Exhibit 10.4

COMMUNICATIONS SYSTEMS, INC.

1990 EMPLOYEE STOCK PURCHASE PLAN

          1.          Establishment of Plan. Communications Systems, Inc.
(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 “COMMUNICATIONS SYSTEMS, INC. 1990 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 1954, 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 July 1, 1990 and will terminate when all shares authorized for
issuance under Section 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 Section 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 Section 10
is amended by the Board of Directors to increase the number of shares authorized
for issuance.1

 

 

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1Amended effective January 1, 2002.

 

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          (b)          The Plan shall be carried out in one or more phases, each
phase being for a period of one year or such other period of time as may be
determined by the Board or Committee.2. No phase shall run concurrently, but a
phase may commence immediately after the termination of 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.

          (c)          The Board of Directors may elect to accelerate the
termination date of any phase effective on the date specified by the Board of
Directors in the event of (i) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which shares would be converted into cash, securities or other property, other
than a merger of the Company in which shareholders immediately prior to the
merger have the same proportionate ownership of stock in the surviving
corporation immediately after the merger; (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company; or (iii) any plan of
liquidation or dissolution of the Company.

          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 as 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.

 

 

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2Amended effective August 10, 2005.

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          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.3

 

 

 

 

 

 

 

(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.

 

 

 

 

 

 

 

(ii)

Unless otherwise determined by the Board or Committee prior to the commencement
of a Phase, 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 for phases beginning prior to December 1, 2006
and ninety-five percent (95%) of the fair market of such shares of common stock
on the termination date for phases beginning with a pay period that ends after
January 1, 2006; or

 

 

 

 

 

 

 

 

B.

Eighty-five percent (85%) of the fair market value of such shares of common
stock on the termination date for phases beginning prior to December 1, 2005 and
ninety-five (95%) of the fair market value of such shares of common stock on the
termination date for phases beginning with a pay period that ends after January
1, 2006.

 

 

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3Amended effective August 10, 2005

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(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.

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(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 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) Five Hundred Thousand
(500,000)4 shares of the Company’s $.05 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.

 

 

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4 Originally 100,000 shares (adjusted for stock splits) with authorized shares
increased in 1995, 1998, 2002 and 2008 (see page 8).

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          (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 one other person the Participant
may designate as his joint tenant 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 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)          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.

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          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 accordance with the
provision of any 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 4(c) with respect to an acceleration of the termination date of any
phase, 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 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.5

          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.

 

 

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5Amended effective January 1, 2002.

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          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 Communications Systems, Inc.

          In the event that any subsidiary which is covered under the Plan
ceases to be a subsidiary of Communications Systems, Inc., 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 1954, 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. In
determining Base Pay for any employee for a phase, the Committee or its designee
is authorized to use factors that it determines relevant, including aggregate
salary, wages, commissions and bonuses for the prior fiscal year or years.

 

 

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Adopted by Board of Directors: February 15, 1990

Approved by the shareholders May 1990

Amended May 1995 to increase authorized shares to 200,000

Amended May 1998 to increase authorized shares to 300,000

Amended May 2002 to increase authorized shares to 400,000

Amended October 27, 2004 to modify definition of “Base Pay” in Section 19(c)

Amended effective August 1, 2005 to (i) authorize the Board and Committee
establish a phase for a period other than one year (Section 4(b)) and (ii)
increase the option price to 95% of fair market value at the termination date
(Section 8(a)(ii))

Amended December 2008 to increase authorized shares to 500,000

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