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Exhibit 4.2  


 
 

Hector Communications Corporation
  2003 Employee Stock Purchase Plan    
    


        1.    Establishment of Plan.    Hector Communications Corporation
(hereinafter referred to as the "Company") proposes to grant to certain employees of the Company the opportunity to purchase common stock of the company. Such common stock shall be purchased pursuant
to the plan herein set forth, which shall be known as the "HECTOR COMMUNICATIONS CORPORATION 2003 EMPLOYEE STOCK PURCHASE PLAN" (hereinafter referred to as the "Plan"). The Company intends that the
Plan shall qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended, and shall be construed in a manner consistent with the requirements
of said Section 423 and the regulations thereunder. 


        2.    Purpose.    The Plan is intended to encourage stock ownership by
all employees of the Company, and as an incentive to them to remain in employment, improve operations, increase profits, and contribute more significantly to the Company's success. 



        3.    Administration.    The Plan shall be administered by a stock
purchase committee (hereinafter referred to as the "Committee") consisting of not less than three directors or employees of the Company, as designated by the Board of Directors of the Company
(hereinafter referred to as the "Board of Directors"). The Board of Directors shall fill all vacancies in the Committee and may remove any member of the Committee at any time, with or without cause.
The Committee shall select its own chairman and hold its meetings at such times and places as it may determine. All determinations of the Committee shall be made by a majority of its members. Any
decision which is made in writing and signed by a majority of the members of the Committee shall be effective as fully as though made by a majority vote at a meeting duly called and held. The
determinations of the Committee shall be made in accordance with its judgment as to the best interests of the Company, its employees and its shareholders and in accordance with the purposes of the
Plan; provided, however, that the provisions of the Plan shall be construed in a manner consistent with the requirements of Section 423 of the Internal
Revenue Code, as amended. Such determinations shall be binding upon the Company and the participants in the Plan unless otherwise determined by the Board of Directors. The Company shall pay all
expenses of administering the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option
granted under it. 


        4.    Duration and Phases of the Plan.    (a) The Plan will
commence on September 1, 2003 and will terminate when all shares authorized for issuance under Paragraph 10 of this Plan, as it may be amended from time to time, are issued or at such
earlier date as shall be determined by the Company's Board of Directors, except that any phase commenced prior to such termination shall, if necessary, be allowed to continue beyond such termination
until completion. Notwithstanding the foregoing, this Plan shall be considered of no force or effect and any options granted shall be considered null and void unless the holders of a majority of all
the issued and outstanding shares of the common stock of the Company approve the Plan within twelve (12) months after the date of its adoption by the Board of Directors; and, further, any
amendment of this Plan to increase the number of shares authorized for issuance under Paragraph 10 of this Plan shall be considered of no force or effect and any options granted thereafter
shall be considered null and void unless the holders of a majority of all the issued and outstanding shares of the common stock of the Company approve such amendment of the Plan within twelve
(12) months after the date Paragraph 10 is amended by the Board of Directors to increase the number of shares authorized for issuance. 



        (b)   The
Plan shall be carried out in one or more phases, each phase being for a period of one year. No phase shall run concurrently, but a phase may commence immediately
after the termination of 


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the
preceding phase. The existence and date of commencement of a phase (the "Commencement Date") shall be determined by the Committee, provided that the commencement of the first phase shall be within
twelve (12) months before or after the date of approval of the Plan by the shareholders of the Company. In the event all of the stock reserved for grant of options hereunder is issued pursuant
to the terms hereof prior to the commencement of one or more phases scheduled by the Committee or the number of shares remaining is so small, in the opinion of the Committee, as to render
administration of any succeeding phase impracticable, such phase or phases shall be cancelled. Phases shall be numbered successively Phase 1, Phase 2, Phase 3, etc. 


        5.    Eligibility.    All Employees, as defined in Paragraph 19
hereof, who are employed by the Company at least one day prior to the Commencement Date of a phase shall be eligible to participate in such phase. 



        6.    Participation.    Participation in the Plan is voluntary. An
eligible Employee may elect to participate in any phase of the Plan, and thereby become a "Participant" in the Plan, by completing the Plan payroll deduction form provided by the Company and
delivering it to the Company or its designated representative prior to the Commencement Date of that phase. Payroll deductions for a Participant shall commence on the first payday after the
Commencement Date of the phase and shall terminate on
the last payday immediately prior to or coinciding with the termination date of that phase unless sooner terminated by the Participant a provided in Paragraph 9 hereof. 



        7.    Payroll Deductions.    (a) Upon enrollment, a Participant
shall elect to make contributions to the Plan by payroll deductions (in full dollar amounts and in amounts calculated to be as uniform as practicable throughout the period of the phase), in the
aggregate amount not in excess of 10% of such Participant's Base Pay for the term of the phase, as determined according to Paragraph 19 hereof. 


        The
minimum authorized payroll deduction must aggregate to not less than $10 per month. 



        (b)   In
the event that the Participant's compensation for any pay period is terminated or reduced from the compensation rate for such a period as of the Commencement Date of
the phase for any reason so that the amount actually withheld on behalf of the Participant as of the termination date of the phase is less than the amount anticipated to be withheld over the phase
year as determined on the Commencement Date of the phase, then the extent to which the Participant may exercise his option shall be based on the amount actually withheld on his behalf. In the event of
a change in the pay period of any Participant, such as from bi-weekly to monthly, an appropriate adjustment shall be made to the deduction in each new pay period so as to ensure the
deduction of the proper amount authorized by the Participant. 


        (c)   All
payroll deductions made for Participants shall be credited to their accounts under the Plan. The Participant may not make any separate cash payments into such
account. 


        (d)   Except
for his right to discontinue participation in the Plan as provided in Paragraph 9, no Participant shall be entitled to increase or decrease the amount to
be deducted in a given phase after the Commencement Date. 


        8.    Options    


        (a)    Grant of Option.    



	(i)
	A
Participant who is employed by the Company as of the Commencement Date of a phase shall be granted an option as of such date to purchase a number of full shares of
Company common stock to be determined by dividing the total amount to be credited to that Participant's account under Paragraph 7 hereof by the option price set forth in
Paragraph 8(a) (ii) (A) hereof, subject to the limitations of Paragraph 10 hereof; provided that in no event shall a
Participant be permitted to purchase during a phase more than that number of shares which could be purchased by dividing the total amount credited to the 



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Participant's
account under Paragraph 7 hereof by 30% of the option price determined in Paragraph 8(a)(ii)(A) hereof. 



	(ii)
	The
option price for such shares of common stock shall be the lower of:



	A.
	Eighty-five
percent (85%) of the fair market value of such shares of common stock on the Commencement Date of the phase; or



	B.
	Eighty-five
percent (85%) of the fair market value of such shares of common stock on the termination date of the phase.






	(iii)
	The
fair market value of shares of common stock of the Company shall be determined by the Committee for each valuation date in a manner acceptable under
Section 423, Internal Revenue Code of 1954.



	(iv)
	Anything
herein to the contrary notwithstanding, no Employee shall be granted an option hereunder:



	A.
	Which
permits his rights to purchase stock under all employee stock purchase plans of the Company, its subsidiaries or its parent, if any, to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of the fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at
any time;



	B.
	If
immediately after the grant such Employee would own and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, its parent, if any, or of any subsidiary of the Company. For purposes of determining stock ownership under this Paragraph, the rules of
Section 425(d) of the Internal Revenue Code, as amended, shall apply; or



	C.
	Which
can be exercised after the expiration of 27 months from the date the option is granted. 







        (b)    Exercise of Option.    



	(i)
	Unless
a Participant gives written notice to the Company pursuant to Paragraph 8(b)(ii) or Paragraph 9 prior to the termination date of a phase, his
option for the purchase of shares will be exercised automatically for him as of such termination date for the purchase of the number of full shares of Company common stock which the accumulated
payroll deductions in his account at that time will purchase at the applicable option price, subject to the limitations set forth in Paragraph 10 hereof.



	(ii)
	A
Participant may, by written notice to the Company at any time during the thirty (30) day period immediately preceding the termination date of a phase, elect,
effective as of the termination date of that phase, to exercise his option for a specified number of full shares less than the maximum number which may be purchased under his option.



	(iii)
	As
promptly as practicable after the termination date of any phase, the Company will deliver to each Participant herein the common stock purchased upon the exercise of
his option, together with a cash payment equal to the balance, if any, of his account which was not used for the purchase of common stock with interest accrued thereon. 






        9.    Withdrawal or Termination of Participation.    (a) A
Participant may, at any time prior to the termination date of a phase, withdraw all payroll deductions then credited to his account by giving written notice to the Company. Promptly upon receipt of
such notice of withdrawal, all payroll deductions credited to the Participant's account will be paid to him with interest accrued thereon and 


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no
further payroll deductions will be made during that phase. In such event, the option granted the Participant under that phase of the Plan shall lapse immediately. Partial withdrawals of payroll
deductions hereunder may not be made. 


        (b)   In
the event of the death of a Participant, the person or persons specified in Paragraph 14 may give notice to the Company within sixty (60) days of the
death of the Participant electing to purchase the number of full shares which the accumulated payroll deductions in the account of such deceased Participant will purchase at the option price specified
in Paragraph 8(a) (ii) and have the balance in the account distributed in cash with interest accrued thereon. If no such notice is received by the Company within said sixty
(60) days, the accumulated payroll deductions will be distributed in full in cash with interest accrued thereon. 


        (c)   Upon
termination of Participant's employment for any reason other than death of the Participant, the payroll deductions credited to his account, plus interest, shall be
returned to him. 


        10.    Stock Reserved for Options.    (a) One Hundred Thousand
(100,000) shares of the Company's $.01 par value common stock are reserved for issuance upon the exercise of options to be granted under the Plan. Shares subject to the unexercised portion of any
lapsed or expired option may again be subject to option under the Plan. 


        (b)   If
the total number of shares of Company common stock for which options are to be granted for a given phase as specified in Paragraph 8 exceeds the number of
shares then remaining available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding) and if the Committee does not elect to cancel such phase
pursuant to Paragraph 4, the Committee shall make a pro rata allocation of the shares remaining available in as uniform and equitable a manner as it shall consider practicable. In such event,
the options to be granted and the payroll deductions to be made pursuant to the Plan which would otherwise be effected may, in the discretion of the Committee, be reduced accordingly. The Committee
shall give written notice of such reduction to each Participant affected. 


        (c)   The
Participant (or a joint tenant named pursuant to Paragraph 10(d) hereof) shall have no rights as a shareholder with respect to any shares subject to the
Participant's option until the date of the issuance of a stock certificate evidencing such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property), distributions or other rights for which the record date is prior to the date such stock certificate is actually issued, except as otherwise provided in Paragraph 12 hereof. 


        (d)   The
shares of Company common stock to be delivered to a Participant pursuant to the exercise of an option under the Plan will be registered in the name of the
Participant or, if the Participant so directs by written notice to the Committee prior to the termination date of that phase of the Plan, in the names of the Participant and the other person the
Participant may designate as his joint tenants with rights of survivorship, to the extent permitted by law. 



        11.    Accounting and Use of Funds.    Payroll deductions for each
Participant shall be credited to an account established for him under the Plan. A Participant may not make any separate cash payments into such account. Such account shall be solely for bookkeeping
purposes and no separate fund or trust shall be established hereunder and the Company shall not be obligated to segregate such funds. All funds from payroll deductions received or held by the Company
under the Plan may be used, without limitation, for any corporate purpose by the Company. 



        12.    Adjustment Provision.    (a) Subject to any required
action by the shareholders of the Company, the number of shares covered by each outstanding option, and the price per share thereof in each such option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of the Company common stock resulting from a subdivision or consolidation of shares or the payment of 


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a
share dividend (but only on the shares) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company. 


        (b)   Upon
merger or consolidation of the Company with any other corporation whereby the Company is not the surviving entity, any options outstanding under this Plan shall be
convertible, at the sole election of each Participant, into either: (i) stock options representing shares of the surviving corporation, providing for an option price, time of exercise, and
other rights and benefits equivalent to the unexercised premerger or pre-consolidation options held by the Participant; or (ii) cash payment, equal to the fair market value of the
shares of Company common stock subject to options outstanding hereunder as calculated on the day prior to the effective date of the merger or consolidation, with such payment to be made on the
scheduled termination date of the phase under the Plan. The Company is bound to provide the foregoing protection to the Participants in the event of a merger or consolidation after which it would not
be the surviving entity. 


        (c)   In
the event of a change in the shares of the Company as presently constituted, which is limited to a change of all its authorized shares with par value into the same
number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the shares within the meaning of this Plan. 



        13.    Non-Transferability of
Options.    (a) Options granted under any phase of the Plan shall not be transferable except under the laws of descent and distribution and shall be
exercisable only by the Participant during his lifetime and after his death only by his beneficiary of the representative of his estate as provided in Paragraph 9(b) hereof. 


        (b)   Neither
payroll deductions credited to a Participant's account, nor any rights with regard to the exercise of an option or to receive common stock under any phase of the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant. Any such attempted assignment, transfer, pledge or other disposition shall be null and void and
without effect, except that the Company may, at its option, treat such act as an election to withdraw funds in accordance with Paragraph 9. 


        14.    Designation of Beneficiary.    A Participant may file a
written designation of a beneficiary who is to receive any cash to the Participant's credit plus interest thereon under any phase of the Plan in the event of such Participant's death prior to exercise
of his option pursuant to Paragraph 9(b) hereof, or to exercise his option and become entitled to any stock and/or cash upon such exercise in the event of the Participant's death prior to
exercise of the option pursuant to Paragraph 9(b) hereof. The beneficiary designation may be changed by the Participant at any time by written notice to the Company. 


        Upon
the death of a Participant and upon receipt by the Company of proof deemed adequate by it of the identity and existence at the Participant's death of a beneficiary validly
designated under the Plan, the Company shall in the event of the Participant's death under the circumstances described in Paragraph 9(b) hereof, allow such beneficiary to exercise the
Participant's option pursuant to Paragraph 9(b) if such beneficiary is living on the termination date of the phase and deliver to such beneficiary the appropriate stock and/or cash after
exercise of the option. In the event there is no validly designated beneficiary under the Plan who is living at the time of the Participant's death under the circumstances described in
Paragraph 9(b) or in the event the option lapses, the Company shall deliver the cash credited to the account of the Participant with interest to the executor or administrator of the estate of
the Participant, or if no such executor or administrator has been appointed to the knowledge of the Company it may, in its discretion, deliver such cash to the spouse or to any one or more dependents
or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. The Company will not be responsible for or be
required to give effect to the disposition of any cash or stock or the exercise of any option in accordance with any will or other testamentary disposition made by such Participant or in 


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accordance
with the provision of law concerning intestacy, or otherwise. No designated beneficiary shall, prior to the death of a Participant by whom he has been designated, acquire any interest in
any stock or in any option or in the cash credited to the Participant under any phase of the Plan. 



        15.    Amendment and Termination.    The Plan may be terminated at any
time by the Board of Directors provided that, except as permitted in Paragraph 12 hereof, no such termination will take effect with respect to any options then outstanding. Also, the Board may,
from time to time, amend the Plan as it may deem proper and in the best interests of the Company or as may be necessary to comply with Section 423 of the Internal Revenue Code of 1986, as
amended, or other applicable laws or regulations; provided, however, that no such amendment shall, without prior approval of the shareholders of the Company (1) increase the total number of
shares for which options may be granted under the Plan (except as provided in Paragraph 12 herein), (2) permit aggregate payroll deductions in excess of ten percent (10%) of a
Participant's compensation as of the Commencement Date of a phase, or (3) impair any outstanding option. 


        16.    Interest.    In any situation where the Plan provides for the
payment of interest on a Participant's payroll deductions, such interest shall be determined by averaging the month-end balances in the Participant's account for the period of his
participation and computing interest thereon at the rate of three percent (3%) per annum or such higher rate as shall, from time to time, be determined by the Board of Directors. 



        17.    Notices.    All notices or other communications in connection
with the Plan or any phase thereof shall be in the form specified by the Committee and shall be deemed to have been duly given when received by the Participant or his designated personal
representative or beneficiary or by the Company or its designated representative, as the case may be. 


        18.    Participation of Subsidiaries.    The Board of Directors may,
by written resolution, authorize the employees of any of its subsidiaries to participate hereunder. Effective as of the date of coverage of any such subsidiary, any references herein to the "Company"
shall be interpreted as referring to such subsidiary as well as to Hector Communications Corporation. 


        In
the event that any subsidiary which is covered under the Plan ceases to be a subsidiary of Hector Communications Corporation, the employees of such subsidiary shall be considered to
have terminated their employment for purposes of Paragraph 9 hereof as of the date such subsidiary ceases to be such a subsidiary. 


        19.    Definitions.    (a) "Subsidiary" shall include any
corporation defined as a subsidiary of the Company in Section 425(f) of the Internal Revenue Code of 1986, as amended. 


        (b)   "Employee"
shall mean any employee, including an officer, of the Company who as of the first day of the month immediately preceding the Commencement Date of a phase is
customarily employed by the Company for more than fifteen (15) hours per week. 


        (c)   "Base
Pay" is the regular pay for employment for each employee as annualized for a twelve (12) month period, exclusive of overtime, commissions, bonuses,
disability payments, shift differentials, incentives and other similar payments, determined as of the Commencement Date of each phase. 



	Adopted by Board of Directors:	 	March 7, 2003
	Approved by the Shareholders	 	May 21, 2003




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Hector Communications Corporation 2003 Employee Stock Purchase Plan