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:
February 1, 2006

INSIGNIA SYSTEMS, INC.

(Exact name of registrant as specified in its chapter)

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

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

(763) 392-6200
(Registrant’s telephone number, including area code)

(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:

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

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

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

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

Item 1.01.   Entry Into A Material Definitive Agreement.

On February 1, 2006, the Company entered into a Consulting Agreement with Gary L. Vars, President of the Company’s POPS Division and a director. Mr. Vars is resigning as an officer and employee of the Company effective January 31, 2006. The Consulting Agreement becomes effective February 1, 2006, and continues for a term of three years. Under the Consulting Agreement, Mr. Vars will receive a fee of $200,000, payable in installments during the first year. He will also be granted a stock option to acquire 75,000 shares of common stock with an exercise price equal to the market value of the stock on February 1, 2006. The option will have a term of three years. Mr. Vars will be required under the Consulting Agreement to provide sales, marketing and general business consulting services to the Company. The agreement will also prohibit him from competing with the Company or soliciting its employees during the term of the agreement and for one year thereafter. The agreement was approved by the Compensation Committee of the Board of Directors.

Item 9.01.   Exhibits.

(d) Exhibits

4.1 Consulting Agreement, effective February 1, 2006, between the Company and Gary L. Vars

4.2 Nonqualified Stock Option Agreement, effective February 1, 2006, between the Company and Gary L. Vars

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:	February 1, 2006	By:	/s/   Scott F. Drill
			Scott F. Drill
			Scott F. Drill, President and Chief Executive Officer

EX-4.1

EXHIBIT 4.1

CONSULTING AGREEMENT

        THIS AGREEMENT is made and entered into, effective February 1, 2006 (the “Effective Date”), by and between Gary L. Vars (“Consultant”), and Insignia Systems, Inc. (the “Company”).

Recitals

        The Company markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers, including the Point-Of-Purchase Services (POPS) in-store advertising program. Consultant is the former President of the Company’s POPS Division, and has valuable knowledge and skills which can contribute to the Company’s business. The Company wishes to retain Consultant to assist in the operation of its business.

Agreement

        1.       Consulting Services.   Commencing on the Effective Date, and continuing until terminated in accordance with Section 2, Consultant shall provide sales, marketing and other general business consulting services, as requested by the Company’s CEO or its Board of Directors. Consultant’s schedule shall be agreed to between the parties. Consultant shall be available at least 15 hours per week, except in the event of sickness, reasonable vacation, or other excused absence. Consultant shall use his best efforts in the performance of his services, and shall perform them in a professional and business-like manner, in accordance with industry standards, and in accordance with all applicable laws and regulations.

        2.       Duration.   This Agreement shall commence on the Effective Date, and shall continue for a period of three years, unless terminated earlier by the Company by written notice in the event of Consultant’s death, substantial and continuing disability, or for cause. Cause is defined as Consultant’s (a) conviction of a felony, (b) commission of embezzlement or dishonesty involving the Company, or (c) failure to perform assigned duties in accordance with this Agreement which is not cured within ten days after written notice, or which recurs after being cured previously. Any term or condition contained in this Agreement that is intended to continue after termination shall survive.

        3.       Compensation.   In exchange for his services, the Company shall pay Consultant the sum of $200,000, in 24 equal semi-monthly installments of $8,333.33, each, for the first 12 months following the Effective Date. Consultant has also been granted a non-qualified stock option to purchase 75,000 shares of the Company’s common stock. If this Agreement is terminated during the first 12 months following the Effective Date, no payments shall be made after the effective date of the termination.

1

        4.       Status of Consultant.   Consultant is an independent contractor and not an employee. Nothing in this Agreement shall be construed to create any other type of relationship between the parties. Consultant shall not be eligible for coverage under any of the Company’s employee benefit plans, and shall not be eligible for workers’ compensation benefits from the Company or its insurer. Consultant has no authority to enter into any contracts or agreements on behalf of the Company or bind the Company in any matter.

        5.       Tax Matters.   The Company shall not withhold federal or state income taxes on any compensation paid to Consultant and shall not pay FICA or any other payroll tax on any compensation paid to Consultant. Consultant understands that it is his obligation to pay income taxes and self-employment taxes on the compensation paid to him by the Company.

        6.       Confidential Information.   “Confidential Information” means information not generally known to persons outside of the Company, which is proprietary to the Company, including trade secrets and other information about designs, drawings, artwork, advertising copy, processes, methods, products, systems, prices, technology, finances, employees, suppliers and customers. All such information obtained by Consultant from any source will be presumed to be Confidential Information, regardless of whether it is so marked or identified. Notwithstanding the foregoing, the following shall not be considered Confidential Information for the purposes of this Agreement: (a) any information Consultant can demonstrate was in his legitimate possession prior to the time of disclosure by the Company; (b) any Confidential Information that was in the public domain prior to disclosure by the Company to Consultant, or that comes into the public domain through no fault of Consultant; (c) any Confidential Information that is disclosed to Consultant by a third party who has legitimate possession thereof and has the right to make such disclosure; and (d) any Confidential Information that Consultant is required to disclose by a court order or applicable law.

        Consultant expressly recognizes that any Confidential Information obtained by him, directly or indirectly, is, and shall be treated by Consultant as, the exclusive property of the Company. Except as permitted in writing in advance by the Company, Consultant shall not use for his own benefit or the benefit of any person or organization other than the Company, or disclose to any other person for any purpose, any Confidential Information. On termination of Consultant’s work, for any reason whatsoever, or at the earlier written request of the Company, all Confidential Information in Consultant’s possession, in any form and including all copies and excerpts, will be returned to the Company in good condition.

        7.       Creations.   Consultant agrees to promptly disclose all inventions, creations, discoveries, designs, drawings, artwork, writings, advertising copy, processes, methods, products, systems, and know-how (whether or not copyrightable, patentable and/or reduced to practice), made, conceived or learned of by Consultant during the period he is performing services for the Company, which relate or result from the actual or anticipated business of the Company or from the use of the Company’s premises or property (the “Creations”).

2

        Consultant also acknowledges that the Creations that have been developed by Consultant in connection with the Company’s business are works made for hire which are the sole property of the Company. To the extent any such items do not constitute works made for hire, Consultant hereby irrevocably assigns all right, title and interest in such items to the Company. Consultant agrees to execute any documents or instruments reasonably required to evidence or perfect the Company’s rights in any of such items, including any documents required by the United States Patent and Trademark Office or the United States Copyright Office. Consultant hereby appoints the Company as his attorney-in-fact to execute any documents or instruments hereunder upon Consultant’s failure or refusal to do so.

        8.       Non-Competition and Non-Solicitation.   Consultant agrees that, during the term this Agreement is in effect, and for one year thereafter (the “Restricted Period”), he shall not directly or indirectly provide services to any person or entity who is then engaged in the marketing or sale of in-store advertising products, programs and services, and is also a customer or client of the Company, or who was a customer or client during the six months prior to that time. Consultant also agrees that, during the Restricted Period, he shall not directly or indirectly hire or contract with any person who is then an employee or consultant of the Company, or who has been an employee or consultant of the Company during the six months prior to that time.

        9.       Remedies.   Consultant recognizes that money damages would not be an adequate remedy to the Company for breach of Sections 6, 7 or 8 of this Agreement, and agrees that in the event of breach of either of such Sections, the Company is entitled to seek additional judicial relief, including, but not limited to, restraining orders, injunctions, an accounting, and attorney’s fees.

        10.       Legality.   The parties covenant and agree that the provisions contained in this Agreement are reasonable and are not known or believed to be in violation of any federal or state law or regulation. In the event a court of law finds any provision to be illegal or unenforceable, such court may modify such provision to make it valid and enforceable. Such modification shall not affect the remainder of this Agreement which shall continue at all times to be valid and enforceable.

        11.       Assignment.   This Agreement may not be assigned by Consultant without the advance written consent of the Company, and may not be assigned by the Company except in connection with a sale of all or substantially all of its assets, a merger, or other business combination. Subject to the foregoing, this Agreement shall be binding upon, and shall inure to the benefit of, the heirs, representatives, successors, and permitted assigns of the parties.

        12.       Interpretation and Amendment.   This Agreement shall be interpreted in accordance with Minnesota law, except to the extent preempted by federal law. This Agreement constitutes the entire agreement of the parties on the subject matter hereof, superseding any prior oral or written agreements. This Agreement can be amended or modified only in a writing signed by the party to be bound.

3

        IN WITNESS WHEREOF, the parties have caused the execution of this Agreement as of the day and year first above written.

Consultant
/s/   Gary Vars
Gary Vars
INSIGNIA SYSTEMS, INC.
By:	/s/   Scott Drill
	Its:   CEO

4

EX-4.2

EXHIBIT 4.2

NONQUALIFIED STOCK OPTION AGREEMENT
UNDER
INSIGNIA SYSTEMS, INC. 2003 INCENTIVE
STOCK OPTION PLAN

        THIS AGREEMENT is made and entered into, effective February 1, 2006 (the “Effective Date”), by and between Gary L. Vars (“Optionee”), and Insignia Systems, Inc. (the “Company”).

Recitals

        The Compensation Committee of the Board of Directors of the Company has granted a non qualified option to Optionee as of February 1, 2006 (the “Date of Grant”), to purchase 75,000 shares of the Company’s common stock, par value $.01 per share, pursuant to the 2003 Incentive Stock Option Plan (the “Plan”), and Optionee desires to acquire said option and the parties hereto desire to enter into an agreement as required by the Plan.

Agreement

        1.       Grant of Option.   The Company irrevocably grants to Optionee, in connection with execution of the Consulting Agreement, the right and option (the “Option”) to purchase all or any part of the aggregate of 75,000 shares of the Company’s common stock with an exercise price equal to the closing price on February 1, 2006 upon the terms and conditions set forth herein and subject to the terms and conditions of the Plan.

        2.       Option Period.   The Option shall continue for a period of three years from the Date of Grant and, unless sooner terminated as provided herein, shall expire at the end of said period.

        3.       Option Exercise.   The Option shall vest on February 1, 2006 and the Option may be exercised in whole or in part. The Option 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.

1

        4.       Option Termination.

   (a) The Option shall terminate automatically in the event the Consulting Agreement is terminated for cause, as defined in the Consulting Agreement between Optionee and the Company.

   (b) Upon the death of Optionee, his personal representative shall be entitled to exercise the Option for a period of six months after Optionee’s death, to the extent Optionee was entitled to exercise the Option at his death. At the end of the six-month period, the Option shall lapse to the extent not exercised.

   (c) Notwithstanding any other provisions herein, in no event shall the Option, or portion thereof, be exercisable subsequent to the date of expiration of the Option term.

        5.       Rights of Optionee.   The Optionee shall not have the rights of a stockholder with respect to the shares of the stock subject to this option until issuance of shares to him pursuant to exercise of the Option.

        6.       Non-Transferability of Option.   The Option shall not be transferable by Optionee other than by will or by the laws of descent and distribution, and then only subject to the provisions of paragraph 4(b) above. During Optionee’s lifetime, the option shall be exercisable only by him.

        7.       Manner of Exercise.   Exercise of the Option, or any part thereof, shall be made by written notice given by Optionee to the Company, specifying the number of shares to be purchased, accompanied by payment of the purchase price in cash or in the form of common stock of the Company of equivalent value.

        8.       Plan Governs.   The provisions of the Plan, including Section 3 of the Plan providing for interpretation and construction of the Plan, shall extend to and be binding upon the parties and any persons succeeding to the rights of the parties.

INSIGNIA SYSTEMS, INC.
By:	/s/   Scott Drill
	Its:   CEO
/s/   Gary Vars
Gary Vars

2