Exhibit 10.4 to Communications Systems, Inc. Form 10-K for fiscal year ended 12-31-2008



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


	
 

	
 


	



	
1Amended effective January 1, 2002. 


	
 










          (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.


	
 

	
 


	



	
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.






	
 

	
 


	



	
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.


	
 

	
 


	



	
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. 


	
 

	
 


	



	
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. 


	
 

	
 


	



	
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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