Exhibit 10.61
IRVINE SENSORS CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
     This INCENTIVE STOCK OPTION AGREEMENT (the “Agreement”) is made this ___day
of ___, ___, by and between Irvine Sensors Corporation, a Delaware corporation
(the “Company”) and ___, an individual resident of ___, ___(“Optionee”).
     1. Grant of Option. The Company hereby grants Optionee the option (the
“Option”) to purchase all or any part of an aggregate of ___shares (the
“Shares”) of common stock, $0.01 par value (“Common Stock”), of the Company at
the exercise price of $  per share according to the terms and conditions set
forth in this Agreement and in the Irvine Sensors Corporation 2006 Omnibus
Incentive Plan (the “Plan”). The Option will be treated as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the “Code”). The Option is issued under the Plan and is subject to
its terms and conditions. A copy of the Plan will be furnished upon request of
Optionee.
     The Option shall terminate at the close of business ten (10) years from the
date hereof; provided, however, that if Optionee owns (within the meaning of
Section 422 of the Code) as of the date hereof stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of its
Affiliates, the Option shall terminate at the close of business five (5) years
from the date hereof.
     2. Vesting of Option Rights.
     (a) Except as otherwise provided in this Agreement, the Option may be
exercised by Optionee in accordance with the following schedule:

          Number of Shares On or after each of   with respect to which the
following dates   the Option is exercisable
 
   
 
   
 
   
 
   

     (b) During the lifetime of Optionee, the Option shall be exercisable only
by Optionee and shall not be assignable or transferable by Optionee, other than
by will or the laws of descent and distribution.
     (c) Notwithstanding the provisions set forth above in Section 2(a), (i) in
the event of termination of Optionee’s employment with or Service to the Company
as a result of Optionee’s death or Permanent Disability while in the employ or
Service of the Company, the next vesting date for the Option, as set out in
Section 2(a) above, shall accelerate by twelve (12) months as of such date of
termination; and (ii) if, after the initial vesting date set forth above,
Optionee ceases to be an employee or provide Service by reason of Ordinary
Retirement prior to the vesting of

 

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the Option under Sections 2 or 5 hereof, then the vesting of the Option, as set
out in Section 2(a) above, shall accelerate in full as of such date of Ordinary
Retirement. For purposes of this Agreement, “Ordinary Retirement” shall mean the
retirement of the Optionee on a date upon which, if the Optionee is an employee,
the sum of the Optionee’s age and number of years of employment with the Company
equals or exceeds eighty-five (85) years or, if the Optionee is a non-employee
director, the number of years of Service to the Company exceeds five (5) years.
     (d) Optionee understands that to the extent that the aggregate fair market
value (determined at the time the option was granted) of the shares of Common
Stock of the Company with respect to which all options that are incentive stock
options within the meaning of Section 422 of the Code are exercisable for the
first time by Optionee during any calendar year exceed $100,000, in accordance
with Section 422(d) of the Code, such options shall be treated as options that
do not qualify as incentive stock options.
     3. Exercise of Option after Death or Termination of Employment or Service.
The Option shall terminate and may no longer be exercised if Optionee ceases to
be employed by or provide Service to the Company or its Affiliates, except that:
     (a) If Optionee’s employment or Service shall be terminated for any reason,
voluntary or involuntary, other than for “Misconduct” (as defined in
Section 3(e)) or Optionee’s death or Permanent Disability (as defined in the
Plan and within the meaning of Section 22(e)(3) of the Internal Revenue Code of
1986, as amended), Optionee may at any time within a period of three (3) months
after such termination exercise the Option to the extent the Option was
exercisable by Optionee on the date of the termination of Optionee’s employment
or Service.
     (b) If Optionee’s employment or Service is terminated for Misconduct, the
Option shall be terminated as of the date of the act giving rise to such
termination.
     (c) If Optionee shall die while the Option is still exercisable according
to its terms, or if employment or Service is terminated because of Optionee’s
Permanent Disability while in the employ of the Company, and Optionee shall not
have fully exercised the Option, such Option may be exercised, at any time
within twelve (12) months after Optionee’s death or date of termination of
employment or Service for Permanent Disability, by Optionee, personal
representatives or administrators or guardians of Optionee, as applicable, or by
any person or persons to whom the Option is transferred by will or the
applicable laws of descent and distribution, to the extent of the full number of
Shares Optionee was entitled to purchase under the Option on (i) the earlier of
the date of death or termination of employment or Service or (ii) the date of
termination for such Permanent Disability, as applicable.
     (d) Notwithstanding the above, in no case may the Option be exercised to
any extent by anyone after the termination date of the Option.
     (e) “Misconduct” shall mean (i) the commission of any act of fraud,
embezzlement or dishonesty by Optionee, (ii) any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Company (or
of any Affiliate),

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or (iii) any other intentional misconduct by such person adversely affecting the
business or affairs of the Company (or any Affiliate) in a material manner.
However, if the term or concept has been defined in an employment agreement
between the Company and Optionee, then Misconduct shall have the definition set
forth in such employment agreement. The foregoing definition shall not in any
way preclude or restrict the right of the Company (or any Affiliate) to
discharge or dismiss any Optionee or other person in the Service of the Company
(or any Affiliate) for any other acts or omissions but such other acts or
omissions shall not be deemed, for purposes of the Agreement, to constitute
grounds for termination for Misconduct.
     4. Method of Exercise of Option. Subject to the foregoing, the Option may
be exercised in whole or in part from time to time by serving written notice of
exercise on the Company at its principal office within the Option period. The
notice shall state the number of Shares as to which the Option is being
exercised and shall be accompanied by payment of the exercise price. Payment of
the exercise price shall be made (i) in cash (including bank check, personal
check or money order payable to the Company), (ii) with the approval of the
Company (which may be given in its sole discretion), by delivering to the
Company for cancellation shares of the Company’s Common Stock already owned by
Optionee having a Fair Market Value equal to the full exercise price of the
Shares being acquired, (iii) with the approval of the Company (which may be
given in its sole discretion) and subject to Section 402 of the Sarbanes-Oxley
Act of 2002, by delivering to the Company the full exercise price of the Shares
being acquired in a combination of cash and Optionee’s full recourse liability
promissory note with a principal amount not to exceed eighty percent (80%) of
the exercise price and a term not to exceed five (5) years, which promissory
note shall provide for interest on the unpaid balance thereof which at all times
is not less than the minimum rate required to avoid the imputation of income,
original issue discount or a below-market rate loan pursuant to Sections 483,
1274 or 7872 of the Code or any successor provisions thereto, (iv) subject to
Section 402 of the Sarbanes-Oxley Act of 2002, to the extent this Option is
exercised for vested shares, through a special sale and remittance procedure
pursuant to which Optionee shall concurrently provide irrevocable instructions
(1) to Optionee’s brokerage firm to effect the immediate sale of the purchased
Shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased Shares plus all applicable income and employment taxes
required to be withheld by the Company by reason of such exercise and (2) to the
Company to deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale, or (v) with the approval of the
Company (which may be given in its sole discretion) and subject to Section 402
of the Sarbanes-Oxley Act of 2002, by delivering to the Company a combination of
any of the forms of payment described above. This Option may be exercised only
with respect to full shares and no fractional share of stock shall be issued.
     5. Change in Control.
     (a) Immediately prior to the effective date of a “Change in Control” (as
defined in Section 5(e)), this Option shall vest and become exercisable for all
of the Shares and may be exercised for any or all of those Shares. However, this
Option shall not vest and become exercisable on an accelerated basis if and to
the extent: (i) this Option is to be assumed by the successor corporation (or
parent thereof) or is otherwise to be continued in full force and effect
pursuant to the terms of the Change in Control transaction or (ii) this Option
is to be replaced

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with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Change in Control on the Shares for which
this Option is not otherwise at that time exercisable (the excess of the Fair
Market Value of those Shares over the aggregate exercise price payable for such
Shares) and provides for subsequent payout of that spread no later than the time
this Option would have vested and become exercisable for those Shares.
     (b) Immediately following the consummation of the Change in Control, this
Option shall terminate, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in effect pursuant to the
terms of the Change in Control transaction.
     (c) If this Option is assumed or otherwise continued in effect in
connection with a Change in Control, then this Option shall be appropriately
adjusted, upon such Change in Control, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Change in Control had this Option been exercised immediately prior to such
Change in Control, and appropriate adjustments shall also be made to the
exercise price, provided the aggregate exercise price shall remain the same. To
the extent that the holders of Common Stock receive cash consideration for their
Common Stock in consummation of the Change in Control, the successor corporation
(or its parent) may, in connection with the assumption of this Option,
substitute one or more shares of its own common stock with a fair market value
equivalent to the cash consideration paid per share of Common Stock in such
Change in Control.
     (d) This Agreement shall not in any way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
     (e) For purposes of this Agreement, “Change in Control” shall mean a change
in ownership or control of the Company effected through any of the following
transactions: (i) a merger, consolidation or other reorganization unless
securities representing more than 50% of the total combined voting power of the
voting securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the same
proportion, by the persons who beneficially owned the Company’s outstanding
voting securities immediately prior to such transaction; (ii) the sale, transfer
or other disposition of all or substantially all of the Company’s assets; or
(iii) the acquisition, directly or indirectly by any person or related group of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by, or is under common control with, the Company), of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than 50% of the total combined voting power of the
Company’s outstanding securities pursuant to a tender or exchange offer made
directly to the Company’s stockholders.
     6. Capital Adjustments and Reorganization. Should any change be made to the
Common Stock by reason of any stock split, reverse stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Company’s receipt
of consideration, appropriate adjustments shall be made to (a) the number and/or
class of securities subject to this Option and (b) the exercise price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

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     7. Miscellaneous.
     (a) Entire Agreement; Plan Provisions Control. This Agreement (and any
addendum hereto) and the Plan constitute the entire agreement between the
parties hereto with regard to the subject matter hereof. In the event that any
provision of the Agreement conflicts with or is inconsistent in any respect with
the terms of the Plan, the terms of the Plan shall control. All decisions of the
Committee with respect to any question or issue arising under the Plan or this
Agreement shall be and binding on all persons having an interest in this Option.
All capitalized terms used in this Agreement and not otherwise defined in this
Agreement shall have the meaning assigned to them in the Plan.
     (b) No Rights of Stockholders. Neither Optionee, Optionee’s legal
representative nor a permissible assignee of this Option shall have any of the
rights and privileges of a stockholder of the Company with respect to the
Shares, unless and until such Shares have been issued in the name of Optionee,
Optionee’s legal representative or permissible assignee, as applicable, without
restrictions thereto.
     (c) No Right to Employment. The grant of the Option shall not be construed
as giving Optionee the right to be retained in the employ of, or if Optionee is
a director of the Company or an Affiliate as giving the Optionee the right to
continue as a director of, the Company or an Affiliate, nor will it affect in
any way the right of the Company or an Affiliate to terminate such employment or
position at any time, with or without cause. In addition, the Company or an
Affiliate may at any time dismiss Optionee from employment, or terminate the
term of a director of the Company or an Affiliate, free from any liability or
any claim under the Plan or the Agreement. Nothing in the Agreement shall confer
on any person any legal or equitable right against the Company or any Affiliate,
directly or indirectly, or give rise to any cause of action at law or in equity
against the Company or an Affiliate. The Option granted hereunder shall not form
any part of the wages or salary of Optionee for purposes of severance pay or
termination indemnities, irrespective of the reason for termination of
employment. Under no circumstances shall any person ceasing to be an employee of
the Company or any Affiliate be entitled to any compensation for any loss of any
right or benefit under the Agreement or Plan which such employee might otherwise
have enjoyed but for termination of employment, whether such compensation is
claimed by way of damages for wrongful or unfair dismissal, breach of contract
or otherwise. By participating in the Plan, Optionee shall be deemed to have
accepted all the conditions of the Plan and the Agreement and the terms and
conditions of any rules and regulations adopted by the Committee and shall be
fully bound thereby.
     (d) Governing Law. The validity, construction and effect of the Plan and
the Agreement, and any rules and regulations relating to the Plan and the
Agreement, shall be determined in accordance with the internal laws, and not the
law of conflicts, of the State of Delaware.
     (e) Severability. If any provision of the Agreement is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or would
disqualify the Agreement under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws, or
if it cannot be so construed or deemed amended without, in the determination of
the Committee, materially altering the purpose or intent of the Plan or the

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Agreement, such provision shall be stricken as to such jurisdiction or the
Agreement, and the remainder of the Agreement shall remain in full force and
effect.
     (f) No Trust or Fund Created. Neither the Plan nor the Agreement shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and Optionee or any
other person.
     (g) Headings. Headings are given to the Sections and subsections of the
Agreement solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Agreement or any provision thereof.
     (h) Notices. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be addressed to the Company at its
principal corporate offices. Any notice required to be given or delivered to
Optionee shall be addressed to Optionee at the address indicated below
Optionee’s signature line at the end of this Agreement or at such other address
as Optionee may designate by ten (10) days’ advance written notice to the
Company. Any notice required to be given under this Agreement shall be in
writing and shall be deemed effective upon personal delivery or upon the third
(3rd) day following deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice.
     (i) Conditions Precedent to Issuance of Shares. Shares shall not be issued
pursuant to the exercise of the Option unless such exercise and the issuance and
delivery of the applicable Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, state blue sky laws, the requirements of any
applicable Stock Exchange or the Nasdaq Stock Market and the Delaware General
Corporation Law. As a condition to the exercise of the purchase price relating
to the Option, the Company may require that the person exercising or paying the
purchase price represent and warrant that the Shares are being purchased only
for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation and
warranty is required by law.
     (j) Withholding. If Optionee shall dispose of any of the shares of Common
Stock acquired upon exercise of the Option within two (2) years from the date
the Option was granted or within one (1) year after the date of exercise of the
Option, then, in order to provide the Company with the opportunity to claim the
benefit of any income tax deduction, Optionee shall promptly notify the Company
of the dates of acquisition and disposition of such shares, the number of shares
so disposed of, and the consideration, if any, received for such shares. In
order to comply with all applicable federal or state income tax laws or
regulations, the Company may take such action as it deems appropriate to assure
(i) notice to the Company of any disposition of the shares of the Company within
the time periods described above, and (ii) that, if necessary, all applicable
federal or state payroll, withholding, income or other taxes are withheld or
collected from Optionee.

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     (k) Consultation With Professional Tax and Investment Advisors. Optionee
acknowledges that the grant, exercise and vesting with respect to this Option,
and the sale or other taxable disposition of the Shares, may have tax
consequences pursuant to the Code or under local, state or international tax
laws. Optionee further acknowledges that Optionee is relying solely and
exclusively on Optionee’s own professional tax and investment advisors with
respect to any and all such matters (and is not relying, in any manner, on the
Company or any of its employees or representatives). Optionee understands and
agrees that any and all tax consequences resulting from the Option and its
grant, exercise and vesting, and the sale or other taxable disposition of the
Shares, is solely and exclusively the responsibility of Optionee without any
expectation or understanding that the Company or any of its employees or
representatives will pay or reimburse Optionee for such taxes or other items.
     IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement
on the date set forth in the first paragraph.

              IRVINE SENSORS CORPORATION
 
       
 
  By:    
 
       
 
  Name:    
 
       
 
  Title:    
 
       
 
            OPTIONEE:
 
             
 
  Name:    
 
       
 
  Address:    
 
       
 
             
 
  Facsimile:    
 
       

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