Exhibit 4.1


 


DESCRIPTION
OF THE REGISTRANT’S SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

(as updated, March 29, 2021)


 


Communications Systems, Inc. (“CSI,”
“we,” “our,” or “us”) has one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended: our common stock.


 


DESCRIPTION
OF CAPITAL STOCK


 


The following summary of the general terms
and provisions of our capital stock does not purport to be complete and is based upon and qualified by reference to our articles
of incorporation and bylaws, which are either filed as exhibits to our Annual Report on Form 10-K or are incorporated by reference
to our Annual Report on Form 10-K. We encourage you to read our articles of incorporation, our bylaws and the applicable provisions
of the Minnesota Business Corporation Act, or MBCA, for additional information.


 


Authorized Shares of Capital Stock


 


The aggregate number of shares of capital
stock that the Company has authority to issue is as follows


 


3,000,000 shares of preferred stock, $1.00
par value


 


30,000,000 shares of common stock, par
value $.05


 


Preferred Stock


 


We have no preferred stock outstanding.


 


Common Stock


 


Holders of the Company’s common stock
are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders and do not have cumulative
voting rights. Except as otherwise provided by law, our articles of incorporation or our bylaws, matters will generally be decided
by the vote of the holders of a majority of the voting power present in person or represented by proxy. Our bylaws provide that
the authorized number of directors will be fixed by the shareholders at each annual meeting and that either the shareholders or
the board of directors may increase or decreases the number of directors. Our board of directors is not classified.


 


Holders of our common stock are entitled
to receive dividends declared by our board of directors out of funds legally available for the payment of dividends. In the event
of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in our
assets that are remaining after payment or provision for payment of all of our debts and obligations.


 



     


     


    

 


Holders of common stock have no preemptive,
conversion or subscription rights, and there are no redemption provisions applicable to the common stock.


 


All outstanding shares of our common stock
are fully paid and nonassessable.


 


The transfer agent and registrar for our
common stock is Equiniti Trust Company, 1110 Centre Pointe Curve, Suite 101, South St. Paul, Minnesota 55120-4100


 


Our common stock is currently listed on
The NASDAQ Stock Market LLC under the trading symbol “JCS.”


 


Anti-Takeover Effects of Provisions of our Articles of
Incorporation, our Bylaws and Minnesota Law


 


Specific provisions of Minnesota law, our
articles of incorporation and our bylaws may be deemed to have an anti-takeover effect.


 


The Company’s Bylaws of the Company
establish an advance notice procedure with regard to (i) certain business to be brought before an annual meeting of shareholders
of the Company and (ii) the nomination by shareholders of candidates for election as directors.


 


Properly Brought Business


 


The Bylaws provide that at the annual meeting
only such business may be conducted as is of a nature that is appropriate for consideration at an annual meeting and has been either
specified in the notice of the meeting, otherwise properly brought before the meeting by or at the direction of the Board of Directors,
or otherwise properly brought before the meeting by a shareholder who has given timely written notice to the Secretary of the Company
of the shareholder’s intention to bring the business before the meeting. To be timely, the notice must be given by such shareholder
to the Secretary of the Company not less than 45 days or more than 75 days prior to a meeting date corresponding to the previous
year’s annual meeting. Notice relating to the conduct of such business at an annual meeting must contain certain information
as described in Section 2.9 of the Company’s Bylaws, which are available for inspection by shareholders at the Company’s
principal executive offices pursuant to Section 302A.441, subd. 4 of the Minnesota Statutes. Nothing in the Bylaws precludes discussion
by any shareholder of any business properly brought before the annual meeting in accordance with the Company’s Bylaws.


 


Shareholder Nominations


 


The Bylaws provide that a notice of proposed
shareholder nominations for the election of directors must be timely given in writing to the Secretary of the Company prior to
the meeting at which directors are to be elected. To be timely, the notice must be given by the shareholder to the Secretary of
the Company not less than 45 days or more than 75 days prior to a meeting date corresponding to the previous year’s annual
meeting. The notice to the Company from a shareholder who intends to nominate a person at the meeting for election as a director
must contain certain information as described in Section 3.7 of the Company’s Bylaws, which are available for inspection
by shareholders as described above. If the presiding officer of a meeting of shareholders determines that a person was not nominated
in accordance with the foregoing procedure, that person will not be eligible for election as a director.


 



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Shareholder Meetings


 


Under our bylaws, regular meetings of our
shareholders may be called only by our board of directors, or by written consent of all the shareholders entitled to vote at the
annual meeting. If the Board fails to designate a time for a regular meeting for any consecutive period of 15 months, the board
must cause such regular meeting to be called within 90 days of receipt of the written demand of any shareholder owning one percent
or more of all voting shares of the corporation


 


Under our bylaws, special meetings of our
shareholders may be called by the Chief Executive Officer, the Chief Financial Officer, any two or more directors, or upon request
by shareholders holding ten percent or more of the voting power of the shareholders.


 


Voting Percentage Approval Required for Designated Action


 


In addition to any affirmative vote required
by law or the Company’s Articles of Incorporation, the following actions require the affirmative vote of not less than two
thirds of the votes entitled to be cast by the holders of all then outstanding shares of voting stock, voting together as a single
class:


 


(a) any sale, lease, mortgage, pledge,
transfer, exchange or other disposition of all or substantially all of the property and assets of the corporation to any person;


 


(b) any reclassification of securities
(including any combination of shares or reverse stock split), or recapitalization or reorganization of the corporation, or any
merger, consolidation or statutory exchange of shares of the corporation or any subsidiary with any other corporation (other than
a merger of a wholly owned subsidiary of the corporation into the corporation or the merger of two or more wholly owned subsidiaries
of the corporation;


 


(c) the adoption of plan or proposal for
the liquidation or dissolution of the corporation; and


 


(d) any agreement, contract or other arrangement
or understanding providing for one or more of the foregoing.


 


In addition to any affirmative vote required
by law or the Company’s Articles of Incorporation, a Business Combination (as defined in the Articles of Incorporation) requires
the affirmative vote of not less than 80% of the votes entitled to be cast by the holders of all then outstanding shares of voting
stock, voting together as a single class. This requirement is not applicable, however, if the particular Business Combination is
either (a) approved a majority of the Company’s Continuing Directors (as defined in the Articles of Incorporation), or (b)
meets specific requirements with respect to price and approval process. Repeal or amendment of this requirement in the Articles
of incorporation requires affirmative vote of not less than 80% of the votes entitled to be cast by the holders of all then outstanding
shares of voting stock, voting together as a single class.


 



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Provisions of Minnesota Law


 


The following provisions of the MBCA may
have an effect of delaying, deterring or preventing an unsolicited takeover of the Company or make an unsolicited takeover of the
Company more difficult.


 


MBCA Section 302A.553 [Power to acquire
shares] subd 3, [limitation on share purchases] prohibits a publicly held corporation such as CSI from purchasing shares
entitled to vote for more than market value from a person that beneficially owns more than 5% of the voting power of the corporation
if the shares have been beneficially owned for less than two years unless the purchase or agreement to purchase is approved at
a meeting of shareholders by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote
or the corporation makes an offer, of at least equal value per share, to all shareholders for all other shares of that class or
series and any other class or series into which they may be converted.


 


MBCA Section 302A.671 [Control share
acquisitions] provides that shares of an “issuing public corporation,” such as CSI acquired by an “acquiring
person” in a “control share acquisition” that exceed the threshold of voting power of any of the three ranges
identified below will not have voting rights, unless the issuing public company’s shareholders vote to accord these shares
the voting rights normally associated with these shares. A “control share acquisition” is an acquisition, directly
or indirectly, by an “acquiring person” (as defined in the MBCA) of beneficial ownership of shares of an issuing public
corporation that, but for Section 302A.671, would, when added to all other shares of the issuing public corporation beneficially
owned by the acquiring person, entitle the acquiring person, immediately after the acquisition, to exercise or direct the exercise
of a new range of voting power of the issuing public corporation with any of the following three ranges: (i) at least 20 percent
but less than 33-1/3 percent; (ii) at least 33-1/3 percent but less than or equal to 50 percent; and (iii) over 50 percent. The
issuing public company also has an option to call for redemption all, but not less than all, shares acquired in the control share
acquisition that exceed the threshold of voting power of any of the specified ranges at a price equal to the fair market value
of the shares at the time the call is given if (i) the acquiring person fails to deliver the information statement to the issuing
public company by the tenth day after the control share acquisition; or (ii) shareholders have voted not to accord voting rights
to the shares acquired in the control share acquisition.


 


MBCA Section 302A.673 [Business combinations]
prohibits a public Minnesota corporation, such as Electro-Sensors, Inc. from engaging in a business combination with an interested
shareholder for a period of four years after the date of the transaction in which the person became an interested shareholder,
unless either (i) the business combination or(ii) the acquisition by which the person becomes an interested shareholder is approved
in a prescribed manner before the person became an interested shareholder. The term “business combination” includes
mergers, asset sales and other transactions resulting in a financial benefit to the interested shareholder. An “interested
shareholder” is a person who is the beneficial owner, directly or indirectly, of 10% or more of a corporation’s voting
stock, or who is an affiliate or associate of the corporation, and who, at any time within four years before the date in question,
was the beneficial owner, directly or indirectly, of 10% or more of the corporation’s outstanding voting stock.1


 


If a takeover offer is made for our stock,
MBCA Section 302A.675 [Takeover offer; fair price] precludes the offeror from acquiring additional shares of stock (including
in acquisitions pursuant to mergers, consolidations or statutory share exchanges) within two years following the completion of
the takeover offer, unless shareholders selling their shares in the later acquisition are given the opportunity to sell their shares
on terms that are substantially the same as those contained in the earlier takeover offer. A “takeover offer” is a
tender offer that results in an offeror who owned ten percent or less of a class of our shares acquiring more than ten percent
of that class, or that results in the offeror increasing its beneficial ownership of a class of our shares by more than ten percent
of the class, if the offeror owned ten percent or more of the class before the takeover offer. Section 302A.675 does not apply
if a committee of our board of directors formed in accordance with Section 302A.675 approves the proposed acquisition before any
shares are acquired pursuant to the earlier tender offer.


 



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