Exhibit 10.3

COMMUNICATIONS SYSTEMS, INC.

STOCK PLAN

(as amended through August 11, 2011)

                              SECTION 1. General Purpose of Plan; Definitions.

          The name of this plan is the Communications Systems, Inc. Stock Plan
(the “Plan”). The purpose of the Plan is to enable Communications Systems, Inc.
(the “Company”) and its Subsidiaries to retain and attract executives and other
key employees who contribute to the Company’s success by their ability,
ingenuity and industry, and to enable such individuals to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company.

          For purposes of the Plan, the following terms shall be defined as set
forth below:

 

 

 

 

(a)

“Board” means the Board of Directors of the Company.

 

 

 

 

(b)

“Cause” means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, or a participant’s willful
misconduct or dishonesty, any of which is directly and materially harmful to the
business or reputation of the Company.

 

 

 

 

(c)

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

 

 

 

 

(d)

“Committee” means the Committee referred to in Section 2 of the Plan. If at any
time no Committee shall be in office, then the functions of the Committee
specified in the Plan shall be exercised by the Board.

 

 

 

 

(e)

“Company” means Communications Systems, Inc., a corporation organized under the
laws of the State of Minnesota (or any successor corporation).

 

 

 

 

(f)

“Continuing Directors” means (i) individuals who on the effective date of the
Plan constituted the Board of Directors of the Company, and (ii) any new
director who subsequent to the effective date of the Plan is elected or
nominated for election by a majority of the directors who held such office
immediately prior to any of the events involving a change in ownership or
control described in Sections 5(c) and 7(c)(v).

 

 

 

 

(g)

“Deferred Stock” means an award made pursuant to Section 8 below of the right to
receive Stock at the end of a specified deferral period.

 

 

 

 

(h)

“Disability” means permanent and total disability as determined by the
Committee.

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(i)

“Disinterested Director” shall have the meaning set forth in Rule 16b-3(c)(2) as
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, or any successor definition adopted by the Commission.

 

 

 

 

(j)

“Early Retirement” means retirement, with consent of the Committee at the time
of retirement, from active employment with the Company and any Subsidiary or
Parent Corporation of the Company.

 

 

 

 

(k)

“Fair Market Value” means the value of the Stock on a given date as determined
by the Committee in accordance with Section 422 of the Code and any applicable
Treasury Department regulations with respect to incentive stock options.

 

 

 

 

(l)

“Incentive Stock Option” means any Stock Option intended to be and designated as
an “Incentive Stock Option” within the meaning of Section 422 of the Code.

 

 

 

 

(m)

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive
Stock Option, and is intended to be and is designated as a “Non-Qualified Stock
Option.”

 

 

 

 

(n)

“Normal Retirement” means retirement from active employment with the Company and
any Subsidiary or Parent Corporation of the Company on or after age 65.

 

 

 

 

(o)

“Ownership Change” means an “ownership change” as defined in Section 382(g) of
the Code determined without regard to Section 382(i)(3) of the Code.

 

 

 

 

(p)

“Parent Corporation” means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of the
corporations (other than the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.

 

 

 

 

(q)

“Restricted Stock” means an award of shares of Stock that are subject to
restrictions under Section 7 below.

 

 

 

 

(r)

“Retirement” means Normal Retirement or Early Retirement.

 

 

 

 

(s)

“Stock” means the Common Stock, $.05 par value per share, of the Company.

 

 

 

 

(t)

“Stock Appreciation Right” means the right pursuant to an award granted under
Section 6 below to surrender to the Company all or a portion of a Stock Option
in exchange for an amount equal to the difference between (i) the Fair Market
Value, as of the date such Stock Option or such portion thereof is surrendered,
of the shares of Stock covered by such Stock Option or such portion thereof, and
(ii) the aggregate exercise price of such Stock Option or such portion thereof.

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(u)

“Stock Option” means any option to purchase shares of Stock granted pursuant to
Section 5 below.

 

 

 

 

(v)

“Subsidiary” means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company if each of the corporations (other
than the last corporation in the unbroken chain) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in the chain.

                              SECTION 2. Administration.

          The Plan shall be administered by the Board of Directors or by a
Committee of not less than three Disinterested Directors, who shall be appointed
by the Board of Directors of the Company and who shall serve at the pleasure of
the Board. If the Plan is administered by the Board, each member of the Board
shall be a Disinterested Director.

          The Committee shall have the power and authority to grant to eligible
employees, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, and (iv) Deferred Stock awards.

          In particular, the Committee shall have the authority:

 

 

 

 

 

 

(i)

to select the officers and other key employees of the Company and its
Subsidiaries to whom Stock Options, Stock Appreciation Rights, Restricted Stock
and/or Deferred Stock awards may from time to time be granted hereunder;

 

 

 

 

 

 

(ii)

to determine whether and to what extent Incentive Stock Options, Non-Qualified
Stock Options, Stock Appreciation Rights, Restricted Stock or Deferred Stock
awards, or a combination of the foregoing, are to be granted hereunder;

 

 

 

 

 

 

(iii)

to determine the number of shares to be covered by each such award granted
hereunder;

 

 

 

 

 

 

(iv)

to determine the terms and conditions, not inconsistent with the terms of the
Plan, of any award granted hereunder (including, but not limited to, any
restriction on any Stock Option or other award and/or the shares of Stock
relating thereto); and

 

 

 

 

 

 

(v)

to determine whether, to what extent and under what circumstances Stock and
other amounts payable with respect to an award under this Plan shall be deferred
either automatically or at the election of the participant.

          The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.

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          All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.

                              SECTION 3. Stock Subject to Plan.

          The total number of shares of Stock reserved and available for
distribution under the Plan shall be 2,500,000.1 Such shares may consist, in
whole or in part, of authorized and unissued shares.

          Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned cease to be subject to Stock Options, or if any shares
subject to any Restricted Stock or Deferred Stock award granted hereunder are
forfeited or such award otherwise terminates without a payment being made to the
participant, such shares shall again be available for distribution in connection
with future awards under the Plan.

          In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Stock Option.

                              SECTION 4. Eligibility.

          Officers and other key employees of the Company and its Subsidiaries
who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company and its Subsidiaries are eligible
to be granted Stock Options, Stock Appreciation Rights, Restricted Stock or
Deferred Stock awards under the Plan. The optionees and participants under the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award; provided that, the
Committee shall have no authority to grant any awards under the Plan after
August 11, 2011.2

 

 

 

1 Amended by Board and Shareholder action in 1995 to increase authorized shares
to 900,000 shares, in 1998 to increase authorized shares to 1,400,000, in 1999
to increase authorized shares to 1,900,000 and in 2004 to increase authorized
shares to 2,500,000.

2 Last clause added by Board action on August 11, 2011.

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                              SECTION 5. Stock Options.

          Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.

          The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.3

          The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options in each
case with or without Stock Appreciation Rights. To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.

          Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Stock
Option as an Incentive Stock Option, provided the optionee consents in writing
to the modification or amendment.

          Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.

 

 

 

 

(a)

Option Price. The option price per share of Stock purchasable under a Stock
Option shall be determined by the Committee at the time of grant and may, except
as provided in this paragraph, be less than the Fair Market Value of the Stock
on the date the Stock Option is granted. In the event that the Committee does
not determine the exercise price per share of Stock purchasable under a Stock
Option, the exercise price shall be the Fair Market Value of the Stock on the
date the Stock Option is granted except as otherwise required in this paragraph.
In no event shall the Stock Option price per share of Stock purchasable under an
Incentive Stock Option or a Non-Qualified Stock Option be less than 100% or 50%,
respectively, of the Fair Market Value of the Stock on the date the Stock Option
is granted. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the exercise price shall be no less than 110% of the Fair Market Value
of the Stock on the date the Stock Option is granted.

 

 

 

3 A second sentence in effect prior to January 1, 2002 regarding the term of the
Plan was deleted effective as of January 1, 2002 concurrent with a related
amendment adding a new paragraph under Section 10.

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(b)

Option Term. The term of each Stock Option shall be fixed by the Committee, but
no Incentive Stock Option shall be exercisable more than ten years after the
date the Stock Option is granted. In the event that the Committee does not fix
the term of a Stock Option, the term shall be ten years from the date the Stock
Option is granted. Notwithstanding the foregoing, if an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the term of such Stock Option shall be no more than
five years from the date of grant.

 

 

 

 

(c)

Exercisability. Stock Options shall be exercisable at such time or times as
determined by the Committee at or after grant. In the event that the Committee
does not determine the time at which a Stock Option shall be exercisable, such
Stock Option shall be exercisable one year after the date of grant. If the
Committee provides, in its discretion, that any Stock Option is exercisable only
in installments, the Committee may waive such installment exercise provisions at
any time.

 

 

 

 

 

Notwithstanding the foregoing, unless the Stock Option Agreement provides
otherwise, any Stock Option granted under this Plan shall be exercisable in
full, without regard to any installment exercise provisions, for a period
specified by the Company, but not to exceed sixty (60) days, prior to the
occurrence of any of the following events: (i) dissolution or liquidation of the
Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity, (iii) the transfer of substantially all of the assets of the
Company, (iv) a direct or indirect acquisition or series of acquisitions of
shares of stock of the Company, by any person, corporation or other entity,
including but not limited to acquisitions by reason of merger, consolidation or
tender offer, which results in an Ownership Change, or (v) a majority of the
Board of Directors ceases to be composed of individuals who are Continuing
Directors or any other event shall occur which would be required to be reported
as a change in control in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended, whether
or not the Company is then subject to such reporting requirements.

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(d)

Method of Exercise. Stock Options may be exercised in whole or in part at any
time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by certified or
bank check, or by any other form of legal consideration deemed sufficient by the
Committee and consistent with the Plan’s purpose and applicable law, including
promissory notes or a properly executed exercise notice together with
irrevocable instructions to a broker acceptable to the Company to promptly
deliver to the Company the amount of sale or loan proceeds to pay the exercise
price. As determined by the Committee, in its sole discretion, payment in full
or in part may also be made in the form of unrestricted Stock already owned by
the optionee or, in the case of the exercise of a Non-Qualified Stock Option,
Restricted Stock or Deferred Stock subject to an award hereunder (based, in each
case, on the Fair Market Value of the Stock on the date the option is exercised,
as determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted, and provided
further that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of, and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. If the terms of a
Stock Option so permit, an optionee may elect to pay all or part of the exercise
price by having the Company withhold from the shares of Stock that would
otherwise be issued upon exercise that number of shares of Stock having a Fair
Market Value equal to the aggregate exercise price for the shares with respect
to which such election is made. No shares of Stock shall be issued until full
payment therefore has been made. An optionee shall generally have the rights to
dividends and other rights of a shareholder with respect to shares subject to
the option when the optionee has given written notice of exercise, has paid in
full for such shares, and, if requested, has given the representation described
in paragraph (a) of Section 12.

 

 

 

 

(e)

Non-Transferability of Options. No Stock Option shall be transferable by the
optionee otherwise than by will or by the laws of descent and distribution, and
all Stock Options shall be exercisable, during the optionee’s lifetime, only by
the optionee.

 

 

 

 

(f)

Termination by Death. If an optionee’s employment by the Company and any
Subsidiary or Parent Corporation terminates by reason of death, the Stock Option
may thereafter be immediately exercised, to the extent then exercisable (or on
such accelerated basis as the Committee shall determine at or after grant), by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of three years (or such shorter period as
the Committee shall specify at grant) from the date of such death or until the
expiration of the stated term of the option, whichever period is shorter.

 

 

 

 

(g)

Termination by Reason of Disability. If an optionee’s employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of Disability, any
Stock Option held by such optionee may thereafter be exercised, to the extent it
was exercisable at the time of termination due to Disability (or on such
accelerated basis as the Committee shall determine at or after grant), but may
not be exercised after three years (or such shorter period as the Committee
shall specify at grant) from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is shorter. In the
event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.

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(h)

Termination by Reason of Retirement. If an optionee’s employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of Retirement, any
Stock Option held by such optionee may thereafter be exercised 7 to the extent
it was exercisable at the time of such Retirement, but may not be exercised
after three years (or such shorter period as Committee shall specify at grant)
from the date of such termination of employment or the expiration of the stated
term of the option, whichever period is shorter. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, the option will thereafter be treated as a Non-Qualified Stock
Option.

 

 

 

 

(i)

Other Termination. Unless otherwise determined by the Committee, if an
optionee’s employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that the option may be exercised to the
extent it was exercisable at such termination for the lesser of three months or
the balance of the option’s term if the optionee is involuntarily terminated
without Cause by the Company and any Subsidiary or Parent Corporation.

 

 

 

 

(j)

Annual Limit on Incentive Stock Options. The aggregate Fair Market Value
(determined as of the time the Stock Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.

                              SECTION 6. Stock Appreciation Rights.

 

 

 

 

(a)

Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan. In the case of a
Non-Qualified Stock Option, such rights may be granted either at or after the
time of the grant of such Option. In the case of an Incentive Stock Option, such
rights may be granted only at the time of the grant of the Stock Option.

 

 

 

 

 

A Stock Appreciation Right or applicable portion thereof granted with respect to
a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall not be reduced until the exercise or
termination of the related Stock Option exceeds the number of shares not covered
by the Stock Appreciation Right.

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A Stock Appreciation Right may be exercised by an optionee, in accordance with
paragraph (b) of this Section, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.

 

 

 

 

 

(b)

Terms and Conditions. Stock Appreciation Rights shall be subject to such terms
and conditions, not inconsistent with the provisions of the Plan, as shall be
determined from time to time by the Committee, including the following:

 

 

 

 

 

 

(i)

Stock Appreciation Rights shall be exercisable only at such time or times and to
the extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section of the Plan.

 

 

 

 

 

 

(ii)

Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled
to receive up to, but not more than, an amount in cash or shares of Stock equal
in value to the excess of the Fair Market Value of one share of Stock over the
exercise price per share specified in the related option multiplied by the
number of shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee having the right to determine the form of
payment.

 

 

 

 

 

 

(iii)

Stock Appreciation Rights shall be transferable only when and to the extent that
the underlying Stock Option would be transferable under Section 5 of the Plan.

 

 

 

 

 

 

(iv)

Upon the exercise of a Stock Appreciation Right, the Stock Option or part
thereof to which such Stock Appreciation Right is related shall be deemed to
have been exercised for the purpose of the limitation set forth in Section 3 of
the Plan on the number of shares of Stock to be issued under the Plan, but only
to the extent of the number of shares issued or issuable under the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.

 

 

 

 

 

 

(v)

A Stock Appreciation Right granted in connection with an Incentive Stock Option
may be exercised only if and when the market price of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such Option.

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                              SECTION 7. Restricted Stock.

 

 

 

 

 

 

(a)

Administration. Shares of Restricted Stock may be issued either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company and Subsidiaries to whom, and the
time or times at which, grants of Restricted Stock will be made, the number of
shares to be awarded, the time or times within which such awards may be subject
to forfeiture, and all other conditions of the awards. The Committee may also
condition the grant of Restricted Stock upon the attainment of specified
performance goals. The provisions of Restricted Stock awards need not be the
same with respect to each recipient.

 

 

 

 

 

 

(b)

Awards and Certificates. The prospective recipient of an award of shares of
Restricted Stock shall not have any rights with respect to such award, unless
and until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the then applicable terms and conditions.

 

 

 

 

 

 

 

(i)

Each participant shall be issued a stock certificate in respect of shares of
Restricted Stock awarded under the Plan. Such certificate shall be registered in
the name of the participant, and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such award, substantially
in the following form:

 

 

 

 

 

 

 

 

 

“The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of the
Communications Systems, Inc. 1992 Stock Plan and an Agreement entered into
between the registered owner and Communications Systems, Inc. Copies of such
Plan and Agreement are on file in the offices of Communications Systems, Inc.,
P.O. Box 777, Hector, MN 55342.”

 

 

 

 

 

 

 

(ii)

The Committee shall require that the stock certificates evidencing such shares
be held in custody by the Company until the restrictions thereon shall have
lapsed, and that, as a condition of any Restricted Stock award, the participant
shall have delivered a stock power, endorsed in blank, relating to the Stock
covered by such award.

 

 

 

 

 

 

(c)

Restrictions and Conditions. The shares of Restricted Stock awarded pursuant to
the Plan shall be subject to the following restrictions and conditions:

 

 

 

 

 

 

 

(i)

Subject to the provisions of this Plan and the award agreement, during a period
set by the Committee commencing with the date of such award (the “Restriction
Period”), the participant shall not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits, the Committee
may provide for the lapse of such restrictions in installments where deemed
appropriate.

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(ii)

Except as provided in paragraph (c)(i) of this Section, the participant shall
have, with respect to the shares of Restricted Stock, all of the rights of a
shareholder of the Company, including the right to vote the shares and the right
to receive any cash dividends. The Committee, in its sole discretion, may permit
or require the payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the extent
shares are available under Section 3 and subject to paragraph (f) of Section
12). Certificates for shares of unrestricted Stock shall be delivered to the
grantee promptly after, and only after, the period of forfeiture shall have
expired without forfeiture in respect of such shares of Restricted Stock.

 

 

 

 

 

 

(iii)

Subject to the provisions of the award agreement and paragraph (c)(iv) of this
Section, upon termination of employment for any reason during the Restriction
Period, all shares still subject to restriction shall be forfeited by the
participant.

 

 

 

 

 

 

(iv)

In the event of special hardship circumstances of a participant whose employment
is terminated (other than for Cause), including death, Disability or Retirement,
or in the event of an unforeseeable emergency of a participant still in service,
the Committee may, in its sole discretion, when it finds that a waiver would be
in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to such participant’s shares of Restricted
Stock.

 

 

 

 

 

 

(v)

Notwithstanding the foregoing, all restrictions with respect to any
participant’s shares of Restricted Stock shall lapse, on the date determined by
the Committee, prior to, but in no event more than sixty (60) days prior to, the
occurrence of any of the following events: (i) dissolution or liquidation of the
Company, other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity, (iii) the transfer of substantially all of the assets of the
Company, (iv) a direct or indirect acquisition or series of acquisitions of
shares of stock of the Company, by any person, corporation or other entity,
included but not limited to acquisitions by reason of merger, consolidation or
tender offer, which results in an Ownership Change, or (v) a majority of the
Board of Directors ceases to be composed of individuals who are Continuing
Directors or any other event shall occur which would be required to be reported
as a change in control in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended, whether
or not the Company is then subject to such reporting requirements.

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                              SECTION 8. Deferred Stock Awards.

 

 

 

 

 

(a)

Administration. Deferred Stock may be awarded either alone or in addition to
other awards granted under the Plan. The Committee shall determine the officers
and key employees of the Company and Subsidiaries to whom and the time or times
at which Deferred Stock shall be awarded, the number of Shares of Deferred Stock
to be awarded to any participant or group of participants, the duration of the
period (the “Deferral Period”) during which, and the conditions under which,
receipt of the Stock will be deferred, and the terms and conditions of the award
in addition to those contained in paragraph (b) of this Section. The Committee
may also condition the issuance of shares pursuant to a Deferred Stock 11 upon
the attainment of specified performance goals. The provisions of Deferred Stock
awards need not be the same with respect to each recipient.

 

 

 

 

 

(b)

Terms and Conditions. The following shall apply to each Deferred Stock award:

 

 

 

 

 

 

(i)

Subject to the provisions of this Plan and the award agreement, Deferred Stock
awards may not be sold, assigned, transferred, pledged or otherwise encumbered
during the Deferral Period. In no event shall the Deferral Period be less than
eleven (11) months. At the expiration of the Deferral Period (or Elective
Deferral Period, where applicable), share certificates shall be delivered to the
participant, or his legal representative, for the number of shares that is equal
to the number of shares to which the participant is entitled under the terms and
conditions of the Deferred Stock award (the “Earned Shares”).

 

 

 

 

 

 

(ii)

Amounts equal to any dividends declared during the Deferral Period with respect
to Earned Shares may be paid to the participant during or at the conclusion of
the Deferral Period, and such amounts may be deemed to be reinvested in
additional Deferred Stock or otherwise reinvested, all as determined at the time
of the award by the Committee, in its sole discretion.

 

 

 

 

 

 

(iii)

Subject to the provisions of the award agreement and paragraph (b)(iv) of this
Section, upon termination of employment for any reason during the Deferral
Period for a given award, the Deferred Stock in question shall be forfeited by
the participant.

 

 

 

 

 

 

(iv)

In the event of special hardship circumstances of a participant whose employment
is terminated (other than for Cause) including death, Disability or Retirement,
or in the event of an unforeseeable emergency of a participant still in service,
the Committee may, in its sole discretion, when it finds that a waiver would be
in the best interest of the Company, waive or amend in whole or in part any or
all of the remaining deferral limitations imposed hereunder or in the Deferred
Stock award with respect to any or all of the participant’s Deferred Stock
during the Deferral Period.

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If any Deferred Stock is subject to Section 409A of the Code, the Committee
shall not waive or amend any deferral limitations with respect to such Deferred
Stock during the Deferral Period and Elective Deferral Period, if any, unless
such waiver or amendment is permitted under Section 409A of the Code and
regulations promulgated thereunder.

 

 

 

 

 

 

(v)

A participant may elect to further defer receipt of the Earned Shares for a
specified period or until a specified event (the “Elective Deferral Period”),
subject in each case to the Committee’s approval and to such terms as are
determined by the Committee, all in its sole discretion. The Committee shall not
approve any election to defer receipt of the Earned Shares or accelerate the
Elective Deferral Period unless such election or acceleration is permitted under
Section 409A of the Code and regulations thereunder.

 

 

 

 

 

 

(vi)

Each award shall be confirmed by, and subject to the terms of, a Deferred Stock
agreement executed by the Company and the participant.

                              SECTION 9. Transfer, Leave of Absence, Etc.

          For purposes of the Plan, the following events shall not be deemed a
termination of employment:

 

 

 

 

(a)

a transfer of an employee from the Company to a Parent Corporation or
Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from
one Subsidiary to another;

 

 

 

 

(b)

a leave of absence, approved in writing by the Committee, for military service
or sickness, or for any other purpose approved by the Company if the period of
such leave does not exceed ninety (90) days (or such longer period as the
Committee may approve, in its sole discretion); and

 

 

 

 

(c)

a leave of absence in excess of ninety (90) days, approved in writing by the
Committee, but only if the employee’s right to reemployment is guaranteed either
by a statute or by contract, and provided that, in the case of any leave of
absence, the employee returns to work within 30 days after the end of such
leave.

                              SECTION 10. Amendments and Termination.

          The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore granted,
without the optionee’s or participant’s consent, or (ii) which, without the
approval of the stockholders of the Company, would cause the Plan to no longer
comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of
the Code, or any other regulatory requirements.

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          The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted stock
options, including previously granted stock options having higher exercise
prices.

          Amendment of the first paragraph of Section 3 of this Plan to increase
the total number of shares of Stock reserved and available for distribution
under the Plan shall be deemed to be the adoption of a new Plan with respect to
the total number of shares reserved and available for distribution under the
Plan after the date such amendment is approved by a vote of the holders of a
majority of the stock present and entitled to vote at a meeting of the Company’s
shareholders.4

                              SECTION 11. Unfunded Status of Plan.

          The Plan is intended to constitute an “unfunded” plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.

                              SECTION 12. General Provisions.

 

 

 

 

(a)

The Committee may require each person purchasing shares pursuant to a Stock
Option under the Plan to represent to and agree with the Company in writing that
the optionee is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.

 

 

 

 

 

All certificates for shares of Stock delivered under the Plan pursuant to any
Restricted Stock, Deferred Stock or other Stock-based award shall be subject to
such stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Stock is then listed,
and any applicable federal or state securities laws, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

 

 

 

 

(b)

Subject to paragraph (d) below, recipients of Restricted Stock, Deferred Stock
and other Stock-based awards under the Plan (other than Stock Options) are not
required to make any payment or provide consideration other than the rendering
of services.

 

 

 

4 This paragraph was added effective January 1, 2002 to incorporate the
provisions of applicable tax law.

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(c)

Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee of the Company or any Subsidiary any
right to continued employment with the Company or a Subsidiary, as the case may
be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.

 

 

 

 

(d)

Each participant shall, no later than the date as of which any part of the value
of an award first becomes includable as compensation in the gross income of the
participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Committee regarding payment of, any federal,
state, or local taxes of any kind required by law to be withheld with respect to
the award. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements and the Company and Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant. With respect to any award
under the Plan, if the terms of such award so permit, a participant may elect by
written notice to the Company to satisfy part or all of the withholding tax
requirements associated with the award by (i) authorizing the Company to retain
from the number of shares of Stock that would otherwise be deliverable to the
participant, or (ii) delivering to the Company from shares of Stock already
owned by the participant, that number of shares having an aggregate Fair Market
Value equal to part or all of the tax payable by the participant under this
Section. Any such election shall be in accordance with, and subject to,
applicable tax and securities laws, regulations and rulings.

 

 

 

 

(e)

At the time of grant, the Committee may provide in connection with any grant
made under this Plan that the shares of Stock received as a result of such grant
shall be subject to a repurchase right in favor of the Company, pursuant to
which the participant shall be required to offer to the Company upon termination
of employment for any reason any shares that the participant acquired under the
Plan, with the price being the then Fair Market Value of the Stock or, in the
case of a termination for Cause, an amount equal to the cash consideration paid
for the Stock, subject to such other terms and conditions as the Committee may
specify at the time of grant. The Committee may, at the time of the grant of an
award under the Plan, provide the Company with the right to repurchase, or
require the forfeiture of, shares of Stock acquired pursuant to the Plan by any
participant who, at any time within two years after termination of employment
with the Company, directly or indirectly competes with, or is employed by a
competitor of, the Company.

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(f)

The reinvestment of dividends in additional Restricted Stock (or in Deferred
Stock or other types of Plan awards) at the time of any dividend payment shall
only be permissible if the Committee (or the Company’s chief executive or chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).

                              SECTION 13. Effective Date of Plan.

          The Plan shall be effective on the date it is approved by a vote of
the holders of a majority of the Stock present and entitled to vote at a meeting
of the Company’s shareholders.

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