8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:

September 16, 2004

INSIGNIA SYSTEMS, INC.

(Exact name of registrant as specified in its chapter)

Minnesota
(State or other jurisdiction
of incorporation) 1-13471
(Commission
File Number) 41-1656308
(IRS Employer
Identification No.)

6470 Sycamore Court North, Maple Grove, Minnesota
(Address of principal executive offices) 55369
(Zip Code)

Registrant's telephone number, including area code

(763) 392-6200

_______________________________________________________________________________

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.02        Termination of a Material Definitive Agreement.

        Effective September 21, 2004, Insignia Systems, Inc. (“the Company”) entered into a Letter Agreement terminating the Purchase Agreement dated May 20, 2004, between the Company and Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P., relating to the proposed sale by the Company to the investors of 2,000,000 shares for $1.25 per share. The closing of the sale did not occur because certain conditions for closing were not satisfied. The Purchase Agreement was terminated with no liability for any party.

Item 2.03        Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

        On September 16, 2004, the Company entered into a Financing Agreement, Security Agreement and Revolving Note (collectively, “the Credit Agreement”) with Itasca Business Credit, Inc. that provides for borrowings up to $1,500,000 for twelve months, subject to collateral availability. The borrowings are secured by substantially all of the Company’s assets. The Credit Agreement provides that borrowings will bear interest at 2.5% over prime, with a minimum monthly interest charge of $2,500, and an annual fee of 1% of the Revolving Note payable. The Credit Agreement includes various other customary terms and conditions.

Item 9.01        Financial Statements and Exhibits.

(c) Exhibits

10 Letter Agreement dated September 21, 2004, terminating Purchase Agreement dated May 20, 2004, between the Company and certain potential investors

10.1 Financing Agreement between Itasca Business Credit, Inc. and the Company dated September 16, 2004

10.2 Security Agreement between Itasca Business Credit, Inc. and the Company dated September 16, 2004

10.3 Revolving Note between Itasca Business Credit, Inc. and the Company dated September 16, 2004

99.1 Press Release dated September 22, 2004

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Insignia Systems, Inc. (Registrant)
Date:    September 22, 2004	By /s/ Scott F. Drill     Scott F. Drill, President and Chief Executive Officer

EX-10

EXHIBIT 10

September 21, 2004

Special Situations Fund III, L.P.Special
Situations Cayman Fund, L.P.Special
Situations Private Equity Fund, L.P.153
East 53rd Street, 55th Floor
New York, New York 10022

Attention: Mr. Alex Silverman

Dear Mr. Silverman:

        Reference is hereby made to the Purchase Agreement, dated May 20, 2004, as amended by letter agreement dated July 16, 2004 (the “Agreement”), among Insignia Systems, Inc. (the “Company”), and Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P. and Special Situations Private Equity Fund, L.P. (collectively, the “Purchasers”).

        In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers hereby agree that the Agreement is terminated, effective as of the date hereof, together with all of the rights and obligations of the parties. No party shall have any responsibility or obligation to any other party under any term, condition or provision contained in the Agreement, and each party is released from any liability for any breach or non-performance of any such term, condition or provision.

        Each of the parties hereto hereby represents and warrants to the other parties hereto that this letter agreement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.

        If the foregoing accurately reflects our agreement, please execute this letter in the space provided below and return a copy to the undersigned. This letter may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. This letter shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the choice of law principles thereof.

INSIGNIA SYSTEMS, INC.
By:	/s/ Scott F. Drill
	Scott F. Drill
	President and CEO

ACCEPTED AND AGREED:

Special Situations Fund III, L.P.
Special Situations Cayman Fund, L.P.
Special Situations Private Equity Fund, L.P.

By:	/s/ David Greenhouse
	Authorized Signatory

EX-10.1

EXHIBIT 10.1

FINANCING AGREEMENT

September 16, 2004

This Financing Agreement is entered into by and between Itasca Business Credit, Inc. (“Lender”) and Insignia Systems, Inc. (“Borrower”).

SECTION I.  LOAN AGREEMENT

At Borrower’s request, Lender in its sole discretion may lend to Borrower up to eighty percent (80.0%) of the net amount of accounts (as that term is defined in the Uniform Commercial Code) that are listed in current schedules provided by Borrower and that are deemed eligible for advances by Lender, or any greater or lesser percentage at Lender’s absolute discretion.  Loans for additional sums requested by Borrower may be made at Lender’s sole discretion based upon Lender’s valuation of other collateral or other factors.  All loans made pursuant hereto shall be due on demand and shall be evidenced by a Revolving Note dated September 16, 2004 herewith payable to Lender’s order.  All loans made pursuant hereto are secured by a security interest in the accounts and other collateral, as granted to Lender by the Security Agreement between Borrower and Lender dated September 16, 2004.

At Lender’s discretion, Lender may from time to time make additional loans to Borrower on a demand basis, evidenced by Term Note(s).  All of the collateral pledged to Lender shall secure all of Borrower’s obligations under the Revolving Note and any Term Note(s).

Lender may from time to time furnish to Borrower a statement of Borrower’s account.  Any such statement shall be conclusive unless and except as written objections thereto calling Lender’s attention to errors are received by Lender within 30 days after it is mailed or delivered to Borrower.

SECTION II.  CHARGES

A.

Borrower agrees to pay interest on the net balance owed to Lender at the close of each day at a rate per annum (computed on the basis of actual number of days elapsed and a year of 360 days) that is two and one half percent (2.50%) in excess of the publicly announced prime rate (or other publicly announced prime rate) of interest charged by Wells Fargo, N.A.  In the event the average loan balance outstanding is greater than $1,250,000 for 30 days, the borrower agrees to pay interest on the net balance owed to the Lender at the close of each day at a rate per annum (computed on the basis of actual number of days elapsed and a year of 360 days) that is three and one half percent (3.50%) in excess of the publicly announced prime rate (or other publicly announced prime rate) of interest charged by Wells Fargo, N.A.  Such interest will be due and payable to Lender at the close of each month.  Borrower understands that the foregoing interest rate may not represent the lowest rate charged by the foregoing lender.

B.

If a third party participates in the advances to Borrower, however, the charge with respect to the portion of the borrowings represented by the third party's advances will be the amount of its charges and a management fee charged by Lender by reason of such participation.

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C.

There will be a net minimum interest charge payable to Lender of $2,500.00 per month.  Borrower further agrees that if this agreement is terminated under Section VIII hereof, regardless of the date of such termination, the total charges which shall have been paid or which shall be payable net to Lender, shall not be less than $2,500.00 each month for a minimum of twelve months.

D.

Borrower agrees to pay an amount equal to one percent (1.0%) per annum of the Revolving Note payable to Lender at time of Lender’s initial funding and every one year anniversary date thereafter until such time that the Revolving Note is paid.

E.

Borrower agrees to pay a charge of $750 per day per auditor plus out-of-pocket expenses incurred by Lender in conducting audits and inspections of Borrower’s books.  

F.

Borrower agrees to pay a wire transfer charge of $15.00 for every wire transfer processed by Lender and $15.00 for any returned checks charged against its account for funds deposited on Borrower’s behalf.

SECTION III.  LISTING ACCOUNTS

A.

Prior to or concurrently with Borrower’s initial borrowing hereunder, and monthly thereafter, Borrower shall furnish to Lender a list and aging of all accounts owned by Borrower, in form acceptable to Lender; and weekly, or at other intervals mutually agreed upon, Borrower will deliver to Lender a list of all accounts created or acquired by Borrower since its last previous list and aging of accounts.

B.

Borrower warrants that, except as may be disclosed in the lists of accounts furnished to Lender: each billing correctly states the subject matter and terms of sale; the merchandise conforms thereto and is in all respects acceptable to the customer; the date of billing is not prior to shipment; the account debtor is not a subsidiary or affiliated company of Borrower; and Borrower has no reason to believe the account will not be paid in the regular course of business.

SECTION IV.  CUSTODY AND INSPECTION OF RECORDS; HANDLING OF COLLECTIONS

A.

All ledger sheets or cards, invoices, shipping records, correspondence, and other writings relating to accounts shall, until delivered to Lender or removed by Lender from Borrower’s premises, be kept on Borrower’s premises without cost to Lender in appropriate containers in safe places.

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B.

Until Borrower’s authority to do so is terminated by written notice from Lender (which notice Lender may give at any time), Borrower will at its expense and on Lender’s behalf collect as Lender’s property and in trust for Lender all amounts unpaid on accounts, and shall not mingle such collections with Borrower’s own funds.  Borrower shall remit all collections to Lender in kind, duly endorsed, on the same day if practical, otherwise on the following business day; and Lender shall credit the same to Borrower’s account (subject to final collection thereof) after allowing three days for collection of such deposits.  This provision is subject to Lender’s rights under paragraphs 4 and 5 of the Security Agreement of even date herewith.

C.

If Lender takes over the handling of collections, Lender may remove from Borrower’s premises all books and records, correspondence, documents and files relating to accounts; and Lender may without cost or expense to Lender use such of Borrower’s personnel, supplies, space and equipment at Borrower’s place of business as Lender may desire for the handling of collections.  Borrower will pay any and all reasonable internal, office and out of pocket expenses and costs of collection (including reasonable attorneys fees) incurred by Lender in its handling of or effort to enforce collections.

SECTION V.  REPORTS

Borrower will furnish to Lender: (a) monthly, in such detail as Lender may request, written reports, certified as correct by one of Borrower’s officers, showing all sales of merchandise, returns and allowances, collections, and all miscellaneous charges and credits affecting the collateral; (b) monthly, similarly certified financial and operating statements; (c) annually, at Borrower’s expense, a complete certified audit report of its operations and condition made by an independent certified public accountant satisfactory to Lender; and (d) upon issuance, copies of all public accountants' reports rendered to Borrower while Borrower is indebted to Lender; (e) within five days after the due date, proof of payment or deposit, when due, of all withholding and F.I.C.A. taxes owing by Borrower from time to time;  and (f) such other financial or other information regarding Borrower or any guarantor as Lender may request.

SECTION VI.  WARRANTIES, REPRESENTATIONS AND COVENANTS

Borrower warrants, represents and covenants with Lender that Borrower shall not:  permit any levy, attachment or restraint to be made affecting any of Borrower’s assets; or permit any receiver, trustee or assignee for the benefit of creditors to be appointed to take possession of any or all of Borrower’s assets.  Except with Lender’s prior written consent, Borrower shall not: (a) other than in the ordinary course of its business, sell, lease or otherwise dispose of or transfer any of its assets; (b) merge or consolidate with any other corporation; (c) acquire any other corporation; (d) enter into any transaction not in the usual course of its business; (e) make any investment in the securities of any person, association, firm, entity or corporation other than securities of the United States of America; (f) guarantee or otherwise become in any way liable with respect to the obligations of any person, association, firm, entity or corporation except by endorsement of instruments or items of a payment for deposit to Borrower’s general account or which are transmitted or turned over to Lender on account of Borrower’s obligations; (g) pay or declare any dividends upon its capital stock; (h) redeem, retire, purchase or otherwise acquire directly or indirectly any of its capital stock; (i) make any change in Borrower’s capital structure or in any of its business objectives, purposes and operations which might in any way adversely affect its ability to repay its obligation; (j) make any distribution of its property or assets; (k) incur any debts for borrowed money;  (l) incur any debts other than trade payables which must be incurred and paid in the ordinary course of Borrower’s business;  or (m) make any loan, advance, contribution

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or payment of money or goods to any subsidiary, affiliated or parent corporation or to any officer, director or stockholder thereof (except compensation for personal services rendered).  In addition, Borrower further agrees that it will not encumber, pledge, assign or permit to be created a lien or security interest in any of Borrower’s property except for the liens in favor of the following persons on the following property: ______________________________________________________________________________ ______________________________________________________________________________. Borrower hereby represents that none of the accounts shall at any time be subject to a bond or other surety unless Borrower has notified Lender in writing in advance of obtaining the bond.  All covenants, representations and warranties set forth in this agreement and in any other agreements executed by Borrower in connection herewith and all terms, conditions, provisions and agreements to be performed by Borrower pursuant to this agreement and such other agreements shall be true and satisfied at the time of Borrower’s execution and shall survive the closing thereof and the execution and delivery of such agreements.

SECTION VII.  MISCELLANEOUS

A.

Borrower agrees that Lender may from time to time, for its convenience, segregate or apportion the collateral for purposes of determining the amounts and maximum amounts of loans and advances which may be made hereunder.  Nevertheless, Lender’s security interest in all such collateral, and any other collateral rights, interest and properties which may now or hereafter be available to Lender, shall secure and may be applied to the payment of any and all loans, advances and other indebtedness secured by Lender’s security interest, in any order or manner of application and without regard to the method by which Lender determines to make loans hereunder.

B.

Borrower hereby irrevocably makes, constitutes and appoints Lender, or any person whom Lender may designate, Borrower’s true and lawful attorney with power to receive, open and dispose of all mail addressed to Borrower; to endorse the name of Borrower’s company upon any notes, acceptances, checks, drafts, money orders or other means of payment that may come into Lender’s possession as payment of or upon accounts or other collateral; to endorse the name of Borrower’s company on any invoice, freight or express bill or bill of lading relating to any collateral; to sign Borrower’s name to drafts against debtors, to assignments and verification of accounts and notices thereof to debtors; and to do all other things necessary or proper to carry out the intent of this agreement.

C.

At Lender’s request, Borrower will deliver customers' monthly statements to Lender for examination and for mailing in Borrower’s stamped addressed envelope.  From time to time, Lender or its representatives may verify directly with customers the amounts owing, or at Lender’s request, Borrower or its independent accountants will do so and deliver the results to Lender in any manner satisfactory to Lender.

D.

Borrower agrees that any bank participating with Lender in loans to Borrower hereunder may exercise any and all rights of banker's lien or set-off with respect to such participation as fully as if such participant had lent directly to Borrower the amount of such participation.

E.

Borrower agrees to reimburse Lender for all attorney fees, filing fees, and other out-of-pocket expenses Lender may incur in connection with the negotiation and/or the interpretation of this agreement or any related agreements, the preparation of documents relating thereto, perfecting any security interest or lien granted thereby, or enforcing any of its obligations to Lender arising under this or any other agreement between

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Lender and Borrower, regardless of whether litigation is commenced.  In addition, Borrower will reimburse Lender for any out-of-pocket expenses incurred by Lender in managing Borrower’s account, including any costs for wire transfers and the costs of checks returned for insufficient funds.  If Lender elects, Lender may treat the amount of any such expense as a loan to Borrower and add the amount to Borrower’s loan account with Lender.

F.

This agreement shall bind and inure to the benefit of Lender and Borrower and the parties’ respective successors and assigns.  This agreement, and all assignments of collateral shall be construed pursuant to the laws of the State of Minnesota.  Borrower hereby consents to the jurisdiction of the state and federal courts located in Hennepin County, Minnesota and agrees that any dispute arising out of this agreement or any agreement delivered in connection herewith shall be venued in Hennepin County, Minnesota.  Borrower hereby further waives any right to a jury trial and agrees that all disputes arising hereunder shall be tried by the court sitting without a jury.

SECTION VIII.  TERMINATION

Borrower understands that this Financing Agreement represents a discretionary line of credit and that Lender may refuse to make an advance hereunder at its discretion.  In addition, Borrower understands that Lender may at its election make a demand for amounts due hereunder at any time even though the provisions herein are satisfied.  Borrower agrees to provide Lender with 30 days' prior written notice of Borrower’s election to terminate this agreement and that any termination by Borrower shall be subject to the provisions hereof.  Termination by Borrower shall not impair or affect Lender’s rights and Borrower’s obligations then existing.

ITASCA BUSINESS CREDIT, INC.
Lender
By    /s/ Gary Peters Name:  Gary Peters Title:    Vice President INSIGNIA SYSTEMS, INC. Borrower
By    /s/ Scott F. Drill Name:  Scott F. Drill Title:   Chief Executive Officer

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EX-10.2

EXHIBIT 10.2

SECURITY AGREEMENT

September 16, 2004

Borrower:  Insignia Systems, Inc.	Secured Party: Itasca Business Credit, Inc.
Address:  6470 Sycamore Court North                   Maple Grove, MN  55369	Address: Parkdale Plaza, Suite 146 1660 South Highway 100 St. Louis Park, MN 55416-1524

1.

SECURITY INTEREST AND COLLATERAL.  

To secure the payment and performance of each and every debt, liability and obligation of every type and description which Borrower may now or at any time hereafter owed to Secured Party (whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several, including all obligations owed to the Secured Party by the Borrower, pursuant to the Financing Agreement dated September 16, 2004 between the Borrower and the Secured Party (the "Financing Agreement") and evidenced by the Revolving Note and Term Note, if any, payable by the Borrower to the order of the Secured Party dated September 16, 2004 (the "Note"); all such debts, liabilities and obligations being herein collectively referred to as the "Obligations"), Borrower hereby grants Secured Party a security interest (herein called the "Security Interest") in the following property (herein called the "Collateral"):

(a)

Accounts, Contract Rights and Other Rights to Payment:

All demand, time, savings, passbook or similar account maintained with a bank, including but not limited to account numbers 9212116 and 9210792 maintained with BNC National Bank.  Each and every right of Borrower to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property by Borrower, out of a rendering of services by Borrower, out of a loan by Borrower, out of the overpayment of taxes or other liabilities of Borrower, or otherwise arises under any contract or agreement, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which Borrower may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any of the property of such account debtor or other obligor; all including but not limited to all present and future debt instruments, chattel papers, accounts (including but not limited to all health-care-insurance receivables and all accounts constituting as-extracted collateral), letter-of-credit rights, letters of credit and contract rights of Borrower.

(b)

Inventory:

All inventory of Borrower (including but not limited to all oil, gas and other minerals before extraction, all oil, gas and other minerals constituting as-extracted collateral, and all timber to be cut), wherever located, whether now owned or hereafter acquired.

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(c)

Equipment:

All equipment of Borrower, wherever located, whether now owned or hereafter acquired, including but not limited to: office and shop equipment, machinery, furniture, and trade fixtures.

(d)

General Intangibles:

All general intangibles of Borrower, whether now owned or hereafter acquired, including, but not limited to, all tax refunds, applications for patents, copyrights and trademarks, together with all substitutions and replacements for any of the foregoing property and proceeds of any and all of the foregoing property (including without limitation letter-of-credit rights, letters of credit and other rights to payment) and, in the case of all tangible Collateral, together with (i) all accessories, attachments, parts, equipment, accessions and repairs now or hereafter attached or affixed to or used in connection with any such goods, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods.

2.

REPRESENTATIONS, WARRANTIES AND AGREEMENTS.  

Borrower represents, warrants and agrees that:

(a)

Borrower is a corporation, and the address of the Borrower’s chief executive office is shown at the beginning of this Agreement.  The Debtor shall give the Secured Party prior written notice of any change in such address or the Borrower’s name.  The Borrower shall not change its state of organization without the Secured Party’s prior written consent.

(b)

The Collateral will be used primarily for business.

(c)

If any part or all of the tangible Collateral will become so related to particular real estate as to become a fixture, as-extracted collateral, or timber to be cut, the real estate concerned is:

and the name of the record owner is: _______________________________________

_________________________________________

_________________________________________

or if left blank, at the address of Borrower shown at the beginning of this Agreement.  Borrower’s records concerning its accounts and contract rights are kept at

_________________________________________

_________________________________________

or, if left blank, at Borrower’s chief place of business.

3.  ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

Borrower represents, warrants and agrees that:  

(a)

Borrower has (or will have at the time Borrower acquires rights in Collateral hereafter arising) absolute title to each item of Collateral free and clear of all security interests, liens and encumbrances (except the Security Interest and except as otherwise disclosed in the Financing Agreement), and will defend the Collateral against all claims or

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demands of all persons other than Secured Party.  Borrower will not sell or otherwise dispose of the Collateral or any interest therein without the prior written consent of Secured Party, except that, until the occurrence of an Event of Default and the revocation by Secured Party of Borrower’s right to do so, Borrower may sell any inventory constituting Collateral to buyers in the ordinary course of business.  This Agreement has been duly and validly authorized by all necessary corporation action.  

(b)

Borrower will not permit any tangible Collateral to be located in any state (and, if county filing is required, in any county) in which a financing statement covering such Collateral is required to be, but has not in fact been, filed in order to perfect the Security Interest. Borrower hereby authorizes the Secured Party to file one or more Financing Statements or continuation statements in respect thereof, and amendments thereto, relating to all or any part of the Collateral without the signature of the Borrower where permitted by law, provided however, that Secured Party promptly provides Borrower with a copy of such financing statement(s).  A photocopy or other reproduction of this Agreement or any Financing Statement covering the Collateral or any part thereof shall be sufficient as a Financing Statement where permitted by law.

(c)

Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or will be when arising in the ordinary course of business) of the account debtor or other obligor named therein or in Borrower’s records pertaining thereto as being obligated to pay such obligation.  Borrower will neither agree to any material modification or amendment nor agree to any cancellation of any such obligation without Secured Party’s prior written consent and will not subordinate any such right to payment to claims of other creditors of such account debtor or other obligor.

(d)

Borrower will (i) keep all tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof; (ii) promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest; (iii) keep all Collateral free and clear of all security interest, liens and encumbrances except the Security Interest; (iv) at all reasonable times, permit Secured Party or its representatives to examine or inspect any Collateral, wherever located, and to examine, inspect and copy Borrower’s books and records pertaining to the Collateral and its business and financial condition; (v) keep accurate and complete records pertaining to the Collateral and pertaining to Borrower’s business and financial condition and submit to Secured Party such periodic reports concerning the Collateral and pertaining to Borrower’s business and financial conditions as Secured Party may from time to time reasonably request; (vi) promptly notify Secured Party of any loss of or material damage to any Collateral or of any adverse change, known to Borrower, in the prospect of payment of any sums due on or under any instrument, chattel paper, account or contract right constituting Collateral; (vii) if Secured Party at any time so requests (whether the request is made before or after the occurrence of an Event of Default), promptly deliver to Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by Borrower; (viii) at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft , collision (in case o Collateral consisting

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of motor vehicles) and such other risks and in such amounts as Secured Party may reasonably require, with any loss payable to Secured Party to the extent of its interest; (ix) from time to time execute such financing statements as Secured Party may reasonably require in order to perfect the Security Interest and, if any Collateral exists of a motor vehicle, execute such documents as may be required to have the Security Interest properly noted on a certificate of title; (x) pay when due or reimburse Secured Party on demand for all costs of collection of any of the Obligations and all their out-of-pockets expenses (including in each case all reasonable attorneys’ fees) incurred by Secured Party in connection with the creating, perfection, satisfaction or enforcement of the Security Interest or the creation, continuance or enforcement of this Agreement or any or all of the Obligation; and Borrower will indemnify and save Secured Party harmless from all loss, costs, damage, liability or expense, including reasonable attorney fees that it may sustain or incur by reason of defending or protecting the Security Interest or the priority thereof, or in the prosecution or defense of any action or proceeding concerning any matter growing out of or connected with this Agreement and/or the obligations and/or the Collateral; (xi) execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements, and writings which Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and Secured party’s rights under this Agreement; (xii) not use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation of any federal, state or local law, statute or ordinance; and (xiii) not permit any tangible Collateral to become part of or to be affixed to any real property without first assuring to the reasonable satisfaction of Secured Party that the Security Interest will be prior and senior to any interest or lien then held or thereafter acquired by any mortgagee of such real property or the owner or purchaser of any interest therein. If Borrower at any time fails to perform or observe any agreement contained in this Section 3(d), Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Borrower (or, at Secured Party’s option, in Secured Party’s own name) and may (but need not) take any and all other actions which Secured Party may reasonable deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interest, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtor or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Borrower shall thereupon pay Secured Party on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys’ fees) incurred by Secured Party in connection with or as a result of Secured Party’s performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations.  To facilitate the performance or observance by Secured Party of such agreements of Borrower, Borrower hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Borrower with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Borrower, any and all instruments, documents, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered

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or endorsed by Borrower under this Section 3 and Section 4.

(e)

Borrower will pay promptly when due all indebtedness, liability, or obligation secured hereby with interest.

4.

LOCK BOX, COLLATERAL ACCOUNT.  

If Secured Party so requests at any time (whether before or after the occurrence of an Event of Default), Borrower will direct each of its account debtors to make payments due under the relevant account or chattel paper directly to a special lock box to be under the control of Secured Party.  Borrower hereby authorizes and directs Secured Party to deposit into a special collateral account to be established and maintained with Secured Party all checks, drafts and cash payments received in said lock box.  All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute payment of any Obligation.  At its option, Secured Party may, at any time, apply finally collected funds on deposit in said collateral account to the payment of the Obligations in such order of application as Secured Party may determine, or permit Borrower to withdraw all or any part of the balance on deposit into said collateral account, all payments on accounts and chattel paper received by it.  All such payment shall be delivered to Secured Party in the form received (except for Borrower’s endorsement where necessary).  Until so deposited, all payments on accounts and chattel paper received by Borrower shall be held in trust by Borrower for and as the property of Secured Party and shall not be commingled with any funds or property of Borrower.

5.

COLLECTION RIGHTS OF SECURED PARTY.  

Notwithstanding Secured Party’s rights under Section 4 with respect to any and all debt instruments, chattel papers, accounts, and other rights to payment constituting Collateral (including proceeds), Secured Party may, at any time (both before and after the occurrence of an Event of Default), notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, account, or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party.  If Secured Party so requests at any time, Borrower will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors, that the amount due is payable directly to Secured Party.  At any time after Secured Party or Borrower gives such notice to an account debtor or other obligor, Secured Party may (but need not), in its own name or in Borrower’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, notify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor.

6.

ASSIGNMENT OF INSURANCE.  

Borrower hereby assigns to Secured Party, as additional security for the payment of the Obligations, and all moneys (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of Borrower under or with respect to, any and all policies of insurance covering the Collateral, and Borrower hereby directs the issuer of any such policy to pay any such monies directly to Secured Party.  Both before and after the occurrence of an Event of Default, Secured Party may (but need not), in its own name or in Borrower’s name, execute and deliver proofs of claim, receive all such monies, endorse checks and other instruments representing

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payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy.

7.

EVENTS OF DEFAULT.  

Each of the following occurrences shall constitute an event of default under this Agreement (herein called "Event of Default"): (i) Borrower shall fail to pay any or all of the Obligations when due or (if payable on demand)  on demand, or shall fail to observe or perform any covenant or agreement herein binding on it; (ii) any representation or warranty by Borrower set forth in this Agreement or made to Secured Party in any financial statements or reports submitted to Secured Party by or on behalf of Borrower shall prove materially false or misleading; (iii) Borrower or any guarantor of any Obligation shall (A) fail to conduct its business substantially as now conducted; or (B) be or become insolvent (however defined); or (C) the entry of any judgment against any debtor; or (D) file or have filed against it, voluntarily or involuntarily, a petition in bankruptcy or for reorganization under the United States Bankruptcy Code; or (E) initiate or have initiated against it voluntarily or involuntarily, any act, process of proceeding under any insolvency law or other statute or law providing for the modification or adjustment of the rights of creditors; or (F) Borrower shall be dissolved or liquidated; or (iv) Secured Party shall in good faith believe that the prospects of due and punctual payment of any or all of the Obligations is impaired.

8.

REMEDIES UPON EVENT OF DEFAULT.  

Upon the occurrence of an Event of Default under Section 7 and at any time thereafter, Secured Party may exercise any one or more of the following rights and remedies: (i) declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment or other notice or demand; (ii) exercise and enforce any or all rights and remedies available upon default to a Secured Party under the Uniform Commercial Code, including but not limited to the right to take possession of any Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which Borrower hereby expressly waives), and the right to sell, lease or otherwise dispose of any or all of the Collateral, and in connection therewith, Secured Party may require Borrower to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties, and if notice to Borrower of any intended disposition of collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 10) at least ten calendar days prior to the date of intended disposition of other action; (iii) exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, against Borrower or against any other person or property.  Notwithstanding the foregoing, the Borrower acknowledges and agrees that all Obligations owed by the Borrower to the Secured Party are payable upon demand and that the Secured Party can make a demand at any time in its absolute discretion even if the Borrower is then in compliance with all of its obligations to the Secured Party.

9.

OTHER PERSONAL PROPERTY.

Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, Borrower gives written notice to Secured Party of the existence of any goods, paper or the property of Borrower, not affixed to or constituting a part of such Collateral, but which are located or found upon or within such Collateral, describing such property, Secured Party shall not be responsible or

6

liable to Borrower for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral.

10.

MISCELLANEOUS.

All terms in this Agreement that are defined in the Minnesota Uniform Commercial Code, as amended from time to time (the “UCC”) shall have the meanings set forth in the UCC, and such meanings shall automatically change at the time that any amendment to the UCC, which changes such meanings shall become effective.  This Agreement does not contemplate a sale of accounts, contract rights or chattel paper, and, as provided by law, Borrower is entitled to any surplus and shall remain liable for any deficiency.  This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Secured Party.  A waiver signed by Secured Party shall be effective only in the specific instance and for the specific purpose given.  Mere delay or failure to act shall not preclude the exercise or enforcement of any of Secured Party’s rights or remedies.  All rights and remedies of Secured Party shall be cumulative and may be exercised singularly or concurrently, at Secured Party’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other.  All notices to be given to Borrower shall be deemed sufficiently given if delivered or mailed by registered or certified mail, postage prepaid, to Borrower at its address set forth above or at the most recent address shown on Secured Party’s records. Secured Party's duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, Secured Party need not otherwise preserve, protect, insure or care for any Collateral.  Secured Party shall not be obligated to preserve any rights Borrower may have against prior parties, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application.  This Agreement shall be binding upon and inure to the benefit of Borrower and Secured Party and their respective heirs, representatives, successors and assigns and shall take effect when signed by Borrower and delivered to Secured Party, and Borrower waives notice of Secured Party’s acceptance hereof.  Except to the extent otherwise required by law, this Agreement shall be governed by the internal laws of the State of Minnesota.  If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed herein or prescribed hereby.  All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations.  If this Agreement is signed by more than one person as Borrower, the term "Borrower" shall refer to each of them separately and to both or all of them jointly; all such persons shall be bound both severally and jointly with the other(s); and the Obligations shall include all debts, liabilities and obligations owed to Secured Party by a Borrower solely or by both or several or all Borrowers jointly or jointly and severally, and all property described in Section 1 shall be included as part of the Collateral, whether it is owned jointly by both or all Borrowers or is owned in whole or in part by one (or more) of them.

11.

OTHER AGREEMENT.

Borrower and Secured Party have entered into the Financing Agreement pursuant to which the Secured Party may, in its election, extend financial accommodations to the Borrower.  The loans will be evidenced by the Note.  The terms of said Financing Agreement and Note are incorporated herein by

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reference and made a part hereof, and any default under or misrepresentation contained in the Financing Agreement or Note shall be an event of default hereunder.

ITASCA BUSINESS CREDIT, INC.
Secured Party

By:     /s/ Gary Peters Name:  Gary Peters Title:    Vice President INSIGNIA SYSTEMS, INC. Borrower

By:     /s/ Scott F. Drill Name:  Scott F. Drill Title:    Chief Executive Officer

 

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EX-10.3

EXHIBIT 10.3

REVOLVING NOTE

$1,500,000.00

St. Louis Park, Minnesota

September 16, 2004

For value received, the undersigned, Insignia Systems, Inc., a Minnesota corporation (the "Borrower"), hereby promises to pay, on demand, or if demand is not sooner made, on September 16, 2005 (“Final Due Date”), to the order of Itasca Business Credit, Inc., a Minnesota corporation (the "Secured Party"), at its main office in St. Louis Park, Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America, the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000.00) or, the aggregate unpaid principal amount of all advances made by the Secured Party to the Borrower hereunder, together with interest on the principal amount hereunder remaining unpaid from time to time (the "Principal Balance") computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Financing Agreement dated September 16, 2004, (the "Financing Agreement") by and between the Secured Party and the Borrower.  The Secured Party can extend the Final Due Date, at its election, and can provide that the Final Due Date shall be automatically extended for successive 30 day periods until a demand for repayment is made by the Secured Party.

Interest accruing on the Principal Balance hereof shall also be payable on demand.

This Note may be prepaid in whole at any time or from time to time in part in accordance with the terms and provisions of the Financing Agreement, provided that any prepayment in whole of this Note shall include accrued interest thereon.  This Note is issued pursuant to, and is subject to, the Financing Agreement, which provides for, among other things, acceleration hereof.  This Note is the Note referred to in the Financing Agreement.

This Note is secured, among other things, pursuant to the terms of the Security Agreement dated September 16, 2004, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements.

The Borrower hereby agrees to pay all costs of collection, including reasonable attorneys' fees and legal expenses in accordance with the terms of the Financing Agreement, whether or not legal proceedings are commenced.

This Note shall be immediately due and payable (including unpaid interest accrued hereon) without demand or notice thereof upon the filing of a petition by or against the Borrower under the United States Bankruptcy Code.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived except as expressly provided in the Financing Agreement.

INSIGNIA SYSTEMS, INC.

Borrower

By     /s/ Scott F. Drill

Name:  Scott F. Drill

Its:      Chief Executive Officer

EX-99.1

EXHIBIT 99.1

Contact: Scott Drill, President and CEO
(763) 392-6200; (800) 874-4648

FOR IMMEDIATE RELEASE

Insignia Systems, Inc. Announces $1.5 Million Line of Credit;
Private Placement Agreement Terminated

MINNEAPOLIS – September 22, 2004 – Insignia Systems, Inc. (Nasdaq: ISIG) announced today that it has entered into a $1.5 million line of credit agreement with Itasca Business Credit, Inc. The new line of credit will provide working capital for the Company. The agreement requires minimum monthly interest payments at a rate of 2.5% over the prime rate. The Company has pledged substantially all of its assets as security for the line of credit.

The Company also announced today termination of the agreement between the Company and a group of institutional investors for the Company’s sale to the investors of 2,000,000 shares for $1.25 per share. The Company’s shareholders approved the sale at a Special Meeting on September 14, 2004, but the closing scheduled for September 15, 2004 did not occur, because certain conditions for closing were not satisfied.

Insignia President and CEO Scott Drill said, “The combination of our current cash position of $3.7 million and our $1.5 million credit facility should enable us to meet our working capital needs for the foreseeable future.”

Insignia Systems, Inc. is an innovative developer and marketer of in-store advertising products, programs and services to retailers and consumer goods manufacturers. Through its Point-Of-Purchase Services (POPS) business, Insignia is contracted with approximately 12,000 chain retail supermarkets and drug stores, including A&P, Kroger, Pathmark, Safeway and Rite Aid. Through the nationwide POPS network, over 180 major consumer goods manufacturers, including General Mills, Hormel Foods, Kellogg Company, Nestlé, Pfizer, S.C. Johnson & Son and Tyson Foods, have taken their brand messages to the point-of-purchase. For additional information, contact 888-474-7677, or visit the Insignia POPS Web site at www.insigniapops.com.

– more –

Insignia  Systems, Inc. • 6470 Sycamore Court North, Maple Grove, MN 55369 • Phone 763-392-6200 • Fax 763-392-6222
http://www.insigniasystems.com • email: info@insigniasystems.com

September 22, 2004 Insignia Systems, Inc. Announces Line of Credit Page 2

Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements. The Company’s actual results could differ materially from these forward-looking statements as a result of a number of factors, including risks and uncertainties as described in the Company’s SEC Form 10-K for the year ended December 31, 2003 and SEC Form 10-Q for the quarter ended June 30, 2004. The Company wishes to caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

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Insignia  Systems, Inc. • 6470 Sycamore Court North, Maple Grove, MN 55369 • Phone 763-392-6200 • Fax 763-392-6222
http://www.insigniasystems.com • email: info@insigniasystems.com