Document:

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. 

 

1

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

 

2

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

3

          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.

 

4

                              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.

 

5

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

 

6

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

 

7

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

 

8

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 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. 

 

9

                              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. 

 

10

	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (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. 

 

11

                              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. 

 

12

	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
 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. 

13

          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.

 

14

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

 

15

	
  

 	
  

 	
  

 
	
  

 	
 (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. 

16Exhibit 10.4

COMMUNICATIONS SYSTEMS, INC.

1990 STOCK OPTION PLAN FOR NONEMPLOYEE
DIRECTORS

ARTICLE I

PURPOSE

          The
purposes of the 1990 Communications Systems, Inc. Stock Option Plan for
Nonemployee Directors (the “Plan”) are to attract and retain the services of
experienced and knowledgeable nonemployee Directors of Communications Systems,
Inc. (the “Corporation”) and to provide an incentive for such Directors to
increase their proprietary interest in the Corporation’s long-term success and
progress.

ARTICLE II

SHARES SUBJECT TO THE PLAN

          The total
number of shares of Common Stock, par value $.05 (the “Shares”), of the
Corporation for which options may be granted under the Plan is 300,000,1
subject to adjustment in accordance with Article VI hereof. Such Shares shall
be authorized and unissued shares and shall include shares representing the
unexercised portion of any option granted under the Plan which expires or
terminates without being exercised in full.

ARTICLE III

ADMINISTRATION OF THE PLAN

          The Plan
shall be administered by the Board of Directors of the Corporation (the
“Board”), or, in the event the Board shall appoint and/or authorize a
Compensation Committee to administer this Plan, by such committee. Subject to
the terms of the Plan, the Board shall have the power to construe the
provisions of the Plan, to determine all questions arising thereunder and to
adopt and amend such rules and regulations for the administration of the Plan
as it may deem desirable.

ARTICLE IV

PARTICIPATION IN THE PLAN

          Each
Director of the Corporation who is not otherwise an employee of the Corporation
or any subsidiary (“Director”) shall receive annually an option to acquire
3,000 Shares2
under the Plan subject to adjustment in accordance with Article VI hereof,
concurrent with the annual meeting of the stockholders of the corporation
(whether or not such Director is up for election), commencing with the 1990
election; provided that no options will be awarded after the 2010 annual
meeting of stockholders.3

ARTICLE V

OPTION TERMS

          Each option
granted to a Director under the Plan and the issuance of Shares thereunder
shall be subject to the following terms.

	
  

 	
  

 
	
 1 Originally
 100,000. Adjusted for stock split in 1993 to 200,000. In March 2001 the Board
 approved and in May 2001 the shareholders approved an increase to 300,000
 shares.

 
	
 2 Originally
 1,000 shares; increased from time to time, most recently at the May 18, 1999
 Annual Shareholders meeting when the annual grant was increased to 3,000
 shares.

 
	
 3 Last clause
 approved by the Company’s Board of Directors on August 11,
 2011.

 

          1.   Option
Agreement. Each option granted under the Plan shall be evidenced by an option
agreement (the “Agreement”) duly executed on behalf of the Corporation and by
the Director to whom such options is granted. Each Agreement shall comply with
and be subject to the terms and conditions of the Plan and shall conclusively
evidence by the optionee’s signature thereon that it is the intent of the
optionee to serve as a director of the Corporation for the remainder of the
calendar year in which the option was granted. Any Agreement may contain such
other terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Board. No option shall be granted within the meaning of the
Plan and no purported grant of any option shall be effective until such an
option agreement shall have been duly executed on behalf of the Corporation and
the Director to whom the option is to be granted.

          2.   Option Exercise Price. The option exercise
price for an option granted under the Plan shall be the fair market value of
the Shares covered by the option at the time the option is granted. For
purposes of the Plan, “fair market value” may mean the closing price or the
mean between the high and low sale prices quoted on the day of grant on the
National Association of Securities Dealers Automatic Quotation System,
whichever is less.

          3.   Time and Manner of Exercise of Option.
Options are exercisable immediately after their grant and may be exercised in
full at one time or in part from time to time. Any option may be exercised by
giving written notice, signed by the person exercising the option, to the
corporation stating the number of Shares with respect to which the option is
being exercised, accompanied by payment in full for such Shares, which payment
may be in whole or in part in Shares of the Common Stock of the Corporation
already owned by the person or persons exercising the option, valued at fair
market value at the time of such exercise.

          4.   Term of Options. Each option shall expire
ten (10) years from the date of the granting thereof, but shall be subject to
earlier termination as provided in the following sentence. In the event of the
death of an optionee during the period in which he or she is a Director of the
Corporation, or within the period between when the optionee ceases to be a
director and the date on which the option would otherwise expire by its terms,
the option granted to such optionee may be exercised only within one (1) year
after the date of death of such optionee or prior to the date on which the
option expires by its terms, whichever is earlier, by the estate of such
optionee, or by any person or persons whom the optionee shall have designated
in writing on forms prescribed by and filed with the Corporation or, if no such
designation has been made by the person or persons to whom the optionee’s
rights have passed, by will or the laws of descent and distribution.4

          5.   Transferability. The right of any optionee
to exercise an option granted to him or her under the Plan shall not be
assignable or transferable by such optionee otherwise than by will or the laws
of descent and distribution, and any such option shall be exercisable during
the lifetime of such optionee only by such optionee; provided, however,
notwithstanding the foregoing, that optionee may transfer the option to a
revocable trust established by and, during the lifetime of the optionee, solely
controlled by the optionee, and such trust shall possess the same rights with
respect to the transferred option as were granted to the optionee, as well as
the rights specified in paragraphs 3 and 4 of this Article IV.5

          6.   
Participant’s or Successor’s Rights as Stockholder. Neither the recipient of an
option under the Plan nor his or her successor(s) in interest shall have any
rights as a stockholder of the Corporation with respect to any Shares subject
to an option granted to such person until such person becomes a holder of
record of such Shares.

	
  

 	
  

 
	
 4 Amended by
 written action of the Board effective March 30, 2007.

 
	
 5 Amended at
 Board meeting held May 13, 2010 

 

          7.   Regulatory Approval and Compliance. The
Corporation shall not be required to issue any certificate or certificates for
Shares of its stock upon the exercise of an option granted under the Plan or
record as a holder of record of such Shares the name of the individual
exercising an option under the Plan, without obtaining to the complete
satisfaction of the Board the approval of all regulatory bodies deemed
necessary by the Board, and without complying, to the Board’s complete
satisfaction, with all rules and regulations, under federal, state or local law
deemed applicable by the Board.

ARTICLE VI

CAPITAL ADJUSTMENTS

          The
aggregate number of Shares with respect to which options may be granted under
the Plan, as provided in Article II, the number of Shares for which options are
to be granted annually under Article IV, the number of Shares subject to each
outstanding option and the price per share specified in such options, all may
be adjusted, as the Board shall determine at its sole discretion or as may be
required, for any increase or decrease in the number of issued shares of Common
Stock of the Corporation resulting from a subdivision or consolidation of
Shares or any other similar capital adjustment, the payment of a stock
dividend, or other increase or decrease in such Shares effected without receipt
of consideration by, or a merger, or consolidation of, the Corporation, or the
distribution of shares of another corporation as a stock dividend, or the sale
of all or substantially all of the assets of, or the liquidation of, the
Corporation.

ARTICLE VII

EXPENSES OF THE PLAN

          All costs
and expenses of the adoption and administration of the Plan shall be borne by
the Corporation, and none of such expenses shall be charged to any optionee.

ARTICLE VIII

APPROVAL OF STOCKHOLDERS

          The Plan
shall be subject to approval by the vote of stockholders holding at least a
majority of the voting stock of the Corporation, voting in person or by proxy
at a duly held stockholders’ meeting.

ARTICLE IX

TERMINATION AND AMENDMENT OF THE PLAN

          The Board
may amend, terminate or suspend the Plan at any time, in its sole and absolute
discretion; provided, however, that without the approval of stockholders no
amendment shall (1) increase the number of Shares subject to the Plan; (2)
reduce the option price below 100% of the market value of the Shares, subject
to adjustment under Article VI, the number of Shares for which options may be
granted to each Director in a calendar year; or (4) change the timing with
respect to which such options are granted.

ARTICLE X

EFFECTIVE DATE

          The
effective date of the Plan shall be the date on which the Plan is approved by
its stockholders.

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