Document:

fisi-ex1020_319.htm

Exhibit 10.20

 

SEVERANCE AND SETTLEMENT AGREEMENT AND RELEASE

 

 

 

This SEVERANCE AND SETTLEMENT AGREEMENT AND RELEASE ("Agreement") is made and entered into between Michael D. Burneal("Employee"), residing at 15 Canterbury Trail, Fairport, NY 14450 and Five Star Bank ("Employer'' or the “Company”), a corporation under the New York Banking Law with its principal office at 200 Liberty Street, Warsaw, New York 14569 (collectively, "Parties" and each individually "Party") as of December 31, 2018 (the "Effective Date").

 

WHEREAS, Employee has been employed by Employer in a variety of capacities for a number of years, currently serves as the Chief Administration Officer, and has garnered Confidential and Proprietary Information of Employer (as defined below); and

 

WHEREAS, Employer has eliminated Employee's position and wishes to terminate Employee's employment with Employer effective on the Separation Date outlined below, and

 

WHEREAS, Employee and Employer have agreed to fully and finally resolve any and all claims Employee has against Employer and ensure that Employer's confidential, proprietary and business interests are protected under the terms and circumstances set forth herein;

 

NOW, THEREFORE, the Parties, in consideration for the promises and mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which the Parties acknowledge, and the Parties acting on their own free will, hereby irrevocably agree as follows:

 

1.   Separation.  Employee's resignation of his employment with Employer will be effective as of December 31, 2018 ("Separation Date"). As of the Effective Date of this Agreement, Employee has no authority to speak for, act for, represent, or in any way affect the affairs of Employer and is restricted from entering Employer's property.  Upon the date of signature of this agreement, the employee will have no obligation to return to the office, but should remain available to assist as necessary in transition throughout the employment period specified above.

 

2.Company Property.

 

	
 
	
a.
	
Employee has various documents and other property belonging to Employer at Employee's house, office, or other personal locations.

 

	
 
	
b.
	
To the extent Employee has not already done so, by no later than thirty (30) days from the Effective Date of this Agreement, Employee shall return to Employer all documents (and all copies thereof) and other property belonging to Employer that Employee has in Employee's possession, custody or control. The documents and property to be returned by Employee include, but are not limited to all files, correspondence, e-mail, memoranda, notes, notebooks, drawings, records, plans, forecasts, reports, studies, analyses, compilations of data, proposals, agreements, financial information, research and development information, customer lists and customer information (including but not 

 

 

	
 
		
limited to telephone directories, phone books, and any documents containing the name, address, telephone number, email address, or other contact information of any customer or any agent, representative, or employee of a customer), marketing information, operational and personnel information (including but not limited to organizational charts, telephone directories, phone books  any documents containing the name, address, telephone number, email address, or other contact information of any employee, agent, or representative of Employer), specifications, code, software, databases, computer-recorded information, electronic records, tangible property and equipment, credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any Confidential and Proprietary Information of Employer (and all reproductions thereof in whole or in part).  Employee agrees to make a diligent search to locate any such documents, property and information.

 

	
 
	
c.
	
If  Employee has used any computer, server, e-mail or phone device owned by Employee or a member of Employee's immediate family to receive, store, review, prepare or transmit any Confidential and Proprietary Information or documents, property, materials or information of or pertaining to Employer, then on or before  December 31, 2018, Employee shall provide Employer with a computer-useable copy of all such information and then permanently delete and expunge such Confidential and Proprietary Information from those systems.

 

	
 
	
d.
	
Employee further agrees that if Employee discovers any Employer documents or property in Employee's possession, custody or control or on Employee's computer, server, e-mail system, or other electronic device in the future, Employee will immediately return such documents or information to Employer and delete them from such computer, device, or e­ mail system.

 

	
 
	
e.
	
Employer will work with Employee to retrieve any Company Property as outlined in this Section via a courier. Employee will fully cooperate with Employer to get this property back to the Employer no later than thirty (30) days after the Effective Date.

 

	
 
	
3.
	
Consideration. In consideration of Employee's acceptance of the terms of this Agreement, Employer will provide Employee with consideration, to which Employee would not otherwise be entitled, described in this Section 3.

 

	
 
	
a.
	
Employer will continue to pay regular wages, employment related benefits, and any commission payouts through the payroll week of the Separation Date.

 

	
 
	
b.
	
Employer will pay Employee a one-time sum of  THREE HUNDRED AND TWENTY FOUR THOUSAND FIVE HUNDRED FORTY dollars ($324,540), less any required deductions or withholdings, to be paid to Employee on the Employer’s first regular pay date after January 1, 2019. This amount is equivalent to twelve months of Employee's current base salary, plus the equivalent of one year’s payment under the Annual Incentive Plan at target (30% of base salary), and twelve months of Employer paid benefits as further outlined in Exhibit 1.

 

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c.
	
Employee is currently part of an incentive plan with the Employer, the Annual Incentive Plan (the “Plan”). Employee will be paid out in accordance with the terms of this Agreement and the terms of that Plan for all payments provided for herein and/or owed to Employee as of the Separation Date. The Parties agree that as of the Separation Date, the Employee is eligible for and entitled to payment of his Annual Incentive Award under the Employer’s Annual Incentive Plan for the January 1, 2018 - December 31, 2018 Performance Period based on the Employee’s full attainment of the applicable Performance Requirements. The Parties agree that the Employer shall waive the requirement that the Employee be actively employed by the Employer on the payment date to be eligible to receive payment of the Annual Incentive Award under the Annual Incentive Plan, which will be paid out at the same time all other eligible employees receive payment for the performance period, less any required deductions or withholdings.  The Department and Individual Performance Requirements achievement component used in calculating the amount of the Annual Incentive Award will have a rating of no less than “Meets.”

 

	
 
	
d.
	
Employer makes no representations to Employee regarding the taxability and/or tax implications of this Agreement and any payments made under it. Employee is solely responsible for any tax consequences associated with the payments made pursuant to this Agreement, regardless of whether Employer should have contributed and withheld taxes from the amounts paid (including Social Security and Medicare).  Employee agrees to defend, indemnify, reimburse and hold Employer harmless for any and all taxes, contributions, withholdings, fees, assessments, interest, costs, penalties and other charges that may be imposed on Employer by the Internal Revenue Service, the New York State Tax Department, or any other federal, state or local taxing authority by reason of the payments made pursuant to this Section 3, the absence of withholdings and deductions made from those payments and/or Employee's non-payment or late payment of taxes due with respect to that payments.  Employee alone assumes all liability for all such amounts.

 

e.   Subject to terms and requirements of this agreement, the Company will transfer to the Employee title to the Company Car (a 2015 Jeep Grand Cherokee with a net book value of $20,592.39), provided however the Company shall include the value of the Company Car in the Employee’s taxable wages and the Company shall have the right to deduct any tax withholding applicable to the taxable value of the Company Car.  Upon transfer of title, Employee is required to promptly take all necessary steps to transfer ownership responsibility (to include insurance) from the Company to Employee.

 

	
 
	
f.
	
Employee agrees that Employee is not entitled to any other compensation, commissions, bonus, stock award or benefits of any kind or description from Employer, its employees, agents, representatives, successors, assigns, affiliates, parents, or related companies, or from or under any employee benefit plan or fringe benefit plan sponsored by Employer, its successors, assigns, affiliates or related companies, other than as described in this Agreement, and except for vested benefits under any qualified retirement plans in which Employee participated.

 

	
 
	
g.
	
Employee acknowledges and agrees that by executing this Agreement, that Employee has received regular wages, employment related benefits, accrued and unused 2018 paid time 

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off through the Separation Date, all of which were paid in accordance with Employer's regular payroll schedule and benefit policies and practices. The compensation Employee receives as part of this Agreement as outlined in this Section 3 includes all compensation, commissions, and other payments that would have been owed to the Employee pursuant to any incentive plan that Employee was a participant in.  Pursuant to the terms of this Agreement, Employee is entitled to no other compensation, commission, bonus, stock award, benefit, or other form of compensation.

 

	
 
	
4.
	
Release of Claims. Employee, on his own behalf and on behalf of his agents, representatives, fiduciaries, successors and assigns, heirs, executors and administrators remises, releases and forever discharges Employer and Employer's past, present, and future assigns, predecessors, successors, officers, directors, attorneys, agents, representatives, employees, servants, shareholders, parents, subsidiaries, affiliates, and insurers from all, and all manner of action and actions, cause and causes of action, suits, claims, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, economic damages, emotional distress, punitive damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, whether known or unknown, foreseen or unforeseen, which against Employer, its directors, officers, managers, agents, representatives, servants, shareholders, parents, subsidiaries, affiliates, insurers and employees that Employee ever had, now has, or which Employee's beneficiaries, agents, representatives, fiduciaries, successors and assigns, heirs, executors and administrators, hereafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the date of this Agreement including but not limited to all claims relating to or arising from Employee's employment  with the Employer; Employee's termination of employment; compensation, commissions, bonuses, or benefits; statutory claims, including but not limited to Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967 ("ADEA''), the Older Workers Benefit Protection Act of 1990 ("OWBPA"), the Rehabilitation Act of 1973, the Civil Rights Acts of 1866 and 1991, the Americans with Disabilities Act of 1990 ("ADA"), the Genetic Information Nondiscrimination Act of 2008 ("GINA"), the Equal Pay Act of 1963, the Family and Medical Leave Act of 1993 ("FMLA"), the Employment Retirement Income Security Act of 1974 ("ERISA"), the New York State Human Rights Law; emotional distress damages,  pain, suffering, injury to reputation, loss of enjoyment of life, other non-pecuniary loss any and all claims for wrongful discharge of employment, breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied, any claim relating to workplace discrimination or harassment, sex discrimination, sexual stereotyping, disability discrimination, retaliation, or emotional distress.

 

	
 
	
5.
	
Confidential and Proprietary Information.  Employee agrees and acknowledges as follows:

	
 
	
a.
	
In the course of employment with Employer, Employee has acquired access to and became acquainted with Confidential and Proprietary Information (as defined below) about the professional business and financial affairs of Employer.

 

	
 
	
b.
	
Employee will not at any time, whether before or after the termination of Employee's employment, use, copy, disclose or make available any Confidential and Proprietary Information (as defined in Section 5(c) below) to any individual, corporation, partnership, 

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trust, governmental body or other entity; except that Employee may use, copy or disclose any Confidential and Proprietary Information (i) to the extent it becomes publicly available through no fault on Employee's part, and (ii) to the extent Employee are required to do so pursuant to applicable law or pursuant to a final order of a court or arbitrator having jurisdiction thereof; provided, however, that prior to such disclosure Employee shall promptly notify Employer in writing of any such order or request to disclose and shall cooperate fully with Employer in protecting against any such • disclosure by narrowing the scope of such disclosure and/or obtaining a protective order with respect to the permitted use of the Confidential and Proprietary Information.

 

	
 
	
c.
	
For purposes of this Agreement, the term "Confidential and Proprietary Information" means all data, trade secrets, business, products, or client information and other information of any kind whatsoever that Employer discloses, in writing, orally, visually or in any other medium, to the Employee or to which the Employee obtains access to Employer's premises, personnel or systems whether or not marked "Confidential" or "Proprietary," transmitted orally and communicated to the Employee as being Confidential and Proprietary Information or which by its nature would be, if in written form, deemed Confidential and Proprietary Information. Confidential and Proprietary Information includes, but is not limited to, Employer's strategies, operations, financial information, business methods, systems, studies, client lists, client information, employee and personnel information, business and contractual relationships, business forecasts, sales, merchandising, marketing plans, and any written notes, analyses, reports, compilations or other material or documents based in whole or in part on such information.

 

	
 
	
d.
	
Employee shall have responsibility for and bear all risk of loss or damage to such Confidential and Proprietary Information and any and all actual out-of-pocket costs, losses, fines, penalties, forfeitures, judgments and expenses incurred by Employer, including court costs and fees and reasonable and necessary fees and disbursements of counsel, resulting from improper or inaccurate use, processing or disclosure of such data or arising from the negligence or willful misconduct of the Employee.

 

	
 
	
e.
	
Employee agrees to keep the terms of this Agreement, all documents relating to this Agreement, the terms of this Agreement including the consideration being paid under it, completely confidential.  Employee shall not disclose any information concerning the existence or terms of this Agreement or provide a copy of this Agreement to anyone, except as follows:  (i) to the extent necessary to report income to appropriate taxing authorities;  (ii) to communicate with Employee's spouse, attorneys, Employee's investment or financial advisors or Employee's accountants as necessary for obtaining legal and/or financial planning advice (in which case such person or entity shall be informed of the confidential nature of this Agreement and agree to maintain the confidentiality of this Agreement);  or (iii) in response to a judicial order or subpoena issued by a state or federal court or governmental agency or any other order of a court of competent jurisdiction or a discovery request pursuant to established Rules of Civil Procedure in a civil action in state or federal court or in response to any other discovery request or deposition question made or posed.

 

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6.
	
Non-Solicitation.  In consideration of the consideration and benefits provided to Employee by Employer under this Agreement, Employee agrees that for a period of 12 months following the Separation Date:

	
 
	
a.
	
Employee will not, directly or indirectly, canvass, solicit, accept, make, market, or sell any bank or financial solution  products or services (including any deposit product or service, savings account, checking account, certificate of deposit, individual retirement account, credit card, residential or commercial mortgage, consumer or commercial loan, home equity, line of credit, letter of credit, cash management service, merchant service or treasury service, insurance, surety or bond, or investment product or service) in any manner, to any person or business (i) who or which is or was a client, customer, investor or supplier of Employer; (ii) with whom or which Employee acquired a relationship  during Employee's employment with Employer; and/or (iii)  any Prospective Accounts of Employer, as defined below (collectively, "Protected Accounts").

 

	
 
	
b.
	
In making the foregoing covenant, Employee acknowledges that Employer has a legitimate interest in preventing Employee from exploiting or appropriating Employer's goodwill and Confidential and Proprietary Information as it relates to Employer's clients, customers, investors and suppliers, which goodwill and Confidential and Proprietary Information has been created and maintained at Employer's expense.

 

	
 
	
c.
	
Employee will not, directly or indirectly (i) induce any party who or which is a customer, supplier, investor or vendor of Employer to patronize any business directly or indirectly in competition with Employer, or (ii) request or advise any party who or which is a customer, supplier, investor, or carriers of Employer, or its or their successors, to withdraw, curtail, cancel or modify any such customer's or carrier's business with such entity.

 

	
 
	
d.
	
Employee will not (i) employ, or knowingly permit any company or business that employs Employee or is directly or indirectly controlled by, owned by, or in any way Employee has an ownership interest in to employ any person who was employed by Employer on the Separation Date and is currently employed by Employer, or (ii) in any manner seek to induce any person who was employed by Employer on the Separation Date and is currently employed by Employer to leave his or her employment with Employer.

 

	
 
	
e.
	
Employer clients may possess Employee's personal cell phone or home number, or personal email address or social media account and may attempt to contact Employee in the future either by phone or other means for business related matters.  Employee agrees to refer the client back to Employer and indicate that Employee is no longer employed by Employer.

 

f.   The foregoing shall not restrict the Employee from (i) engaging in any activities restricted by this Section 6 which the Employer directs the Employee to undertake, or (ii) engaging in any activities restricted by this Section 6 which are expressly authorized by the Employer, or (iii) owning less than 5% of the outstanding capital stock of any company which engages in the activities restricted in this Section 6, provided that the Employee is not otherwise involved with such company as an officer, director, agent, employee or consultant. 

 

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7.
	
Remedies.  In the event that Employee breaches any of Employee's obligations under this Agreement, Employer may, at its option, obtain monetary damages, a court order requiring that Employee comply with this Agreement, or other legal and equitable remedies as appropriate.

 

	
 
	
8.
	
No Pending Action. Employee represents that, as of the Effective Date, Employee has not filed any charge, complaint or action in any forum against the Employer.

 

	
 
	
9.
	
Duty to Cooperate. Employee agrees to provide assistance to Employer to assure an orderly transaction of work and responsibilities. Employee agrees to fully cooperate with Employer and its attorneys, auditors and consultants following the Separation Date to provide prompt, truthful, and complete information in relation to any inquiry by Employer or its attorney and in connection with any matter, litigation or other proceeding arising out of or relating to matters of which Employee was involved prior to the termination of Employee's employment.  Employee's cooperation shall include, without limitation, providing assistance to Employer's counsel, experts and consultants, and providing truthful testimony in pretrial and trial or hearing proceedings. Employer agrees to timely pay all reasonable expenses incurred by Employee, including, but not limited to, transportation costs, lodging costs, and lost wages.

 

	
 
	
10.
	
Continued Indemnification. The indemnification provisions for officers under the Company’s bylaws and the Company’s directors and officer’s liability insurance policy shall, to the maximum extent permitted by law, be extended to the Employee during the period following the separation date with respect to all matters, events or transactions occurring or effected during the Executive’s period of employment with the Company.  In addition, the Indemnification Agreement by and between the Company and the Employee (the “Indemnification Agreement”), shall continue in effect in accordance with its terms following the separation date with respect to any Indemnifiable Event (as defined therein).

 

	
 
	
11.
	
Competent, Knowing, Voluntary Acceptance; Advice of Counsel; No Construction Against Draftsmen.

 

	
 
	
a.
	
Employee represents, warrants, and acknowledges that Employee: (i) is legally competent; (ii) understands and accepts the nature, terms and scope of this Agreement with full knowledge of all material facts related thereto; (iii) did not execute this Agreement under coercion or duress of any kind whatsoever.

 

	
 
	
b.
	
Employee acknowledges that Employee has had a full and fair opportunity to review this Agreement.  Employee understands that Employee had the right to study and obtain advice from others about the meaning of this Agreement for not less than twenty-one (21) days from the date Employee was given this Agreement before Employee was asked to sign it. Employee acknowledges that if Employee signs this Agreement before the expiration of the twenty-one (21) day period, Employee knowingly and willingly waives the balance of such period.

 

	
 
	
c.
	
Employee also affirms and acknowledges that Employee has had the opportunity to consult with an attorney of their choosing before signing this Agreement. By signing this 

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Agreement, Employee acknowledges Employee had an opportunity to do so and either consulted with an attorney or chose not to consult with any attorney.

 

	
 
	
12.
	
Right to Revoke. Employee understands that Employee may revoke this Agreement for a period of seven (7) days after executing this Agreement. To be effective, the revocation must be in writing and delivered to Office of General Counsel, Five Star Bank, 100 Chestnut Street, Rochester New York 14604 before the close of business on the seventh day after Employee's execution. If the Agreement is not revoked within this seven (7) day period, it shall be fully effective and enforceable without any further affirmative action by either party on the eighth business day after the Effective Date.

 

	
 
	
13.
	
Binding Nature.  This Agreement shall bind, be transferable to, and/or be enforceable by or against, Employer's successors and assigns, now and in the future.  This Agreement shall also bind, be transferable to and/or be enforceable by or against, all persons who might assert a legal right or claim on Employee's behalf, such as Employee's heirs, executors, personal representatives and assigns, now and in the future.

 

	
 
	
14.
	
Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York.

 

	
 
	
15.
	
Scope of Agreement.  The parties agree that no promise, inducement or other agreement not expressly contained or referred to in this Agreement has been made conferring any benefit upon Employee.  The Parties also agree that this Agreement contains the entire agreement between Employer and Employee regarding the terms of Employee’s employment and termination thereof with Employer and/or Employer’s parent company Financial Institutions, Inc., and supersedes and renders null and void any and all prior or contemporaneous oral or written understandings, statements, representations or promises, except those exceptions identified in this Agreement.

 

 

IN WITNESS WHEREOF, Employee and Employer by its duly authorized agent, have hereunder executed this Agreement and intend to be legally bound by its provisions.

 

 

 

 

FIVE STAR BANKMICHAEL D. BURNEAL

 

 

 

 

/s/ Martin K. Birmingham/s/ Michael D. Burneal  

BY:  Martin K BirminghamMichael D. Burneal

 

 

 

8

 

 

 

 

 

 

 

STATE OF NEW YORK )

 

COUNTY OF MONROE) ss:

 

 

 

On _________________ (date) before me, the undersigned, personally appeared Michael D. Burneal personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in the capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

 

 

 

 

 

__________________________

Notary Public

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

Exhibit 1

 

The one-time payment outlined in Section 3(b) is calculated based on the following:

 

Annual base salary:  $237,000 =$237,000

 

Targeted Bonus:  $237,000 X Target Bonus of 30%    =$ 71,100

 

Employer Paid Benefits: $1,371 per month X 12 months   = $ 16,440

 

TOTAL SEVERANCE PAYMENT:$324,540

 

 

10Exhibit 10.13

 

COMMUNICATIONS SYSTEMS, INC.

CHANGE IN CONTROL AGREEMENT

THIS CHANGE IN CONTROL AGREEMENT is adopted
this 1st day of January, 2015 (the “Effective Date”) by and between COMMUNICATIONS SYSTEMS, INC., a Minnesota
corporation located in Minnetonka, Minnesota (the “Company”), and ____________, an executive of the Company or one
of its subsidiaries (the “Executive”).

 

The Board of Directors of the Company (the “Board”)
has determined that it is in the best interests of the Company to retain the Executive’s services and to reinforce and encourage
the continued attention and dedication of the Executive to his or her assigned duties, without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the Company.

 

The Company and the Executive agree as provided
herein.

 

Article 1

 

Definitions

 

Whenever used in this Agreement, the following words
and phrases shall have the meanings specified:

 

1.1          “Agreement”
means this Communications Systems, Inc. Change in Control Agreement, as it may be amended from time to time.

 

1.2          “Annual Compensation”
means the Executive’s average compensation paid by the Company which was includible in the Executive’s gross income
during the most recent two taxable years ending before the date of the Change in Control. The definition includes amounts includible
in compensation, prior to any reduction for a salary contribution to a plan described in Section 125 of the Code or qualified under
Section 401(k) of the Code, as well as any compensation included in the Executive’s compensation within the meaning of Section
280G of the Code.

 

1.3          “Cause”
means

 

		(a)	Gross negligence or gross neglect of duties; or

 

		(b)	Commission of a felony or of a gross misdemeanor involving moral turpitude which in the reasonable determination of the Board
is materially and demonstrably injurious to the Company or which impairs the Executive’s ability to perform substantially
the Executive’s duties with the Company or a Subsidiary; or

 

		(c)	Fraud, disloyalty, dishonesty or willful violation of any law or a willful violation of a material Company or Subsidiary policy
which, after warning, remains a continuing violation, committed in connection with the Executive’s employment.

 

1.4          “Change in Control”
shall occur on the earliest date that:

 

		(a)	A “person” or “group” acquires ownership of stock of the Company that, together with stock held by
such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock
of the Company;

 

		(b)	Any person or group acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition
by such person or group) ownership of stock of the Company possessing thirty percent (30%) or more of the total voting power of
the stock of the Company;

 

    

     

    

 

		(c)	A majority of the members of the Board is replaced during any twelve (12) month period by directors whose appointment or election
is not endorsed by a majority of the members of the Company’s Board prior to the date that such appointments or elections
are made;

 

		(d)	Any person or group acquires (or has acquired) during the twelve (12) month period ending on the date of the most recent acquisition
by such person or group, assets from the Company that have a total gross fair market value equal to or more than forty percent
(40%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions;
or

 

		(e)	For the purposes of this Section 1.4, “person” or “group” does not include The Communications Systems,
Inc. Employee Stock Ownership Plan and Trust.

 

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

 

1.6          “Disability”
means the Executive’s suffering a sickness, accident or injury which has been determined by the insurance carrier of any
individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability
rendering the Executive totally and permanently disabled. The Executive must submit proof to the Plan Administrator of the insurance
carrier’s or Social Security Administration’s determination upon the request of the Plan Administrator.

 

1.7          “Good Reason”
means the existence of any of the following without the Executive’s written consent:

 

		(a)	A material diminution by the Company in the Executive’s
annual base salary.

 

		(b)	A material diminution in the Executive’s authority, duties or responsibilities as in effect in the three (3) month period
immediately preceding a Change in Control.

 

		(c)	A material diminution in the authority, duties or responsibilities as in effect in the three (3) month period immediately preceding
a Change in Control, of the person to whom the Executive is required to report, including a requirement that the Executive report
to a corporate officer or employee instead of reporting directly to the Company’s Board, if the Executive otherwise reported
directly to the Company’s Board;

 

		(d)	A material diminution in the budget over which the Executive retains authority as in effect in the three (3) month period immediately
preceding a Change in Control;

 

		(e)	The Company requiring the Executive to be based more than thirty (30) miles from where the Executive’s office is located
immediately prior to a Change in Control, except for required travel on the Company’s business, and then only to the extent
substantially consistent with the business travel obligations which the Executive undertook on behalf of the Company during the
90-day period ending on the date of the Change in Control (without regard to travel related to or in anticipation of the Change
in Control); or

 

		(f)	Any other action or inaction that constitutes a material breach by the Company of this Agreement.

 

    2

     

    

 

The Executive will have Good Reason to terminate
employment only if within ninety (90) days following the Executive’s actual knowledge of the event which the Executive determines
constitutes Good Reason, the Executive notifies the Company in writing that the Executive has determined a Good Reason exists and
specifies the event creating Good Reason; following receipt of the notice, the Company fails to remedy the event within thirty
(30) days; and the Executive’s resignation for Good Reason is effective within ninety (90) days following the Company’s
period for remedy. If such conditions are not met, the Executive will not have a Good Reason to terminated employment.

 

1.8          “Subsidiary”
means any entity that, along with the Company, would be treated as a single employer under Sections 414(b) and (c) of the Code.

 

1.9          “Successor”
means any entity that assumes the rights and the obligations of the Company by merger, acquisition, or other valid legal succession.

 

1.10        “Termination
Date” shall mean the date of the Executive’s Termination of Employment.

 

1.11        “Termination
of Employment” shall mean Executive’s separation from service with the Company or one of its Subsidiaries.

 

Article 2

 

Change in Control Benefits

 

2.1         Change in Control Benefit.
Subject to the terms and conditions of this Agreement, if within twenty-four (24) months following a Change in Control of the Company,
the Executive shall be subject to an involuntary Termination of Employment by the Company other than for Cause, death, disability
or retirement, or Executive shall initiate a voluntary Termination of Employment for Good Reason, the Company shall pay to the
Executive the benefit specified below in this Section 2.1. If a Change in Control as defined in the Agreement occurs, this Agreement
shall expire on the second anniversary of such Change in Control; provided, however, that any benefits provided under
this Section 2.1 shall continue in effect until fully paid or satisfied.

 

2.1.1      Amount of Benefit.
The benefit under this Section 2.1 is one (1) times the Executive’s Annual Compensation at the date of the Change of Control.

 

2.1.2      Payment of Benefit.
The Company shall pay the benefit to the Executive in a lump sum seventy-five (75) days following the Termination Date provided
that, prior to such date the Executive has executed a release of all claims against the Company, its officers and Directors.

 

2.1.3      Insurance Benefits.
If a benefit is payable under Section 2.1, then for a period of twelve (12) months following the Termination Date the Executive
shall receive, in addition to the benefit provided in Section 2.1.1 of this Agreement the following benefits substantially in the
form and expense to the Executive as received by the Executive on the Termination Date: (a) medical and dental insurance; and (b)
life insurance. The provision of medical and dental insurance and the provision of life insurance benefits pursuant to this Section
2.1.3 shall, however, be subject to the following limitations: (i) the benefits provided during Executive’s taxable year
may not affect the benefits to be provided to Executive in any other taxable year, (ii) reimbursements or payments must be made
on or before the last day of Executive’s taxable year following the taxable year in which the expense being paid or reimbursed
was incurred, and (iii) the right to continued coverage is not subject to liquidation or exchange for another benefit.

 

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It is understood and agreed that any rights and
privileges of the Executive provided by the Consolidated Omnibus Budget Reconciliation Act of 1986 “(COBRA”), amending
the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Services Act, as amended, shall begin
immediately following the Termination Date.

 

2.2          Excess Parachute Payment.
Notwithstanding anything to the contrary in this Agreement, the payments made to the Executive under this Section 2 shall be one
dollar ($1.00) less than the amount which would cause the payments to the Executive (including payments to the Executive which
are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code. Any reductions in payments
under this section will come first from payments under Section 2.1.1 and then from payments under Section 2.1.3

 

2.3          Withholding & Payroll
Taxes. To the extent required by law, the Company shall withhold from other amounts owed to the Executive or require the Executive
to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements on any payments made
to the Executive under this Agreement. Determinations by the Company as to withholding shall be binding on the Executive.

 

Article 3

 

Miscellaneous

 

3.1         Confidential Information.
The Executive recognizes and acknowledges that the Executive will have access to certain information of the Company and that such
information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any
time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except as
directed by law or in pursuance of the Executive’s duties for or on behalf of the Company, its Successors, assigns or nominees,
any Confidential Information of the Company (regardless of whether developed by the Executive), without the prior written consent
of the Company. The term “Confidential Information” with respect to any person means any secret or confidential information
or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products
and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer
programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold
by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained
as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received
as a result of the Executive’s employment with the Company in accordance with the Company’s obligations to such third
parties and the policies established by the Company.

 

    4

     

    

 

3.2          No Competition.
If within the twenty-four (24) months following a Change in Control of the Company, the Executive shall have an involuntary Termination
of Employment by the Company other than for Cause, death, disability or retirement, or shall have a voluntary Termination of Employment
for Good Reason, then and for a period of one (1) year immediately following the Termination Date, the Executive shall not directly
or indirectly engage in any business in which the Company directly or indirectly engages during the term of the Agreement; provided,
however, that this restriction shall apply only to the geographic market of the Company. The Executive shall be deemed to engage
in a business if the Executive directly or indirectly, engages or invests in, owns, manages, operates, controls or participates
in the ownership, management, operation or control of, is employed by, associated or in any manner connected with, or renders services
or advice to, any business in which the Company directly or indirectly engages, provided, however, that the Executive may invest
in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if two conditions
are met: (a) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g)
of the Securities Exchange Act of 1934 and (b) the Executive does not beneficially own (as defined Rule 13d-3 promulgated under
the Securities Exchange Act of 1934) in excess of one percent of the outstanding capital stock of such enterprise. In the event
the Executive is eligible for and receives a payment under this Agreement, for the twelve (12) months after termination of employment,
the Executive will not, directly or indirectly, solicit, induce or attempt to solicit or induce any of the Company’s employees
or independent contractors for the purpose of hiring them to work for the Executive or another individual, entity or employer,
or for the purpose of inducing them to leave their employment with the Company, except with the Company’s written consent.
In the event the Executive violates this Section 3.2 or Section 3.1, any and all rights of the Executive under this Agreement shall
terminate and no further payment shall be due the Executive, which shall be in addition to, and not in lieu of, any other rights
or remedies of the Company under this Agreement.

 

3.3         Termination of Agreement
Prior to Change of Control. At any time after the Effective Date and prior to a Change of Control, the Board of Directors of
the Company may amend or terminate this Agreement: provided that no such amendment or termination shall be effective until at least
sixty (60) days following written notification of Executive of such termination or amendment of this Agreement. Further, this Agreement
shall automatically terminate if, prior to a Change of Control, Company terminates Executive, whether with or without Cause, or
Executive voluntarily terminates his or her employment with the Company, whether with or without Good Reason.

 

3.4         Delivery of Documents
Upon Termination of Employment. The Executive shall deliver to the Company or its designee at the Executive’s Termination
of Employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and
other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in
the Executive’s possession, custody, or control at such Termination of Employment and that are related in any manner to the
past, present, or anticipated business of the Company.

 

3.5         Remedies. The Executive
acknowledges that a remedy at law for any breach or attempted breach of the Executive’s obligations under Sections 3.1, 3.2
and 3.3 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies
in case of any such breach or attempted breach and further agrees to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or other equitable relief. The Company shall have the right to offset against
amounts to be paid to the Executive pursuant to the terms hereof any amounts owed by the Executive to the Company at the time of
payment.

 

The termination of the Agreement shall not be deemed to be a waiver
by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such
a termination the Executive shall be liable for all damages attributable to such a breach.

 

3.6         Dispute Resolution.
Subject to the Company’s right to seek injunctive relief in court as provided in Section 3.4 of this Agreement, any dispute,
controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute
as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be settled by arbitration administered
by the American Arbitration Association under its National Rules for the Resolution of Employment Disputes and judgment upon the
award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

 

    5

     

    

 

Any such Arbitration will be conducted: (i) by a
neutral arbitrator appointed by mutual agreement of the parties; or (ii) failing such agreement, by a neutral arbitrator appointed
in accordance with said AAA rules; the Company shall pay the fees and reasonable expenses of the arbitrator; the parties will be
permitted reasonable discovery in accordance with the provisions of the Minnesota Rules of Civil Procedure, including the production
of relevant documents by the other party, the exchange of witness lists, and a limited number of depositions, including depositions
of any expert who will testify at the arbitration; the arbitrator’s award will include findings of fact and conclusions of
law showing the legal and factual bases for the arbitrator’s decision; the arbitrator will have the authority to award to
the prevailing party any remedy or relief that a United States District Court or court of the State of Minnesota could order or
grant if the Dispute had first been brought in that judicial forum, including costs and attorneys’ fees; and unless otherwise
agreed by the parties, the place of any arbitration proceeding will be Minneapolis, Minnesota.

 

3.7          Acknowledgement of Parties.
The Company and the Executive understand and acknowledge that this Agreement means that neither can pursue an action against the
other in a court of law regarding any employment dispute, except for claims involving workers’ compensation benefits or unemployment
benefits, and except as set forth elsewhere in this Agreement, in the event that either party notifies the other of its demand
for arbitration under this Agreement. The Company and the Executive understand and agree that this Section 3.5, concerning arbitration,
shall not include any controversies or claims related to any agreements or provisions (including provisions in this Agreement)
respecting confidentiality, proprietary information, non-competition, non-solicitation, trade secrets, or breaches of fiduciary
obligations by the Executive, which shall not be subject to arbitration.

 

3.8          Right to Consult Counsel.
Executive has been advised of the Executive’s right to consult with an attorney prior to entering into this Agreement.

 

3.9         Successors of the Company.
The Company will require any Successor by agreement in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no
such succession had taken place. The failure of the Company to obtain such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to terminate the Agreement and receive compensation from the
Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated the Executive’s
employment for Good Reason. As used in this Agreement, “Company” as hereinbefore defined shall include any Successor
to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 3.8 or which
otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

 

3.10        Executive’s Heirs,
etc. The Executive may not assign the Executive’s rights or delegate the Executive’s duties or obligations hereunder
without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts would still be payable to the Executive hereunder if the Executive had continued to live, all such
amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s designee
or, if there be no such designee, to the Executive’s estate.

 

    6

     

    

 

3.11        Notices. Any notice
or communication required or permitted under the terms of this Agreement shall be in writing and shall be delivered personally,
or sent by registered or certified mail, return receipt requested, postage prepaid, or sent by nationally recognized overnight
carrier, postage prepaid, or sent by facsimile transmission to the Company at the Company’s principal office and facsimile
number in Minnetonka, Minnesota, or to the Executive at the address and facsimile number, if any, appearing on the books and records
of the Company. Such notice or communication shall be deemed given (a) when delivered if personally delivered; (b) five mailing
days after having been placed in the mail, if delivered by registered or certified mail; (c) the business day after having been
placed with a nationally recognized overnight carrier, if delivered by nationally recognized overnight carrier, and (d) the business
day after transmittal when transmitted with electronic confirmation of receipt, if transmitted by facsimile. Any party may change
the address or facsimile number to which notices or communications are to be sent to such party by giving notice of such change
in the manner herein provided for giving notice. Until changed by notice, the following shall be the address and facsimile
number to which notices shall be sent:

 

	
        If to the Company:

         
	If to the Executive:
	
        Communications Systems, Inc.

         

        Attention: President and CFO

         

        10900 Red Circle Drive

         

        Minnetonka, MN 55343

         

        Fax: (952) 946-1835

	
         

         

         

         

         

         

 

3.12        Amendment or Waiver.
No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer as may be specifically designated by the Board (which shall not include the
Executive). No waiver by either party hereto at any time of any breach by the other party hereto of or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party, which are not set forth expressly in this Agreement.
This Agreement constitutes the entire agreement between the Company and the Executive as to the subject matter hereof, and supersedes
any prior agreement, whether written or oral. No rights are granted to the Executive by virtue of this Agreement other than those
specifically set forth herein.

 

3.13        Invalid Provisions.
Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the
effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid,
unenforceable or void shall if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to
the extent required for the purposes of validity and enforcement thereof. In this regard, the parties hereto hereby agree that
any judicial authority construing this Agreement shall be empowered to sever any portion of the geographic area or any prohibited
business activity from the coverage of this Agreement, and to reduce the duration of the non-compete period and to apply the provisions
of this Agreement to the remaining portion of the geographic area or the remaining business activities not to be severed by such
judicial authority and to the duration of the non-compete period as reduced by judicial determination.

 

    7

     

    

 

3.14        Survival of the Executive’s
Obligations. The Executive’s obligations under this Agreement shall survive regardless of whether the Executive incurs
a Termination of Employment, voluntarily or involuntarily, by the Company or the Executive, with or without Cause.

 

3.15        Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.

 

3.16        Governing Law.
This Agreement and any action or proceeding related to it shall be governed by and construed under the laws of the State of Minnesota.

 

3.17        Captions and Gender.
The use of Captions and Section headings herein is for purposes of convenience only and shall not affect the interpretation or
substance of any provisions contained herein. Similarly, the use of the masculine gender with respect to pronouns in this Agreement
is for purposes of convenience and includes either sex who may be a signatory.

 

3.18        No Guarantee of Tax
Treatment. Nothing herein shall be construed as an entitlement to or guarantee of any particular tax treatment to the Executive.
This Agreement is drafted and shall be interpreted to be exempt from Code Section 409A.

 

IN WITNESS WHEREOF, the Executive and a duly
authorized representative of the Company have signed this Agreement.

 

	EXECUTIVE:	 	COMPANY:
	 	 	 
	 	 	 	COMMUNICATIONS SYSTEMS, INC.
	 	 	 	 
	 	 	By   	
	 	 	 	 	 	 	 
	 	 	 	Its	 	 	 
	 	 	 	 	 	 	 	 	 

 

    8

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