shares proposed to be issued substantially contemporaneously,

			

 

	 	
			●

				
			contributions in aid of construction, and

			

 

	 	
			●

				
			earned surplus,

			

 

all determined in accordance with such system of accounts as may be prescribed by governmental authorities having jurisdiction in the premises or, in the absence thereof, in accordance with generally accepted accounting practice.

 

“Total Capitalization” means the sum of

 

	 	
			●

				
			the Common Share Equity,

			

 

	 	
			●

				
			the involuntary liquidation preference of all cumulative preferred shares and all other shares prior to or on a parity with the cumulative preferred shares to be outstanding after the proposed event, and

			

 

	 	
			●

				
			the principal amount of all interest bearing debt (including debt to which property theretofore acquired or to be acquired substantially contemporaneously is or will be subject) to be outstanding after the proposed event, excluding, however, all indebtedness maturing by its terms within one year from the time of creation thereof unless the corporation, without the consent of the lender, has the right to extend the maturity of such indebtedness for a period or periods which, with the original period of such indebtedness, aggregates one year or more.

			

 

Moreover, no dividend shall be declared, paid or set apart for payment on the common shares (other than a dividend or distribution payable solely in common shares) nor shall any common shares be purchased or acquired by the Company at any time while there is a default or deficiency with respect to a sinking or purchase fund established for the benefit of any series of the cumulative preferred shares or the cumulative preference shares.

 

Voting Rights

 

Subject to the rights of any holders of the cumulative preferred shares and the cumulative preference shares, only the holders of common shares have voting rights and are entitled to one vote for each share held. Pursuant to the Minnesota Business Corporation Act (the “MBCA”), directors are elected by a plurality of the voting power of the shares present and entitled to vote on the election of directors and all other matters are to be decided by the affirmative vote of the holders of the greater of (1) a majority of the voting power of the shares present and entitled to vote on that item of business, or (2) a majority of the voting power of the minimum number of the shares entitled to vote that would constitute a quorum for the transaction of business at the meeting, except where the MBCA or the Articles require a larger proportion or number. See “Certain Provisions of Articles and Bylaws” below.

 

As provided in the MBCA, holders of common shares may act by unanimous written action, and holders of 10% of the voting power of all shares entitled to vote (25% if the purpose of the meeting is to facilitate a business combination) may call a special meeting of shareholders.

 

The voting rights of the cumulative preferred shares and the cumulative preference shares as set forth in the Articles are described below, and additional voting rights could be established by the Board of Directors in connection with the issuance of any such shares in the future.

 

Voting Rights of Cumulative Preferred Shareholders

 

In the event that four full quarterly dividend payments on the cumulative preferred shares of any series shall be in default, the holders of the cumulative preferred shares of all series at the time outstanding, voting as a class, shall thereafter elect three members of an eleven member Board of Directors; and, if such default shall increase to twelve full quarterly dividend payments, such holders shall thereafter elect six members of an eleven member Board of Directors. After any such default shall have been cured, the cumulative preferred shares shall be divested of such voting rights, subject to being revested in the event of subsequent such defaults.

 

The consent of the holders of at least two-thirds of the aggregate voting power of the cumulative preferred shares of all series then outstanding is required to

 

	 	
			●

				
			create, authorize or issue any shares of any class ranking prior to (or any securities of any kind or class convertible into shares of any class ranking prior to) the cumulative preferred shares as to dividends or assets, or

			

 

 

 

 

	 	
			●

				
			amend the Articles so as to affect adversely any of the preferences or other rights of the holders of the cumulative preferred shares, provided that if less than all series of cumulative preferred shares are so affected, only the consent of the holders of at least two-thirds of the aggregate voting power of the affected series shall be required.

			

 

A majority (two-thirds if more than one-fourth vote negatively) of the aggregate voting power of the cumulative preferred shares of all series then outstanding is required to

 

	 	
			●

				
			increase the number of authorized cumulative preferred shares or create, authorize or issue shares of any class ranking on a parity with the cumulative preferred shares as to dividends or assets, or any securities of any kind or class convertible into cumulative preferred shares or shares of any class on a parity with the cumulative preferred shares;

			

 

	 	
			●

				
			issue any cumulative preferred shares of any series if as a result thereof more than 60,000 cumulative preferred shares of all series will then be outstanding, unless, after giving effect thereto

			

 

	 	
			—

				
			Adjusted Income Available for Interest shall equal at least 1.5 times Adjusted Interest and Preferred Charges,

			

 

	 	—	
			Adjusted Income Available for Preferred Dividends shall equal at least 2.5 times Adjusted Preferred Charges, and

			

 

	 	—	
			Common Share Equity shall equal at least 25% of Total Capitalization;

			

 

	 	
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			declare, pay or set apart for payment any dividend on any Subordinate Shares, or purchase, redeem or otherwise acquire for value any Subordinate Shares, or pay or set aside or make available any moneys for a purchase fund or sinking fund for the purchase or redemption of any such Subordinate Shares, unless after giving effect to the payment of such dividend or such purchase, redemption or other acquisition of such payment or setting aside of moneys in a purchase fund or sinking fund,

			

 

	 	—	
			the Common Share Equity shall equal at least one-fourth of the Total Capitalization, and

			

 

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			the earned surplus of the Company shall be not less than $831,398;

			

 

	 	
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			consolidate or merge into or with any other corporation or corporations unless, after giving effect thereto

			

 

	 	—	
			the cumulative preferred shares of the Company outstanding immediately prior to such consolidation or merger shall remain outstanding or be constituted as shares of the corporation resulting from such consolidation or merger in the same number and with the same relative rights, voting power, preferences and restrictions as theretofore, the authorized number thereof shall not be increased, there shall be no shares of the resulting corporation outstanding or authorized ranking prior to or on a parity with the cumulative preferred shares, except shares of the Company outstanding or authorized immediately prior to such consolidation or merger, and the indebtedness for borrowed money of the resulting corporation immediately after such consolidation or merger shall be no greater than the indebtedness for borrowed money of the Company immediately preceding such consolidation or merger; or

			

 

	 	—	
			each of the following must be satisfied with respect to the resulting corporation: the Adjusted Income Available for Interest shall equal at least 1.5 times Adjusted Interest and Preferred Charges, the Adjusted Income Available for Preferred Dividends shall equal at least 2.5 times Adjusted Preferred Charges, and the Common Share Equity of the resulting corporation shall equal at least 25% of Total Capitalization; and

			

 

	 	
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			sell, lease or exchange all or substantially all of the Company’s property and assets unless, after giving effect thereto, the fair value of the Company’s assets shall at least equal the preference on voluntary liquidation of all outstanding cumulative preferred shares and of all other outstanding shares ranking on a parity with the cumulative preferred shares, after deducting an amount equal to the Company’s outstanding indebtedness plus an amount equal to the preference on voluntary liquidation of all shares ranking prior to the cumulative preferred shares.

			

 

 

 

 

“Adjusted Income Available for Interest” is based upon gross income of the corporation or of the resulting corporation, as the case may be, for a then current 12-month period available for the payment of interest, after deducting all taxes (including income taxes).

 

“Adjusted Income Available for Preferred Dividends” equals Adjusted Income Available for Interest minus interest charges for one year and the dividend requirement for one year on any shares ranking prior to the cumulative preferred shares.

 

“Adjusted Interest and Preferred Charges” means the sum of

 

	 	
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			the interest charges for one year on all the corporation’s interest bearing indebtedness outstanding at the time of issuance of such cumulative preferred shares or of the proposed consolidation or merger (including that, if any, proposed to be issued or assumed substantially contemporaneously, or to which property theretofore acquired or to be acquired substantially contemporaneously is or will be subject (adjusted for all amortization of debt discount and expense, or of premium on debt, as the case may be)), and

			

 

	 	
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			the dividend requirements for one year on all outstanding cumulative preferred shares, and on all other shares of a class ranking prior to or on a parity with the cumulative preferred shares as to dividends or assets, outstanding at the time of issuance of such additional cumulative preferred shares, or of such consolidation or merger, including all such shares proposed to be issued, or all such shares of the resulting corporation, as the case may be.

			

 

“Adjusted Preferred Charges” is the Adjusted Interest and Preferred Charges for one year determined at the time of issuance of such cumulative preferred shares or of the proposed consolidation or merger, less the interest charges for one year and the dividend requirements for one year on any shares ranking prior to the cumulative preferred shares, included in determining the Adjusted Interest and Preferred Charges.

 

Holders of cumulative preferred shares entitled to vote as described above shall have voting power in proportion to the involuntary liquidation preference of the cumulative preferred shares so held and shall be entitled to cumulate votes in the election of directors.

 

Voting Rights of Cumulative Preference Shareholders

 

In the event that four full quarterly dividend payments on the cumulative preference shares of any series shall be in default, the holders of the cumulative preference shares of all series at the time outstanding, voting as a class, shall thereafter elect two members of an eleven-member Board of Directors. After any such default shall have been cured, the cumulative preference shares, as the case may be, shall be divested of such voting rights, subject to being revested in the event of subsequent such defaults.

 

The consent of the holders of at least two-thirds of the aggregate voting power of the cumulative preference shares of all series then outstanding is required to

 

	 	
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			create or authorize any shares of any class (other than the cumulative preferred shares, whether now or hereafter authorized) ranking prior to the cumulative preference shares as to dividends or assets, or

			

 

	 	
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			amend the Company’s Articles so as to affect adversely any of the preferences or other rights of the cumulative preference shares, provided that if less than all series of cumulative preference shares are so affected, only the consent of the holders of at least two-thirds of the aggregate voting power of the affected series shall be required.

			

 

A majority (two-thirds if more than one-fourth vote negatively) of the aggregate voting power of the cumulative preference shares of all series then outstanding is required to

 

	 	
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			increase the number of authorized cumulative preference shares or create or authorize any shares of any class ranking on a parity with the cumulative preference shares as to dividends or assets, or

			

 

	 	
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			consolidate or merge into or with any other corporation or corporations or sell, lease or exchange all or substantially all of the Company’s property and assets unless specified conditions are met.

			

 

 

 

 

Liquidation Rights

 

Upon any liquidation, dissolution or winding up of the Company, the holders of common shares shall be entitled to receive pro rata all assets of the Company distributable to shareholders after the payment of the respective liquidation preferences to any holders of the cumulative preferred shares and the cumulative preference shares.

 

Certain Provisions of Articles and Bylaws

 

Except at such times when holders of cumulative preferred shares and/or cumulative preference shares have special voting rights for the election of directors as described previously, the Company’s directors are elected for three-year, staggered terms by the holders of the common shares. Cumulative voting of the common shares in the election of directors is prohibited. In addition, the Company’s Bylaws provide that a vote of 75% of the common shares is required to remove directors who have been elected by the holders of common shares. The affirmative vote of 75% of the common shares is required to amend provisions of the Articles and Bylaws relating to the staggered terms and the removal of directors, unless approved by all of the continuing directors as specified therein.

 

The Articles contain “fair price” provisions which require the affirmative vote of 75% of the voting power of the common shares to approve business combinations, including mergers, consolidations and sales of a substantial part of the Company’s assets, with an interested shareholder or its affiliates or associates, unless specified price criteria and procedural requirements are met or unless the transaction is approved by the majority of the continuing directors. The Articles also contain “anti-greenmail” provisions which preclude the Company from making certain purchases of common shares at a price per share in excess of the fair market price from a substantial shareholder unless approved by the affirmative vote of 66 2/3% of the voting power of the common shares held by the disinterested shareholders. The “fair price” and “anti-greenmail” provisions of the Articles may not be amended without the affirmative vote of the holders of at least 75% of the voting power of the common shares, unless approved by all of the continuing directors as specified therein.

 

The overall effect of the foregoing provisions of the Company’s Articles and Bylaws, together with the ability of the Board of Directors to issue additional common shares, cumulative preferred shares and cumulative preference shares, may be to delay or prevent attempts by other persons or entities to acquire control of the Company without negotiations with its Board of Directors.

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