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EXHIBIT 10.2




INCENTIVE STOCK OPTION AGREEMENT




WINLAND ELECTRONICS, INC.

2005 EQUITY INCENTIVE PLAN




     THIS AGREEMENT, made effective as of this                      day of                                         , 20                    , by and between
Winland Electronics, Inc., a Minnesota corporation (the “Company”), and                                                             
(“Participant”).



W I T N E S S E T H:




     WHEREAS, Participant on the date hereof is a key employee or officer of the Company or one of
its Subsidiaries; and



     WHEREAS, the Company wishes to grant an incentive stock option to Participant to purchase
shares of the Company’s Common Stock pursuant to the Company’s 2005 Equity Incentive Plan (the
“Plan”); and



     WHEREAS, the Administrator of the Plan has authorized the grant of an incentive stock option
to Participant 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 Participant on the date set forth
above (the “Date of Grant”) the right and option (the “Option”) to purchase all or any portion 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 15 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
                                        ,                     , 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









 









 





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




          b. Termination of Employment (other than Disability or Death). If Participant’s
employment with the Company or any Subsidiary is terminated for any reason other than disability or
death, this Option shall completely terminate on the earlier of (i) the close of business on the
three-month anniversary date of such termination of employment, and (ii) the expiration date of
this Option stated in Paragraph 2(a) above. In such period following the termination of
Participant’s employment, this Option shall be exercisable only to the extent the Option was
exercisable on the vesting date immediately preceding such termination of employment, but had not
previously been exercised. To the extent this Option was not exercisable upon such termination of
employment, or if Participant does not exercise the Option within the time specified in this
Paragraph 2(b), all rights of Participant under this Option shall be forfeited.




          c. Disability. If Participant’s employment terminates 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 twelve-month anniversary date of such termination of
employment, and (ii) the expiration date of this Option stated in Paragraph 2(a) above. In such
period following the termination of Participant’s employment, this Option shall be exercisable only
to the extent the Option was exercisable on the vesting date immediately preceding such termination
of employment, but had not previously been exercised. To the extent this Option was not
exercisable upon such termination of employment, or if Participant does not exercise the Option
within the time specified in this Paragraph 2(c), all rights of Participant under this Option shall
be forfeited.




          d. Death. In the event of Participant’s death, this Option shall terminate on the
earlier of (i) the close of business on the twelve-month anniversary date of the date of
Participant’s death, and (ii) the expiration date of this Option stated in Paragraph 2(a) above.
In such period following Participant’s death, this Option shall be exercisable by the person or
persons to whom Participant’s rights under this Option shall have passed by Participant’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 Participant’s death, but had not previously been
exercised. To the extent this Option was not exercisable upon the date of Participant’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.




     3. Manner of Exercise.



          a. General. The Option may be exercised only by Participant (or other proper party in
the event of death or incapacity), subject to the conditions of the Plan and subject to such




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other administrative rules as the Administrator 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. Payment of the option price by Participant shall be in the form
of cash, personal check, certified check or, if not prohibited by the
Administrator, 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
Participant at the time of exercise.




          c. Stock Transfer Records. As soon as practicable after the effective exercise of all
or any part of the Option, Participant shall be recorded on the stock transfer books of the Company
as the owner of the shares purchased, and the Company shall deliver to Participant one or more duly
issued stock certificates evidencing such ownership. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.




     4. Miscellaneous.



          a. Employment; Rights as Shareholder. This Agreement shall not confer on Participant
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.
Participant shall have no rights as a shareholder with respect to shares subject to this Option
until such shares have been issued to Participant 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 15 of the Plan.




          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. Participant 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
Participant’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 15
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




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spin-off), liquidation, recapitalization, stock split, stock dividend or otherwise) shall result in
an adjustment, reduction or enlargement, as appropriate, in Participant’s rights with respect to
any unexercised portion of the Option (i.e., Participant 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, Participant 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 Participant.
If the Company is unable to withhold such federal and state taxes, for whatever reason,
Participant 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. Participant may, subject to the
approval and discretion of the Administrator 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 having a fair market value equal to such obligations. Such election
shall be approved by the Administrator and otherwise comply with such rules as the Administrator
may adopt to assure compliance with Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable.




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




          g. 2005 Equity Incentive Plan. The Option evidenced by this Agreement is granted
pursuant to the Plan, a copy of which Plan has been made available to Participant and is hereby
incorporated into this Agreement. This Agreement is subject to and in all respects limited and
conditioned as provided in the Plan. All defined terms of the Plan shall have the same meaning
when used in this Agreement. 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. Participant agrees that in the event the Company advises
Participant 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) seeks 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,
Participant hereby agrees that for a period not to exceed 180 days from the prospectus, Participant
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).




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          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
Participant 15 days’ prior written notice of such acceleration, and (ii) to cancel any portion of
this Option or any other option granted to Participant 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 Participant at the address of Participant on file with the Company.




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




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




          l. 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.




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



	 	 	 	 	 	 	 
	 	 	WINLAND ELECTRONICS, NC.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	 
	

	 	 	 	Its:	 	 
	

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	COMPANY
	 
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	PARTICIPANT







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