EXHIBIT 10.1

INCENTIVE STOCK OPTION AGREEMENT

 

INSIGNIA SYSTEMS, INC.

2003 INCENTIVE STOCK OPTION PLAN

 

 

THIS AGREEMENT, made effective as of this day of , 20 , by and between Insignia
Systems, Inc., a Minnesota corporation (the “Company”), and ________
(“Optionee”).

 

W I T N E S S E T H:

 

WHEREAS, Optionee on the date hereof is an employee or officer of the Company or
one of its Subsidiaries; and

 

WHEREAS, the Company wishes to grant an incentive stock option to Optionee to
purchase shares of the Company’s Common Stock pursuant to the Company’s 2003
Incentive Stock Option Plan (the “Plan”); and

 

WHEREAS, the Compensation Committee of the Board of Directors has authorized the
grant of an incentive stock option to Optionee and has determined that, as of
the effective date of this Agreement, the fair market value of the Company’s
Common Stock is $_____ per share;

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:

 

1.  Grant of Option. The Company hereby grants to Optionee on the date set forth
above (the “Date of Grant”), the right and option (the “Option”) to purchase all
or portions of an aggregate of (_______) shares of Common Stock at a per share
price of $____ on the terms and conditions set forth herein, and subject to
adjustment pursuant to Section 7 of the Plan. This Option is intended to be an
incentive stock option within the meaning of Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the “Code”), and
the regulations thereunder, to the extent permitted under Code Section 422(d).

 

2.  Duration and Exercisability.

 

a. General. The term during which this Option may be exercised shall terminate
on the close of business on [insert date 10 years from date of grant], except as
otherwise provided in Paragraphs 2(b) through 2(d) below. This Option shall
become exercisable according to the following schedule:

 

Vesting Date Number of Shares

 

1

 

 

[Insert vesting dates and number of shares vesting on such dates. Unless
otherwise specified by the Compensation Committee, grants shall vest in 1/3
increments each year for three year years beginning one year after the date of
grant.]

 

Once the Option becomes exercisable to the extent of one hundred percent (100%)
of the aggregate number of shares specified in Paragraph 1, Optionee may
continue to exercise this Option under the terms and conditions of this
Agreement until the termination of the Option as provided herein. If Optionee
does not purchase upon an exercise of this Option the full number of shares
which Optionee is then entitled to purchase, Optionee may purchase upon any
subsequent exercise prior to this Option’s termination such previously
unpurchased shares in addition to those Optionee is otherwise entitled to
purchase.

 

b. Continuous Relationship with the Company Required (except upon Disability or
Death). Except as otherwise provided in Paragraphs 2(c) and (d) below, this
Option may not be exercised unless the Optionee, at the time he or she exercises
this Option, is, and has been at all times since the Date of Grant, an employee
or officer of, or consultant or advisor to, the Company as defined in Section
424(e) or (f) of the Code (“Eligible Participant”). If Optionee’s relationship
with the Company or any Subsidiary is terminated for any reason except as
provided in Paragraphs 2(c) and (d) below, this Option shall completely
terminate on the earlier of (i) the close of business on the 90th day after such
termination, and (ii) the expiration date of this Option stated in Paragraph
2(a) above. In such period following the termination of Optionee’s relationship,
this Option shall be exercisable only to the extent the Option was exercisable
on the vesting date immediately preceding such termination of relationship, but
had not previously been exercised. To the extent this Option was not exercisable
upon such termination of Optionee’s relationship, or if Optionee does not
exercise the Option within the time specified in this Paragraph 2(b), all rights
of Optionee under this Option shall be forfeited.

 

c. Disability. If Optionee’s relationship with the Company ceases because of
disability (as defined in Code Section 22(e), or any successor provision), this
Option shall terminate on the earlier of (i) the close of business on the
one-year anniversary date of such termination of the relationship, and (ii) the
expiration date of this Option stated in Paragraph 2(a) above. In such period
following the termination of Optionee’s relationship, this Option shall be
exercisable only to the extent the Option was exercisable on the vesting date
immediately preceding such termination, but had not previously been exercised.
To the extent this Option was not exercisable upon such termination of the
relationship, or if Optionee does not exercise the Option within the time
specified in this Paragraph 2(c), all rights of Optionee under this Option shall
be forfeited.

 

d. Death. In the event of Optionee’s death, this Option shall terminate on the
earlier of (i) the close of business on the one-year anniversary date of the
date of Optionee’s death, and (ii) the expiration date of this Option stated in
Paragraph 2(a) above. In such period following Optionee’s death, this Option
shall be exercisable by the person or persons to whom Optionee’s rights under
this Option shall have passed by Optionee’s will or by the laws of descent and
distribution only to the extent the Option was exercisable on the vesting date
immediately preceding the date of Optionee’s death. To the extent this Option
was not exercisable upon the date of Optionee’s death, or if such person or
persons do not exercise this Option within the time specified in this Paragraph
2(d), all rights under this Option shall be forfeited.

 

2

 

 

 

3.  Manner of Exercise.

 

a. General. The Option may be exercised only by Optionee (or other proper party
in the event of death or incapacity), subject to the conditions of the Plan and
subject to such other administrative rules as the Board of Directors may deem
advisable, by delivering within the Option Period written notice of exercise to
the Company at its principal office. The notice shall state the number of shares
as to which the Option is being exercised and shall be accompanied by payment in
full of the Option price for all shares designated in the notice. The exercise
of the Option shall be deemed effective upon receipt of such notice by the
Company and upon payment that complies with the terms of the Plan and this
Agreement. The Option may be exercised with respect to any number or all of the
shares as to which it can then be exercised and, if partially exercised, may be
so exercised as to the unexercised shares any number of times during the Option
period as provided herein.

 

b. Form of Payment. Subject to approval by the Administrator, payment of the
option price by Optionee shall be in the form of cash, personal check, certified
check or previously acquired shares of Common Stock of the Company, or any
combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes of this
Agreement, “previously acquired shares of Common Stock” shall include shares of
Common Stock that are already owned by Optionee at the time of exercise.

 

Optionee may in the Compensation Committee’s sole discretion, execute a
“cashless exercise” of an Option. In the event of a cashless exercise, the
Optionee shall surrender the Option the Company, and the Company shall issue the
Optionee the number of shares determined as set forth below:

 

X=Y(A-B)/A

 

Where:

 

X=the number of shares to be issued to the Optionee.

Y=the number of shares with respect to which the Option is being exercised.

A=the closing price of the Common Stock on the date of exercise, or in the
absence thereof, the fair market value on the date of exercise.

B=the Option exercise price.

 

c. Stock Transfer Records. Subject to the terms and conditions of this Agreement
and the Plan, the Option may be exercised by following the then-current
procedures for exercise that are established by the Company.

 

4.  Miscellaneous.

 

a. Employment; Rights as Shareholder. This Agreement shall not confer on
Optionee any right with respect to continuance of employment by the Company or
any of its Subsidiaries, nor will it interfere in any way with the right of the
Company to terminate such employment. Optionee shall have no rights as a
shareholder with respect to shares subject to this Option until such shares have
been issued to Optionee upon exercise of this Option. 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 shares are issued, except as provided in Section 7 of the
Plan.

 

3

 

 

 

b. Securities Law Compliance. The exercise of all or any parts of this Option
shall only be effective at such time as counsel to the Company shall have
determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this Option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee’s own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.

 

c. Mergers, Recapitalizations, Stock Splits, Etc. Pursuant and subject to
Section 7 of the Plan, certain changes in the number or character of the Common
Stock of the Company (through sale, merger, consolidation, exchange,
reorganization, divestiture (including a spin-off), liquidation,
recapitalization, stock split, stock dividend or otherwise) shall result in an
adjustment, reduction or enlargement, as appropriate, in Optionee’s rights with
respect to any unexercised portion of the Option ( i.e., Optionee shall have
such “anti-dilution” rights under the Option with respect to such events, but
shall not have “preemptive” rights).

 

d. Shares Reserved. The Company shall at all times during the option period
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.

 

e. Withholding Taxes on Disqualifying Disposition. In the event of a
disqualifying disposition of the shares acquired through the exercise of this
Option, Optionee hereby agrees to inform the Company of such disposition. Upon
notice of a disqualifying disposition, the Company may take such action as it
deems appropriate to insure that, if necessary to comply with all applicable
federal or state income tax laws or regulations, all applicable federal and
state payroll, income or other taxes are withheld from any amounts payable by
the Company to Optionee. If the Company is unable to withhold such federal and
state taxes, for whatever reason, Optionee hereby agrees to pay to the Company
an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law. Optionee may, subject to the approval and
discretion of the Board or such administrative rules it may deem advisable,
elect to have all or a portion of such tax withholding obligations satisfied by
delivering shares of the Company’s Common Stock or by electing to have the
Company withhold shares of Common Stock otherwise issuable to Optionee. Such
shares shall have a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to the
supplemental income resulting from the disqualifying disposition of the shares
acquired through the exercise of this Option. In no event may the Company
withhold shares having a Fair Market Value in excess of such statutory minimum
required tax withholding.

 

4

 

 

 

f. Nontransferability. During the lifetime of Optionee, the accrued Option shall
be exercisable only by Optionee or by the Optionee’s guardian or other legal
representative, and shall not be assignable or transferable by Optionee, in
whole or in part, other than by will or by the laws of descent and distribution.

 

g. 2003 Incentive Stock Option Plan. The Option evidenced by this Agreement is
granted pursuant to the Plan, a copy of which Plan has been made available to
Optionee and is hereby incorporated into this Agreement. This Agreement is
subject to and in all respects limited and conditioned as provided in the Plan.
The Plan governs this Option and, in the event of any questions as to the
construction of this Agreement or in the event of a conflict between the Plan
and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.

 

h. Lockup Period Limitation. Optionee agrees that in the event the Company
advises Optionee that it plans an underwritten public offering of its Common
Stock in compliance with the Securities Act of 1933, as amended, and that the
underwriter(s) seek to impose restrictions under which certain shareholders may
not sell or contract to sell or grant any option to buy or otherwise dispose of
part or all of their stock purchase rights of the underlying Common Stock,
Optionee hereby agrees that for a period not to exceed 180 days from the
prospectus, Optionee will not sell or contract to sell or grant an option to buy
or otherwise dispose of this option or any of the underlying shares of Common
Stock without the prior written consent of the underwriter(s) or its
representative(s).

 

i. Blue Sky Limitation. Notwithstanding anything in this Agreement to the
contrary, in the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the number
of issued but unexercised stock purchase rights so as to comply with any state
securities or Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to accelerate the
exercisability of this Option and the date on which this Option must be
exercised, provided that the Company gives Optionee 15 days’ prior written
notice of such acceleration, and (ii) to cancel any portion of this Option or
any other option granted to Optionee pursuant to the Plan which is not exercised
prior to or contemporaneously with such public offering. Notice shall be deemed
given when delivered personally or when deposited in the United States mail,
first class postage prepaid and addressed to Optionee at the address of Optionee
on file with the Company.

 

j. Accounting Compliance. Optionee agrees that, if a merger, reorganization,
liquidation or other “transaction” as defined in Section 7 of the Plan occurs
and Optionee is an “affiliate” of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such transaction,
Optionee will comply with all requirements of Rule 145 of the Securities Act of
1933, as amended, and the requirements of such other legal or accounting
principles, and will execute any documents necessary to ensure such compliance.

 

k. Stock Legend. The Board of Directors may require that the certificates for
any shares of Common Stock purchased by Optionee (or, in the case of death,
Optionee’s successors) shall bear an appropriate legend to reflect the
restrictions of Paragraph 4(b) and Paragraphs 4(h) through 4(j) of this
Agreement.

 

5

 

 

 

l. Scope of Agreement. This Agreement shall bind and inure to the benefit of the
Company and its successors and assigns and Optionee and any successor or
successors of Optionee permitted by Paragraph 2 or Paragraph 4(f) above.

 

m. Arbitration. Any dispute arising out of or relating to this Agreement or the
alleged breach of it, or the making of this Agreement, including claims of fraud
in the inducement, shall be discussed between the disputing parties in a good
faith effort to arrive at a mutual settlement of any such controversy. If,
notwithstanding, such dispute cannot be resolved, such dispute shall be settled
by binding arbitration. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrator shall be a
retired state or federal judge or an attorney who has practiced securities or
business litigation for at least 10 years. If the parties cannot agree on an
arbitrator within 20 days, any party may request that the chief judge of the
District Court for Hennepin County, Minnesota, select an arbitrator. Arbitration
will be conducted pursuant to the provisions of this Agreement, and the
commercial arbitration rules of the American Arbitration Association, unless
such rules are inconsistent with the provisions of this Agreement. Limited civil
discovery shall be permitted for the production of documents and taking of
depositions. Unresolved discovery disputes may be brought to the attention of
the arbitrator who may dispose of such dispute. The arbitrator shall have the
authority to award any remedy or relief that a court of this state could order
or grant; provided, however, that punitive or exemplary damages shall not be
awarded. The arbitrator may award to the prevailing party, if any, as determined
by the arbitrator, all of its costs and fees, including the arbitrator’s fees,
administrative fees, travel expenses, out-of-pocket expenses and reasonable
attorneys’ fees. Unless otherwise agreed by the parties, the place of any
arbitration proceedings shall be Hennepin County, Minnesota.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on the day and year first above written.

 

INSIGNIA SYSTEMS, INC.

 

 

By:       Its:  

 

 

 

Optionee:   

 

 

 

 

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