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Exhibit 4.1  

 
 

Hector Communications Corporation
  1999 Stock Plan    
    

        SECTION 1.    General Purpose of Plan; Definitions.    

        The
name of this plan is the HECTOR COMMUNICATIONS 1999 STOCK PLAN (the "Plan"). The purpose of the Plan is to enable HECTOR COMMUNICATIONS CORPORATION (the "Company") to retain and
attract executives and other key employees, non-employee directors and consultants 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, as it may be comprised from time to time. 

        b.     "Cause" means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony,
willful misconduct, dishonesty or intentional violation of a statute, rule or regulation, any of which, in the judgment of the Company, is harmful to the business or reputation of the Company. 

        c.     "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. 

        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, unless the Plan specifically states otherwise. 

        e.     "Consultant" means any person, including an advisor, engaged by the Company or a Parent of the Subsidiary of the Company
to render services and who is compensated for such services and who is not an employee of the Company or any Parent Corporation or Subsidiary of the Company. A Non-Employee Director may
serve as a Consultant. 

        f.      "Company" means Hector Communication Corporation, a corporation organized under the laws of the State of Minnesota (or any
successor corporation). 

        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. 

        i.      "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. 

        j.      "Fair Market Value" of Stock on any given date shall be determined by the Committee as follows: (a) if the Stock is
listed for trading on one of more national securities exchanges, or is traded on the NASDAQ Stock Market, the last reported sales price on the principal such exchange or the NASDAQ Stock Market on the
date in question, or if such Stock shall not have been traded on such principal exchange on such date, the last reported sales price on such principal exchange or the NASDAQ Stock Market on the first
day prior thereto on which such Stock was so traded; or (b) if the Stock is not listed for trading on a national securities exchange or the NASDAQ Stock Market, but is traded in the
over-the-counter market, including the NASDAQ 

1

 

Small
Cap Market, the closing bid price for such Stock on the date in question, or if there is no such bid price for such Stock on such date, the closing bid price on the first day prior thereto on
which such price existed; or (c) if neither (a) or (b) is applicable, by any means fair and reasonable by the Committee, which determination shall be final and binding on all
parties. 

        k.     "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. 

        l.      "Non-Employee Director" means a "Non-Employee Director" within the meaning of
Rule 16b-3(b)(3) under the Securities Exchange Act of 1934. 

        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.     "Outside Director" means a Director who: (a) is not a current employee of the Company or any member of an
affiliated group which includes the Company; (b) is not a former employee of the Company who receives compensation for prior services (other than benefits under a taxqualified retirement plan)
during the taxable year; (c) has not been an officer of the Company; (d) does not receive remuneration from the Company, either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section 162(m) and regulations thereunder. For this purpose, remuneration includes any payment in exchange for good or services. This
definition shall be further governed by the provisions of Code Section 162(m) and regulations promulgated thereunder. 

        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 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) 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. 

        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 appointed by the Board of Directors of the Company consisting of at least two Directors, all of whom shall be
Outside Directors and Non-Employee Directors, who shall serve at the pleasure of the Board. If the Board has 

2

 

established
a Compensation Committee, the Compensation Committee shall serve as the Committee for purposes of this Plan. 

        The
Committee shall have the power and authority to grant to eligible employees or Consultants, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, or (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 and other eligible persons to whom Stock Options, Stock Appreciation Rights,
Restricted Stock and 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 and 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), which authority shall be exclusively vested in the Committee (and not the Board) for purposes of establishing performance
criteria used with Restricted Stock and Deferred Stock awards; provided, however, that in the event of a merger or asset sale, the applicable provisions of Sections 5(c) and 7(c) of the Plan shall
govern the acceleration of the vesting of any Stock Option or awards; 

         (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 to executive officers of the Company the authority to exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons who are not either the
chief executive officer of the Company or the four highest paid officers of the Company other than the chief executive officer. 

        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 600,000.1 Such shares may consist, in whole or in part, of authorized
and unissued shares. 

	1
	Increased
from 300,000 shares to 600,000 shares by Board of Directors on March 7, 2003 and such increase was approved by shareholders May 21, 2003 

        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 

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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 Option. 

        SECTION 4.    Eligibility.    

        Officers,
other key employees of the Company and Subsidiaries, members of the Board of Directors, and Consultants who are responsible for or contribute to the management, growth and
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. 

        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. No Incentive Stock Options shall
be granted under the Plan after March 31, 2009. 

        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. 

        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. In no event shall the option price per share of Stock purchasable under an Incentive Stock Option be less than 100% of Fair Market Value on the date the 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 option price shall be no less than 110% of the Fair Market Value of the
Stock on the date the option is granted. 

        (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 option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the 

4

 

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 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, subject to the restrictions stated in Section 5(b) above. If the Committee provides, in its discretion, that any option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time. Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its discretion, extend or vary the term of any Stock
Option or any installment thereof, whether or not the optionee is then employed by the Company, if such action is deemed to be in the best interests of the Company; provided, however, that in the
event of a merger or sale of assets, the provisions of this Section 5(c) shall govern vesting acceleration. Notwithstanding the foregoing, unless the Stock Option 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 Committee, 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 or (iii) the transfer of substantially
all of the assets of the Company or 75% or more of the outstanding Stock of the Company. 

        The
grant of an option pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 

        (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 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 at the time of grant or exercise, in its sole discretion, payment in full or in part may also be made in the form of Stock already owned by the optionee (which in the case of Stock acquired
upon exercise of an option have been owned for more than six months on the date of surrender) 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 an option so permit, an optionee may elect to pay all or part of the option 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 option 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. 

5

 

        (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, any Incentive Stock Option may thereafter be immediately exercised, to the extent then exercisable, by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of twelve months from the date of such death or until the expiration of the stated term of the option, whichever period is shorter. In the event
of termination of employment by reason of death, if any 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. 

        (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 Incentive Stock Option held by such optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to
Disability, but may not be exercised after twelve months from the date of such termination of employment or the expiration of the stated term of the option, whichever period is the shorter. In the
event of termination of employment by reason of Disability, if any 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. 

        (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 and the terms of the Stock Option so provide, any Incentive Stock Option held by such optionee may thereafter be exercised to the extent it was
exercisable at the time of such Retirement, but may not be exercised after twelve months from the date of such termination of employment or the expiration of the stated term of the option, whichever
period is the shorter. In the event of termination of employment by reason of Retirement, if any 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.    If an optionee's continuous status as an employee or Consultant terminates (other than
upon the optionee's death, Disability or Retirement), any Incentive Stock Option held by such optionee may thereafter be exercised to the extent it was exercisable at the time of such termination, but
may not be exercised after 90 days after such termination, or the expiration of the stated term of the option, whichever period is the shorter. In the event of termination of employment by
reason other than death, Disability or Retirement and if pursuant to its terms any 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. In the event an Optionee's employment with the Company is terminated for Cause, all unexercised Options
granted to such Optionee shall immediately terminate. 

        (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. 

6

 

        (k)    Directors Who Are Not Employees.    Each person who (i) is not an employee of the Company, any Parent
Corporation or any Subsidiary and (ii) is elected or re-elected as a Director by the Board or at meeting of shareholders of shareholders subsequent to April 1, 1999 or
continues to serve as of the date of the Company's annual meeting of shareholders the unexpired portion of a multi-year term, shall automatically be granted an Option to purchase
3,0002 shares of Stock as of the date of such election or re-election or as of the date of such annual meeting of shareholders, as the case may be, at an option price per
share equal to 100% of the Fair Market Value of a share of Stock on the date of such election or re-election. The Board in appropriate circumstances may adjust the Option to be granted
under this Section 5(k) to any such person who has received a stock option from the Company in the three preceding years. All such Options shall be designated as Non-Qualified Stock
Options and shall be subject to the same terms and provisions as are then in effect with respect to the grant of Non-Qualified Stock Options to officers and key employees of the Company,
except that (1) the term of each such Option shall be equal to ten years, which term shall not expire upon the termination of service as a Director and (2) the Option shall become
exercisable as to one-third of the shares subject to the Option beginning one year after the date the Option is granted, the second third beginning two years after the date the Option is
granted and the last third beginning three years after the date the Option is granted. Upon termination of such Director's service as a Director of the Company, the unvested portion of an Option held
by such Director shall not be exercisable. Subject to the foregoing, all provisions of this Plan not inconsistent with the foregoing shall apply to Options granted pursuant to this
Section 5(k). 

	2
	Increased
from 2000 to 3000 shares by Board action on April 29, 2003 

        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 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. 

        A
Stock Appreciation Right may be exercised by an optionee, in accordance with paragraph (b) of this Section 6, 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 6. 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 6 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 option price per share specified in the related 

7

 

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 Sections 3 and 4 of the Plan on the total number of shares of Stock to be issued under the Plan and the maximum number of shares to be awarded
to any one person in a fiscal year, 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. 

        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, key employees and Consultants 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 Hector Communications Corporation Stock Plan
and an Agreement entered into between the registered owner and Hector Communications Corporation. Copies of such Plan and Agreement are on file in the offices of Hector Communications Corporation." 

         (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 

8

 

the
Plan. Within these limits, the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. 

         (ii)  Except
as provided in paragraph (c)(i) of this Section 7, 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 7, 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 or (iii) the transfer of substantially all of the assets of the Company or 75% or more of the outstanding Stock of the Company. 

        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, key employees and Consultants 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 8. The Committee may also condition the grant of Deferred Stock 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.    

          (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. 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, in a
number equal to the shares covered by the Deferred Stock award. 

         (ii)  Amounts
equal to any dividends declared during the Deferral Period with respect to the number of shares covered by a Deferred Stock award will be paid to the
participant currently or deferred and 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. 

9

 

        (iii)  Subject
to the provisions of the award agreement and paragraph (b)(iv) of this Section 8, 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 in
whole or in part any or all of the remaining deferral limitations imposed hereunder with respect to any or all of the participant's Deferred Stock. 

         (v)  A
participant may elect to further defer receipt of the award 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. Subject to any exceptions adopted by the Committee, such election must generally be made
prior to completion of one half of the Deferral Period for a Deferred Stock award (or for an installment of such an award). 

        (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, Restricted 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. 

        The
Committee may amend the terms of any award or option theretofore granted, prospectively or retroactively to the extent such amendment is consistent with the terms of this Plan, but
no such amendment shall impair the rights of any holder without his or her consent except to the extent authorized under the Plan. The Committee may also substitute new Stock Options for previously
granted options, including previously granted options having higher option prices. 

        SECTION 11.    Unfunded Status of Plan.    

        The
Plan is intended to constitute an "unfounded" 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 

10

 

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 awards 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. 

        (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 includible 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 12(d). 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, 

11

 

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. 

        (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 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). 

        (g)   The
Plan is expressly made subject to the approval by shareholders of the Company. If the Plan is not so approved by the shareholders on or before one year after this
Plan's adoption by the Board of Directors, this Plan shall not come into effect. The offering of the shares hereunder shall be also subject to the effecting by the Company of any registration or
qualification of the shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is
necessary or desirable as a condition to or in connection with, the offering or the issue or purchase of the shares covered thereby. The Company shall make every reasonable effort to effect such
registration or qualification or to obtain such consent or approval. 

        Adopted
May 18, 1999; Section 3 amended to increase authorized shares to 600,000 by Board in March 2003, which amendment was approved by shareholders on
May 21, 2003. 

12

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Exhibit 4.2  

 
 

Hector Communications Corporation
  2003 Employee Stock Purchase Plan    
    

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

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

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

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

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

1

 

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

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

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

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

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

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

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

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

        8.    Options    

        (a)    Grant of Option.    

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

2

 

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

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

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

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

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

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

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

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

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

        (b)    Exercise of Option.    

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

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

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

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

3

 

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

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

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

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

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

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

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

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

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

4

 

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

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

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

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

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

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

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

5

 

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

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

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

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

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

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

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

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

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

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

6

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Hector Communications Corporation 2003 Employee Stock Purchase Plan

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