Exhibit 4.1 to Insignia Systems, Inc. Form S-8 dated August 16, 2005






EXHIBIT 4.1  



INSIGNIA SYSTEMS, INC.

2003 INCENTIVE STOCK OPTION PLAN

(Adopted by Board of Directors February 24, 2003)

(Approved by Shareholders on May 20, 2003)

(Amended through February 15, 2005) 



        1.       Purpose.   The
purpose of this Plan is to provide a means whereby Insignia Systems, Inc. (the “Company”), may be able, by granting
options to purchase stock in the Company, to attract, retain and motivate capable and loyal employees, directors, consultants and
advisors of the Company and its subsidiaries, for the benefit of the Company and its shareholders. Both incentive stock options
which qualify for favorable tax treatment under Section 422 of the Internal Revenue Code (the “Code”), and nonqualified
stock options which do not qualify for favorable tax treatment, may be granted under the Plan. 



        2.       Reservation
of Shares.   A total of 1,625,000 shares of the authorized but unissued shares of Common Stock of the
Company, par value $.01 per share, is reserved for issue upon the exercise of options granted under the Plan. If any option
expires or terminates for any reason without having been exercised in full, the unpurchased shares covered thereby shall become
available for additional options which may be issued to persons eligible under the Plan so long as it remains in effect. Shares
reserved for issue as provided herein shall cease to be reserved upon termination of the Plan. 



        3.       Administration.   The
Plan shall be administered by the Compensation Committee of the Board of Directors (the “Committee”). The Committee
shall be appointed by the Board of Directors and shall be comprised solely of two or more “non-employee directors”
within the meaning of SEC Rule 16b-3. Each member of the Committee shall also be an “outside director” within the
meaning of Code Section 162(m). The Committee shall have the full power to construe and interpret the Plan and to establish and
amend rules and regulations for its administration. The Committee shall determine which persons shall be granted options
hereunder, the number of shares for which each option shall be granted, the types of options to be granted, and any limitations on
the exercise of options in addition to those imposed by this Plan. The Committee may also waive any restrictions on the exercise
of outstanding options and approve amendments to outstanding options, provided there is no conflict with the terms of the Plan.
The Committee shall apply such criteria as it deems appropriate in determining the persons to whom options are granted and the
number of shares to be covered by each option. 



        4.       Eligibility.   An
option may be granted to any employee, director, consultant or advisor of the Company or its subsidiaries, except that no
consultant or advisor shall be granted options in connection with the offer and sale of securities in a capital raising
transaction on behalf of the Company. The maximum number of shares for which any person may be granted options under the Plan in
any year is limited to 100,000 shares. 



        5.       Option
Grants To Outside Directors.   Each outside director of the Company shall automatically be granted an
option to purchase 10,000 shares of Common Stock on the date first appointed or elected as a director. Each outside director shall
also automatically be granted an option to purchase 5,000 shares of Common Stock on (a) the date of each subsequent annual meeting
of the shareholders, provided the outside director is either reelected or continues to serve as an outside director, or (b) the
anniversary of the prior year’s grant in any year in which there is no meeting of the shareholders. In no event shall a
director receive more than one grant in any fiscal year. 



                  The
period within which an option granted to an outside director must be exercised shall be the earlier of (a) ten years from the date
of grant, or (b) 90 days after the director ceases to be a director for any reason. Options granted to outside directors shall be
immediately exercisable in full when granted. 






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        6.       Exercise
Price.   The per share exercise price for each option shall be determined by the Committee at the time of
grant, provided that the per share exercise price for any incentive stock option, and any option granted to an outside director,
shall be not less than the fair market value of the Common Stock on the date the option is granted. In making such determination,
the Committee shall rely on market quotations, if available, but if not available, upon independent appraisals of the stock or
such other information deemed appropriate by the Committee. 



        7.       Changes
in Present Stock.   In the event of a recapitalization, merger, consolidation, reorganization, stock
dividend, stock split or other change in capitalization affecting the Company’s present capital stock, appropriate adjustment
may be made by the Committee in the number and kind of shares and the option price of shares which are or may become subject to
options granted or to be granted hereunder. 



        8.       Exercise
of Option.   Receipt by the Company of a written notice from an optionee, specifying the number of shares
to be purchased, and accompanied by payment of the purchase price for such shares, shall constitute exercise of the option as to
such shares. The date of receipt by the Company of such written notice shall be the date of exercise of the option. The Company
may accept payment from a broker and, upon receipt of written instructions from the optionee, deliver the purchased shares to the
broker. 



        9.       Option
Agreement Provisions.   Each option granted under the Plan shall be evidenced by a Stock Option Agreement
executed by the Company and the optionee, and shall be subject to the following terms and conditions, and such other terms and
conditions as may be prescribed by the Committee: 



	  	  	(a)  	  	Payment. The full purchase price of the shares
acquired upon exercise of an option shall be paid in cash, certified or cashier’s check, or in the form of Common Stock of
the Company with a market value equal to the option exercise price and free and clear of all liens and encumbrances. 






	  	The Committee in its sole discretion may also permit the
“cashless exercise” of an option. In the event of a cashless exercise, the optionee shall surrender the option to the
Company, and the Company shall issue the optionee the number of shares determined as follows: 






	  	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 sale 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.  







	  	  	(b)  	  	Exercise Period.   The period within
which an option must be exercised shall be fixed by the Committee, and shall not exceed ten years from the date of grant for an
incentive stock option. The Committee may provide that an option will vest and become exercisable upon the completion of specified
periods of employment, or the attainment of specified performance goals. To the extent exercisable, an option may be exercised in
whole or in part. Outstanding unvested options shall become immediately exercisable in full in the event the Company is acquired
by merger, purchase of all or substantially all of the Company’s assets, or purchase of a majority of the outstanding stock
by a single party or a group acting in concert. 








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	  	  	(c)  	  	Rights of Optionee Before
Exercise.   The holder of an option shall not have the rights of a shareholder with respect to the shares
covered by his or her option until such shares have been issued to him or her upon exercise of the option. 






	  	  	(d)  	  	No Rights to Continued
Employment.   Nothing in the Plan or in any Stock Option Agreement entered into pursuant hereto shall be
construed to confer upon any optionee any right to continue in the employ of his or her employer or interfere in any way with the
right of his or her employer to terminate his or her employment at any time. 






	  	  	(e)  	  	Death of Optionee.   Upon the death
of an optionee, the option, or any portion thereof, may be exercised to the extent the optionee was entitled to do so at the time
of the optionee’s death, by his or her executor or administrator or other person entitled by law to the optionee’s
rights under the option, at any time within one year subsequent to the date of death. The option shall automatically expire one
year after the optionee’s death to the extent not exercised. 






	  	  	(f)  	  	Disability of Optionee.   If an
optionee is an employee of the Company or its subsidiaries, and if the optionee’s employment is terminated due to his or her
disability, the optionee may, within one year of such termination, exercise any unexercised portion of the option to the extent he
or she was entitled to do so at the time of such termination. The option shall automatically expire one year after such
termination to the extent not exercised. 






	  	  	(g)  	  	Other Termination of Employment.   If
an optionee is an employee of the Company or its subsidiaries, and if the optionee’s employment is terminated other than by
death, disability, or conduct which is contrary to the best interests of his or her employer, the optionee may, within 90 days of
such termination, exercise any unexercised portion of the option to the extent he or she was entitled to do so at the time of such
termination. The option shall automatically expire 90 days after such termination to the extent not exercised. If the
optionee’s employment is terminated by his or her employer for conduct which is contrary to the best interests of his or her
employer, or if the optionee violates any written nondisclosure agreement with his or her employer, as determined in either case
by the optionee’s employer in its sole discretion, the unexercised portion of the optionee’s option shall automatically
expire at that time. Inter-company transfers and approved leaves of absence for up to 90 days shall not be considered termination
of employment. 






	  	  	(h)  	  	Non-transferability of Option.   No
option shall be transferable by the optionee other than by will or by the laws of descent and distribution, and each option shall
be exercisable during the optionee’s lifetime only by the optionee. No option may be attached or subject to levy by an
optionee’s creditors. 






	  	  	(i)  	  	Date of Grant.   The date on which
the Committee approves the granting of an option shall be considered the date on which such option is granted. 






        10.               Additional Provisions for Incentive Stock Options.  



	  	  	(a)  	  	Dollar Limit.   Each option granted
to an employee shall constitute an incentive stock option, provided that no more than $100,000 of such options (based upon the
fair market value of the underlying shares as of the date of grant) can first become exercisable for any employee in any calendar
year. To the extent an option grant exceeds the $100,000 limitation, it shall constitute a non-qualified stock option. Each Stock
Option Agreement with an employee shall specify the extent to which it is an incentive and/or non-qualified stock option. For
purposes of applying the $100,000 limitation, options granted under this Plan and all other incentive stock option plans of the
Company and any parent or subsidiary corporation shall be included. 









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	  	  	(b)  	  	Ten Percent Shareholders.   No
incentive stock option shall be granted to any employee who at the time directly or indirectly owns more than 10 percent of the
combined voting power of all classes of stock of the Company or of a parent or subsidiary corporation, unless the exercise price
is not less than 110 percent of the fair market value of such stock on the date of grant, and unless the option is not exercisable
more than five years after the date of grant. 






        11.       Restrictions
on Transfer.   During any period in which the offering of the shares under the Plan is not registered under
federal and state securities laws, an optionee shall agree in his or her option agreement that he or she is acquiring shares under
the Plan for investment purposes, and not for resale, and that the shares cannot be resold or otherwise transferred except
pursuant to registration or unless, in the opinion of counsel for the Company, registration is not required. 



        Any restrictions upon shares
acquired upon exercise of an option pursuant to the Plan and the Stock Option Agreement shall be binding upon the optionee, and
his or her heirs, executors, and administrators. Any stock certificate issued under the Plan which is subject to restrictions
shall be endorsed so as to refer to the restrictions on transfer imposed by the Plan, and by applicable securities laws.




        12.       Withholding
of Taxes. The Company shall make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes that the Company is
required by any law or regulation to withhold in connection with any option including,
but not limited to, withholding a portion of the shares issuable on exercise of an
option, or requiring the optionee to pay to the Company, in cash, an amount sufficient to
cover the Company’s withholding obligations.  



        13.       Duration
of Plan.   The Plan shall terminate ten years after the date of its adoption by the Board of Directors,
unless sooner terminated by issuance of all shares reserved for issuance hereunder, or by the Board of Directors pursuant to
Section 13. No option shall be granted under the Plan after such termination date. 



        14.       Termination
or Amendment of the Plan.   The Board of Directors may at any time terminate the Plan, or make such
modifications to the Plan as it shall deem advisable. No termination or amendment of the Plan may, without the consent of the
optionee to whom any option shall previously have been granted, adversely affect the rights of such optionee under such option.




        15.       Shareholder
Approval.   The Board of Directors shall submit the Plan to the shareholders for their approval within 12
months of the date of its adoption by the Board. Options granted prior to such approval are contingent on receipt of such
approval, and shall automatically lapse if such approval is not granted. The Board shall also submit any amendments to the
shareholders for approval if required by applicable law or regulation. 



        16.       Interpretation. The
Plan shall be interpreted in accordance with Minnesota law.  





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