10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2007 Commission File Number 1-13471

INSIGNIA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Minnesota	41-1656308
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

6470 Sycamore Court North
Maple Grove, MN 55369
(Address of principal executive offices)

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

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class:
Common Stock, $.01 par value Name of each exchange on which registered:
The NASDAQ Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the securities Act.
Yes o  No x

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o  No x

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.  o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o    Accelerated filer o    Non-accelerated filer x    Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x

        The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the second quarter (June 30, 2007) was approximately $58,425,000 based upon the last sale price of the registrant’s Common Stock on such date.

        Number of shares outstanding of Common Stock, $.01 par value, as of March 24, 2008, was 15,590,097.

DOCUMENTS INCORPORATED BY REFERENCE:

Insignia Systems, Inc. Proxy Statement to be filed for the Annual Meeting of Shareholders to be
held on May 21, 2008 (Part III – Items 10, 11, 12, 13 and 14)

TABLE OF CONTENTS

PART I.
Item 1.	Business	3
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 4A.	Executive Officers of the Registrant	12
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 8.	Financial Statements and Supplementary Data	23
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	43
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	43
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
Item 13.	Certain Relationships and Related Transactions and Director Independence	44
Item 14.	Principal Accounting Fees and Services	44
Item 15.	Exhibits and Financial Statement Schedules	44

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Cautionary Statement Regarding Forward-Looking Information

Statements made in this annual report on Form 10-K, in the Company’s other SEC filings, in press releases and in oral statements to shareholders and securities analysts, which are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words “believes,” “expects,” “anticipates,” “seeks” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks described in Part I, Item 1A.

PART I.

Item 1.    Business

General

Insignia Systems, Inc., (the “Company”) markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers. The Company has been in business since 1990. Since 1998, the Company has been focusing on providing in-store services through the Insignia Point-Of-Purchase Services (POPS) in-store advertising program. Insignia POPS^® includes the Insignia POPSign^® program.

Insignia’s POPSign is a national, account-specific, in-store, shelf-edge advertising program that has been shown to deliver significant sales increases. Funded by consumer packaged goods manufacturers, the program allows manufacturers to deliver vital product information to consumers at the point-of-purchase. The brand information is combined with each retailer’s store-specific prices and is displayed on the retailer’s unique sign format. The combining of manufacturer and retailer information produces a complete “call to action” that gets consumers the information they want and need to make purchasing decisions, while building store and brand equity.

For retailers, Insignia’s POPSign program is a source of incremental revenue and is the first in-store advertising program that delivers a complete “call to action” on a product-specific and store-specific basis, with all participating retail stores updated weekly. For consumer goods manufacturers, Insignia’s POPSign program provides access to the optimum retail advertising site for their products – the retail shelf-edge. In addition, manufacturers benefit from significant sales increases, short lead times, micro-marketing capabilities, such as store-specific and multiple language options, and a wide variety of program features and enhancements that provide unique advertising advantages.

The Company’s Internet address is www.insigniasystems.com. The Company has made available on its Web site all of the reports it files with the SEC. The Company’s Web site is not incorporated by reference into this Report on Form 10-K. Copies of reports can also be obtained free of charge by requesting them from Insignia Systems, Inc., 6470 Sycamore Court North, Maple Grove, Minnesota 55369-6032; Attention: CFO; telephone 763-392-6200.

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Industry and Market Background

According to Point-Of-Purchase Advertising International (POPAI), an industry non-profit trade association, more than 70% of brand purchase decisions are being made in-store. As a result, product manufacturers are constantly seeking in-store vehicles to motivate consumers to buy their branded products. Industry studies estimate that manufacturers spend approximately $19.33 billion annually on retail, point-of-purchase and in-store services. The Company’s market studies indicate that the shelf-edge sign represents the final and best opportunity for manufacturers to convince the consumer to buy. In fact, a 2005 industry study concluded that shelf signs are the most effective type of in-store advertising vehicle after end-aisle displays and in-store leaflets.

Many consumers seek product information beyond price in order to make educated buying decisions. The Company’s marketing studies indicate the most effective sign contains information supplied by the product manufacturer in combination with the retailer’s price and design look.

Company Products

Insignia’s POPSign Program

Insignia’s POPSign program is an in-store, shelf-edge, point-of-purchase advertising program that enables manufacturers to deliver product-specific messages quickly and accurately – in designs and formats that have been pre-approved and supported by participating retailers. Insignia POPSigns deliver vital product selling information from manufacturers, such as product uses and features, nutritional information, advertising tag lines and product images. The brand information is combined with the retailer’s store-specific prices and is displayed on the retailer’s unique sign format that includes its logo, headline and store colors. Each sign is displayed directly in front of the manufacturer’s product in the participating retailer’s stores. Insignia’s POPSign program offers special features and enhancements, such as Advantage and Custom Advantage headers that allow manufacturers to add visibility and highlight their brand message at-shelf. Insignia offers Color POPSigns with customizable, image-building full-color graphics. Insignia UltraColor^® POPSigns offer 75% more area for the full-color creative than Color POPSigns.

Utilizing proprietary technology, the Company collects and organizes the data from both manufacturers and retailers, then formats, prints and delivers the signs to retailers for distribution and display. Store personnel place the signs at the shelf for two-week display cycles. The Company charges manufacturers for the signs placed in stores for each cycle. Retailers are paid a fee to display the signs and for product movement data provided to Insignia.

The Impulse Retail System and SIGNright Sign System

Prior to 1996, the Company’s primary product offering was the Impulse Retail System, a system developed by an independent product design and development firm (the “Developer”). In 1996, the Company replaced the Impulse Retail System with the SIGNright Sign System. In 1998, the Company ceased the active domestic sales of the SIGNright Sign System.

Cardstock for the two systems is sold by the Company in a variety of sizes and colors that can be customized to include pre-printed custom artwork, such as a retailer’s logo. Approximately 4% of 2007 revenues came from the sale of cardstock. The Company expects this percentage to be lower in the future.

Stylus Software

In late 1993, the Company introduced Stylus, a PC-based software application used by retailers to produce signs, labels, and posters. The Stylus software allows retailers to create signs, labels and posters by manually entering the information or by importing information from a database. Approximately 2% of 2007 revenues came from the sale of Stylus products and maintenance. The Company expects this percentage to be lower in the future.

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Marketing and Sales

The Company directly markets the Insignia POPSign program to food and drug manufacturers and retailers. By utilizing the Insignia POPSign program, these manufacturers and retailers can easily accomplish what had previously been either impossible or extremely difficult: tailoring national in-store advertising programs to regional and local needs with minimal effort. In addition to the benefits provided to manufacturers and retailers, Insignia’s POPSign program provides consumers more information and clearer messages to aid in purchasing decisions. The Company believes its POPSign program is the most complete in-store advertising sign program available, benefiting consumer, retailer, and manufacturer.

On June 12, 2006, the Company entered into an Exclusive Reseller Agreement with Valassis Sales and Marketing Services, Inc. The agreement had an initial term of one year with the objective of increasing the Company’s sales of Insignia POPSigns. On December 6, 2006, the Company and Valassis executed Amendment No. 1 to the agreement which finalized certain appendices, made certain other modifications to the agreement and extended the initial term through December 31, 2007. On July 2, 2007 the Company and Valassis executed Amendment No. 2 to the agreement which extended the term of the agreement to December 31, 2017 and expanded the strategic alliance to increase the role of Valassis to include developing and expanding the Company’s participating retailer network. In conjunction with Amendment No. 2 Valassis received a five-year warrant to acquire 800,000 shares of Insignia’s common stock at a price of $4.04 and will be paid cash commissions by the Company on the revenue the Company realizes from POPS programs the consumer packaged goods manufacturers conduct in the new retail chains. The Company recorded $1,521,000 of expense during the year ended December 31, 2007 related to the fair value of the warrant.

Prior to April 1998, the Company marketed the Impulse Retail System and the SIGNright Sign System through telemarketing by in-house sales personnel and independent sales representatives. In May 1998, the Company discontinued the active marketing of the systems. The Company sells cardstock and supplies related to these systems to U.S. and international customers.

The Company markets its Stylus software in the United States and internationally primarily through resellers that integrate Stylus as an Open Database Connectivity design and publishing component into their retail data and information management software applications.

During 2007, 2006 and 2005, foreign sales accounted for less than 1% of total net sales each year. The Company expects sales to foreign distributors will be less than 1% of total net sales in 2008.

Competition

Insignia’s POPSign Program

The Insignia POPSign program is competing for the marketing expenditures of branded product manufacturers for at-shelf advertising-related signage. The Insignia POPSign program has two major competitors in its market: News America Marketing In-Store^®, Inc. (News America) and FLOORgraphics^®, Inc. (FLOORgraphics).

News America offers a network for in-store advertising, promotion and sales merchandising services. News America has branded its in-store shelf signage products as SmartSource Shelftalk^sm, SmartSource Shelfvision^sm and SmartSource Price Pop^®.

FLOORgraphics offers a network for in-store advertising and promotion programs. FLOORgraphics has branded its advertising shelf signage product SHELFplus!^®.

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We believe the main strengths of the Insignia POPSign program in relation to its competitors are:

- the linking of manufacturers to retailers at a central coordination point

- providing a complete “call to action”

- supplying product-specific and store-specific messages at the retail shelf

- delivering vital product information and store-specific prices

- short lead times

- significant sales increases

Patents and Trademarks

The Company has developed and is using a number of trademarks, service marks, slogans, logos and other commercial symbols to advertise and sell its products. The Company owns U.S. registered trademarks for Insignia Systems, Inc. ^® (and Design), Insignia POPS^®, POPS Select^®, Insignia Color POPS^®, Insignia POPSign^®, UltraColor^®, Stylus^®, Stylus Work Center ^®, SIGNright^®, Impulse^®, DuraSign^®, I-Care^®, and Check This Out.^®

The Company is in the process of obtaining trademark registrations in the United States for the trademarks “Insignia E-POPS” and “Insignia ShelfPOPS.”

The Company filed a Surrender for Cancellation of Registration for the mark VALUSTIX with the U.S Patent and Trademark Office in October of 2006.

The barcode which the Company uses on the sign cards for the Impulse and SIGNright Sign Systems was also developed by the Developer, which has granted the Company an exclusive worldwide license of its rights to the barcode. The license requires the Company to pay a royalty of 1% of the net sales price received by the Company on cardstock or other supply items that bear the barcode used by the Impulse and SIGNright Sign Systems. Although a patent has been issued to the Developer, which covers the use of the barcode, there is no assurance that the Company will be able to prevent other suppliers of cardstock from copying the barcode used by the Company. However, the Company believes that the number, relatively small size and geographic dispersal of Impulse and SIGNright users, their relationship with the Company and the Company’s retention of its customer list as a trade secret will discourage other sign card suppliers from offering bar-coded sign cards for use on the Impulse and SIGNright machines.

Key employees are required to enter into nondisclosure and invention assignment agreements, and customers, vendors and other third parties also must agree to nondisclosure restrictions prior to disclosure of our trade secrets or other confidential or proprietary information.

Product Development

Product development for Insignia’s POPSign program has been conducted internally and includes the proprietary data management and operations system, as well as the current offering of point-of-purchase and other advertising products. Ongoing internal systems enhancements, as well as the development of point-of-purchase and other advertising or promotional products, will be conducted utilizing both internal and external resources as appropriate.

Product development on the SIGNright Sign System was primarily conducted by the Developer on a contract basis.

The Stylus software product line remains a viable application for the Company’s retailer customers. The Company performs development to keep Stylus current and updated to meet industry requirements.

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Customers

Two customers accounted for 15% and 11%, 26% and 10%, and 16% and 17% of the Company’s total net sales for the years ended December 31, 2007, 2006 and 2005.

Backlog

Sales backlog at February 29, 2008 was approximately $16.9 million, of which $14.7 million is for delivery during 2008 and $2.2 million is for delivery during 2009 and 2010. The orders are believed to be firm but there is no assurance that all of the backlog will actually result in revenues. Sales backlog at February 28, 2007 was approximately $14.7 million.

Seasonality

The Company’s results of operations have fluctuated from quarter to quarter due to variations in net sales and operating expenses. Before 2003, the Company generated a significant portion of operating income in the fourth quarter of the fiscal year because of seasonal events that affected when customers purchased Insignia POPSign programs. However, the pattern has varied since 2002 and it is unclear whether there will be a consistent seasonality pattern in the future.

Any factor that negatively affects net sales or increases operating expenses could negatively affect annual results of operations, and in particular, quarterly results. As a result of the variability of the business, the Company may incur losses in a given quarter and fluctuations in working capital. In certain quarters the Company may realize strong sales, but due to increased sales promotion activities and investments in growing the business, we may experience reduced operating income. The results of operations fluctuate from quarter to quarter as a result of the following:

• The timing of seasonal events for customers;

• Variations in the specific products which customers choose to advertise;

• Variations in the number of retailers in the Company’s network;

• Minimum program level commitments to retailers (called retailer guarantees), and

• Professional fees related to litigation.

Employees

As of February 29, 2008, the Company had 108 employees, including all full-time and part-time employees.

Segment Reporting

The Company operates in a single reportable segment.

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Item 1A.    Risk Factors

Our business faces significant risks, including the risks described below. Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

We Have Had Significant Losses In Prior Periods

Although we had net income of $2,343,000 and $2,396,000 for the years ended December 31, 2007 and 2006 respectively, we experienced a net loss of $3,308,000 for the year ended December 31, 2005. There can be no assurance that we will be profitable on a quarterly or annual basis. If we are unable to generate net income from operations our business will be adversely affected and our stock price will likely decline.

We Are Involved In Major Litigation

In August 2000, News America Marketing In-Store, Inc. (News America), brought suit against the Company in U.S. District Court in New York, New York. The case was settled in November 2002. The terms of the settlement agreement are confidential. The settlement did not impact the Company’s operating results.

In October 2003, News America brought suit against the Company in U.S. District Court in New York, New York, alleging that the Company has engaged in deceptive acts and practices, has interfered with existing business relationships with retailers and prospective economic advantage, and has engaged in unfair competition. The suit sought unspecified damages and injunctive relief. In February 2007 the U.S. District Court in New York transferred this action to Minnesota where the claims became part of the lawsuit the Company filed against News America and Albertson’s Inc., and the New York action was subsequently dismissed.

On September 23, 2004, the Company brought suit against News America and Albertson’s Inc. in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit seeks injunctive relief sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to the Company. On June 30, 2006 the Court denied the motions of News America and Albertson’s to dismiss the suit. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the Minnesota case. In December 2006 News America filed counterclaims similar to the claims in its New York action against Insignia and one of its officers. Motions to dismiss the counterclaims were argued in June 2007, and on September 28, 2007 the Court denied the motions to dismiss the counterclaims. The parties are now engaged in pre-trial discovery. Pursuant to Court order, all discovery and pre-trial matters must be completed by December 2008. On February 4, 2008, the Court approved a Consent Decree entered into by News America and the State of Minnesota under which News America agreed not to violate Minnesota’s statutes prohibiting commercial disparagement.

Management believes that News America’s counterclaims are without merit. An evaluation of the likelihood of an unfavorable outcome and an estimate of the potential liability cannot be rendered at this time. If the Company is required to pay a significant amount in settlement or damages, it will have a material adverse effect on its operations and financial condition. In addition, a negative outcome of this litigation could affect long-term competitive aspects of the Company’s business.

8

The Company filed claims in December 2006 and January 2007 with its director’s and officer’s liability and general liability insurers related to the defense costs and insurance coverage for claims asserted against the Company and one of its officers in News America’s counterclaims. On August 9, 2007, the Company filed a complaint against the insurers in Hennepin County District Court, State of Minnesota requesting a declaratory judgment that the insurers owe the Company and its officer such defense costs and insurance coverage. In December 2007, the Company settled its claim against one of its insurers.

Management currently expects the amount of legal fees that will be incurred in connection with the ongoing lawsuit to be significant throughout 2008 and 2009. During the years ended December 31, 2007, 2006 and 2005, the Company incurred legal fees of $1,758,000, $935,000 and $1,085,000 related to the News America litigation. Legal fees are expensed as incurred.

The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Company’s financial position or results of operations.

We Are Dependent On Our Contracts With Retailers And Our Ability To Renew Those Contracts When Their Terms Expire

On an ongoing basis, we negotiate renewals of various retailer contracts. Some of our retailer contracts require us to guarantee minimum payments to our retailers. If we are unable to offer guarantees at the required levels in the new contracts, and the contracts are not renewed because of that or because of other reasons, it will have a material adverse effect on our operations and financial condition.

Our POPS business and results of operations could be adversely affected if the number of retailer partners decreases significantly or if the retailer partners fail to continue to provide good service including performing their duties in placing and maintaining POPSigns at the shelf in their stores and providing product movement data to us.

Our Results Of Operations May Be Subject To Significant Fluctuations Which May Result In A Decrease In Our Stock Price

Our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a wide variety of factors including:

• the loss of contracts with retailers;

• the continued impact of significant litigation on our business;

• the timing of seasonal events for customers or the loss of customers;

• the timing of new retail stores being added;

• the timing of additional selling, marketing and general and administrative expenses; and

• competitive conditions in our industry.

Due to these factors, our quarterly net sales, expenses and results of operations could vary significantly in the future and this could adversely affect the market price of our common stock.

We Have Significant Competitors

We face significant competition from other providers of at-shelf advertising or promotional signage. Some of these competitors have significantly greater financial resources that can be used to market their products. Should our competitors succeed in obtaining more of the at-shelf advertising business from our current customers, our revenues and related operations would be adversely affected.

9

Our Results Are Dependent On The Success Of Our Insignia POPS Program Which Represents A Very Significant Part Of Our Business

We are largely dependent on our POPS program, which represented approximately 88%, 88% and 84% of total net sales for fiscal 2007, 2006 and 2005, respectively. We expect the POPS program to represent a higher percentage in fiscal 2008 and future periods. Should brand manufacturers no longer perceive value in the POPS program, our business and results of operations would be adversely affected due to our heavy dependence on this program.

Our Results Are Dependent On The Level Of Spending By Branded Product Manufacturers For Advertising And Promotional Expenditures

We are largely dependent on the net sales from our POPSigns, which are purchased by branded product manufacturers. Changes in economic conditions could result in reductions in advertising and promotional expenditures by branded product manufacturers. Should these reductions occur, our revenues and related results of operations would be adversely affected.

Our Results Are Dependent On Our Manufacturer Partners Continuing To Achieve Sales Increases

Our product manufacturer customers use our POPS program to motivate consumers to buy their branded products. Use of our POPS program has historically resulted in sales increases for that particular product. If our POPS program does not continue to result in these product sales increases, our marketing success and sales levels could be adversely affected.

Our Stock Price Has Been And May Continue To Be Volatile

During 2007 our common stock has traded between $5.11 and $2.26 per share. The market price of our common stock may continue to be volatile and may be significantly affected by:

• the loss or addition of contracts with major retailers;

• the continued impact of significant litigation on our business;

• actual or anticipated fluctuations in our operating results;

• announcements of new services by us or our competitors;

• developments with respect to conditions and trends in our industry or in the industries we serve;

• general market conditions; and

• other factors, many of which are beyond our control.

Item 1B.    Unresolved Staff Comments

Not applicable.

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Item 2.    Properties

The Company currently leases approximately 47,000 square feet of office and warehouse space in suburban Minneapolis, Minnesota, under a lease effective through July 31, 2008. During 2005, the Company sublet approximately 10,000 square feet of this space and therefore currently operates out of the remaining approximately 37,000 square feet. On March 27, 2008, the Company entered into a lease for approximately 41,000 square feet of office and warehouse space in the same general vicinity in suburban Minneapolis, Minnesota, effective August 1, 2008 through February 29, 2016. The Company believes that the 41,000 square feet of space in the new facility will meet the Company’s foreseeable needs.

Item 3.  Legal Proceedings

In August 2000, News America Marketing In-Store, Inc. (News America), brought suit against the Company in U.S. District Court in New York, New York. The case was settled in November 2002. The terms of the settlement agreement are confidential. The settlement did not impact the Company’s operating results.

In October 2003, News America brought suit against the Company in U.S. District Court in New York, New York, alleging that the Company has engaged in deceptive acts and practices, has interfered with existing business relationships with retailers and prospective economic advantage, and has engaged in unfair competition. The suit sought unspecified damages and injunctive relief. In February 2007 the U.S. District Court in New York transferred this action to Minnesota where the claims became part of the lawsuit the Company filed against News America and Albertson’s Inc., and the New York action was subsequently dismissed.

On September 23, 2004, the Company brought suit against News America and Albertson’s Inc. in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit seeks injunctive relief sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to the Company. On June 30, 2006 the Court denied the motions of News America and Albertson’s to dismiss the suit. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the Minnesota case. In December 2006 News America filed counterclaims similar to the claims in its New York action against Insignia and one of its officers. Motions to dismiss the counterclaims were argued in June 2007, and on September 28, 2007 the Court denied the motions to dismiss the counterclaims. The parties are now engaged in pre-trial discovery. Pursuant to Court order, all discovery and pre-trial matters must be completed by December 12, 2008. On February 4, 2008, the Court approved a Consent Decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesota’s statutes prohibiting commercial disparagement.

Management believes that News America’s counterclaims are without merit. An evaluation of the likelihood of an unfavorable outcome and estimate of the potential liability cannot be rendered at this time. If the Company is required to pay a significant amount in settlement or damages, it will have a material adverse effect on its operations and financial condition. In addition, a negative outcome of this litigation could affect long-term competitive aspects of the Company’s business.

The Company filed claims in December 2006 and January 2007 with its director’s and officer’s liability and general liability insurers related to the defense costs and insurance coverage for claims asserted against the Company and one of its officers in News America’s counterclaims. On August 9, 2007, the Company filed a complaint against the insurers in Hennepin County District Court, State of Minnesota requesting a declaratory judgment that the insurers owe the Company and its officer such defense costs and insurance coverage. In December 2007, the Company settled its claim against one of its insurers.

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Management currently expects the amount of legal fees that will be incurred in connection with the ongoing lawsuit to be significant throughout 2008 and 2009. During the twelve months ended December 31, 2007, the Company incurred legal fees of $1,758,000 related to the News America litigation. Legal fees are expensed as incurred.

The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Company’s financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2007.

Item 4A.    Executive Officers of the Registrant

The names, ages and positions of the Company’s executive officers are as follows:

Name	Age	Position
Scott F. Drill	55	President, Chief Executive Officer, Secretary ­and Director
Alan M. Jones	51	Senior Vice President of CPG & Retail Sales
A. Thomas Lucas	57	Senior Vice President of Operations
Justin W. Shireman	57	Vice President of Finance, Chief Financial Officer and Treasurer
Scott J. Simcox	55	Senior Vice President of Marketing Services

Scott F. Drill has been President and Chief Executive Officer of the Company since February 24, 1998. From 1996 to December 2002, he was also a partner in Minnesota Management Partners (MMP), a venture capital firm located in Minneapolis, Minnesota. Mr. Drill co-founded Varitronic Systems, Inc. in 1983, and was its President and CEO until it was sold in 1996. Prior to starting Varitronics, Mr. Drill held senior management positions in sales and marketing at Conklin Company and Kroy, Inc.

Alan M. Jones has been Senior Vice President of Consumer Packaged Goods and Retail Sales since May 2007. From August 1998 to May 2007, he held various positions within the Insignia POPS Division including Vice President of Sales for Retail Sales and subsequently Vice President of Sales for CPG Sales. Prior to his positions at Insignia Systems Inc., from 1992 to 1998, Mr. Jones held leadership and sales positions in the in-store advertising field with both Net Value Inc. and Valassis In-store Marketing. From 1981 to 1992, Mr. Jones held various positions at SmithKline Beecham Consumer Brands in the areas of sales training and management including Director of the Mid Atlantic Division.

Thomas Lucas has been Senior Vice President of Operations since April, 2007. Mr. Lucas has been with the Company since 1992. From 1998 to 2007 he was Vice President of Operations, POPS Division, and from 1992 to 1998 he was Manager and Director of Customer Services. Prior to 1992, Mr. Lucas held a variety of management and leadership positions within the United States Air Force and the Joint Chiefs of Staff.

Justin W. Shireman has been Vice Presidentof Finance, Chief Financial Officer and Treasurer since April 2005. From April 2003 to March 2005, he was the Company’s Controller. From 2000 to 2002, he was the Controller for Learningbyte International, Inc., a developer of e-learning solutions. From 1994 to 2000 Mr. Shireman held several positions, including Controller and Director of Finance, with LecTec Corporation, a medical device manufacturer.

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Scott J. Simcox has been Senior Vice President of Marketing Services since August 2006. Mr. Simcox has been with the Company since inception in January 1990, initially as Director of Business Development until May 1991 and then as Director of Marketing until July 1998. From July 1998 to July 2006, he was the Company’s Vice President of Marketing, POPS Division. From August 1988 through December 1989, Mr. Simcox was with Varitronic Systems in various sales and marketing roles. From 1978 to 1988 Mr. Simcox held several marketing and senior management positions at Conklin Company including Vice President of Marketing.

PART II.

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock trades on the NASDAQ Capital Market® under the symbol ISIG. The following table sets forth the range of high and low bid prices reported on the Nasdaq System. These quotations represent prices between dealers and do not reflect retail mark-ups, mark-downs or commissions.

2007	High	Low	2006	High	Low
First Quarter	$  3.64	$  2.69	First Quarter	$  1.38	$  0.65
Second Quarter	4.27	3.00	Second Quarter	2.52	0.51
Third Quarter	5.08	4.00	Third Quarter	3.90	2.15
Fourth Quarter	4.74	2.25	Fourth Quarter	3.71	2.20

Approximate Number of Holders of Common Stock

As of February 29, 2008, the Company had one class of Common Stock beneficially held by approximately 1,661 owners.

13

Dividends

The Company has never paid cash dividends on its common stock. The Board of Directors presently intends to retain all earnings for use in the Company’s business and does not anticipate paying cash dividends in the foreseeable future.

The following graph compares the cumulative total shareholder return on the Company’s Common Stock for the five fiscal years beginning December 31, 2002 and ending December 31, 2007, with the cumulative total return on the NASDAQ Stock Market – U.S. Index and the Russell 2000 Index over the same period (assuming the investment of $100 in the Company’s Stock, the NASDAQ Stock Market – U. S. Index and the Russell 2000 Index on December 31, 2002 and the reinvestment of all dividends).

14

Item 6.    Selected Financial Data

(In thousands, except per share amounts.)

For the Years Ended December 31	2007			2006		2005			2004			2003
Net sales	$	24,431		$	21,894	$	19,598		$	20,992		$	26,138
Operating income (loss)		81	(1)		2,314		(3,331	)		(4,875	)(3)		(4,324	)(3)
Net income (loss)		2,343	(2)		2,396		(3,308	)		(4,858	)		(4,252	)
Net income (loss) per share:
Basic	$	0.15		$	0.16	$	(0.22	)	$	(0.38	)	$	(0.35	)
Diluted	$	0.14		$	0.15	$	(0.22	)	$	(0.38	)	$	(0.35	)
Shares used in calculation of net income (loss) per share:
Basic		15,411			15,093		15,002			12,687			12,259
Diluted		16,186			15,556		15,002			12,687			12,259
Working capital	$	7,751		$	5,017	$	2,592		$	4,813		$	5,797
Total assets		13,340			8,583		6,673			9,921			11,676
Total shareholders’ equity		9,677			4,862		2,072			5,333			7,822

(1)	Includes a one-time non-cash charge of $1,521 for the warrant granted to Valassis more fully described in Note 7 to the financial statements.
(2)	Includes a tax benefit of $2,131 related to the reduction of the valuation allowance against deferred tax assets more fully described in Note 8 to the financial statements.
(3)	Includes a $960 impairment of goodwill in 2004 and a $2,133 impairment of goodwill in 2003 related to the acquisition of VALUStix. During 2006 the Company ceased all business activities related to VALUStix.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and the related notes included in this Report. This Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those in such forward-looking statements as a result of many factors, including those discussed in “Cautionary Statements Regarding Forward-Looking Information” and elsewhere in this Report.

15

Results of Operations

The following table sets forth, for the periods indicated, certain items in the Company’s Statements of Operations as a percentage of total net sales.

Year ended December 31	2007		2006		2005
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	44.6		45.9		63.9
Gross profit	55.4		54.1		36.1
Operating expenses:
Selling	23.2		22.1		29.1
Marketing	5.8		4.8		5.8
Warrant expense (selling & marketing)	6.2		—		—
General and administrative	19.9		16.6		18.2
Total operating expenses	55.1		43.5		53.1
Operating income (loss)	0.3		10.6		(17.0	)
Other income	0.6		0.3		0.1
Income (loss) before taxes	0.9		10.9		(16.9	)
Income tax benefit	8.7		—		—
Net income (loss)	9.6	%	10.9	%	(16.9	)%

Critical Accounting Policies

Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, income taxes, and stock-based compensation expense. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.

We believe the following critical accounting policies affect our more significant judgements and estimates used in the preparation of our financial statements:

Revenue Recognition. The Company recognizes revenue from Insignia POPSigns ratably over the period of service, which is either a two-week or four-week display cycle. We recognize revenue related to equipment, software and sign card sales at the time the products are shipped to customers. Revenue associated with maintenance agreements is recognized ratably over the life of the contract. Revenue that has been billed and not yet recognized is reflected as deferred revenue on our balance sheet.

Allowance for Doubtful Accounts. An allowance is established for estimated uncollectible accounts receivable. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, the condition of the general economy and the industry as a whole and other relevant facts and circumstances. Unexpected changes in the aforementioned factors could result in materially different amounts.

16

Income Taxes. We account for income taxes in accordance with Statement of Financial Accounting Standard No. 109, or FAS 109, Accounting for Income Taxes, as clarified by FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FAS No. 109.

FIN 48 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

At December 31, 2007, the Company determined that it was appropriate to recognize approximately $2.1 million of its deferred tax assets through reversal of its valuation allowance. This leaves approximately $6.7 million of the Company’s net deferred tax assets being offset with a valuation allowance. The Company cannot be certain that it will be more likely than not that these deferred tax assets will be realized in future years.

Stock-Based Compensation. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. We use the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The expected terms of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future. SFAS 123R requires forfeitures to be estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.

If factors change and we employ different assumptions in the application of SFAS 123R to grants in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current periods.

Fiscal 2007 Compared to Fiscal 2006

Net Sales. Net sales for the year ended December 31, 2007 increased 11.6% to $24,431,000 compared to $21,894,000 for the year ended December 31, 2006.

Service revenues from our POPSign programs for the year ended December 31, 2007 increased 12.3% to $21,589,000 compared to $19,219,000 for the year ended December 31, 2006. The increase was primarily due to an increase in the number of POPSign programs sold to consumer packaged goods manufacturers.

17

Product sales for the year ended December 31, 2007 increased 6.2% to $2,842,000 compared to $2,675,000 for the year ended December 31, 2006. The increase was primarily due to increased sales of laser label supplies which were partially offset by decreased sales of thermal sign card supplies.

Gross Profit. Gross profit for the year ended December 31, 2007 increased 14.4% to $13,542,000 compared to $11,840,000 for the year ended December 31, 2006. Gross profit as a percentage of total net sales increased to 55.4% for 2007 compared to 54.1% for 2006.

Gross profit from our POPSign program revenues for the year ended December 31, 2007 increased 15.8% to $12,419,000 compared to $10,725,000 for the year ended December 31, 2006.The increase was primarily due to increased sales and the effect of fixed costs. Gross profit as a percentage of POPSign program revenues increased to 57.5% for 2007 compared to 55.8% for 2006, due to the factors discussed above.

Gross profit from our product sales for the year ended December 31, 2007 increased 0.7% to $1,123,000 compared to $1,115,000 for the year ended December 31, 2006. Gross profit as a percentage of product sales decreased to 39.5% for 2007 compared to 41.7% for 2006. The decrease was primarily due to a change in the sales mix toward lower margin products.

Operating Expenses

Selling. Selling expenses (exclusive of selling related warrant expense) for the year ended December 31, 2007 increased 17.1% to $5,664,000 compared to $4,838,000 for the year ended December 31, 2006, primarily due to increased sales commissions as a result of increased sales, increased labor and benefit costs as a result of increased headcount and salary adjustments, and increased travel related costs. Selling expenses as a percentage of total net sales increased to 23.2% in 2007 compared to 22.1% in 2006, primarily due to the factors described above offset partially by the effect of increased sales in 2007.

Marketing. Marketing expenses (exclusive of marketing related warrant expense) for the year ended December 31, 2007 increased 34.3% to $1,412,000 compared to $1,051,000 for the year ended December 31, 2006, primarily due to increased labor and benefit costs (as a result of increased headcount and salary adjustments) and increased data acquisition and analysis costs. Marketing expenses as a percentage of total net sales increased to 5.8% in 2007 compared to 4.8% in 2006, primarily due to the factors described above offset partially by the effect of increased sales in 2007.

Warrant expense (selling and marketing). On July 2, 2007, the Company and Valassis Sales and Marketing Services, Inc. (“Valassis”), entered into Amendment No. 2 (the “Amendment”) to the Exclusive Reseller Agreement between the parties. The Amendment extends the term of the strategic alliance between the parties to December 31, 2017. The Amendment also expands the strategic alliance to increase the role of Valassis in the selling and marketing efforts of developing and expanding the Company’s participating retailer network. Valassis received a five-year warrant to acquire 800,000 shares of the Company’s common stock at a price of $4.04 and will be paid a cash commission by the Company on the revenue the Company realizes from POPS programs the consumer packaged goods manufacturers conduct in the new retail chains. For the year ended December 31, 2007, the Company recorded $1,521,000 of expense related to the fair value of the warrant.

General and Administrative. General and administrative expenses for the year ended December 31, 2007 increased 33.7% to $4,864,000 compared to $3,637,000 for the year ended December 31, 2006, primarily due to increased legal costs and increased labor and benefit costs (resulting from increased headcount, salary adjustments and increased stock-based compensation costs). General and administrative expenses as a percentage of total net sales increased to 19.9% in 2007 compared to 16.6% in 2006, primarily due to the factors described above offset partially by the effect of increased sales in 2007. Legal fees were $1,883,000 for the year ended December 31, 2007 compared to $1,143,000 for the year ended December 31, 2006. The legal fees in each year were incurred primarily in connection with two News America lawsuits described elsewhere herein. Legal fees increased in 2007 primarily due to the increase in activity in the News America litigation as the parties prepare to be trial-ready by December 12, 2008. We currently expect the amount of legal fees that will be incurred in connection with the ongoing lawsuit to be significant throughout 2008 as both parties are now engaged in pre-trial discovery. Also, if the Company is required to pay a significant amount in settlement or damages, it will have a material adverse effect on its operations and financial condition. In addition, a negative outcome of this litigation could affect long-term competitive aspects of the Company’s business.

18

Other Income (Expense). Other income (net) for the year ended December 31, 2007 was $153,000 compared to other income (net) of $82,000 for the year ended December 31, 2006. Interest income of $247,000 for the year ended December 31, 2007 versus interest income of $123,000 for the year ended December 31, 2006 was the result of higher interest rates and higher cash balances during the 2007 period. Interest expense of $95,000 for the year ended December 31, 2007 versus $146,000 for the year ended December 31, 2006 was primarily due to the expiration of the line of credit on April 30, 2007. Other income for the year ended December 31, 2006 also included $100,000 of income from the sale of certain VALUStix assets. During 2006, the Company ceased all business activities related to VALUStix.

Income Taxes. The Company recorded an income tax benefit for the year ended December 31, 2007 of $2,109,000 as a result of the reversal of $2,337,000 of the valuation allowance against the deferred tax assets, change in deferred tax assets of $206,000 and $22,000 of current income tax expense related to Federal alternative minimum tax liability and other state tax liabilities. The Company recorded no income tax expense for the year ended December 31, 2006 primarily due to the deduction for tax purposes in 2006 of the remaining unamortized goodwill associated with the VALUStix acquisition. For financial statement purposes the goodwill was determined to be impaired in 2003 and 2004 and was written-off during those periods. During 2006, the Company ceased all business activities related to VALUStix and abandoned the VALUSTIX trademark.

Net Income. Net income for the year ended December 31, 2007 was $2,343,000 compared to $2,396,000 for the year ended December 31, 2006.

Fiscal 2006 Compared to Fiscal 2005

Net Sales. Net sales for the year ended December 31, 2006 increased 11.7% to $21,894,000 compared to $19,598,000 for the year ended December 31, 2005.

Service revenues from our POPSign programs for the year ended December 31, 2006 increased 16.9% to $19,219,000 compared to $16,445,000 for the year ended December 31, 2005. The increase was primarily due to a change in the sales mix towards higher-priced custom POPSign programs sold to customers during the year combined with an increase in the number of programs sold.

Product sales for the year ended December 31, 2006 decreased 15.2% to $2,675,000 compared to $3,153,000 for the year ended December 31, 2005. The decrease was due to general decreasing demand for our products from our customers.

Gross Profit. Gross profit for the year ended December 31, 2006 increased 67.3% to $11,840,000 compared to $7,079,000 for the year ended December 31, 2005. Gross profit as a percentage of total net sales increased to 54.1% for 2006 compared to 36.1% for 2005.

Gross profit from our POPSign program revenues for the year ended December 31, 2006 increased 90.5% to $10,725,000 compared to $5,630,000 for the year ended December 31, 2005.The increase was primarily due to the effect of reduced retailer expense and other cost reductions. Gross profit as a percentage of POPSign program revenues increased to 55.8% for 2006 compared to 34.2% for 2005, due to the factors discussed above.

19

Gross profit from our product sales for the year ended December 31, 2006 decreased 23.1% to $1,115,000 compared to $1,449,000 for the year ended December 31, 2005. Gross profit as a percentage of product sales decreased to 41.7% for 2006 compared to 46.0% for 2005. The decreases were primarily due to decreases in sales of higher margin products and the effect of fixed costs on decreased sales.

Operating Expenses

Selling. Selling expenses for the year ended December 31, 2006 decreased 15.1% to $4,838,000 compared to $5,697,000 for the year ended December 31, 2005, primarily due to sales force reductions in December of 2005 and decreased third-party compliance costs which were partially offset by increased sales commissions due to increased sales. Selling expenses as a percentage of total net sales decreased to 22.1% in 2006 compared to 29.1% in 2005, primarily due to the factors described above, combined with the effect of increased sales.

Marketing. Marketing expenses for the year ended December 31, 2006 decreased 7.4% to $1,051,000 compared to $1,135,000 for the year ended December 31, 2005, primarily due to reductions in staff, decreased out-sourced data analysis and reduced advertising expense. Marketing expenses as a percentage of total net sales decreased to 4.8% in 2006 compared to 5.8% in 2005, primarily due to the factors described above, combined with the effect of higher net sales.

General and Administrative. General and administrative expenses for the year ended December 31, 2006 increased 1.6% to $3,637,000 compared to $3,578,000 for the year ended December 31, 2005, primarily due to increased employed and temporary staffing costs in 2006, increased public relations expense in 2006, and stock-based compensation costs recognized in 2006 due to the adoption of SFAS 123R, which were partially offset by decreased legal costs in 2006. General and administrative expenses as a percentage of total net sales decreased to 16.6% in 2006 compared to 18.2% in 2005, primarily due to the factors described above, combined with the effect of increased sales. Legal fees were $1,143,000 for the year ended December 31, 2006 compared to $1,352,000 for the year ended December 31, 2005. The legal fees in each year were incurred primarily in connection with the News America lawsuit described elsewhere herein.

Other Income (Expense). Other income (net) for the year ended December 31, 2006 was $82,000 compared to other income (net) of $23,000 for the year ended December 31, 2005. Other income (net) in 2006 included $100,000 from the sales of certain assets per the terms of the settlement agreement with Paul Richards and his company (see Note 3 to the financial statements). Higher interest income of $123,000 for the year ended December 31, 2006 versus interest income of $71,000 for the year ended December 31, 2005 was the result of higher interest rates and higher cash balances during the 2006 period. Interest expense of $146,000 in 2006 versus $53,000 in 2005 was primarily due to interest expense in 2006 related to an agreement reached with a retailer effective December 31, 2005, for the deferred payment of certain obligations.

Income Taxes. The Company recorded no income tax expense for the year ended December 31, 2006, primarily due to the deduction for tax purposes in 2006 of the remaining unamortized goodwill associated with the VALUStix acquisition. For financial statement purposes the goodwill was determined to be impaired in 2003 and 2004 and was written-off during those periods. During 2006, the Company ceased all business activities related to VALUStix and abandoned the VALUSTIX trademark. For the year ended December 31, 2005, the Company reported losses for financial statement and tax purposes.

Net Income (Loss). Net income for the year ended December 31, 2006 was $2,396,000 compared to a net loss of $(3,308,000) for the year ended December 31, 2005.

20

Liquidity and Capital Resources

The Company has financed its operations with proceeds from public and private stock sales and sales of its services and products. At December 31, 2007, working capital was $7,751,000 compared to $5,017,000 at December 31, 2006. During the same period total cash and cash equivalents increased $3,608,000 to $7,393,000.

Net cash provided by operating activities during 2007 was $3,724,000. The increase in cash and cash equivalents resulted from net income of $2,343,000, non-cash expense (net) of $132,000 (for depreciation, amortization, deferred income tax benefit, stock-based compensation and warrant expense) and $1,249,000 of cash provided by changes in operating assets and liabilities. Accounts receivable decreased $770,000 during 2007 primarily due to lower net sales in the last two months of 2007 as compared to net sales in the last two months of 2006. Accrued liabilities increased $476,000 during 2007 primarily as a result of increased commissions and legal expense payable at December 31, 2007. The Company expects accounts receivable, accounts payable and accrued liabilities to fluctuate during future periods depending on the level of quarterly POPSign revenues and legal activity related to the News America litigation.

Net cash of $164,000 was used in investing activities in 2007 due to the purchase of property and equipment, primarily information technology hardware and software expenditures. The Company expects that the level of 2008 capital expenditures will be in the range of $550,000 to $750,000 as the Company makes additional information technology expenditures, purchases several replacement digital printers for POPSign production and anticipates some capital expenditures related to its move to a new facility in the summer of 2008.

Net cash of $48,000 was provided by financing activities for the year ended December 31, 2007, as a result of $475,000 of proceeds from the issuance of common stock (from warrant, employee stock option and employee stock purchase plan exercises, net of expenses) which were partially offset by the $186,000 paydown on the line of credit and the payment of $241,000 of principal on long-term liabilities. Through April 30, 2007 the Company maintained a line of credit balance sufficient to generate interest charges to cover the required monthly minimum fee. The Company did not renew the line of credit agreement which expired on April 30, 2007.

The Company believes that based upon current business conditions, its existing cash balance and future cash from operations will be sufficient for its cash requirements during 2008. However, there can be no assurances that this will occur or that the Company will be able to secure additional financing from public or private stock sales or from other financing agreements if needed.

New Accounting Pronouncements

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities and requires additional disclosure about the use of fair value measures, the information used to measure fair value and the effect fair value measurements have on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and will be effective for the Company on January 1, 2008. In February 2008, the FASB issued Statement of Position, No. 157-2 (FSP 157-2), Partial Deferral of the Effective Date of Statement 157, which delays the effective date of SFAS 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company currently believes that the adoption of SFAS 157 will have no material impact on its financial position or results of operations.

21

The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No 115

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No 115 (SFAS 159). SFAS 159 provides an option to report selected financial assets and liabilities at fair value. Furthermore, SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS is effective for fiscal years beginning after November 15, 2007 and will be effective for the Company on January 1, 2008. The Company currently believes that the adoption of SFAS 159 will have no material impact on its financial position or results of operations.

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141 (R)). SFAS No. 141 (R) requires an acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141 (R) is effective for fiscal years after December 15, 2008. We expect to adopt SFAS No. 141 (R) on January 1, 2009, and we do not expect it to have a material effect on its financial position or results of operations.

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statement-amendments of ARB No. 51 (SFAS No. 160). SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. The SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s year beginning January 1, 2009. The Company currently believes that the adoption of SFAS No. 160 will have no material impact on its financial position or results of operations.

Contractual Obligations

The following table summarizes the Company’s contractual obligations and commercial commitments as of December 31, 2007:

Payments due by Period

	Total		Less than 1 Year		2-3 Years		4-5 Years		After 5 years
Contractual Obligations:
Operating leases, excluding operating costs	$	3,745,000	$	543,000	$	849,000	$	882,000	$	1,471,000
Payments to retailers*		9,551,000		3,995,000		5,519,000		37,000		—
Long-term liabilities		688,000		266,000		422,000		—		—
Purchase commitments		544,000		495,000		49,000		—		—
Total contractual obligations	$	14,528,000	$	5,299,000	$	6,839,000	$	919,000	$	1,471,000

*On an ongoing basis, the Company negotiates renewals of various retailer agreements, some of which provide for fixed or store-based payments rather than sign placement-based payments. Upon the completion of renewals, the annual commitment amounts could be in excess of the amounts above.

22

Off-Balance Sheet Transactions

None.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8.    Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

The following are included on the pages indicated:

Report of Independent Registered Public Accounting Firm	24
Balance Sheets as of December 31, 2007 and 2006	25
Statements of Operations for the years ended December 31, 2007, 2006 and 2005	26
Statements of Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005	27
Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005	28
Notes to Financial Statements	29

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Insignia Systems, Inc.

We have audited the accompanying balance sheets of Insignia Systems, Inc. (the “Company”) as of December 31, 2007 and 2006, and the related statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. Our audit of the basic financial statements included the financial statement schedule under Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Insignia Systems, Inc. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the financial statements, the Company adopted Financial Accounting Standards Board Statement No. 123(R), Share-Based Payments (SFAS 123R) effective January 1, 2006.

/s/ Grant Thornton LLP

Minneapolis, Minnesota

March 28, 2008

24

Insignia Systems, Inc.

BALANCE SHEETS

As of December 31	2007			2006
ASSETS
Current Assets:
Cash and cash equivalents	$	7,393,000		$	3,785,000
Accounts receivable – net of $10,000 allowance in 2007 and 2006		2,155,000			2,925,000
Inventories		397,000			452,000
Deferred tax assets, net		164,000			—
Prepaid expenses and other		883,000			888,000
Total Current Assets		10,992,000			8,050,000
Other Assets:
Property and equipment, net		375,000			477,000
Non-current deferred tax assets, net		1,967,000			—
Other		6,000			56,000
Total Assets	$	13,340,000		$	8,583,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Line of credit	$	—		$	186,000
Current maturities of long-term liabilities		266,000			241,000
Accounts payable		1,369,000			1,345,000
Accrued liabilities
Compensation		622,000			468,000
Employee stock purchase plan		98,000			98,000
Legal		208,000			105,000
Other		373,000			154,000
Deferred revenue		305,000			436,000
Total Current Liabilities		3,241,000			3,033,000
Long-Term Liabilities, less current maturities		422,000			688,000
Commitments and Contingencies		—			—
Shareholders’ Equity:
Common stock, par value $.01:
Authorized shares – 40,000,000 in 2007 and 2006
Issued and outstanding shares – 15,550,000 in 2007 and 15,152,000 in 2006		156,000			152,000
Additional paid-in capital		32,025,000			29,557,000
Accumulated deficit		(22,504,000	)		(24,847,000	)
Total Shareholders’ Equity		9,677,000			4,862,000
Total Liabilities and Shareholders’ Equity	$	13,340,000		$	8,583,000

See accompanying notes to financial statements.

25

Insignia Systems, Inc.

STATEMENTS OF OPERATIONS

Year Ended December 31	2007			2006			2005
Services revenues	$	21,589,000		$	19,219,000		$	16,445,000
Products sold		2,842,000			2,675,000			3,153,000
Total Net Sales		24,431,000			21,894,000			19,598,000
Cost of services		9,170,000			8,494,000			10,815,000
Cost of goods sold		1,719,000			1,560,000			1,704,000
Total Cost of Sales		10,889,000			10,054,000			12,519,000
Gross Profit		13,542,000			11,840,000			7,079,000
Operating Expenses:
Selling		5,664,000			4,838,000			5,697,000
Marketing		1,412,000			1,051,000			1,135,000
Warrant expense		1,521,000			—			—
General and administrative		4,864,000			3,637,000			3,578,000
Total Operating Expenses		13,461,000			9,526,000			10,410,000
Operating Income (Loss)		81,000			2,314,000			(3,331,000	)
Other Income (Expense):
Interest income		247,000			123,000			71,000
Interest expense		(95,000	)		(146,000	)		(53,000	)
Other income		1,000			105,000			5,000
Total Other Income		153,000			82,000			23,000
Income (Loss) Before Taxes		234,000			2,396,000			(3,308,000	)
Income tax benefit		2,109,000			—			—
Net Income (Loss)	$	2,343,000		$	2,396,000		$	(3,308,000	)
Net income (loss) per share:
Basic	$	0.15		$	0.16		$	(0.22	)
Diluted	$	0.14		$	0.15		$	(0.22	)
Shares used in calculation of net income (loss) per share:
Basic		15,411,000			15,093,000			15,002,000
Diluted		16,186,000			15,556,000			15,002,000

See accompanying notes to financial statements.

26

Insignia Systems, Inc.

STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock			Additional Paid-In Capital		Accumulated Deficit			Total
	Shares	Amount
Balance at December 31, 2004	14,974,000	$	150,000	$	29,118,000	$	(23,935,000	)	$	5,333,000
Issuance of common stock, net	28,000		—		47,000		—			47,000
Net loss	—		—		—		(3,308,000	)		(3,308,000	)
Balance at December 31, 2005	15,002,000		150,000		29,165,000		(27,243,000	)		2,072,000
Issuance of common stock, net	150,000		2,000		133,000		—			135,000
Value of stock-based compensation	—		—		259,000		—			259,000
Net income	—		—		—		2,396,000			2,396,000
Balance at December 31, 2006	15,152,000		152,000		29,557,000		(24,847,000	)		4,862,000
Issuance of common stock, net	398,000		4,000		471,000		—			475,000
Value of stock-based compensation	—		—		476,000		—			476,000
Value of warrants issued for services	—		—		1,521,000		—			1,521,000
Net income	—		—		—		2,343,000			2,343,000
Balance at December 31, 2007	15,550,000	$	156,000	$	32,025,000	$	(22,504,000	)	$	9,677,000

See accompanying notes to financial statements.

27

Insignia Systems, Inc.

STATEMENTS OF CASH FLOWS

Year Ended December 31	2007			2006			2005
Operating Activities:
Net income (loss)	$	2,343,000		$	2,396,000		$	(3,308,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		266,000			207,000			239,000
Deferred income tax benefit		(2,131,000	)		—			—
Provision for bad debt expense		—			(31,000	)		14,000
Stock-based compensation		476,000			259,000			—
Warrant expense		1,521,000			—			—
Changes in operating assets and liabilities:
Accounts receivable		770,000			(600,000	)		(74,000	)
Inventories		55,000			(4,000	)		47,000
Prepaid expenses and other		55,000			(133,000	)		(295,000	)
Accounts payable		24,000			(425,000	)		(159,000	)
Accrued liabilities		476,000			(132,000	)		(52,000	)
Deferred revenue		(131,000	)		(176,000	)		320,000
Net cash provided by (used in) operating activities		3,724,000			1,361,000			(3,268,000	)
Investing Activities:
Purchases of property and equipment		(164,000	)		(275,000	)		(128,000	)
Net cash used in investing activities		(164,000	)		(275,000	)		(128,000	)
Financing Activities:
Net change in line of credit		(186,000	)		54,000			(96,000	)
Payment of long-term liabilities		(241,000	)		(201,000	)		—
Proceeds from issuance of common stock, net		475,000			135,000			47,000
Net cash provided by (used in) financing activities		48,000			(12,000	)		(49,000	)
Increase (decrease) in cash and cash equivalents		3,608,000			1,074,000			(3,445,000	)
Cash and cash equivalents at beginning of year		3,785,000			2,711,000			6,156,000
Cash and cash equivalents at end of year	$	7,393,000		$	3,785,000		$	2,711,000
Non-cash transaction:
Accrued liabilities (retailer guarantees) converted to long-term liabilities (see Note 5)	$	—		$	—		$	1,130,000
Supplemental disclosures for cash flow information:
Cash paid during the year for interest	$	53,000		$	103,000		$	52,000
Cash paid during the year for income taxes	$	60,000		$	—		$	—

See accompanying notes to financial statements.

28

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies.

Description of Business. Insignia Systems, Inc. (the “Company”) markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers. The Company’s products include the Insignia Point-of-Purchase Services (POPS) in-store advertising program, thermal sign card supplies for the Company’s SIGNright and Impulse systems, Stylus software and laser printable cardstock and label supplies.

Revenue Recognition. The Company recognizes revenue from Insignia POPSigns ratably over the period of service. The Company recognizes revenue related to equipment, software and sign card sales at the time the products are shipped to customers. Revenue associated with maintenance agreements is recognized ratably over the life of the contract. Revenue that has been billed and not yet earned is reflected as deferred revenue on the Balance Sheet.

Cash Equivalents. The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value. At December 31, 2007, $1,345,000 was invested in an overnight repurchase account, $6,000,000 was invested in certificates of deposit and $5,000 was invested in a short-term money market account. At December 31, 2006, $980,000 was invested in an overnight repurchase account, $2,800,000 was invested in certificates of deposit and $5,000 was invested in a short-term money market account.

Fair Value of Financial Instruments. The financial statements include the following financial instruments: cash and cash equivalents, accounts receivable, line of credit, accounts payable and long-term liabilities. The fair value of the long-term liabilities is estimated based on the use of discounted cash flow analysis using interest rates for other debt offered to the Company. The Company estimates the carrying value of the long-term liabilities approximates fair value. All other financial instruments approximate fair value because of the short-term nature of these instruments.

Accounts Receivable. The majority of the Company’s accounts receivable is due from companies in the consumer packaged goods industry. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are due within 30-60 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Changes in the Company’s allowance for doubtful accounts are as follows:

December 31	2007		2006
Beginning balance	$	10,000	$	50,000
Bad debt provision (recovery)		—		(31,000	)
Accounts written-off		—		(9,000	)
Ending balance	$	10,000	$	10,000

29

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

Inventories. Inventories are primarily comprised of parts and supplies for Impulse and SIGNright machines, sign cards, and rollstock. Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method, and consists of the following:

December 31	2007		2006
Raw materials	$	82,000	$	162,000
Work-in-process		36,000		8,000
Finished goods		279,000		282,000
	$	397,000	$	452,000

Property and Equipment. Property and equipment is recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. The straight-line method of depreciation is used for financial reporting purposes and accelerated methods are used for tax purposes. Estimated useful lives of the assets are as follows:

Production tooling	1-3 years
Machinery and equipment	5 years
Office furniture and fixtures	3 years
Computer equipment and software	3 years

Leasehold improvements are amortized over the shorter of the remaining term of the lease or estimated life of the asset.

Impairment of Long-Lived Assets. The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Impaired assets are then recorded at their estimated fair market value. There were no impairments during the years ended December 31, 2007, 2006 and 2005.

Income Taxes. Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred taxes are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment. It is the Company’s policy to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.

Stock-Based Compensation. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. We use the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

30

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

The expected terms of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future. SFAS 123R requires forfeitures to be estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.

If factors change and we employ different assumptions in the application of SFAS 123R to grants in future periods, the related compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current periods.

Advertising Costs. Advertising costs are charged to operations as incurred. Advertising expenses were approximately $9,000, $8,000 and $69,000 during the years ended December 31, 2007, 2006 and 2005.

Net Income (Loss) Per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted net income per share gives effect to all diluted potential common shares outstanding during the year. Options and warrants to purchase approximately 1,396,000, 1,086,000 and 1,737,000 shares of common stock with weighted average exercise prices of $5.81, $6.29 and $4.92 were outstanding at December 31, 2007, 2006 and 2005 and were not included in the computation of common stock equivalents because their exercise prices were higher than the average fair market value of the common shares during the reporting periods.

For the year ended December 31, 2005, the effect of options and warrants was anti-dilutive due to the net losses incurred during the periods. Had net income been achieved, approximately 17,000 of common stock equivalents would have been included in the computation of diluted net income per share for the years ended December 31, 2005.

Weighted average common share outstanding for the years ended December 31, 2007, 2006 and 2005 were as follows:

Year ended December 31	2007	2006	2005
Denominator for basic net income (loss) per share – weighted average shares	15,411,000	15,093,000	15,002,000
Effect of dilutive securities:
Stock options	775,000	460,000	—
Denominator for diluted net income (loss) per share – adjusted weighted average shares	16,186,000	15,556,000	15,002,000

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Reclassifications. Certain 2005 amounts have been reclassified to conform to the presentation in the 2006 and 2007 financial statements.

31

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

New Accounting Pronouncements.

Fair Value Measurements: In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities and requires additional disclosure about the use of fair value measures, the information used to measure fair value and the effect fair value measurements have on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and will be effective for the Company on January 1, 2008. In February 2008, the FASB issued Statement of Position, No. 157-2 (FSP 157-2), Partial Deferral of the Effective Date of Statement 157, which delays the effective date of SFAS 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The Company currently believes that the adoption of SFAS 157 will have no material impact on its financial position or results of operations.

The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No 115: In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No 115 (SFAS 159). SFAS 159 provides an option to report selected financial assets and liabilities at fair value. Furthermore, SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS is effective for fiscal years beginning after November 15, 2007 and will be effective for the Company on January 1, 2008. The Company currently believes that the adoption of SFAS 159 will have no material impact on its financial position or results of operations.

Business Combinations: In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141 (R)). SFAS No. 141 (R) requires an acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141 (R) is effective for fiscal years after December 15, 2008. We expect to adopt SFAS No. 141 (R) on January 1, 2009, and we do not expect it to have a material effect on its financial position or results of operations.

Noncontrolling Interests in Consolidated Financial Statements: In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statement-amendments of ARB No. 51 (SFAS No. 160). SFAS No. 160 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. The SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008, which corresponds to the Company’s year beginning January 1, 2009. The Company currently believes that the adoption of SFAS No. 160 will have no material impact on its financial position or results of operations.

32

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

2. Property and Equipment. Property and equipment consists of the following at December 31:

	2007			2006
Property and Equipment:
Production tooling, machinery and equipment	$	1,725,000		$	1,792,000
Office furniture and fixtures		191,000			191,000
Computer equipment and software		698,000			661,000
Leasehold improvements		368,000			341,000
		2,982,000			2,985,000
Accumulated depreciation and amortization		(2,607,000	)		(2,508,000	)
Net Property and Equipment	$	375,000		$	477,000

3. Line of Credit. On September 16, 2004, the Company entered into a Financing Agreement, Security Agreement and Revolving Note (collectively, “the Credit Agreement”) with Marquette Business Credit, Inc. which was in effect through April 30, 2007. Borrowings of $186,000 were outstanding with an effective rate of 10.75% as of December 31, 2006. The Company did not renew the Credit Agreement and all borrowings were repaid as of April 30, 2007.

4. Long-Term Liabilities. Effective December 31, 2005 the Company reached an agreement with a retailer for the deferred payment of certain obligations on an interest-free basis. These obligations are recorded as long-term liabilities with an imputed annual interest rate of 10.0%.

December 31	2007			2006
Uncollateralized three year liability, payable in monthly installments	$	290,000		$	531,000
Uncollateralized liability, due December 31, 2009		179,000			179,000
Uncollateralized liability, due December 31, 2010		219,000			219,000
Total		688,000			929,000
Less current maturities		(266,000	)		(241,000	)
	$	422,000		$	688,000

5. Commitments and Contingencies.

Operating Leases. The Company conducts its operations in a leased facility. The operating lease is effective until July 31, 2008. During 2005 the Company entered into an agreement to sub-lease a portion of its facility which is in effect through July 31, 2008. On March 27, 2008, the Company entered into an operating lease for a replacement facility which is in effect from August 2008 through February 2016. The Company also leases equipment under operating lease agreements effective through September 2009. Rent expense under all of these leases, net of sub-lease rental income, was approximately $527,000, $527,000 and $1,070,000 for the years ended December 31, 2007, 2006 and 2005.

Minimum future lease obligations under these leases, net of sub-lease rental income and excluding operating costs, are approximately as follows for the years ending December 31:

2008	$   543,000
2009	422,000
2010	427,000
2011	436,000
2012	446,000
Thereafter	1,471,000

33

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

Legal. In August 2000, News America Marketing In-Store, Inc. (News America), brought suit against the Company in U.S. District Court in New York, New York. The case was settled in November 2002. The terms of the settlement agreement are confidential. The settlement did not impact the Company’s operating results.

In October 2003, News America brought suit against the Company in U.S. District Court in New York, New York, alleging that the Company has engaged in deceptive acts and practices, has interfered with existing business relationships with retailers and prospective economic advantage, and has engaged in unfair competition. The suit sought unspecified damages and injunctive relief. In February 2007 the U.S. District Court in New York transferred this action to Minnesota where the claims became part of the lawsuit the Company filed against News America and Albertson’s Inc., and the New York action was subsequently dismissed.

On September 23, 2004, the Company brought suit against News America and Albertson’s Inc. in Federal District Court in Minneapolis, Minnesota, for violations of federal and state antitrust and false advertising laws, alleging that News America has acquired and maintained monopoly power through various wrongful acts designed to harm the Company in the in-store advertising and promotion products and services market. The suit seeks injunctive relief sufficient to prevent further antitrust injury and an award of treble damages to be determined at trial for the harm caused to the Company. On June 30, 2006 the Court denied the motions of News America and Albertson’s to dismiss the suit. On September 20, 2006, the State of Minnesota through its Attorney General intervened as a co-plaintiff in the business disparagement portion of the Minnesota case. In December 2006 News America filed counterclaims similar to the claims in its New York action against Insignia and one of its officers. Motions to dismiss the counterclaims were argued in June 2007, and on September 28, 2007 the Court denied the motions to dismiss the counterclaims. The parties are now engaged in pre-trial discovery. Pursuant to Court order, all discovery and pre-trial matters must be completed by December 12, 2008. On February 4, 2008, the Court approved a Consent Decree entered into by News America and the State of Minnesota under which News America agreed to not violate Minnesota’s statutes prohibiting commercial disparagement.

Management believes that News America’s counterclaims are without merit. An evaluation of the likelihood of an unfavorable outcome and an estimate of the potential liability cannot be rendered at this time. If the Company is required to pay a significant amount in settlement or damages, it will have a material adverse effect on its operations and financial condition. In addition, a negative outcome of this litigation could affect long-term competitive aspects of the Company’s business.

The Company filed claims in December 2006 and January 2007 with its director’s and officer’s liability and general liability insurers related to the defense costs and insurance coverage for claims asserted against the Company and one of its officers in News America’s counterclaims. On August 9, 2007, the Company filed a complaint against the insurers in Hennepin County District Court, State of Minnesota requesting a declaratory judgment that the insurers owe the Company and its officer such defense costs and insurance coverage. In December 2007, the company settled its claim against one of its insurers.

Management currently expects the amount of legal fees that will be incurred in connection with the ongoing lawsuit to be significant throughout 2008 and 2009. During the twelve months ended December 31, 2007, the Company incurred legal fees of $1,758,000 related to the News America litigation. Legal fees are expensed as incurred.

34

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

The Company is subject to various other legal proceedings in the normal course of business. Management believes the outcome of these proceedings will not have a material adverse effect on the Company’s financial position or results of operations.

Retailer Agreements. The Company has contracts in the normal course of business with various retailers, some of which during the year ended December 31, 2005, provided for minimum annual program levels. If those minimum levels were not met, the Company was obligated to pay the contractual difference to the retailers. During the year ended December 31, 2005 the Company incurred approximately $2,131,000 of costs related to these minimums. Other retailer agreements provide for fixed or store-based payments rather than sign placement-based payments. During the years ended December 31, 2007 and 2006, the Company incurred $3,730,000 and $3,502,000 of costs related to fixed and store-based payments. The amounts were recorded in Cost of Services in the Statements of Operations.

Aggregate commitment amounts under agreements with retailers are approximately as follows for the years ending December 31:

2008	$  3,995,000
2009	2,852,000
2010	2,667,000
2011	37,000

On an ongoing basis the Company negotiates renewals of various retailer agreements. Upon the completion of future contract renewals, the annual commitment amounts for 2008 and thereafter could be in excess of the amounts above.

6. Shareholders’ Equity.

Private Placements and Warrants. On December 18, 2002, the Company closed a private placement of $7,500,000 of common stock to a small group of accredited investors at a price of $9.19 per share, pursuant to a Securities Purchase Agreement. The price represented a 15% discount from the average closing bid price of the Company’s common stock over the five days prior to the closing. As part of this offering, the Company also issued warrants to the investors entitling them to purchase an additional 244,827 shares of the Company’s common stock at an initial exercise price of $12.44 per share for a five-year period. Additionally, a warrant to purchase 40,805 shares with the same terms was issued to the Placement Agent. The warrant agreements were amended, effective December 29, 2003, to adjust the exercise price of the warrants to $2.75 per share in exchange for certain terms of the warrant agreement being deleted in their entirety. During the year ended December 31, 2007, 110,122 of the warrants were exercised and the remaining 175,510 warrants expired on December 18, 2007.

On July 2, 2007, the Company issued a warrant to purchase 800,000 shares of the Company’s common stock to Valassis Sales and Marketing Services, Inc. (“Valassis”) at a price of $4.04 for a term of five years. The warrant was issued for services to develop and expand the Company’s participating retailer network in conjunction with Amendment No. 2 to the Exclusive Reseller Agreement which defines the terms of the strategic sales alliance between the Company and Valassis. The Company recorded $1,521,000 of expense related to the fair value of the warrant. The Black-Scholes option-pricing model was used to estimate the fair value of the warrant using an expected life of 5 years, volatility of 40%, a dividend yield of 0% and a risk-free interest rate of 4.9%. At December 31, 2007, all 800,000 of the warrants were outstanding and exercisable.

35

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

Stock-Based Compensation. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R is being applied on the modified prospective basis. Prior to the adoption of SFAS 123R, the Company accounted for its stock-based compensation plans under the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and accordingly, recognized no compensation expense related to the stock-based plans where the exercise price of options granted equaled the market value of the underlying common stock on the date of grant.

Under the modified prospective approach, SFAS 123R applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. Under the modified prospective approach, compensation cost recognized beginning in the first quarter of fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested on January 1, 2006, and compensation cost for all share-based payments granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard.

As a result of the adoption of SFAS 123R, our financial results were lower than under our previous accounting method for stock-based compensation by the following amounts:

Year ended December 31	2007		2006
Income from operations before income taxes	$	476,000	$	259,000
Income from operations	$	476,000	$	259,000
Net income	$	476,000	$	259,000
Earnings per share:
Basic	$	0.03	$	0.02
Diluted	$	0.03	$	0.02

The following table summarizes the stock-based compensation expense which was recognized in the Statements of Operations for the years ended December 31, 2007 and 2006:

Year ended December 31	2007		2006
Cost of sales	$	91,000	$	61,000
Selling		80,000		55,000
Marketing		58,000		32,000
General and administrative		247,000		111,000
	$	476,000	$	259,000

36

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

The following table illustrates the effect on net loss and net loss per share had the Company accounted for stock-based compensation in accordance with SFAS 123R for the year ended December 31, 2005:

Year Ended December 31	2005
Net loss, as reported	$	(3,308,000	)
Deduct:    Total stock-based employee compensation expense determined under fair value based methods for all awards		(480,000	)
Pro forma net loss	$	(3,788,000	)
Basic and diluted net loss per share:
As reported	$	(0.22	)
Pro forma	$	(0.25	)

The Company uses the Black-Scholes option-pricing model to estimate fair value of stock-based awards with the following weighted average assumptions:

	2007		2006		2005
Stock Options:
Expected life (years)	3.92		2.64		3.00
Expected volatility	40	%	63	%	73	%
Dividend yield	0	%	0	%	0	%
Risk-free interest rate	4.77	%	4.91	%	3.77	%

The expected terms of the options and employee stock purchase plan rights are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has not historically issued any dividends and does not expect to in the future.

The Company uses the straight-line attribution method to recognize expense for unvested options. The amount of share-based compensation recognized during a period is based on the value of the awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company will re-evaluate the forfeiture rate annually and adjust it as necessary.

As of December 31, 2007, there was $411,000 of total unrecognized compensation costs related to the outstanding stock options which is expected to be recognized over a weighted average period of 1.10 years.

Stock Options. Prior to 2003 the Company had a stock option plan (the “1990 Plan”) for its employees and directors under which substantially all of the shares reserved for issuance had been issued. During May 2003, the Company’s shareholders approved the 2003 Incentive Stock Option Plan (the “2003 Plan”) and an aggregate of 350,000 shares of common stock were reserved for issuance. The shareholders approved an additional 650,000 shares for issuance in May of 2004, an additional 625,000 shares for issuance in May of 2005, and an additional 250,000 for issuance in May of 2007. The 2003 Plan replaced the 1990 Plan. Options granted under the 1990 Plan will remain in effect until they are exercised or expire according to their terms. All current option grants are made under the 2003 Plan.

37

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

Under the terms of the stock option plans, the Company grants incentive or non-qualified stock options to employees and directors generally at an exercise price at or above 100% of fair market value at the close of business on the date of grant. The stock options expire five or ten years after the date of grant and generally vest over three years.

The following table summarizes activity under the Option Plans:

	Plan Shares Available for Grant		Plan Options Outstanding		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Balance at December 31, 2004	358,100		1,471,996		$	5.33
Reserved	625,000		—			—
Granted	(578,300	)	578,300			0.91
Cancelled – 2003 Plan	158,566		(158,566	)		1.74
Cancelled – 1990 Plan	—		(32,401	)		7.63
Balance at December 31, 2005	563,366		1,859,329			4.22
Reserved	—		—			—
Granted	(615,100	)	615,100			1.24
Exercised	—		(113,331	)		1.52	$	179,000
Cancelled – 2003 Plan	252,934		(252,934	)		2.44
Cancelled – 1990 Plan	—		(61,066	)		7.66
Balance at December 31, 2006	201,200		2,047,098			3.59
Reserved	250,000		—			—
Granted	(513,100	)	513,100			3.74
Exercised	—		(142,616	)		1.23	$	478,000
Cancelled – 2003 Plan	96,968		(96,968	)		1.60
Cancelled – 1990 Plan	—		(66,400	)		8.17
Balance at December 31, 2007	35,068		2,254,214		$	3.73

The numbers of options exercisable under the Option Plans were:

December 31, 2005	1,207,131
December 31, 2006	1,242,487
December 31, 2007	1,372,417

38

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

The following table summarizes information about the stock options outstanding at December 31, 2007:

	Options Outstanding			Options Exercisable
Ranges of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price Per Share	Number Exercisable	Weighted Average Exercise Price Per Share
$0.58 – $  0.95	75,401	7.93 years	$   0.76	41,997	$   0.71
0.96 –     1.01	240,600	7.38 years	0.96	165,263	0.96
1.02 –     1.20	405,200	8.37 years	1.19	140,208	1.19
1.21 –     1.31	270,000	6.71 years	1.31	240,000	1.31
1.32 –     1.95	47,284	6.14 years	1.95	47,284	1.95
1.96 –     2.86	10,800	8.56 years	2.86	3,602	2.86
2.87 –     4.28	599,597	8.29 years	3.79	129,731	3.95
4.29 –     5.80	90,199	5.28 years	5.74	89,199	5.75
5.81 –     8.60	313,133	2.80 years	7.77	313,133	7.77
8.61 –   11.36	202,000	3.74 years	9.58	202,000	9.58
$0.58 – $11.36	2,254,214	6.67 years	$   3.73	1,372,417	$   4.49

Options outstanding under the Option Plans expire at various dates during the period October 2009 through December 2017. Options outstanding at December 31, 2007 had a weighted average remaining life of 6.67 years and an aggregate intrinsic value of $1,702,000. Options exercisable at December 31, 2007 had a weighted average remaining life of 5.29 years and an aggregate intrinsic value of $1,022,000. The weighted average grant-date fair value of options granted during the years ended December 31, 2007, 2006 and 2005, were $1.38, $0.52 and $0.45.

Employee Stock Purchase Plan. The Company has an Employee Stock Purchase Plan (the “Plan”) that enables employees to contribute up to 10% of their compensation toward the purchase of the Company’s common stock at 85% of market value. During the years ended December 31, 2007, 2006 and 2005, employees purchased 164,040, 57,460, and 28,231 shares under the Plan. At December 31, 2007, 195,577 shares are reserved for future employee purchases of common stock under the Plan. For the year ended December 31, 2007, the Company recognized $56,000 of stock-based compensation expense related to the Plan.

7. Income Taxes. The provision (benefit) for income taxes consists of the following:

Year Ended December 31	2007			2006		2005
Current taxes - Federal	$	7,000		$	—	$	—
Current taxes - State		15,000			—		—
Deferred taxes - Federal		189,000			—		—
Deferred taxes - State		17,000			—		—
Benefit from release of valuation allowance		(2,337,000	)		—		—
Provision (benefit) for income taxes	$	(2,109,000	)	$	—	$	—

39

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

Significant components of the deferred taxes are as follows:

As of December 31	2007			2006
Current Deferred Tax Assets:
Net operating loss carryforwards	$	550,000		$	—
Accrued expenses		96,000			76,000
Inventory reserve		27,000			35,000
Other		4,000			4,000
Current deferred tax assets before valuation allowance		677,000			115,000
Less valuation allowance		(513,000	)		(115,000	)
Current deferred tax assets	$	164,000		$	—
Long -Term Deferred Tax Assets:
Net operating loss carryforwards	$	7,182,000		$	8,508,000
Warrant expense		563,000			—
Accrued expenses		215,000			300,000
Depreciation		96,000			56,000
Stock options		52,000			16,000
Alternative minimum tax credits		31,000			6,000
Other		—			21,000
Long-term deferred tax assets before valuation allowance		8,139,000			8,907,000
Less valuation allowance		(6,172,000	)		(8,907,000	)
Long-term deferred tax assets	$	1,967,000		$	—

At December 31, 2007, the Company had net operating loss carryforwards of approximately $21,600,000, which are available to offset future taxable income. The Company has determined that these carryforwards are not currently subject to the limitations of Internal Revenue Code Section 382 which provides limitations on the availability of net operating losses to offset current taxable income if an ownership change has occurred. These carryforwards will begin expiring in 2010.

During 2007 the Company generated $25,000 of alternative minimum tax credits. At December 31, 2007, the Company had indefinite-lived alternative minimum tax credit carryforwards of $31,000.

The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets. During the year ended December 31, 2007, the Company recorded a $2,337,000 net release to the valuation allowance due to changes in the Company’s expectations regarding its ability to realize certain deferred tax assets, which resulted from a determination that it was more likely than not that these deferred tax assets would be realized. The Company evaluates all significant available positive and negative evidence, including the existence of losses in recent years and its forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions the Company uses in forecasting future taxable income require significant judgement and take into account the Company’s recent performance.

The Company will continue to assess the valuation allowance and to the extent it is determined that said allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized in the future. Included as part of the Company’s net operating loss carryforwards are approximately $3,300,000 in tax deductions that resulted from the exercise of stock options. When these loss carryforwards are realized the corresponding changes in the valuation allowance will be recorded as additional paid-in capital.

40

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

The actual tax expense attributable to income from continuing operations differs from the expected tax expense (benefit) computed by applying the U.S. federal corporate income tax rate of 34% to the net income (loss) as follows:

Year Ended December 31	2007		2006		2005
Federal statutory rate	34.0	%	34.0	%	(34.0	)%
Change in valuation allowance	(961.0	)	(48.2	)	22.2
Stock options	56.8		0.5		—
State taxes	(41.9	)	(0.4	)	(0.3	)
Meals & entertainment	9.4		0.8		0.6
Expiration of carryforwards	-		13.3		11.5
Effective federal income tax rate	(902.7	)%	0.0	%	0.0	%

On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No 109” (FIN 48). As a result of implementation of FIN 48, the Company has determined that no liability is required to be recognized. The Company files income tax returns in the United States and numerous state and local tax jurisdictions. Tax years that are open for examination and assessment by the Internal Revenue Service are 2004 through 2007. With limited exceptions, tax years prior to 2003 are no longer open in major state and local tax jurisdictions.

8. Employee Benefit Plans. The Company has a Retirement Profit Sharing and Savings Plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to defer up to 50% of their wages, subject to Federal limitations, on a pre-tax basis through contributions to the plan. During the year ended December 31, 2007 the Company made a matching contribution of $66,000 and during the years ended December 31, 2006 and 2005 the Company made no matching contributions.

9. Concentrations.

Major Customers. During the year ended December 31, 2007, two customers accounted for 15% and 11% of the Company’s total net sales. At December 31, 2007, these two customers represented 23% and 4% of the Company’s total accounts receivable. During the year ended December 31, 2006 two customers accounted for 26% and 10% of the Company’s total net sales. At December 31, 2006, these two customers represented 20% and 14% of the Company’s total accounts receivable and two other customers represented 15% and 12% of the Company’s total accounts receivable.

Although there are a number of customers that the Company sells to, the loss of a major customer could cause a delay in and possible loss of sales, which would adversely affect operating results.

Export Sales. Export sales accounted for approximately 1% of total net sales during the years ended December 31, 2007, 2006 and 2005.

41

Insignia Systems, Inc.

NOTES TO FINANCIAL STATEMENTS

10. Quarterly Financial Data. (Unaudited)

Quarterly data for the years ended December 31, 2007 and 2006 was as follows:

Year Ended December 31, 2007	1st Quarter		2nd Quarter		3rd Quarter			4th Quarter
Net sales	$	6,065,000	$	6,969,000	$	6,461,000		$	4,936,000
Gross profit		3,358,000		4,160,000		3,608,000			2,416,000
Net income (loss)		427,000		1,198,000		(907,000	)		1,625,000
Net income (loss) per share:
Basic	$	0.03	$	0.08	$	(0.06	)	$	0.10
Diluted	$	0.03	$	0.07	$	(0.06	)	$	0.10

Year Ended December 31, 2006	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net sales	$	5,422,000	$	5,853,000	$	5,112,000	$	5,507,000
Gross profit		2,974,000		3,232,000		2,600,000		3,034,000
Net income		639,000		949,000		228,000		580,000
Net income per share:
Basic	$	0.04	$	0.06	$	0.02	$	0.04
Diluted	$	0.04	$	0.06	$	0.01	$	0.04

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

Not applicable.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2007, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer (principal financial officer) concluded that the Company’s disclosure controls and procedures as of December 31, 2007 were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding disclosures.

We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

42

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007. In conducting its evaluation, our management used the criteria set forth by the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management believes our internal control over financial reporting was effective as of December 31, 2007.

The certification of the Company’s Principal Executive Officer and Principal Financial Officer attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal controls over financial reporting. Such certifications should be read in conjunction with the information contained in the Item 9A for a more complete understanding of the matters covered by such certifications.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting have occurred during the fourth quarter of 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.    Other Information

None.

PART III.

Item 10.    Directors, Executive Officers and Corporate Governance

Information concerning Executive Officers of the Company is included in this Annual Report in Item 4A under the caption “Executive Officers of the Registrant.” The information required by Item 10 concerning the directors of the Company and corporate governance is incorporated herein by reference to the Company’s proxy statement for its 2008 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.

43

Item 11.    Executive Compensation

The information required by Item 11 is incorporated herein by reference to the Company’s proxy statement for its 2008 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference to the Company’s proxy statement for its 2008 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.

Item 13.    Certain Relationships and Related Transactions and Director Independence

The information required by Item 13 is incorporated herein by reference to the Company’s proxy statement for its 2008 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.

Item 14.    Principal Accounting Fees and Services

The information required by Item 14 is incorporated herein by reference to the Company’s proxy statement for its 2008 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed.

Item 15.    Exhibits and Financial Statement Schedules

The following financial statements of Insignia Systems, Inc. are included in Item 8:

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2007 and 2006

Statements of Operations for the years ended December 31, 2007, 2006 and 2005

Statements of Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005

Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005

Notes to Financial Statements

The following schedule of Insignia Systems, Inc. is included in Item 15:

Schedule II. Valuation and Qualifying Accounts

44

(a) Exhibits

Exhibit Number	Description	Incorporation By Reference To
3.1	Articles of Incorporation of Registrant, as amended to date	Exhibit 3.1 of the Registrant’s Registration Statement on Form S-18, Reg. No. 33-40765C
3.2	Bylaws, as amended to date	Exhibit 3.1 of the Registrant’s Form 8-K filed February 23, 2007
4.1	Specimen Common Stock Certificate of Registrant	Exhibit 4.1 of the Registrant’s Registration Statement on Form S-18, Reg. No. 33-40765C
10.1	The Company’s 1990 Stock Plan, as amended	Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001
10.2	Lease Agreement between Insignia Systems, Inc. and the Landlord , dated October 31, 2002	Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002
10.3	Sublease Agreement between Insignia Systems, Inc. and the Sublessee dated March 31, 2005	Exhibit 10.2 of the Registrants Form 10-Q for the quarterly period ended March 31, 2005
10.4	License Agreement between Thomas and Lawrence McGourty and Insignia Systems, Inc. dated January 23, 1990, as amended	Exhibit 10.1 of the Registrant’s Registration Statement on Form S-18, Reg. No. 33-40765C
10.5	Barcode License and Support Agreement between Thomas and Lawrence McGourty and Insignia Systems, Inc. dated January 23, 1990	Exhibit 10.2 of the Registrant’s Registration Statement on Form S-18, Reg. No. 33-40765C
10.6	Employee Stock Purchase Plan, as amended	Exhibit 4.1 of the Registrants Registration Statement on Form S-8, Reg. No. 333-136591
10.7	The Company’s 2003 Incentive Stock Option Plan, as amended	Exhibit 4.1 of the Registrant’s Registration Statement on Form S-8, Reg. No. 333-145506
10.8	Amended Change in Control Severance Agreement with Scott F. Drill dated December 20, 2005	Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005
10.9	Amended Change in Control Severance Agreement with Justin W. Shireman dated December 20, 2005	Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005
10.10	Consulting Agreement, effective February 1, 2006, between Gary L. Vars and the Company	Exhibit 4.1 of the Registrant’s Form 8-K filed February 1, 2006
10.11	Nonqualified Stock Option Agreement, effective February 1, 2006, between Gary L. Vars and the Company	Exhibit 4.2 of the Registrant’s Form 8-K filed February 1, 2006
10.12	Exclusive Reseller Agreement between Valassis Sales & Marketing Services, Inc. and the Company entered into as of June 12, 2006	Exhibit 10.1 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2006
10.13	2007 CEO Bonus Plan	Exhibit 10.1 of the Registrant’s Form 8-K filed January 4, 2007
10.14	Amended Change in Control Severance Agreement with Scott J. Simcox dated February 20, 2007	Exhibit 10.1 of the Registrant’s Form 8-K filed February 23, 2007

45

10.15	2007 Annual Executive Incentive Plan dated February 20, 2007	Exhibit 10.25 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006
10.16	Amended Change in Control Severance Agreement with Alan Jones dated May 23, 2007	Exhibit 10.1 of the Registrant’s Form 8-K filed May 30, 2007
10.17	Amended Change in Control Severance Agreement with A. Thomas Lucas dated May 23, 2007	Exhibit 10.2 of the Registrant’s Form 8-K filed May 30, 2007
10.18	Amendment #2 dated July 2, 2007 to Exclusive Reseller Agreement dated June 12, 2006 between Valassis Sales & Marketing Services, Inc. and the Company	Exhibit 10.1 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2007
10.19	Form of Warrant dated July 2, 2007 to purchase shares of common stock issued to Valassis Sales & Marketing Services, Inc. by the Company per Amendment #2 to the Exclusive Reseller Agreement	Exhibit 10.2 of the Registrant’s Form 10-Q for the quarterly period ended June 30, 2007
10.20	Lease Termination Agreement between the Company and the Landlord, dated October 12, 2007	Filed herewith
10.21	Sublease Termination Agreement between the Company and the Sublessee dated October 12, 2007	Filed herewith
10.22	Lease Agreement between the Company and the Landlord (Opus Northwest, L.L.C.) dated March 27, 2008 (exhibits omitted)	Filed herewith
10.23	2008 CEO Bonus Plan	Filed herewith
10.24	2008 Executive Incentive Bonus Plan	Filed herewith
14	Code of Ethics	Exhibit 14 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003
23.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
31.1	Certification of Principal Executive Officer	Filed herewith
31.2	Certification of Principal Financial Officer	Filed herewith
32	Section 1350 Certification	Filed herewith

46

SCHEDULE II. Valuation and Qualifying Accounts

Description	Balance at Beginning of Period		Charged to Costs and Expenses			Deductions Describe			Balance at End of Period
Year ended December 31, 2007
Allowance for doubtful accounts	$	10,000	$	—		$	—		$	10,000
Provision for inventory lower of cost or market adjustment		95,000		(14,000	)		(8,000	)(2)		73,000
Year ended December 31, 2006
Allowance for doubtful accounts	$	50,000	$	(31,000	)	$	9,000	(1)	$	10,000
Provision for inventory lower of cost or market adjustment		107,000		11,000			(23,000	)(2)		95,000
Year ended December 31, 2005
Allowance for doubtful accounts	$	50,000	$	14,000		$	14,000	(1)	$	50,000
Provision for inventory lower of cost or market adjustment		113,000		(6,000	)		—	(2)		107,000

(1) Uncollectible accounts written off, net of recoveries.

(2) Inventory scrapped and disposed of.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By:	/s/ Scott F. Drill
	Scott F. Drill President and CEO

Dated:   March 28, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Scott F. Drill	President, Chief Executive Officer (principal
Scott F. Drill	executive officer) Secretary and Director	March 28, 2008
/s/ Justin W. Shireman	Vice President of Finance, Chief Financial Officer
Justin W. Shireman	(principal financial and accounting officer) and Treasurer	March 28, 2008
/s/ Peter V. Derycz	Director	March 28, 2008
Peter V. Derycz
/s/ Donald J. Kramer	Director	March 28, 2008
Donald J. Kramer
/s/ Reid V. MacDonald	Director	March 28, 2008
Reid V. MacDonald
/s/ W. Robert Ramsdell	Director	March 28, 2008
W. Robert Ramsdell
/s/ Gordon F. Stofer	Director	March 28, 2008
Gordon F. Stofer

48

EX-10.20

EXHIBIT 10.20

LEASE TERMINATION AGREEMENT

THIS LEASE TERMINATION AGREEMENT (“Agreement”) is entered into as of the 12th day of October, 2007, between IRET – PLYMOUTH, LLC, a Minnesota limited liability company (“Landlord”), and INSIGNIA SYSTEMS, INC., a Minnesota corporation (“Tenant”).

Recitals

A. Landlord (as successor in interest to 321 Corporation) and Tenant are parties to a certain “Standard Commercial Lease” dated October 31, 2002 (as amended, the "Lease"), pursuant to which Lease Landlord leases to Tenant approximately 46,562 square feet (the “Premises”) in the building located at 6464 Sycamore Court, Maple Grove, Minnesota (the “Property”). Unless otherwise indicated, the terms defined in the Lease shall have the same meanings when used herein.

B. The Term of the Lease is scheduled to expire on January 14, 2010. The parties have agreed to terminate the Lease, and their respective obligations thereunder, early.

NOW, THEREFORE, in consideration of the premises and mutual covenants and conditions contained herein, it is hereby agreed as follows:

1.         On or before July 31, 2008 (the “Termination Date”), Tenant shall vacate the Premises and surrender possession of same to Landlord, leaving the Premises in the condition required by the Lease. Until the Termination Date, all of Tenant’s obligations under the Lease, including without limitation Tenant’s obligation to pay Base Rent and Tenant’s Pro Rata Share of Operating Expenses, shall remain in full force and effect.

2.         Notwithstanding anything to the contrary in the Lease, Tenant shall not remove the following equipment from the Premises (the “Equipment”): (a) existing security system (excluding external cameras); (b) existing card entry system; (c) voice and data wiring; and (d) voice punch panel and data patch panel including the rack-stands for data patch panel. Tenant acknowledges and agrees that the Equipment shall become the property of Landlord as of the Termination Date, free of any liens or encumbrances created by or through Tenant and is delivered in as is condition at that time. The following list of specific items are excluded from the terms outline herein: all external security cameras, all computers, all servers, server cabinets, all data switches, all KVM devices, all firewall components, all data management components, all Adtran components, all UPS systems, all monitors, all keyboards, all input devices, all archival devices and all media including internal and external fixed disk, flash, tape, optical or magnetic devices.

3.         Provided that Tenant has satisfied all of its obligations under this Agreement, and provided that the Contingency described in Section 5 of this Agreement has been satisfied or waived, then Landlord shall pay to Tenant on or before August 1, 2008 a one-time early termination fee of $400,000.00.

4.         Subject to the provisions of this Agreement, all of which are to survive the Termination Date, upon full compliance by Tenant with the terms and conditions of Sections 1 and 2 above, the Lease and Tenant’s lease of the Premises thereunder shall all terminate as of the Termination Date, it being specifically agreed, however, that Landlord’s and Tenant’s obligations under any provisions of the Lease that by their terms survive the expiration or earlier termination of the Lease shall all survive the Termination Date. Should Tenant not fully comply with the provisions of Sections 1 and 2 above, then in addition to all remedies reserved to Landlord at law and in equity for breach of the provisions of this Agreement, Landlord shall have the rights reserved under the Lease at law and in equity for breach of the provisions of the Lease, the same as if Tenant had held over after the termination or expiration of the Lease, but without the need or necessity for giving any further notice.

Page 1 of 3

5.         Tenant acknowledges that Landlord intends to lease the Premises to Vascular Solutions, Inc. (“Vascular”) commencing on or about August 1, 2008. Tenant agrees that the effectiveness of this Agreement shall be contingent upon Vascular signing a new lease (or an amendment expanding Vascular’s current lease at the Property) that irrevocably commits Vascular to lease the Premises from Landlord (the “Contingency”). In the event the Contingency has not been satisfied on terms acceptable to Landlord in its sole and absolute discretion on or before November 15, 2007, then Landlord may terminate this Agreement by providing written notice to Tenant on or before such date, in which case the Lease shall continue in full force and effect. If Landlord does not provide such written notice to Tenant on or before November 15, 2007, then the Contingency shall be deemed waived as of such date. In no event will Landlord be liable to Tenant for any failure or delay in the satisfaction or waiver of the Contingency.

6.         If any person asserts a claim for a finder’s fee, commission, or other compensation in connection with the termination of the Lease, the party alleged to have retained such person, or whose acts, omissions, or representations are alleged to give rise to such claim, shall indemnify, defend (with counsel reasonably acceptable to the indemnified party) and hold the other party harmless from and against any such claim, demand or liability and all costs, losses, damages and expenses that are incurred in connection with such claim, including without limitation, reasonable attorneys’ fees and costs of investigation.

7.         This Agreement sets forth all of the promises, covenants, agreements, conditions, and undertakings between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements, or conditions, express or implied, oral or written, except as contained herein. This Agreement may not be changed orally, but only by an agreement in writing, duly executed by the parties hereto. This Agreement will inure to the benefit of and bind the respective successors and permitted assigns of the parties hereto. This Agreement shall be governed by and interpreted under the laws of the state in which the Property is located. All parties have obtained any and all necessary consents and/or approvals prior to executing this Agreement.

Page 2 of 3

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

LANDLORD:

IRET – PLYMOUTH, LLC, a Minnesota limited liability company

   By:   IRET Properties, a North Dakota Limited Partnership, its Managing Member

      By:   IRET, Inc., its general partner

By:	/s/ Tom Wentz Jr.
Print Name: Tom Wentz Jr.
Print Title: Senior Vice President

TENANT:

INSIGNIA SYSTEMS, INC., a Minnesota corporation

By:	/s/ Justin W. Shireman
Print Name: Justin W. Shireman
Print Title: VP Finance, Treasurer, CFO

STATE OF MINNESOTA	)
	) ss.
COUNTY OF RAMSEY	)

The foregoing instrument was acknowledged before me this 12^th day of October, 2007, by Justin W. Shireman known to me to be the VP Finance, Treasurer, CFO of Insignia Systems, Inc., on behalf of said entity.

/s/ Joyce E. Kobilka

Notary Public

Print Name: Joyce E. Kobilka

STATE OF MINNESOTA	)
	) ss.
COUNTY OF HENNEPIN	)

The foregoing instrument was acknowledged before me this 18th day of October, 2007, by Thomas A. Wentz Jr. known to me to be the Sr. Vice President of IRET, Inc., a North Dakota corporation, the sole general partner of IRET Properties, a North Dakota Limited Partnership, the managing member of IRET – Plymouth, LLC, on behalf of said limited liability company.

/s/ Sandra L. Porter

Notary Public

Print Name: Sandra L. Porter

Page 3 of 3

EX-10.21

EXHIBIT 10.21

SUBLEASE TERMINATION AGREEMENT

This Sublease Termination Agreement (“Agreement”) is entered into as of the 12^th day of October, 2007, between INSIGNIA SYSTEMS, INC., a Minnesota corporation (“Sublessor”) and VASCULAR SOLUTIONS, INC., a Minnesota corporation (“Sublessee”).

Recitals

A.           Pursuant to that certain Lease dated October 31, 2002, between 321 Corporation, a Minnesota Limited Liability Company, and assigned to IRET-Plymouth, a Minnesota Limited Liability Company (the “Landlord”), as Landlord, and Sublessor as tenant (the “Lease”), the Landlord leased a portion of the building known as Northgate I, located at 6464-6470 Sycamore Court, Maple Grove, MN 55369 (the “Leasehold”) to Sublessor.

B.           Pursuant to that certain Sublease dated March 31, 2005 between Sublessor and Sublessee, as amended (the “Sublease”), Sublessor subleased unto Sublessee those portions of the Leasehold identified in the Sublease (the “Premises”).

C.           Section 4 of the Sublease provides that the term of the Sublease shall terminate on the later of (i) September 30, 2008, or (ii) such date after September 30, 2008 as Sublessee may elect (by written notice which, to be effective, must be received by Sublessor no later than August 1, 2008), but not to extend past January 13, 2010.

D.           Sublessor and Sublessee desire to enter into this Agreement for purposes of establishing a Termination Date (defined below) and for the other purposes described below.

NOW, THEREFORE, in consideration of the premises and mutual covenants and conditions contained in this Agreement, and for other good and valuable consideration, the parties agree as follows:

1.         Subject to the terms of this Agreement, the Sublease shall terminate on July 31, 2008 (the “Termination Date”). Until the Termination Date, all of Sublessee’s obligations under the Sublease shall remain in full force and effect. Sublessee’s obligations under any provisions of the Sublease that by their terms survive the expiration or earlier termination of the Sublease shall all survive the Termination Date.

2.         The effectiveness of this Agreement shall be contingent upon Sublessee signing a new lease (or an amendment expanding Sublesse’s current lease at the property) that irrevocably commits Sublessee to lease the Premises from directly from Landlord (the “Contingency”). In the event the Contingency has not been satisfied on or before November 15, 2007, or such later date agreed to by the parties, then Sublessor may terminate this Agreement by providing written notice to Sublessee on or before such date, in which case the Sublease shall continue in full force and effect. In no event will either party be liable to the other party for any failure or delay in the satisfaction or waiver of the Contingency.

3.         If any person asserts a claim for a finder’s fee, commission, or other compensation in connection with the termination of the Sublease, the party alleged to have retained such person, or whose acts, omissions, or representations are alleged to give rise to such claim, shall indemnify, defend (with counsel reasonably acceptable to the indemnified party) and hold the other party harmless from and against any such claim, demand or liability and all costs, losses, damages and expenses that are incurred in connection with such claim, including without limitation, reasonable attorneys’ fees and costs of investigation.

4.         This Agreement sets forth all of the promises, covenants, agreements, conditions, and undertakings between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements, or conditions, express or implied, oral or written, except as contained herein. This Agreement may not be changed orally, but only by an agreement in writing, duly executed by the parties hereto. This Agreement will inure to the benefit of and bind the respective successors and permitted assigns of the parties hereto. This Agreement shall be governed by and interpreted under the laws of the state in which the Premises is located. The parties represent that they have obtained any and all necessary consents and/or approvals prior to executing this Agreement.

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

SUBLESSOR:

INSIGNIA SYSTEMS, INC., a Minnesota corporation

By:	/s/ Justin W. Shireman
Print Name: Justin W. Shireman
Print Title: VP Finance, Treasurer, CFO

SUBLESSEE:

VASCULAR SOLUTIONS, INC., a Minnesota corporation

By:	/s/ Jim Quackenbush
Print Name: Jim Quackenbush
Print Title: VP of Mfg.

EX-10.22

EXHIBIT 10.22

Exhibits Omitted

JLT 02/19/08

02/25/08

03/10/08

03/17/08

03/24/08

03/25/08

INDUSTRIAL/WAREHOUSE

LEASE AGREEMENT

OPUS NORTHWEST, L.L.C., AS LANDLORD,

AND

INSIGNIA SYSTEMS, INC., AS TENANT.

PARK WEST BUSINESS CENTER

BROOKLYN PARK, MINNESOTA

Industrial/Warehouse Lease Agreement

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TABLE OF CONTENTS

DEFINITIONS				1
BASIC TERMS				1
ARTICLE 1	LEASE OF PREMISES AND LEASE TERM			4
	1.1	Premises		4
	1.2	Term, Delivery and Commencement		4
		1.2.1	Commencement and Expiration of Term	4
		1.2.2	Tender of Possession	4
		1.2.3	Commencement Date Memorandum	4
		1.2.4	Access Prior to Substantial Completion	4
ARTICLE 2	RENTAL AND OTHER PAYMENTS			5
	2.1	Base Rent		5
	2.2	Additional Rent		5
	2.3	Delinquent Rental Payments		5
	2.4	Independent Obligations		6
ARTICLE 3	PROPERTY EXPENSES			6
	3.1	Payment of Property Expenses		6
	3.2	Estimation of Tenant’s Share of Property Expenses		6
	3.3	Payment of Estimated Tenant’s Share of Property Expenses		6
	3.4	Confirmation of Tenant’s Share of Property Expenses		6
	3.5	Tenant’s Inspection and Audit Rights		7
	3.6	Adjustments		8
	3.7	Personal Property Taxes		8
	3.8	Landlord’s Right to Contest Property Taxes		8
	3.9	Rent Tax		8
	3.10	Management		8
ARTICLE 4	USE			8
	4.1	Permitted Use		8
	4.2	Acceptance of Premises		9
	4.3	Increased Insurance		9
	4.4	Laws/Property Rules		9
	4.5	Common Area		9
ARTICLE 5	HAZARDOUS MATERIALS			10
	5.1	Compliance with Hazardous Materials Laws		10
	5.2	Notice of Actions		11
	5.3	Disclosure and Warning Obligations		11
	5.4	Indemnification by Tenant		11
	5.5	Indemnification by Tenant		12
ARTICLE 6	SERVICES AND UTILITIES			12
ARTICLE 7	MAINTENANCE AND REPAIR			14

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	7.1	Landlord’s Obligations		14
	7.2	Tenant’s Obligations		14
		7.2.1	Maintenance of Premises	14
		7.2.2	Tenant Damage	14
		7.2.3	Alterations Required by Laws	15
		7.2.4	Notice to Landlord	15
ARTICLE 8	CHANGES AND ALTERATIONS			15
	8.1	Landlord Approval		15
	8.2	Tenant’s Responsibility for Cost and Insurance		16
	8.3	Construction Obligations and Ownership		17
	8.4	Liens		17
	8.5	Indemnification		17
ARTICLE 9	RIGHTS RESERVED BY LANDLORD			17
	9.1	Landlord’s Entry		17
	9.2	Control of Property		18
	9.3	Right to Cure		18
ARTICLE 10	INSURANCE			19
	10.1	Tenant’s Insurance		19
		10.1.1	Liability Insurance	19
		10.1.2	Property Insurance	19
		10.1.3	Other Insurance	19
	10.2	Landlord’s Insurance Obligations		19
		10.2.1	Property Insurance	19
		10.2.2	Liability Insurance	20
	10.3	Waivers and Releases of Claims and Subrogation		20
		10.3.1	Tenant’s Waiver and Release	20
		10.3.2	Landlord’s Waiver and Release	20
		10.3.3	Limitation on Waivers of Claims	21
	10.4	Tenant’s Failure to Insure		21
	10.5	No Limitation		21
	10.6	Tenant’s and Landlord’s Indemnification		21
ARTICLE 11	DAMAGE OR DESTRUCTION			22
	11.1	Tenantable Within 150 Days		22
	11.2	Not Tenantable Within 150 Days		23
	11.3	Property Substantially Damaged		23
	11.4	Insufficient Proceeds		23
	11.5	Landlord’s Repair; Rent Abatement		23
	11.6	Rent Abatement if Lease Terminates		24
	11.7	Exclusive Casualty Remedy		24
	11.8	Notice to Landlord		24
ARTICLE 12	EMINENT DOMAIN			24
	12.1	Termination of Lease		24
	12.2	Landlord’s Repair Obligations		25

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	12.3	Tenant’s Participation		25
	12.4	Exclusive Taking Remedy		25
ARTICLE 13	TRANSFERS			26
	13.1	Restriction on Transfers		26
	13.2	Costs		26
	13.3	Landlord’s Consent Standards		26
	13.4	Transfers to Affiliates		27
ARTICLE 14	DEFAULTS; REMEDIES			27
	14.1	Events of Default		27
		14.1.1	Failure to Pay Rent	27
		14.1.2	Failure to Perform	27
		14.1.3	Misrepresentation	28
		14.1.4	Other Defaults	28
	14.2	Remedies		28
		14.2.1	Termination of Tenant’s Possession/Re-entry and Reletting Right	28
		14.2.2	Termination of Lease	29
		14.2.3	Present Worth of Rent	29
		14.2.4	Other Remedies	30
	14.3	Costs		30
	14.4	Waiver and Release by Tenant		30
	14.5	Landlord’s Default		30
	14.6	No Waiver		31
ARTICLE 15	CREDITORS; ESTOPPEL CERTIFICATES			31
	15.1	Subordination		31
	15.2	Attornment		32
	15.3	Mortgagee Protection Clause		32
	15.4	Estoppel Certificates		32
		15.4.1	Contents	32
		15.4.2	Failure to Deliver	33
ARTICLE 16	SURRENDER; HOLDING OVER			33
	16.1	Surrender of Premises		33
	16.2	Holding Over		34
ARTICLE 17	ADDITIONAL PROVISIONS			34
	17.1	Initial Improvements		34
		17.1.1	Landlord’s Improvements	34
		17.1.2	Tenant Improvements	34
		17.1.3	(Intentionally Deleted)	34
		17.1.4	(Intentionally Deleted)	34
		17.1.5	(Intentionally Deleted)	34
		17.1.6	Construction Drawings and Specifications	34
		17.1.7	Changes to Construction Drawings and Specifications	35
		17.1.8	Tenant’s Representative	35

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		17.1.9	Substantial Completion; Tenant Delay	35
		17.1.10	Punch List	35
		17.1.11	Construction Warranty	35
	17.2	Security Deposit		36
ARTICLE 18	MISCELLANEOUS PROVISIONS			36
	18.1	Notices		36
	18.2	Transfer of Landlord’s Interest		36
	18.3	Successors		37
	18.4	Captions and Interpretation		37
	18.5	Relationship of Parties		37
	18.6	Entire Agreement; Amendment		37
	18.7	Severability		37
	18.8	Landlord’s Limited Liability		37
	18.9	Survival		38
	18.10	Attorneys’ Fees		38
	18.11	Brokers		38
	18.12	(Intentionally Omitted)		38
	18.13	Governing Law		38
	18.14	Time is of the Essence		38
	18.15	Joint and Several Liability		38
	18.16	No Accord and Satisfaction		39
	18.17	Tenant’s Authority		39
	18.18	Force Majeure		39
	18.19	Management		39
	18.20	Financial Statements		39
	18.21	Quiet Enjoyment		40
	18.22	No Recording		40
	18.23	Outside Storage Prohibited		40
	18.24	Construction of Lease and Terms		40
	18.25	Exhibits		40
ARTICLE 19	SIGNAGE			41
ARTICLE 20	PARKING RIGHTS			41
ARTICLE 21	OPTION TO EXTEND			42
ARTICLE 22	ARBITRATION			43
ARTICLE 23	RIGHT OF FIRST OFFER			44
ARTICLE 24	TENANT’S EQUIPMENT			45

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(Exhibits omitted)

EXHIBITS

EXHIBIT “A”	Definitions
EXHIBIT “B”	Legal Description of the Land
EXHIBIT “C”	Floor Plan
EXHIBIT “D”	Commencement Date Memorandum
EXHIBIT “E”	Property Rules
EXHIBIT “F”	Tenant Sign Criteria
EXHIBIT “G”	Parking Areas
EXHIBIT “H”	List of Plans and Specifications for the Tenant Improvements
EXHIBIT “I”	Monument Sign Drawing
EXHIBIT “J”	Form Subordination, Non-Disturbance and Attornment Agreement

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INDUSTRIAL/WAREHOUSE LEASE AGREEMENT

This Industrial/Warehouse Lease Agreement is made and entered into as of the Effective Date by and between OPUS NORTHWEST, L.L.C., a Delaware limited liability company, as Landlord, and INSIGNIA SYSTEMS, INC., a Minnesota corporation, as Tenant.

DEFINITIONS

Capitalized terms used in this Lease have the meanings ascribed to them on the attached EXHIBIT ”A.”

BASIC TERMS

The following Basic Terms are applied under and governed by the particular section(s) in this Lease pertaining to the following information:

1. Premises:       Approximately 40,781 rentable square feet located within the Building as depicted on EXHIBIT “C.” The Premises is measured to the exterior of exterior walls and to the middle of walls between the Premises and other tenant space. The Building is located at 8701 Brooklyn Boulevard, Brooklyn Park, Minnesota 55445. The Building contains approximately 104,004 rentable square feet. The area upon which rental is calculated includes Tenant’s proportionate share (198 square feet) of the common electrical room (508 total square feet) in the Building and an agreed fifty percent (50%) (28 square feet) allocation of the shared entry vestibule area.

2. Lease Term: seven (7) years, seven (7) months

3. Delivery Date: July 24, 2008

4. Base Rent:

Months 1 -4:

Zero Dollars ($0.00) (Base Rent is abated for the first four months of the term).

Months  5 – 16:	$437,172.32 per annum payable monthly, in advance, in equal monthly installments of $36,431.03
Months 17 – 28:	$445,736.33 per annum payable monthly, in advance, in equal monthly installments of $37,144.69
Months 29 – 40:	$454,708.15 per annum payable monthly, in advance, in equal monthly installments of $37,892.35

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Months 41 – 52:	$464,087.78 per annum payable monthly, in advance, in equal monthly installments of $38,673.98
Months 53 – 64:	$473,059.60 per annum payable monthly, in advance, in equal monthly installments of $39,421.63
Months 65 – 76:	$482,847.04 per annum payable monthly, in advance, in equal monthly installments of $40,237.25
Months 77 – 91:	$492,226.67 per annum payable monthly, in advance, in equal monthly installments of $41,018.89

5.	Initial Tenant’s Share of Property Expenses Percentage:	39.21% (subject to adjustment, if any, provided in Paragraph 1.1)
6.	Permitted Use:	Office, warehouse, and light manufacturing operations (all subject to applicable law)
7.	Improvement Allowance:	(Not Applicable)
8.	Security Deposit:	$39,761.48
9.	Rent Payment Address:	Opus Northwest Management, L.L.C., as
		property manager for Opus Northwest, L.L.C.
		P.O. Box 263
		Minneapolis, MN 55440-0263
		Telephone: 952-656-4444
		Facsimile: 952-656-4529
10.	Address of Landlord for Notices:	Opus Northwest, L.L.C.
		10350 Bren Road West
		Minnetonka, MN 55343
		Attn: Vice President
		Telephone: 952-656-4444
		Facsimile: 952-656-4529
	With a copy to:	Opus Corporation
		10350 Bren Road West
		Minnetonka, MN 55343
		Attn: Legal Department
		Telephone: 952-656-4444
		Facsimile: 952-656-4814

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	With a copy to:	Property Manager at the address set forth above.
11.	Address of Tenant
	for Notices:	Insignia Systems, Inc.
		8799 Brooklyn Boulevard
		Brooklyn Park, MN 55445
		Attn: Chief Financial Officer
		Telephone: 763-392-6200
		Facsimile: 763-392-6222
	With a copy to:	Best & Flanagan LLP
		225 South Sixth Street, Suite 4000
		Minneapolis, MN 55402
		Attn: James C. Diracles
		Telephone: 612-339-7121
		Facsimile: 612-349-5897
12.	Broker(s):	Tenant’s Broker: Equity Transwestern (acting through Michael J. Salmen and Steve Kellogg)
		Landlord’s Broker: C.B. Richard Ellis (acting through James De Pietro and Rick Graf)
13.	Project Manager:	Opus Northwest Management, LLC

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ARTICLE 1

LEASE OF PREMISES AND LEASE TERM

1.1 Premises. In consideration of the covenants and agreements set forth in this Lease and other good and valuable consideration, Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, upon and subject to the terms, covenants and conditions set forth in this Lease. This Lease does not include any right to use of the roof of the Building.

1.2 Term, Delivery and Commencement.

1.2.1Commencement and Expiration of Term. The Term of this Lease is the period stated in the Basic Terms. The Term commences on the Commencement Date and expires ninety-one (91) months thereafter on February 29, 2016.

1.2.2Tender of Possession. Landlord will use commercially reasonable efforts to achieve Substantial Completion and tender possession of the Premises to Tenant on or before the Delivery Date. If Landlord is unable to achieve Substantial Completion on or before the Delivery Date for any reason, this Lease remains in full force and effect and Landlord is not liable to Tenant for any resulting loss or damage except that, if Landlord does not achieve Substantial Completion and does not deliver possession of the Premises to Tenant on or before the date eight (8) days after the Delivery Date, Tenant will receive the lesser of (a) two (2) days rent credit or (b) the daily holdover damages that Tenant incurs because of such delay beyond the Delivery Date for each day of such delay beyond the date eight (8) days after the Delivery Date. Notwithstanding anything herein to the contrary, for purposes of the foregoing sentence, the date eight (8) days after the Delivery Date shall be extended by the number of days of delay in Substantial Completion and tender of possession arising out of Force Majeure and/or Tenant Delay.

1.2.3Commencement Date Memorandum. Promptly after the Commencement Date, Landlord will deliver to Tenant the Commencement Date Memorandum with all blanks properly completed. Within 10 days after receipt, Tenant will execute and deliver the Commencement Date Memorandum to Landlord. If Tenant does not timely execute and deliver to Landlord the Commencement Date Memorandum unmodified or modified appropriately to make the statements therein true, Landlord and any prospective purchaser or encumbrancer may conclusively rely on the information contained in the unexecuted Commencement Date Memorandum Landlord delivered to Tenant.

1.2.4Access Prior to Substantial Completion. Landlord will allow Tenant limited access to the Premises prior to Substantial Completion on June 23, 2008, for partial occupancy if all governmental requirements for occupancy have been met and to begin installing equipment, fixtures, and cabling and/or to properly coordinate such work with the construction of the Tenant Improvements. Landlord has

4

no obligation to provide a certificate of occupancy until Substantial Completion. Any such access will be subject to Landlord’s prior consent in each instance, which consent will not be unreasonably withheld but may be conditioned on Tenant’s work not interfering with the construction of Tenant Improvements or causing a labor dispute. Any such use of the Premises is also subject to, and Tenant must comply with and observe, all applicable Laws and all other terms and conditions of this Lease provided that Tenant shall not be required to pay Rent during such period. In no event may Tenant conduct business in the Premises during such early access period unless an occupancy permit has been received allowing same. All Tenant’s alterations shall be subject to the provisions of Article 8 hereof.

ARTICLE 2

RENTAL AND OTHER PAYMENTS

2.1 Base Rent. Except for the first four months of the lease term, and except that Base Rent for the fifth month of the lease term shall be payable at the time of execution of this Lease, Tenant will pay Base Rent in monthly installments to Landlord, in advance, without offset or deduction (except as otherwise permitted in this Lease), commencing on the Rent Commencement Date and continuing on the first day of each and every calendar month after the Rent Commencement Date during the Term. Tenant will make all Base Rent payments to Property Manager at the address specified in the Basic Terms or at such other place or in such other manner as Landlord may from time to time designate in writing. Tenant will make all Base Rent payments without Landlord’s previous demand, invoice or notice for payment. Landlord and Tenant will prorate, on a per diem basis, Base Rent for any partial month within the Term.

2.2 Additional Rent. Article 3 of this Lease requires Tenant to pay Tenant’s Share of Property Expenses as Additional Rent pursuant to estimates Landlord delivers to Tenant. Tenant will make all such payments in accordance with Section 3.3 without deduction or offset and without Landlord’s previous demand, invoice or notice for payment. Tenant will pay all other Additional Rent described in this Lease within 20 days after receiving Landlord’s invoice for such Additional Rent. Tenant will make all Additional Rent payments to the same location and, except as described in the previous sentence, in the same manner as Tenant’s Base Rent payments.

2.3 Delinquent Rental Payments. If Tenant does not pay any installment of Base Rent or any Additional Rent within five (5) days after the due date, Tenant will also pay Landlord a Late Charge. Further, if Tenant does not pay any installment of Base Rent or any Additional Rent when the payment is due, Tenant will pay Landlord interest on the delinquent payment calculated at the Maximum Rate from the date when the payment is due through the date the payment is made. The parties agree that such amounts represent a fair and reasonable estimate of the damages Landlord will incur by reason of such late payment. Such charges will be considered Additional Rent and Landlord’s right to such compensation for the delinquency is in addition to all of Landlord’s rights and remedies under this Lease, at law or in equity. Anything herein to the contrary notwithstanding, the first $100.00 of interest accruing in each calendar year under this Paragraph 2.3 shall be abated.

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2.4 Independent Obligations. Notwithstanding any contrary term or provision of this Lease, Tenant’s covenant and obligation to pay Rent is independent from any of Landlord’s covenants, obligations, warranties or representations in this Lease.

ARTICLE 3

PROPERTY EXPENSES

3.1 Payment of Property Expenses. Tenant will pay, as Additional Rent and in the manner this Article 3 describes, Tenant’s Share of Property Expenses for each calendar year of the Term. Landlord will prorate Tenant’s Share of Property Expenses for the calendar year in which this Lease commences or terminates as of the Rent Commencement Date or termination date, as applicable, on a per diem basis based on the number of days of the Term within such full or partial calendar year.

3.2 Estimation of Tenant’s Share of Property Expenses. Landlord will deliver to Tenant a written estimate of the following for each calendar year of the Term: (a) Property Expenses, (b) Tenant’s Share of Property Expenses and (c) the annual and monthly Additional Rent attributable to Tenant’s Share of Property Expenses. Landlord may re-estimate Property Expenses from time to time during the Term. In such event, Landlord will re-estimate the monthly Additional Rent attributable to Tenant’s Share of Property Expenses to an amount sufficient for Tenant to pay the re-estimated monthly amount over the balance of the calendar year. Landlord will notify Tenant of the re-estimate and Tenant will pay the re-estimated amount in the manner provided in the last sentence of Section 3.3.

3.3 Payment of Estimated Tenant’s Share of Property Expenses. Tenant will pay the amount Landlord estimates as Tenant’s Share of Property Expenses under Section 3.2 in equal monthly installments, in advance, commencing on the Rent Commencement Date and thereafter on the first day of each and every calendar month during the Term. Partial months shall be appropriately prorated. If Landlord has not delivered the estimates to Tenant by the first day of January of the applicable calendar year, Tenant will continue paying Tenant’s Share of Property Expenses based on Landlord’s estimates for the previous calendar year. When Tenant receives Landlord’s estimates for the current calendar year, Tenant will pay the estimated amount for such calendar year (less amounts Tenant paid to Landlord in accordance with the immediately preceding sentence) in equal monthly installments over the balance of such calendar year, with the number of installments being equal to the number of full calendar months remaining in such calendar year.

3.4 Confirmation of Tenant’s Share of Property Expenses. Within 120 days after the end of each calendar year within the Term, Landlord will determine the actual amount of Tenant’s Share of Property Expenses for the expired calendar year and deliver to Tenant a written statement of such amount. If Tenant paid less than the amount of Tenant’s Share of Property Expenses specified in the statement, Tenant will pay the difference to Landlord as Additional Rent in the manner described in Section 2.2. If Tenant paid more than the amount of Tenant’s Share of Property Expenses specified in the statement, Landlord will, at Landlord’s option, either (a) refund the

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excess amount to Tenant if such amount is more than one month’s Base Rent, or (b) if such amount is equal to or less than one month’s Base Rent, credit the excess amount against Tenant’s next due monthly installment or installments of Base Rent. If the Term has expired or has been terminated, Tenant shall pay the balance due to Landlord or, alternatively, Landlord shall refund the surplus to Tenant, whichever the case may be, within 30 days after Tenant’s receipt of Landlord’s Property Expense statement. If Landlord is delayed in delivering such statement to Tenant, such delay does not constitute Landlord’s waiver of Landlord’s rights under this section; provided, however, that in no event shall Tenant be responsible to Landlord under this Paragraph 3.4 for any item which is first invoiced by Landlord more than one(1) year after the date such item is incurred by Landlord.

3.5 Tenant’s Inspection and Audit Rights. Landlord shall keep and maintain reasonably complete, legible and accurate records of the Property Expenses for a period of three (3) years from the date such Property Expenses are incurred. If Tenant desires to audit Landlord’s determination of the actual amount of Tenant’s Share of Property Expenses for any calendar year, Tenant must deliver to Landlord written notice of Tenant’s election to audit within 180 days after Landlord’s delivery of the statement of such amount under Section 3.4. If such notice is timely delivered, then Tenant (but not any subtenant) or its representatives may audit Landlord’s records relating to such amounts. Such audit will take place during regular business hours at a time and place reasonably acceptable to Landlord (which may be the location where Landlord or Property Manager maintains the applicable records). Tenant’s election to audit Landlord’s determination of Tenant’s Share of Property Expenses is deemed withdrawn unless Tenant completes and delivers the audit report to Landlord within 90 days after the date Tenant delivers its notice of election to audit to Landlord under this section. If the audit report shows that the amount Landlord charged Tenant for Tenant’s Share of Property Expenses was greater than the amount this Article 3 obligates Tenant to pay, unless Landlord reasonably contests the audit, Landlord will refund the excess amount to Tenant, together with interest on the excess amount (computed at 10% per annum from the date Tenant delivers its dispute notice to Landlord) within 30 days after Landlord receives a copy of the audit report. If the amount charged pursuant to Landlord’s annual statement exceeds the final amount actually payable by more than 3%, Landlord will pay the cost of Tenant’s audit not to exceed $2,500. If the audit report shows that the amount Landlord charged Tenant for Tenant’s Share of Property Expenses was less than the amount this Article 3 obligates Tenant to pay, Tenant will pay to Landlord, as Additional Rent, the difference between the amount Tenant paid and the amount determined in the audit. Pending resolution of any audit under this section, Tenant will continue to pay to Landlord all estimated amounts of Tenant’s Share of Property Expenses in accordance with Section 3.3. Except for disclosures required by law, Tenant must keep all information it obtains in any audit confidential and may only use such information for the limited purpose this section describes and for Tenant’s own account. If Landlord desires to contest such audit results, Landlord may do so by submitting the results of the audit to arbitration with an arbitrator jointly appointed and compensated (50% each) by Landlord and by Tenant. The decision of the arbitrator shall be binding on the parties.

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3.6 Adjustments. If all of the rentable area of the Building is not occupied at all times during any calendar year pursuant to leases under which the terms and rents have commenced for such calendar year or if the Building has not commenced business operations, Landlord will reasonably and equitably adjust its computation of Property Expenses for that calendar year to include all components of Property Expenses that vary based on occupancy or lack of operation (for example, management fees) in an amount equal to Landlord’s reasonable estimate of the amount Landlord would have paid for such components of Property Expenses had all of the rentable area of the Building been so occupied at all times during such calendar year assuming an average rental rate equal to the average rate under existing leases.

3.7 Personal Property Taxes. Tenant will pay, prior to delinquency, all taxes charged against Tenant’s Personal Property. Tenant will use all reasonable efforts to have Tenant’s Personal Property taxed separately from the Property. If any of Tenant’s Personal Property is taxed with the Property, Tenant will pay the taxes attributable to Tenant’s Personal Property to Landlord as Additional Rent.

3.8 Landlord’s Right to Contest Property Taxes. Landlord may, but is not obligated to, contest the amount or validity, in whole or in part, of any Property Taxes. If Property Taxes are reduced (or if a proposed increase is avoided or reduced) because Property Taxes are contested, Landlord may include in its computation of Property Taxes the reasonable costs and expenses incurred in connection with such contest, including without limitation reasonable attorney’s fees, up to the amount of any Property Tax reduction obtained in connection with the contest or any Property Tax increase avoided or reduced in connection with the contest, as the case may be. Tenant may not contest Property Taxes. Tenant shall be credited with its equitable share of any refund of Property Taxes, using the Tenant’s Share of Property Expenses Percentage, to the extent paid by Tenant and, if applicable, such refund shall be made to Tenant after the term of this Lease.

3.9 Rent Tax. Upon enactment of state or federal or local law requiring payment of a Rent Tax, Tenant will pay to Landlord all Rent Tax due in connection with this Lease or the payment of Rent hereunder, which Rent Tax will be paid by Tenant to Landlord concurrently with each payment of Rent made by Tenant to Landlord under this Lease.

3.10 Management. Landlord will use reasonable commercial effort to cause the Property to be managed in an efficient and prudent manner.

ARTICLE 4

USE

4.1 Permitted Use. Tenant will use the Premises only for the permitted use specified in the Basic Terms and may not use the Premises for any other purposes. Tenant will not use the Property or permit the Premises to be used in violation of any Laws or in any manner that would (a) violate any certificate of occupancy affecting the Property; (b) make void or voidable any insurance now or after the Effective Date in

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force with respect to the Property; (c) cause injury or damage to the Property or to the person or property of any other tenant on the Property; (d) cause substantial diminution in the value or usefulness to Landlord of all or any part of the Property reasonable wear and tear and damage from casualty excepted; or (e) constitute a public or private nuisance or waste. Tenant will obtain and maintain, at Tenant’s sole cost and expense, all permits and approvals required under the Laws for Tenant’s use of the Premises. Tenant shall have exclusive use of the trash enclosure immediately outside the Premises which is to be constructed as part of the Tenant’s Improvements.

4.2 Limitation on Representations and Warranties. Except as otherwise provided in this Lease, Tenant acknowledges that neither Landlord nor any agent, contractor or employee of Landlord has made any representation or warranty of any kind with respect to the Premises, the Building or the Property, specifically including, but not limited to, any representation or warranty of suitability or fitness of the Premises, Building or the Property for any particular purpose.

4.3 Increased Insurance. Tenant will not do or permit to be done on the Premises and/or the Property anything that will (a) increase the premium of any insurance policy Landlord carries covering the Premises or the Property; (b) cause a cancellation of or be in conflict with any such insurance policy; (c) result in any insurance company’s refusal to issue or continue any such insurance in amounts reasonably satisfactory to Landlord; or (d) subject Landlord to any liability or responsibility for injury to any person or property by reason of Tenant’s operations in the Premises or use of the Property. Tenant, at Tenant’s sole cost and expense, will comply with all rules, orders, regulations and requirements of its insurers. Tenant will reimburse Landlord, as Additional Rent, for any additional premium charges for such policy or policies resulting from Tenant’s failure to comply with the provisions of this section.

4.4 Laws/Property Rules. This Lease is subject and subordinate to all Laws. A copy of the current Property Rules is attached to this Lease as EXHIBIT “E.” Upon not less than 30 days prior written notice to Tenant, Landlord may revise the Property Rules from time to time in Landlord’s reasonable discretion provided such Property Rules shall not be enforced more rigorously against Tenant than against other tenants. Revised Property Rules will not materially adversely affect rights granted to Tenant in this Lease.

4.5 Common Area. Subject to the express provisions of this Lease related to parking, Landlord grants Tenant the non-exclusive right, together with all other occupants of the Property and their agents, employees and invitees, to use the Common Area during the Term for the purposes intended, subject to all Laws. Subject to the express provisions of this Lease related to parking, Landlord may, at Landlord’s sole and exclusive discretion, make changes to the Common Area so long as such changes do not materially and adversely impact access to the Premises or the parking rights granted herein. Landlord’s rights regarding the Common Area include, but are not limited to, the right to (a) restrain unauthorized persons from using the Common Area; (b) temporarily close any portion of the Common Area (i) for repairs,

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improvements or Alterations, (ii) to discourage unauthorized use, (iii) to prevent dedication or prescriptive rights, or (iv) for any other reason Landlord deems sufficient in Landlord’s reasonable judgment; (c) change the shape and size of the Common Area; (d) add, eliminate or change the location of any improvements located in the Common Area and construct buildings or other structures in the Common Area; and (e) impose and revise Property Rules concerning use of the Common Area, including without limitation any parking facilities comprising a portion of the Common Area. Except for the provisions herein relating to Property Expenses and subject to the provisions of Article 20, in no event shall Landlord charge either Tenant or its customers, guests, invitees, licensees, permitted subtenants, employees, suppliers or agents for parking.

ARTICLE 5

HAZARDOUS MATERIALS

5.1 Compliance with Hazardous Materials Laws. Tenant will not cause any Hazardous Materials to be brought upon, kept or used on the Property in a manner or for a purpose prohibited by or that could result in liability to Landlord under any Hazardous Materials Law. Tenant, at its sole cost and expense, will comply with all Hazardous Materials Laws. On or before the expiration or earlier termination of this Lease, Tenant, at its sole cost and expense, will completely remove from the Property (regardless of whether any Hazardous Materials Law requires removal), in compliance with all Hazardous Materials Laws, all Hazardous Materials Tenant causes to be present in, on, under or about the Property. Upon Landlord’s written request, Tenant will promptly deliver to Landlord documentation acceptable to Landlord disclosing the nature and quantity of any Hazardous Materials brought upon, kept or used on the Property by or at the direction of Tenant or its agents, employees, or contractors, and evidencing the legal and proper handling, storage and disposal of all Hazardous Materials kept at or removed or to be removed from the Premises and/or the Property. All such documentation will list Tenant or its agent as the responsible party and will not attribute responsibility for any such Hazardous Materials to Landlord or Property Manager. Landlord represents and warrants that as of the date hereof Landlord has no actual knowledge of any Hazardous Materials on the Property or Premises which are required by applicable law to be remediated. Further, Landlord represents to Tenant, as follows, as of the date hereof:

(a)    To Landlord’s actual knowledge, any handling, transportation, storage, treatment or usage of Hazardous Materials that has occurred on the Premises prior to the date of this Lease has been in compliance with all Hazardous Materials Laws and no Release of Hazardous Materials in violation of law has occurred on the Premises prior to the date of this Lease. To Landlord’s knowledge, no Hazardous Materials on the Property or Premises are required by applicable law to be remediated.

(b)    To Landlord’s actual knowledge, there are no underground storage tanks (including, but not limited to, underground storage tanks for the storage of petroleum or petroleum products) at the Premises.

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When any representation herein is to Landlord’s actual knowledge, such representation is limited to the actual knowledge of Tom Shaver and Tony Phelps. Further, any representation made in this Paragraph 5.1 is subject to matters described in that certain Phase I Environmental Report prepared by Landmark Environmental, LLC dated February 28, 2007, and in documents referred to therein.

5.2 Notice of Actions. Tenant will notify Landlord of any of the following actions affecting Landlord, Tenant or the Property that result from or in any way relate to Tenant’s use of the Property immediately after receiving notice of the same: (a) any enforcement, clean-up, removal or other governmental or regulatory action instituted, completed or threatened under any Hazardous Materials Law; (b) any Claims made or threatened by any person relating to damage, contribution, liability, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Material; and (c) any reports, records, letters of inquiry and responses, manifests or other documents made by any person, including Tenant, to or from any environmental agency relating to any Hazardous Material, including any complaints, notices, warnings or asserted violations. Tenant will also deliver to Landlord, as promptly as possible and in any event within five Business Days after Tenant first receives or sends the same, copies of all Claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Tenant’s use of the Premises and/or the Property. Tenant will not take any remedial action in response to the presence of any Hazardous Materials in on, under or about the Property, nor enter into any settlement agreement, consent decree or other compromise with respect to any Claims relating to or in any way connected with Hazardous Materials in, on, under or about the Property, without first notifying Landlord of Tenant’s intention to do so and affording Landlord reasonable opportunity to investigate, appear, intervene and otherwise assert and protect Landlord’s interest in the Property.

5.3 Disclosure and Warning Obligations. Tenant acknowledges and agrees that all reporting and warning obligations required under Hazardous Materials Laws arising from Tenant’s use or occupancy of the Premises or Property are Tenant’s sole responsibility, regardless of whether the Hazardous Materials Laws require Landlord to report or warn.

5.4 Indemnification by Tenant. Tenant will indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and hold harmless the Landlord Parties from and against any and all Claims whatsoever to the extent arising or resulting, in whole or in part, directly or indirectly, from the presence, treatment, storage, transportation, disposal, release or management of Hazardous Materials in, on, under, upon or from the Property (including water tables and atmosphere) to the extent caused by and arising from Tenant’s wrongful act or from Tenant’s use or occupancy of the Premises or Property. Tenant’s obligations under this section include, without limitation and whether foreseeable or unforeseeable, (a) the costs of any required or necessary repair, compliance, investigations, clean-up, monitoring response, detoxification or decontamination of the Property; (b) the costs of implementing any closure, remediation or other required action in connection therewith as stated above; (c) the costs arising out of any loss of use and any diminution in value of the Property and adjacent and

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nearby properties including groundwater; and (d) consultants’ fees, experts’ fees and response costs. The obligations of Tenant under this Article survive the expiration or earlier termination of this Lease.

5.5 Indemnification by Landlord. Landlord will indemnify, protect, defend (with counsel reasonably acceptable to Tenant) and hold harmless the Tenant Parties from and against any and all Claims whatsoever to the extent arising or resulting, directly or indirectly, from the presence, treatment, storage, transportation, disposal, release or management of Hazardous Materials in, on, under, upon or from the Property (including water tables and atmosphere) to the extent caused by and arising from Landlord’s wrongful act. Landlord shall also perform and pay (without reimbursement by Tenant except as to normal Operating Expenses such as expenses to dispose of fluorescent lights) the costs of any required or necessary repair, compliance, investigations, clean-up, monitoring response, detoxification or decontamination of the Property and the costs of implementing any closure, remediation or other required action in connection therewith as stated above, all only to the extent state or federal governmental agencies require Landlord itself to perform the applicable clean-up or response action. The obligations of Landlord under this Article survive the expiration or earlier termination of this Lease.

ARTICLE 6

SERVICES AND UTILITIES

Tenant is solely responsible for contracting for utility services from utility suppliers such as gas, electricity, and telephone services in connection with Tenant’s use and occupancy of the Premises. Except as hereafter provided, Tenant is also solely responsible for paying directly to the applicable service or utility companies, prior to delinquency, all charges of every nature, kind or description for services and utilities furnished to the Premises as contracted for by Tenant or chargeable against the Premises (including, without limitation, charges imposed by any utility or service company as a condition precedent to furnishing or continuing to furnish utilities or services to the Premises) including all charges for heat, gas, light, garbage, trash and rubbish removal, electricity, telecommunications, cable, steam, power, or other public or private utilities and services and any charges or fees for present or future water or sewer capacity to serve the Premises (excluding SAC and WAC for a 30% office fit-up of the Premises but including SAC and WAC, not to exceed $10,500.00 as to the initial Tenant’s Improvements, for fit-up in excess of 30% for the Premises), any charges for the underground installation of gas or other utilities or services, and other charges relating to the extension of or change in the facilities necessary to provide the Premises with above standard utilities and services. Water and sanitary sewer service shall be provided by Landlord and commercially reasonable charges for same shall be “Operating Expenses.” If Tenant uses a disproportionate amount of water/sewer, Landlord may make an equitable allocation of charges for same and Tenant will pay its equitable amount as reasonably determined by Landlord. No interruption in, or temporary stoppage of, any utility or service to the Premises is to be deemed an eviction or disturbance of Tenant’s use and possession of the Premises, nor does any interruption or stoppage relieve

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Tenant from any obligations under this Lease, render Landlord liable for damages or entitle Tenant to any Rent abatement except as set forth below.

Anything in this Lease to the contrary notwithstanding, in the event Landlord is unable to provide any of the utility services required to be maintained by Landlord pursuant to this Lease, and in the event such inability renders the whole or a portion of the Premises untenantable, inaccessible or unsuitable for the purposes intended hereunder for a period of two (2) consecutive days after receipt by Landlord of notice of untenantability, inaccessibility or unsuitability from Tenant, rent for the portion of the Premises rendered untenantable, inaccessible or unsuitable for the purposes intended hereunder shall abate pro rata from and after such second consecutive day until the services are restored to such a condition that the portion of the Premises affected is again rendered tenantable, accessible and suitable. Anything herein to the contrary notwithstanding, there shall be no such abatement of rent if the Landlord’s inability to provide such services is caused by misuse or neglect of Tenant or by inability of energy suppliers which is generally applicable in the vicinity of the Premises.

All electricity and gas used in the Premises and for heat, light and power for the Premises shall be separately metered and paid for directly by Tenant upon receipt of invoice. Cost of the acquisition and installation of separate meters is to be a part of the Tenant’s Improvements. In addition, and in addition to costs of Tenant’s Improvements, Tenant shall be responsible for additional SAC or WAC charges, not to exceed $10,500.00 as to the initial Tenant’s Improvements, payable in connection with Tenant’s fit-up over and above amounts heretofore paid by Landlord for 30% office fit-up for the Premises. Further, the cost of all electricity and gas used in all rentable areas of the Building shall not be included in “Operating Expenses”; provided, however, the cost of all other electricity and gas, including, but not limited to, electricity for common building systems, common building equipment and lighting for common areas, shall be included in “Operating Expenses.” Tenant agrees to refrain from overloading the electrical system designed for the Premises. All electric lighting bulbs and tubes and all ballasts and starters within the Premises shall be replaced by Tenant at the expense of Tenant.

Notwithstanding the foregoing, in the event that a utility to be separately metered is actually metered over an area other than only the Premises, Landlord shall make an appropriate equitable adjustment and Tenant shall pay its share as so equitably and reasonably determined by Landlord. Should any such allocation be or become unfair or unreasonable to Landlord or Tenant by reason of part of the Building which is served by said utility meter being or becoming vacant or by reason of disproportionate use by the applicable tenants or the fact that part of the Building which is served by such meter is being utilized at other than normal business hours or otherwise, Landlord shall reasonably apportion such utility charges to Tenant and to other areas of the Building served through such meter, which apportionment shall then become the basis for charges to be paid by Tenant.

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ARTICLE 7

MAINTENANCE AND REPAIR

7.1 Landlord’s Obligations. Landlord will keep and maintain in good order, condition and repair (and replace as reasonably necessary), reasonable wear and tear excepted, the (a) exterior surfaces of the exterior walls (excluding windows and plate glass) and roof of the Building, (b) structural integrity of the footings, columns, foundation, exterior walls and roof of the Building, and (c) Common Area. Landlord will also perform any repairs or replacements to the Premises or Property necessitated by Casualty, subject to the provisions of Article 11 (Damage and Destruction), and necessitated by a Taking, subject to Article 12 (Eminent Domain). Except in the event of Landlord’s intentional damage to property, and subject to the provisions of Article 11 and Article 12, neither Base Rent nor Additional Rent will be reduced, nor will Landlord be liable, for loss or injury to or interference with Tenant’s property, profits or business arising from or in connection with Landlord’s performance of its obligations under this Section 7.1.

7.2 Tenant’s Obligations.

7.2.1Maintenance of Premises. Except for Landlord’s obligations described in Section 7.1, Tenant, at its sole cost and expense, will keep and maintain the Premises in good, clean, sanitary, neat and fully operative condition and repair, reasonable wear and tear, and Casualty and Taking excepted. Tenant’s obligations under this section include, without limitation, maintenance and repair (including replacements) of all: (a) non-structural interior portions, systems and equipment; (b) interior surfaces of exterior walls; (c) interior moldings, partitions and ceilings; (d) slabs, floors and structural columns (except to the extent not caused by Tenant or its agents, employees, or contractors); (e) windows, plate glass, and doors; and (f) electrical, lighting, mechanical, plumbing, heating and air conditioning systems, facilities, fixtures and components exclusively serving the Premises. Any repairs or replacements performed by Tenant must be at least equal in quality and workmanship to the original work and be in accordance with all Laws. Tenant will at all times and at Tenant’s sole cost and expense keep a preventative maintenance and repair contract in force and effect for the heating, air conditioning and ventilation system exclusively serving the Premises. Such contract (including, without limitation, the schedule and scope of services provided and the identity and capabilities of the contractor) must be acceptable to Landlord in Landlord’s reasonable discretion. Tenant will not commit any nuisance or waste in, on or about the Premises or the Property.

7.2.2Tenant Damage. Except to the extent claims for damages to Landlord’s property have been released, if any Tenant Damage occurs Landlord may, at Landlord’s option and in Landlord’s sole discretion, require Tenant to (a) pay to or reimburse Landlord for the actual reasonable cost of any repairs or replacements necessitated by such Tenant Damage which are performed by Landlord, and/or (b) perform, at Tenant’s sole cost and expense, any repairs or replacements necessitated by such Tenant Damage which are not performed by Landlord. Except to the extent claims for damages to Landlord’s property have been released, Tenant is liable to

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Landlord for all Claims arising from Tenant Damage. “Tenant Damage” means any loss, destruction or damage not insured under Landlord’s insurance policies to the Premises, Property or Landlord’s Personal Property caused by (a) any misuse, abuse, neglect, improper maintenance, or unauthorized modifications or Alterations caused or permitted by Tenant; (b) any negligent, careless, reckless or intentionally wrongful acts, omissions or conduct of Tenant; or (c) any waste or excessive or unreasonable wear and tear caused or permitted by Tenant.

7.2.3Alterations Required by Laws. Except to the extent required herein to be performed by Tenant, Landlord shall comply (at its sole cost and expenses, except to the extent that the same is an Operating Expense) with all Laws applicable to Landlord, the Building and the Common Area. If any governmental authority requires any Alteration to the Property or the Premises as a result of Tenant’s particular use of the Premises or as a result of any Alteration to the Premises made by or on behalf of Tenant or if Tenant’s particular use of the Premises subjects Landlord or the Property to any obligation under any Laws, Tenant will pay the cost of all such Alterations or the cost of compliance, as the case may be. If any such Alterations are Structural Alterations, at Tenant’s sole cost and expense, Landlord will make the Structural Alterations, provided that Landlord may first require Tenant to deposit with Landlord an amount sufficient to pay the cost of the Structural Alterations (including, without limitation, reasonable overhead and administrative costs). If the Alterations are not Structural Alterations, Tenant will make the Alterations at Tenant’s sole cost and expense in accordance with Article 8.

7.2.4Notice to Landlord. If Tenant believes any maintenance or repair Landlord is obligated under Section 7.1 to perform is needed at the Property, Tenant will promptly provide written notice to Landlord specifying in detail the nature and extent of any condition requiring maintenance or repair. Landlord will not be deemed to have failed to perform its obligations under Section 7.1 with respect to any maintenance or repair unless Tenant has provided such timely written notice and Landlord has had a commercially reasonable time within which to respond to such notice and effect the needed maintenance or repair. Notwithstanding the foregoing, Tenant may provide verbal notice in the Event of Emergency.

ARTICLE 8

CHANGES AND ALTERATIONS

8.1 Landlord Approval. Tenant will not make any Structural Alterations. Without limitation to the foregoing, Tenant will not make any other Alterations which cost more than $25,000 in any calendar year or which modify the structural, mechanical, electrical, or fire protection sprinkler systems of the Building without Landlord’s prior written consent, which consent Landlord will not unreasonably withhold or delay. Along with any request for Landlord’s consent, Tenant will deliver to Landlord plans and specifications for the Alterations and names and addresses of all prospective contractors for the Alterations. If Landlord approves the proposed Alterations, Tenant will, before commencing the Alterations or delivering (or accepting delivery of) any materials to be used in connection with the Alterations, deliver to Landlord copies of all

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contracts, certificates of insurance and certified copies of all endorsements for the insurance required by Section 8.2, copies of any contractor safety programs, copies of all necessary permits and licenses and such other information relating to the Alterations as Landlord reasonably requests. Tenant will not commence the Alterations before Landlord has, in Landlord’s reasonable discretion, provided Landlord’s written approval of the foregoing deliveries, which approval Landlord will not unreasonably withhold or delay; provided that Landlord’s approval shall be deemed given if Landlord does not provide its approval or written reasons for withholding approval within thirty (30) days of Tenant’s written request. Tenant will construct all approved Alterations or cause all approved Alterations to be constructed (a) promptly by a contractor reasonably approved by Landlord in writing, (b) in a good and workmanlike manner, (c) in compliance with all Laws, (d) in a manner that will minimize interference with other tenants’ use and enjoyment of the Property, and (e) in full compliance with all of Landlord’s rules and regulations applicable to third party contractors, subcontractors and suppliers performing work at the Property. At the time approval is requested or granted, or upon Tenant’s request as to improvements which do not require Landlord’s consent, as to any specific change or alteration, Landlord shall designate in writing which portion of such change or alteration shall be removed, repaired and restored at termination of this Lease and which portion may be surrendered at termination of this Lease without removal, repair and restoration. All Alterations, including the Tenant’s Improvements contemplated by the Exhibit “H” Plans and Specifications, shall remain as part of the Premises and be surrendered as part of the Premises upon termination of the Lease except and to the extent such Alterations constitute “trade fixtures” under applicable law or are Tenant’s Personal Property or are otherwise required or permitted to be removed. Further, in respect to items as to which no specific written approval is requested or granted, Landlord may require, upon termination of this Lease, the removal (and repair of resulting damage) of any such applicable improvement, alteration, addition or installation installed in the Premises. Notwithstanding the above, the initial Tenant’s Improvements contemplated by the Exhibit “H” Plans and Specifications shall not be removed by Tenant.

8.2 Tenant’s Responsibility for Cost and Insurance. Tenant will pay the cost and expense of all Alterations including, without limitation, if Landlord’s approval is required pursuant to Section 8.1 above, a reasonable charge for Landlord’s review, inspection and engineering time, and for any painting, restoring or repairing of the Premises or the Property necessitated by the Alterations. Prior to commencing any of those Alterations which are permitted only after Landlord’s consent has been obtained, Tenant will deliver the following to Landlord in form and amount reasonably satisfactory to Landlord: (a) evidence reasonably acceptable to Landlord that adequate funds are unconditionally available and dedicated to payment of all costs of the Alterations and reasonable assurance or security that no liens will be filed against the Property in respect thereto, (b) builder’s “all risk” insurance in an amount at least equal to the replacement value of the Alterations, and (c) evidence that Tenant and each of Tenant’s contractors have in force liability insurance insuring against construction related risks in at least the form, amounts and coverages required of Tenant under Article 10, which shall name Landlord, Landlord’s lender (if any) and Property Manager as additional insureds, specifically including completed operations.

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8.3 Construction Obligations and Ownership. Landlord may inspect construction of the Alterations. Immediately after completing the Alterations, Tenant will furnish Landlord with contractor affidavits and full and final lien waivers covering all labor and materials expended and used in connection with the Alterations. Tenant will remove, within 10 days after Landlord’s written request, any Alterations that required Landlord’s approval and which Landlord did not approve and that Tenant constructed in violation of this Article 8. All Alterations Tenant makes or installs (including all telephone, computer, security and other wiring and cabling located within the walls of and outside the Premises, but excluding Tenant’s trade fixtures and Personal Property) become the property of Landlord and a part of the Building immediately upon installation and, unless Landlord requires Tenant to remove the Alterations, Tenant will surrender the Alterations to Landlord upon the expiration or earlier termination of this Lease at no cost to Landlord.

8.4 Liens. Tenant will keep the Property free from any mechanics’, materialmen’s, designers’ or other liens arising out of any work performed, materials furnished or obligations incurred by or for Tenant or any person or entity claiming by, through or under Tenant. Tenant will notify Landlord in writing 20 days prior to commencing any Alterations in order to provide Landlord the opportunity to record and post notices of non-responsibility or such other protective notices available to Landlord under the Laws. If any such liens are filed and Tenant, within 15 days after such filing, does not release the same of record or provide Landlord with a bond or other security satisfactory to Landlord protecting Landlord and the Property against such liens, Landlord may, without waiving its rights and remedies based upon such breach by Tenant and without releasing Tenant from any obligation under this Lease, cause such liens to be released by any means Landlord deems proper, including, but not limited to, paying the claim giving rise to the lien or posting security to cause the discharge of the lien. In such event, Tenant will reimburse Landlord, as Additional Rent, for all amounts Landlord pays (including, without limitation, reasonable attorneys’ fees and costs).

8.5 Indemnification. To the fullest extent allowable under the Laws, Tenant will indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and hold harmless the Landlord Parties and the Property from and against any Claims in any manner relating to or arising out of any Alterations or any other work performed, materials furnished or obligations incurred by or for Tenant or any person or entity claiming by, through or under Tenant.

ARTICLE 9

RIGHTS RESERVED BY LANDLORD

9.1 Landlord’s Entry. Landlord and its authorized representatives may at all reasonable times and upon reasonable advance notice to Tenant enter the Premises to: (a) inspect the Premises; (b) show the Premises to prospective purchasers, mortgagees and tenants; (c) post notices of non-responsibility or other protective notices available under the Laws; or (d) exercise and perform Landlord’s rights and obligations under this Lease. Landlord may in the Event of Emergency enter the Premises without notice to Tenant. Landlord’s entry into the Premises is not to be construed as a forcible or

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unlawful entry into, or detainer of, the Premises or as an eviction of Tenant from all or any part of the Premises. Tenant will also permit Landlord (or its designees) to erect, install, use, maintain, replace and repair pipes, cables, conduits, plumbing and vents, and telephone, electric and other wires or other items, in, to and through the Premises if Landlord determines that such activities are necessary or appropriate for properly operating and maintaining the Building and upon reasonable prior written notice from Landlord. The rights reserved by Landlord pursuant to this Section 9.1 shall be exercised in a manner so as to interfere with Tenant’s use of the Premises as little as reasonably practicable under the circumstances, and, unless such entry is necessitated by an Event of Emergency, Landlord shall use reasonable efforts to coordinate such entry to avoid any such interference.

9.2 Control of Property. Landlord reserves all rights respecting the Property and Premises not specifically granted to Tenant under this Lease, including, without limitation, the right to: (a) change the name or street address of the Building; (b) designate and approve all types of signs, window coverings, internal lighting and other aspects of the Premises and its contents that may be visible from the exterior of the Premises; (c) grant any party the exclusive right to conduct any business or render any service in the Property, provided such exclusive right does not restrict Tenant from any permitted use for which Tenant is then using the Premises; (d) prohibit Tenant from installing vending or dispensing machines of any kind in or about the Premises other than those Tenant installs in the Premises solely for use by Tenant’s employees; (e) subject to the last sentence of Section 9.1 above, install and maintain pipes, ducts, conduits, wires and structural elements in the Premises that serve other parts or other tenants of the Property; and (f) retain and receive master keys or pass keys to the Premises and all doors in the Premises. Notwithstanding the foregoing, Landlord is not responsible for the security of persons or property on or about the Property and Landlord is not and will not be liable in any way whatsoever for any criminal activity or any breach of security on or about the Property. In the event Landlord voluntarily initiates a change to the street address of the Building, Landlord shall provide reasonable advance notice of such street address change and Landlord will pay Tenant’s reasonable out-of-pocket costs to replace its reasonably unutilizable stock of letterhead, business cards, and brochures as of the date of the change not to exceed $2,500.00.

9.3 Right to Cure. Upon the occurrence of an Event of Default, Landlord may, but is not obligated to, perform any such obligation on Tenant’s part without waiving any rights based upon such failure and without releasing Tenant from any obligations hereunder. Tenant must pay to or reimburse Landlord for, as Additional Rent, all expenditures reasonably made and obligations incurred by Landlord pursuant to this section. Such obligations survive the termination or expiration of this Lease.

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ARTICLE 10

INSURANCE

10.1 Tenant’s Insurance. Tenant will at all times during the Term and during any early occupancy period, at Tenant’s sole cost and expense, maintain the insurance this Section 10.1 requires.

10.1.1 Liability Insurance. Tenant will maintain commercial general liability insurance providing coverage at least as broad as the current ISO form on an “occurrence” basis, with minimum limits of $1,000,000 each occurrence and $2,000,000 general aggregate (which may include umbrella coverages). Tenant shall also maintain blanket or umbrella coverage in an amount not less than $5,000,000. Tenant’s liability insurance will (a) name Landlord, Property Manager and the other Landlord Parties as additional insureds with respect to all matters arising out of the occupancy or use of the Premises or Property by Tenant; (b) be primary to any other insurance maintained by the Landlord Parties; and (c) be placed and maintained with companies rated at least “A/VII” by A.M. Best Insurance Service and otherwise reasonably satisfactory to Landlord. If Tenant’s liability insurance is provided under a blanket policy, the above coverage limits must be made specifically applicable to the Premises on a “per location” basis. Tenant will deliver an ACORD Form 27 (or equivalent) certificate or other evidence of insurance satisfactory to Landlord (i) prior to any use or occupancy of the Premises by Tenant, (ii) not later than 10 days prior to the expiration of any current policy or certificate, and (iii) at such other times as Landlord may reasonably request.

10.1.2 Property Insurance. Tenant is not required by this Lease to maintain property insurance. Accordingly, Tenant’s Personal Property is located at the Property at Tenant’s sole risk, and except for Tenant’s Unreleased Casualty Claims, Landlord is not liable for any Casualty to such property or for any other damage, theft, misappropriation or loss of such property. Tenant is solely responsible for providing such insurance as Tenant may desire for the protection of Tenant, its employees and invitees against any injury, loss, or damage to property occurring in the Premises or at the Property, including, without limitation, any loss of business or profits from any Casualty or other occurrence at the Property. Tenant is also solely responsible for obtaining any insurance or other protection Tenant may desire with respect to any Tenant Damage or Landlord’s Unreleased Casualty Claims for which Tenant may be held responsible as provided elsewhere in this Lease.

10.1.3 Other Insurance. If insurance obligations generally required under new leases of tenants in similar space in similar buildings in the area in which the Premises is located increase or otherwise change, Landlord, in its reasonable discretion, may similarly change Tenant’s insurance obligations under this Lease.

10.2 Landlord’s Insurance Obligations. Landlord will at all times during the Term maintain the insurance this Section 10.2 requires.

10.2.1 Property Insurance. Landlord will maintain insurance on the Property providing coverage comparable to that provided by a standard ISO special

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causes of loss form property insurance policy in an amount not less than the full replacement cost of the Building (less foundation, grading and excavation costs). Landlord may, at its option, obtain such commercially reasonable additional coverages or endorsements as Landlord deems appropriate or necessary, including, without limitation, insurance covering foundation, grading, excavation and debris removal costs; business income and rent loss insurance; boiler and machinery insurance; ordinance or laws coverage; earthquake insurance; flood insurance; and other coverages. Landlord may maintain such insurance in whole or in part under blanket policies. Such insurance will cover the Tenant’s Improvements installed in the Building but will not cover or be applicable to any of Tenant’s Personal Property.

10.2.2 Liability Insurance. Landlord will maintain commercial general liability insurance for bodily injury, personal injury, and property damage occurring at the Property with limits of $5,000,000 per occurrence and $5,000,000 aggregate. Such liability insurance will protect only Landlord and, at Landlord’s option, Landlord’s lender and some or all of the Landlord Parties, and does not protect Tenant or replace or supplement the liability insurance this Lease obligates Tenant to carry.

10.3 Waivers and Releases of Claims and Subrogation.

10.3.1 Tenant’s Waiver and Release. To the fullest extent allowable under the Laws, and except for Tenant’s Unreleased Casualty Claims, Tenant, on behalf of Tenant and its insurers, waives, releases and discharges the Landlord Parties and any predecessor holder of Landlord’s interest in this Lease from all Claims arising out of any Casualty to the Premises, Property or Tenant’s property, and from any resulting loss of use or business interruption, regardless whether such Casualty or loss of use or business interruption is caused by the negligent acts, omissions or misconduct of any person or entity (including Landlord or Tenant). Tenant will look only to any insurance coverage Tenant may elect to maintain (regardless whether Tenant actually obtains any such coverage or whether such coverage is sufficient) with respect to the Claims Tenant is waiving, releasing and discharging under this Section 10.3.1. Any property insurance Tenant maintains must permit or include a waiver of subrogation in favor of Landlord consistent with the provisions of this Section 10.3.1.

10.3.2 Landlord’s Waiver and Release. To the fullest extent allowable under the Laws, and except for Landlord’s Unreleased Casualty Claims, Landlord, on behalf of Landlord and its insurers, waives, releases and discharges the Tenant Parties from all Claims arising out of any Casualty to the Premises, Property or Landlord’s Personal Property, and any resulting loss of use or business interruption, regardless whether such Casualty or loss of use or business interruption is caused by the negligent acts, omissions or misconduct of any person or entity (including Landlord or Tenant). Landlord will look only to any insurance coverage Landlord may elect to maintain (regardless whether Landlord actually obtains any such coverage or whether such coverage is sufficient) with respect to the Claims Landlord is waiving, releasing and discharging under this Section 10.3.2. Any property insurance Landlord maintains must permit or include a waiver of subrogation in favor of Tenant consistent with the provisions of this Section 10.3.2.

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10.3.3 Limitation on Waivers of Claims. The provisions of Sections 10.3.1 and 10.3.2 do not apply to or limit the rights and obligations of Landlord and Tenant under Article 5 (Hazardous Materials), Article 7 (Maintenance and Repair), or Article 11 (Damage and Destruction) of this Lease. Further, the provisions of Sections 10.3.1 and 10.3.2 apply only with respect to the Landlord Parties and the Tenant Parties and do not limit or waive, release or discharge any Claims that either Landlord or Tenant may have against any other “third-party” person or entity which is not a Landlord Party or a Tenant Party arising from any Casualty to the Premises, Property, Tenant’s Personal Property or Landlord’s Personal Property caused by any such third party.

10.4 Tenant’s Failure to Insure. If Tenant fails to provide Landlord with evidence of insurance as required under Section 10.1, and if such failure is not cured by Tenant within five days of Landlord’s request therefor, Landlord may, but is not obligated to, obtain such insurance for Landlord’s benefit without waiving or releasing Tenant from any obligation contained in or default under this Lease. Tenant will pay to Landlord, as Additional Rent, all costs and expenses Landlord reasonably incurs in obtaining such insurance.

10.5 No Limitation. Landlord’s establishment of minimum liability insurance requirements for Tenant in this Lease is not a representation by Landlord that such limits are sufficient and does not limit Tenant’s liability under this Lease in any manner.

10.6 Tenant’s and Landlord’s Indemnifications. Subject to the releases provided for herein, Tenant agrees to indemnify and save Landlord and its managing agent harmless against and from any and all third party (other than Landlord’s affiliates other than an affiliated managing agent) claims, loss, damage and expense arising out of bodily injury or property damage by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from any loss or damage to property of third parties brought onto the Property by Tenant or located in the Premises and under Tenant’s care, custody, and control and arising from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed, pursuant to the terms of this Lease, or arising from any act or negligence on the part of Tenant or its agents, contractors, or employees, or arising from any accident, injury or damage, all to the extent caused by Tenant, or its contractors, agents and employees to any person, firm or corporation occurring during the term of this Lease or any renewal thereof, in or about the Premises and Property, and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in or about any such claim or action or proceeding brought thereon; and in case any action or proceeding be brought against Landlord or its managing agent by reason of any such claim, Tenant, upon notice from Landlord, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to Landlord.

Subject to the releases provided for herein, Landlord agrees to indemnify and save the Tenant Parties harmless against and from any and all third party (other than Tenant’s affiliates) claims, loss, damage or expense arising out of bodily injury or property damage by or on behalf of any person or persons, firm or firms, corporation or corporations, other than Tenant or its affiliates, subtenants, assigns, contractors, or

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employees, arising from any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to be performed, pursuant to the terms of this Lease, or arising from any act or negligence or misconduct on the part of Landlord or its agents, employees, servants or contractors, or arising from any accident, injury or damage, all to the extent caused by Landlord, its agents and employees to any person, firm or corporation occurring during the term of this Lease or any renewal thereof, in or about the Premises and Property, and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in or about any such claim or action or proceeding brought thereon; and in case any action or proceeding be brought against Tenant by reason of any such claim, Landlord, upon notice from Tenant, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to Tenant.

ARTICLE 11

DAMAGE OR DESTRUCTION

11.1 Tenantable Within 150 Days. If any Casualty renders the whole or any material part of the Premises untenantable and Landlord determines (in Landlord’s reasonable discretion) that Landlord can make the Premises tenantable within 150 days after the date of the Casualty, then Landlord will notify Tenant of such determination within 30 days after the date of the Casualty. Landlord’s notice will specify the anticipated date the Premises would be made tenantable. If, based upon such anticipated date, the repairs will take longer than 30 days and less than 12 months will remain in the Term upon completion, either Landlord or Tenant may elect to terminate this Lease by notifying the other within 15 days after the date of Landlord’s notice, which termination will be effective immediately after the date of such notice of termination; provided, however, that if Landlord notifies Tenant of Landlord’s decision to terminate this Lease under the immediately preceding sentence in the last 12 months of the initial Term or the first Renewal Term, Landlord’s termination notice shall void if, within 10 days of receipt of the termination notice, and, if Tenant then has remaining rights to exercise an option to extend the term of this Lease, Tenant properly exercises the next available option to extend. Anything herein to the contrary notwithstanding, in the event Landlord shall proceed to repair and restore the Premises as above provided by reason of the fact that the Premises were expected to be made tenantable within such one hundred fifty (150) day period, and in the event Landlord fails to substantially complete its required repair and restoration of the Premises so as to make the Premises tenantable within the date one hundred fifty (150) days from the date of the said damage or destruction (such date to be extended for Force Majeure delays not to exceed an additional 90 days), then Tenant shall have the option to terminate this Lease provided Tenant gives Landlord notice of such termination not less than five (5) days subsequent to the expiration of said one hundred fifty (150) day period (plus such period not to exceed 90 days as may be attributable to Force Majeure delays) and before Landlord substantially completes such obligations to repair and restore the Premises. Notwithstanding the above, in the event Landlord notifies Tenant, in writing, that Landlord is unable to substantially complete the required repairs and restoration within such required time, Tenant shall have no option to terminate this Lease unless Tenant notifies Landlord, in writing, of such termination within ten (10) days of Landlord’s notice to Tenant.

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11.2 Not Tenantable Within 150 Days. If any Casualty renders the whole or any material part of the Premises untenantable and Landlord determines (in Landlord’s reasonable discretion) that Landlord cannot make the Premises tenantable within 150 days after the date of the Casualty, then Landlord will notify Tenant of such determination (including the anticipated date of restoration) within 30 days after the date of the Casualty. Landlord may, in such notice, terminate this Lease effective on the date 30 days after the date of Landlord’s notice. If Landlord does not so terminate this Lease, and provided the Casualty was not caused by Tenant, Tenant may terminate this Lease by notifying Landlord within 15 days after the date of Landlord’s notice, which termination will be effective 60 days after the date of Tenant’s notice.

11.3 Property Substantially Damaged. If the Property is damaged or destroyed by any Casualty (regardless of whether the Premises is affected) and the damage reduces the value of the improvements on the Property by more than 50% (as Landlord reasonably determines value before and after the Casualty), then notwithstanding anything to the contrary in Sections 11.1 and 11.2, Landlord may, at Landlord’s option, by notifying Tenant within 60 days after the Casualty, terminate this Lease effective on the date 60 days after the date of Landlord’s notice.

11.4 Insufficient Proceeds. If Landlord does not receive sufficient insurance proceeds (excluding the amount of any policy deductible and insufficient proceeds resulting from Landlord’s failure to maintain the insurance required under Section 10.2.1) to repair all damage to the Premises or the Property caused by any Casualty, or if Landlord’s lender does not allow Landlord to use sufficient proceeds to repair all such damage, then notwithstanding anything to the contrary in Sections 11.1, 11.2 and 11.3, Landlord may, at Landlord’s option, by notifying Tenant within 60 days after the Casualty, terminate this Lease effective on the date 60 days after the date of Landlord’s notice.

11.5 Landlord’s Repair; Rent Abatement. If this Lease is not terminated under Sections 11.1 through 11.4 following any Casualty, then Landlord will repair and restore the Premises and the Property to as near their condition prior to the Casualty as is reasonably possible with all commercially reasonable diligence and speed (subject to Landlord’s rights under Section 7.2.2 with respect to Tenant Damage). Base Rent and Tenant’s Share of Property Expenses for any period during which the Premises are untenantable as a result of the Casualty will be abated on a per diem basis; provided that if only a portion of the Premises is untenantable as reasonably determined by Tenant, then any such abatement will be pro rata (based upon the rentable area of the untenantable portion of the Premises from time to time as compared with the rentable area of the entire Premises) and Tenant will continue to pay Rent for any portion of the Premises which is tenantable if and only if it is commercially reasonable for Tenant to operate within the remainder of the Premises under the circumstances. In no event is Landlord obligated to repair or restore any Alterations that have not been previously disclosed to and approved by Landlord, any special equipment or fixtures installed by Tenant comprising Tenant’s Personal Property, or any other Tenant’s Personal Property or any property that Tenant is required to or permitted to remove upon termination of this Lease. Landlord will, if necessary, equitably adjust Tenant’s Share of Property

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Expenses Percentage to account for any reduction in the rentable area of the Premises or Building resulting from a Casualty.

11.6 Rent Abatement if Lease Terminates. If this Lease is terminated under any of Sections 11.1 through 11.4 following any Casualty, then Base Rent and Tenant’s Share of Property Expenses for any period during which the Premises are untenantable as a result of the Casualty will be abated on a per diem basis; provided that if only a portion of the Premises is untenantable and it is commercially reasonable for Tenant to operate within the remainder of the Premises under the circumstances, then any such abatement will be pro rata (based upon the fair rental value of the untenantable portion of the Premises from time to time as compared with the fair rental value of the entire Premises) and Tenant will continue to pay Rent for any portion of the Premises which is tenantable until this Lease terminates.

11.7 Exclusive Casualty Remedy. The provisions of this Article 11 are Tenant’s sole and exclusive rights and remedies in the event of a Casualty. To the extent permitted by the Laws, Tenant waives the benefits of any Law that provides Tenant any abatement or termination rights (by virtue of a Casualty) not specifically described in this Article 11.

11.8 Notice to Landlord. If any Casualty to any portion of the Premises or Property occurs, Tenant will immediately provide written notice of such Casualty to Landlord. None of the obligations of Landlord under this Article 11 will be deemed to have arisen unless and until Landlord has received actual notice that the Casualty has occurred and has had a commercially reasonable time within which to respond to such notice. Tenant is liable to Landlord for any uninsured loss or other Claims Landlord incurs if (a) Tenant fails to timely report any Casualty to the Premises or (to the extent Tenant has actual knowledge thereof) the Property or Landlord’s Personal Property to Landlord, (b) neither Landlord nor Landlord’s property manager nor any of their employees responsible for the operation and maintenance of the Property have actual knowledge of such Casualty, and (c) Tenant’s failure to report such Casualty to Landlord results in Landlord’s property insurance carrier refusing to cover all or any portion of the loss.

ARTICLE 12

EMINENT DOMAIN

12.1 Termination of Lease. If a Condemning Authority desires to effect a Taking of all or any material part of the Property, Landlord will notify Tenant and Landlord and Tenant will reasonably determine whether the Taking will render the Premises unsuitable for Tenant’s intended purposes or have a material adverse effect on access or parking rights of Tenant granted herein. If Landlord and Tenant conclude that the Taking will render the Premises unsuitable for Tenant’s intended purposes or have a material adverse effect on access or parking rights of Tenant granted herein, Landlord and Tenant will document such determination and this Lease will terminate as of the date the Condemning Authority takes possession of the portion of the Property taken. Tenant will pay Rent to the date of termination. If a Condemning Authority takes

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all or any material part of the Building or if a Taking reduces the value of the Property by 50% or more (as reasonably determined by Landlord), regardless of whether the Premises is affected and regardless whether the Taking will render the Premises unsuitable for Tenant’s intended purposes, then Landlord, at Landlord’s option, by notifying Tenant prior to the date the Condemning Authority takes possession of the portion of the Property taken, may terminate this Lease effective on the date the Condemning Authority takes possession of the portion of the Property taken.

12.2 Landlord’s Repair Obligations. If this Lease does not terminate with respect to the entire Premises under Section 12.1 and the Taking includes a portion of the Premises, this Lease automatically terminates as to the portion of the Premises taken as of the date the Condemning Authority takes possession of the portion taken and Landlord will, at its sole cost and expense, restore the remaining portion of the Premises to a complete architectural unit with all commercially reasonable diligence and speed and will reduce the Base Rent for the period after the date the Condemning Authority takes possession of the portion of the Premises taken to a sum equal to the product of the Base Rent provided for in this Lease multiplied by a fraction, the numerator of which is the fair rental value of the Premises after the Taking and after Landlord restores the Premises to a complete architectural unit, and the denominator of which is the fair rental value of the Premises prior to the Taking. Landlord will also equitably adjust Tenant’s Share of Property Expenses Percentage for the same period to account for the reduction in the rentable area of the Premises or the Building resulting from the Taking. Tenant’s obligation to pay Base Rent and Tenant’s Share of Property Expenses will abate on a proportionate basis with respect to that portion of the Premises remaining after the Taking that Tenant is unable to use during Landlord’s restoration for the period of time that it is impractical for Tenant to use such portion of the Premises.

12.3 Tenant’s Participation. Landlord is entitled to receive and keep all damages, awards or payments resulting from or paid on account of a Taking. Accordingly, Tenant waives and assigns to Landlord any interest of Tenant in any such damages, awards or payments. Tenant may receive a separate award for damages to or Taking of Tenant’s Personal Property and for moving expenses and other damages compensable to a tenant by the condemning authority under Minnesota law; provided however, that Tenant has no right to receive any award for its interest in this Lease or for loss of leasehold nor any right to receive anything which would prevent Landlord from receiving any awards Landlord would be entitled to receive absent Tenant’s claim.

12.4 Exclusive Taking Remedy. The provisions of this Article 12 are Tenant’s sole and exclusive rights and remedies in the event of a Taking. To the extent permitted by the Laws, Tenant waives the benefits of any Law, that provides Tenant any abatement or termination rights or any right to receive any payment or award (by virtue of a Taking) not specifically described in this Article 12.

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ARTICLE 13

TRANSFERS

13.1 Restriction on Transfers. Tenant will not cause or allow a Transfer without obtaining Landlord’s prior written consent. Landlord may grant or withhold consent in Landlord’s reasonable discretion. Landlord may also, at Landlord’s option by notifying Tenant, recapture any portion of the Premises that would be affected by such Transfer; provided that Landlord shall not be entitled to recapture the Premises in connection with a Transfer to an Affiliate. Tenant’s request for consent to a Transfer must describe in detail the parties, terms, portion of the Premises, and other circumstances involved in the proposed Transfer. Landlord will notify Tenant of Landlord’s election to consent, withhold consent and/or recapture within 10 business days of Landlord’s receipt of such a written request for consent to the Transfer from Tenant, and if Landlord fails to provide such written notice within such 10 business day period, the proposed Transfer shall be deemed approved. Tenant will provide Landlord with any additional information Landlord reasonably requests regarding the proposed Transfer or the proposed Transferee. Landlord may condition its consent to the Transfer on such conditions as Landlord, in its reasonable discretion, deems appropriate. No Transfer releases Tenant from any liability or obligation under this Lease and Tenant remains liable to Landlord after such a Transfer as a principal and not as a surety. If Landlord consents to any Transfer, Tenant will pay to Landlord, as Additional Rent, 50% of any amount Tenant receives on account of the Transfer (net of Tenant’s reasonable, documented out-of-pocket leasing costs and commissions incurred in connection with the Transfer, including but not limited to alterations performed in connection with such leasing and any inducements paid to or on behalf of the Transferee) in excess of the amounts this Lease otherwise requires Tenant to pay. Any attempted Transfer in violation of this Lease is null and void and constitutes an Event of Default under this Lease.

13.2 Costs. Tenant will pay to Landlord, as Additional Rent, all costs and expenses Landlord incurs in connection with any Transfer requiring Landlord’s consent, including, without limitation, reasonable attorneys’ fees and costs, regardless whether Landlord consents to the Transfer, not to exceed $1,000.

13.3 Landlord’s Consent Standards. For purposes of Section 13.1 and in addition to any other reasonable grounds for denial, Landlord’s consent to a Transfer will be deemed reasonably withheld if, in Landlord’s good faith judgment, any one or more of the following apply: (a) the proposed transferee does not have the financial strength to perform the Tenant’s obligations under this Lease; (b) the business and operations of the proposed transferee are not of comparable quality to the business and operations being conducted by other tenants in the Building; (c) either the proposed transferee, or any Affiliate of the proposed transferee, occupies or is negotiating with Landlord to lease space in the Building as to Landlord’s available space within the Building; (d) the proposed transferee’s business reputation does not meet the standards imposed on other tenants and prospective tenants for the Building; (e) the use of the Premises by the proposed transferee would, in Landlord’s reasonable judgment, materially impact the Building or the Property in a negative manner; (f) if the subject

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space is only a portion of the Premises and the physical subdivision of such portion is, or would render the Premises, not regular in shape with appropriate means of ingress and egress and facilities suitable for normal renting purposes, or is otherwise not readily divisible from the Premises; (g) the Transfer would require Alteration to the Building or the Property to comply with applicable Laws; (h) the transferee is a government (or agency or instrumentality thereof) whose operations at the Property would involve traffic of the general public materially in excess of that generated by normal non-governmental office/warehouse use; or (i) an Event of Default exists under this Lease at the time Tenant requests consent to the proposed Transfer.

13.4 Transfers to Affiliates. Provided that no Event of Default exists under this Lease, Tenant may (subject to the other conditions on transfer herein, but without Landlord’s consent), assign or sublet all or a portion of this Lease or the Premises to an Affiliate if (a) Tenant notifies Landlord (if such notice is not prohibited by applicable securities laws in Tenant’s counsel’s reasonable judgment, or by contract) at least 20 days prior to such Transfer and, in any event, prior to such transfer; (b) the transferee assumes and agrees in a writing reasonably acceptable to Landlord to perform Tenant’s obligations under this Lease and to observe all terms and conditions of this Lease; and, if the entity is not a U.S. entity, (c) agrees, in form and substance reasonably acceptable to Landlord, to submit to service of process in Minnesota and to the jurisdiction of state and federal courts in Minnesota. A Transfer to an Affiliate does not release Tenant from any liability or obligation under this Lease. Landlord’s rights under Section 13.1 to share in any profit Tenant receives from a Transfer do not apply to any Transfer this Section 13.4 permits.

ARTICLE 14

DEFAULTS; REMEDIES

14.1 Events of Default. The occurrence of any of the following constitutes an “Event of Default” by Tenant under this Lease. Landlord and Tenant agree that the notices required by this Section 14.1 are intended to satisfy any and all notice requirements imposed by the Laws and are not in addition to any such requirements.

14.1.1 Failure to Pay Rent. Tenant fails to pay Base Rent, any monthly installment of Tenant’s Share of Property Expenses or any other Additional Rent amount as and when due and such failure is not cured within five days after Landlord notifies Tenant in writing of Tenant’s failure to pay Rent when due.

14.1.2 Failure to Perform. Tenant breaches or fails to perform any of Tenant’s non-monetary obligations under this Lease and such breach or failure is not cured within 30 days after Landlord notifies Tenant of Tenant’s breach or failure; provided that if Tenant is not able through the use of commercially reasonable efforts to cure such breach or failure within a 30 day period, Tenant’s breach or failure is not an Event of Default if Tenant commences to cure such breach or failure within the 30 day period and thereafter diligently pursues the cure and effects the cure within a period of time that does not exceed an additional 90 days after the expiration of the initial 30 day period (subject to reasonable extension for causes [other than lack of funds] beyond

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Tenant’s reasonable control, so long as Tenant is using all reasonable diligence to cure). Notwithstanding the foregoing, Tenant is not entitled to any cure period before a breach or failure of this Lease becomes an Event of Default if either (a) the same breach or failure has previously occurred at least two times during the prior 12 months, or (b) the breach or failure cannot be cured by Tenant.

14.1.3 Misrepresentation. The existence of any willful and material misrepresentation or omission in any written statements, correspondence or other information provided to Landlord by Tenant or any Guarantor in connection with (a) Tenant’s negotiation or execution of this Lease; (b) Landlord’s evaluation of Tenant as a prospective tenant at the Property; (c) any proposed or attempted Transfer; or (d) any consent or approval Tenant requests under this Lease.

14.1.4 Other Defaults. The occurrence of any one or more of the following: (a) Tenant’s filing of a petition under any chapter of the Bankruptcy Code, or under any federal, state or foreign bankruptcy or insolvency statute now existing or hereafter enacted, or Tenant’s making a general assignment or general arrangement for the benefit of creditors; (b) the filing of an involuntary petition under any chapter of the Bankruptcy Code, or under any federal, state or foreign bankruptcy or insolvency statute now existing or hereafter enacted, or the filing of a petition for adjudication of bankruptcy or for reorganization or rearrangement, by or against Tenant and such filing not being dismissed within 60 days; (c) the entry of an order for relief under any chapter of the Bankruptcy Code, or under any federal, state or foreign bankruptcy or insolvency statute now existing or hereafter enacted and such order not being dismissed within 60 days; (d) the appointment of a “custodian,” as such term is defined in the Bankruptcy Code (or of an equivalent thereto under any federal, state or foreign bankruptcy or insolvency statute now existing or hereafter enacted), for Tenant, or the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets (or Tenant’s assets located at the Premises) or of Tenant’s interest in this Lease and such appointment not being dismissed within 60 days; or (e) the subjection of all or substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease to attachment, execution or other judicial seizure. If a court of competent jurisdiction determines that any act described in this Section 14.1.4 does not constitute an Event of Default, and the court appoints a trustee to take possession of the Premises (or if Tenant remains a debtor in possession of the Premises) and such trustee or Tenant Transfers Tenant’s interest hereunder, then Landlord is entitled to receive the same amount of Additional Rent as Landlord would be entitled to receive if such a Transfer had occurred pursuant to Section 13.1.

14.2 Remedies. Upon the occurrence of any Event of Default, Landlord may at any time and from time to time, without notice or demand and without preventing Landlord from exercising any other right or remedy, exercise any one or more of the following remedies:

14.2.1 Termination of Tenant’s Possession/Re-entry and Reletting Right. Terminate Tenant’s right to possess the Premises by any lawful means with or without terminating this Lease, in which event Tenant will immediately surrender

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possession of the Premises to Landlord. In such event, this Lease continues in full force and effect (except for Tenant’s right to possess the Premises) and Tenant continues to be obligated for and must pay all Rent as and when due under this Lease. Unless Landlord specifically states that it is terminating this Lease, Landlord’s termination of Tenant’s right to possess the Premises is not to be construed as an election by Landlord to terminate this Lease or Tenant’s obligations and liabilities under this Lease. If Landlord terminates Tenant’s right to possess the Premises, Landlord is not obligated to, but may re-enter the Premises and remove all persons and property from the Premises. Landlord may store any property Landlord removes from the Premises in a public warehouse or elsewhere at the cost and for the account of Tenant, and if Tenant fails to pay the storage charges therefor Landlord may deem such property abandoned and cause such property to be sold or otherwise disposed of without further obligation or any accounting to Tenant. Upon such re-entry, Landlord is not obligated to, but may relet all or any part of the Premises to a third party or parties for Tenant’s account. Tenant is immediately liable to Landlord for all Re-entry Costs and must pay Landlord the same within five days after Landlord’s notice to Tenant. Landlord may relet the Premises for a period shorter or longer than the remaining Term. If Landlord relets all or any part of the Premises, Tenant remains obligated to pay all Rent when due under this Lease; provided that Landlord will, on a monthly basis, credit any Net Rent received for the current month against Tenant’s Rent obligation for the next succeeding month. If the Net Rent received for any month exceeds Tenant’s Rent obligation for the succeeding month, Landlord shall credit the same against Tenant’s remaining obligations under this Lease and retain the surplus.

14.2.2 Termination of Lease. Terminate this Lease effective on the date Landlord specifies in Landlord’s notice to Tenant. Upon termination, Tenant will immediately surrender possession and right to possession of the Premises to Landlord as provided in Article 16. If Landlord terminates this Lease, Landlord may recover from Tenant and Tenant will pay to Landlord on demand all damages Landlord incurs by reason of Tenant’s default, including, without limitation, (a) all Rent due and payable under this Lease as of the effective date of the termination; (b) any amount necessary to compensate Landlord for any detriment proximately caused Landlord by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course would likely result from Tenant’s failure to perform, including, but not limited to, any Re-entry Costs; (c) an amount equal to the amount by which (i) the present worth, as of the effective date of the termination, of the Base Rent and all other charges payable by Tenant under the terms of this Lease for the balance of the Term remaining after the effective date of the termination (assuming no termination) exceeds (ii) the present worth, as of the effective date of the termination, of a fair market Base Rent and other charges payable by a tenant for the Premises for the same period. For purposes of this section, Landlord will compute present worth by utilizing a discount rate of 6% per annum. Nothing in this section limits or prejudices Landlord’s right to prove and obtain damages in an amount equal to the maximum amount allowed by the Laws, regardless whether such damages are greater than the amounts set forth in this section.

14.2.3 Present Worth of Rent. Recover from Tenant, and Tenant will pay to Landlord on demand, an amount equal to the sum of (a) all Rent past due (together

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with interest thereon at the Maximum Rate), plus (b) the then present worth, as of the date of such recovery, of the aggregate of the Rent and any other charges payable by Tenant under this Lease for the then-unexpired portion of the Term less the present worth, as of the effective date of the termination, of a fair market Rent and other charges payable by a tenant for the Premises for the same period. Landlord will employ a discount rate of 6% per annum to compute present worth.

14.2.4 Other Remedies. Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Property is located. All rights and remedies of Landlord under this Lease are cumulative and the exercise of any one or more remedies at any time or from time to time does not limit or preclude the further exercise by Landlord of the same or any other rights or remedies at any time or from time to time.

14.3 Costs. Tenant will reimburse and compensate Landlord on demand and as Additional Rent for any actual loss Landlord reasonably incurs in connection with, resulting from or related to any breach or default of Tenant under this Lease, regardless of whether the breach or default constitutes an Event of Default, and regardless of whether suit is commenced or judgment is entered. Such loss includes all reasonable legal fees, costs and expenses (including paralegal fees, expert fees, and other professional fees and expenses) Landlord incurs investigating, negotiating, settling or enforcing any of Landlord’s rights or remedies or otherwise protecting Landlord’s interests under this Lease. In addition to the foregoing, Landlord is entitled to reimbursement of all of Landlord’s fees, expenses and damages, including, but not limited to, reasonable attorneys’ fees and paralegal and other professional fees and expenses, Landlord incurs in connection with any bankruptcy or insolvency proceeding involving Tenant including, without limitation, any proceeding under any chapter of the Bankruptcy Code; by exercising and advocating rights under Section 365 of the Bankruptcy Code; by proposing a plan of reorganization and objecting to competing plans; and by filing motions for relief from stay. Such fees and expenses are payable on demand, or, in any event, upon assumption or rejection of this Lease in bankruptcy.

14.4 Waiver and Release by Tenant. Tenant waives and releases all Claims Tenant may have resulting from Landlord’s re-entry and taking possession of the Premises by any lawful means and removing, storing or disposing of Tenant’s property as permitted under this Lease, regardless of whether this Lease is terminated and, to the fullest extent allowable under the Laws, Tenant releases and will indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and hold harmless the Landlord Parties from and against any and all Claims arising therefrom. No such reentry is to be considered or construed as a forcible entry by Landlord.

14.5 Landlord’s Default. Landlord will not be in default under this Lease unless Landlord breaches or fails to perform any of Landlord’s obligations under this Lease and the breach or failure continues for a period of 30 days after Tenant notifies Landlord in writing of Landlord’s breach or failure; provided that if Landlord is not able through the use of commercially reasonable efforts to cure the breach or failure within such 30 day period, Landlord’s breach or failure is not a default as long as Landlord

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commences to cure its breach or failure within the 30 day period and thereafter diligently pursues the cure to completion. Notwithstanding anything contained in this Lease to the contrary relating to the obligation of Landlord to perform maintenance or to make repairs to the Premises, in the event Landlord fails to commence to make and diligently proceed with repairs to the Premises which are Landlord’s responsibility herein (and which Landlord is required to do) within a reasonable time after notice (and no notice in the event of emergency) by Tenant under the circumstances, but only if in connection therewith Tenant’s property is under material threat of damage or if the conduct of Tenant’s business operations at the Premises is being materially adversely affected, Tenant may, at its option, upon telephonic or written notice to Landlord, make the necessary repairs so as to avoid such threat of damage to Tenant’s Property and in such event Tenant shall invoice Landlord for the reasonable costs thereof and Landlord shall reimburse Tenant (subject to reimbursement pursuant to the provisions herein relating to Operating Expenses) therefor within thirty (30) days of presentation of invoice and copies of all bills and invoices in connection therewith. If Landlord fails to make such reimbursement as above required, Tenant may offset against rents the amounts due and payable by Landlord to Tenant pursuant to this paragraph (not to exceed 20% of Base Rent in any one month). Nothing herein shall require Landlord to make repairs or pay for repairs done by Tenant (other than emergency repairs to protect life or property), if the threat to Tenant’s Property or the material adverse affect on Tenant’s business operations arises out of casualty or condemnation and Landlord is in the process of making a decision as to whether to repair or terminate the Lease as allowed under the terms of this Lease.

14.6 No Waiver. No failure by either Landlord or Tenant to insist upon the performance of any provision of this Lease or to exercise any right or remedy upon a breach or default thereof constitutes a wavier of any such breach or default. Any such waiver may be made only by a writing signed by the party providing the waiver. One or more waivers by a party is not to be construed as a wavier by that party of a subsequent breach or default of the same provision.

ARTICLE 15

CREDITORS; ESTOPPEL CERTIFICATES

15.1 Subordination. This Lease, all rights of Tenant in this Lease, and all interest or estate of Tenant in the Property, is subject and subordinate to the lien of any Mortgage. Tenant will, on Landlord’s demand, execute and deliver to Landlord or to any other person Landlord designates any instruments, releases or other documents reasonably required to confirm the self-effectuating subordination of this Lease as provided in this section to the lien of any Mortgage. The subordination to any future Mortgage provided for in this section is expressly conditioned upon the Mortgage holder’s agreement that as long as no Event of Default occurs under this Lease, the holder of the Mortgage will not disturb Tenant’s rights under this Lease. The lien of any existing or future Mortgage will not cover Tenant’s Personal Property. Tenant, within 10 Business Days after Landlord’s request (from time to time, but not more than twice during any calendar year), shall execute a commercially reasonable Subordination, Non-Disturbance, and Attornment Agreement. By way of example and not by way of

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limitation, the sample non-disturbance, attornment, and subordination agreement attached hereto as EXHIBIT “J” is deemed approved by Tenant. Tenant shall cause all guarantors of Tenant’s obligations and all of Tenant’s predecessors in interest to execute such Non-Disturbance, Attornment and Subordination Agreement, and to indicate that the obligations of such guarantor under the Lease shall continue in full force and effect and shall be subject to and shall include all Tenant’s obligations under such agreement.

15.2 Attornment. If any ground lessor, the holder of any Mortgage at a foreclosure sale or any other transferee acquires Landlord’s interest in this Lease, the Premises or the Property, Tenant will attorn to the transferee of or successor to Landlord’s interest in this Lease, the Premises or the Property (as the case may be) and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law that gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlord’s interest.

15.3 Mortgagee Protection Clause. Tenant will give the holder of any Mortgage, by certified mail, a copy of any notice of default Tenant serves on Landlord, provided that Landlord or the holder of the Mortgage previously notified Tenant (by way of notice of assignment of rents and leases or otherwise) of the address of such holder. Tenant further agrees that, excluding failures that relate to an Event of Emergency if Landlord fails to cure such default within the time provided for in this Lease, then Tenant will provide written notice of such failure to such holder and such holder will have an additional 30 days within which to cure the default, and if such party is not able through the use of commercially reasonable efforts to cure such breach or failure within a 30-day period, then the holder will have such additional time as may be necessary to effect the cure if, within the 30 day period, the holder has commenced and is diligently pursuing the cure.

15.4  Estoppel Certificates.

15.4.1 Contents. Upon Landlord’s written request, Tenant will execute, acknowledge and deliver to Landlord a written statement in form satisfactory to Landlord certifying if true: (a) that this Lease (and all guaranties, if any) is unmodified and in full force and effect (or, if there have been any modifications, that this Lease is in full force and effect, as modified, and stating the modifications); (b) that this Lease has not been canceled or terminated; (c) the last date of payment of Rent and the time period covered by such payment; (d) whether there are then existing any breaches or defaults by Landlord under this Lease known to Tenant, and, if so, specifying the same; and (e) specifying any existing claims or defenses in favor of Tenant against the enforcement of this Lease (or of any guaranties) known to Tenant; and (f) such other factual statements as Landlord, any lender, prospective lender, investor or purchaser may reasonably request. Tenant will deliver the statement to Landlord within 10 Business Days after Landlord’s request. Landlord may give any such statement by Tenant to any lender, prospective lender, investor or purchaser of all or any part of the Property and any such party may conclusively rely upon such statement as true and correct.

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15.4.2 Failure to Deliver. If Tenant does not timely deliver the statement referenced in Section 15.4.1 to Landlord, Landlord and any lender, prospective lender, investor or purchaser may conclusively presume and rely that, except as otherwise represented by Landlord, (a) the terms and provisions of this Lease have not been changed; (b) this Lease has not been canceled or terminated; (c) not more than one month’s Rent has been paid in advance; and (d) Landlord is not in default in the performance of any of its obligations under this Lease. In such event, Tenant is estopped from denying the truth of such facts.

15.4.3 Upon Tenant’s written request, Landlord will execute, acknowledge and deliver to Tenant a written statement in form reasonably satisfactory to Tenant certifying, if true: (a) that this Lease is unmodified and in full force and effect (or, if there have been any modifications, that this Lease is in full force and effect, as modified, and stating the modifications); (b) that this Lease has not been canceled or terminated; (c) the last date of payment of Rent and the time period covered by such payment; (d) whether there are then existing any breaches or defaults by Tenant under this Lease known to Landlord, and, if so, specifying the same; and (e) such other factual statements as Tenant, any lender, prospective lender, investor or purchaser may reasonably request. Landlord will deliver the statement to Tenant within 10 Business Days after Tenant’s request. Tenant may give any such statement by Landlord to any lender, prospective lender, investor or purchaser of all or any part of the Property and any such party may conclusively rely upon such statement as true and correct.

ARTICLE 16

SURRENDER; HOLDING OVER

16.1 Surrender of Premises. Tenant will surrender the Premises to Landlord at the expiration or earlier termination of this Lease in good order, condition and repair, reasonable wear and tear, Casualty (subject to Landlord’s rights with respect to Tenant Damage) and Taking excepted, and will surrender all keys to the Premises to Property Manager or to Landlord at the place then fixed for Tenant’s payment of Base Rent or as Landlord or Property Manager otherwise directs. Tenant will also inform Landlord of all combinations on locks, safes and vaults, if any, in the Premises or on the Property. Tenant will at such time remove all of its property from the Premises and, if Landlord so requires as permitted under this Lease, all required Alterations and improvements Tenant placed on the Premises. Tenant will promptly repair any damage to the Premises or the Property caused by such removal. Tenant releases and will indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and hold harmless Landlord from and against any Claim resulting from Tenant’s failure or delay in surrendering the Premises in accordance with this section, including, without limitation, any Claim made by any succeeding occupant founded on such delay; provided that as a condition to such obligation to indemnify, protect, defend and hold harmless, Landlord shall provide advance written notice to Tenant of any binding obligation of Landlord would result in Tenant’s liability for consequential damages as a result of Tenant’s holding over beyond the Term. All property of Tenant not removed on or before the last day of the Term is deemed abandoned. Landlord may remove all such abandoned property from the Premises and cause its transportation and storage in a public

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warehouse or elsewhere at the cost and for the account of Tenant, and if Tenant fails to pay the storage charges therefor Landlord may cause such property to be sold or otherwise disposed of without further obligation or any accounting to Tenant. Landlord will not be liable for damage, theft, misappropriation or loss of any such property or in any manner in respect thereto.

16.2 Holding Over. If Tenant possesses the Premises after the Term expires or is otherwise terminated without executing a new lease and without Landlord’s written consent, Tenant is deemed to be occupying the Premises without claim of right (but subject to all terms and conditions of this Lease) and, in addition to Tenant’s liability for failing to surrender possession of the Premises as provided in Section 16.1, Tenant will pay Landlord a charge for each day of occupancy after expiration of the Term in an amount equal to 150% of Tenant’s last Base Rent (on a daily basis) payable during the portion of the Term immediately prior to holdover (absent temporary abatements), plus all Additional Rent as described in this Lease.

ARTICLE 17

ADDITIONAL PROVISIONS

17.1  Initial Improvements.

17.1.1 Landlord’s Improvements. Landlord has completed the Landlord’s Improvements.

17.1.2 Tenant’s Improvements. Landlord will cause to be constructed, at Landlord’s sole cost and expense the Tenant’s Improvements contemplated by the Plans and Specifications listed on Exhibit “H”. Landlord will perform all of the Tenant’s Improvements in a good and workerlike manner, using new and good quality materials, in accordance with all applicable building and zoning codes and regulations and the Laws.

17.1.3 (Intentionally Deleted.)

17.1.4 (Intentionally Deleted.)

17.1.5 (Intentionally Deleted.)

17.1.6 Construction Drawings and Specifications. Landlord will provide Tenant with the Construction Drawings and Specifications which are a reasonable development of the Exhibit H Plans and Specifications. Tenant will approve or disapprove (specifically describing any reasons for disapproval) the Construction Drawings and Specifications in writing within five Business Days after receiving them. Any failure by Tenant to timely deliver such approval or disapproval is a Tenant Delay until received. If Tenant disapproves the Construction Drawings and Specifications, Landlord will provide appropriately revised Construction Drawings and Specifications to Tenant for approval (or disapproval) within five (5) Business Days on the same basis as set forth above. If the review and approval process is not concluded (with Tenant having approved the Construction Drawings and Specifications) on or before April 2, 2008,

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then such delay is a Tenant Delay until Tenant’s approval is received. After Tenant’s approval, Landlord will submit the Construction Drawings and Specifications for permits and construction bids. Tenant will not withhold any approval except for reasonable cause and will not act in an arbitrary or capricious manner in connection with the review, revision, approval or disapproval of the Construction Drawings and Specifications.

17.1.7 Changes to Construction Drawings and Specifications. Tenant will immediately notify Landlord if Tenant desires to make any changes to Tenant Improvements after Tenant has approved the Construction Drawings and Specifications. If Landlord approves the revisions, Landlord will notify Tenant of the anticipated additional cost and delay in completing Tenant Improvements which would be caused by such revisions. Tenant will approve or disapprove the increased cost and delay within two (2) Business Days after such notice. If Tenant approves, Landlord will prepare, and Landlord and Tenant will execute, a Change Order describing the revisions and the anticipated additional cost and delay. Any delay relating to a request for revisions or a Change Order is a Tenant Delay. If the Change Order causes the cost of Tenant’s Improvements to increase, such increased costs will be paid by Tenant and Landlord may require Tenant to prepay the added costs of the Change Order Improvements.

17.1.8 Tenant’s Representative. Tenant designates Joyce Kobilka and Justin Shireman as the representatives of Tenant, each, acting alone, having authority to approve the Construction Drawings and Specifications, request or approve any Change Order, and to bind Tenant by signing such documents and all other notices and directions to Landlord regarding Tenant Improvements.

17.1.9 Substantial Completion; Tenant Delay. Landlord will use commercially reasonable efforts to achieve Substantial Completion of Tenant Improvements on or before the Delivery Date, subject to Tenant Delay and Force Majeure. A Tenant Delay automatically extends the Delivery Date for Tenant Improvements and the Commencement Date will be accelerated by the amount of such Tenant Delay.

17.1.10Punch List. Not later than Substantial Completion, Landlord and Tenant will inspect the Premises and develop a Punch List. Landlord will complete (or repair, as the case may be) the items listed on the Punch List with commercially reasonable diligence and speed, subject to Tenant Delay and Force Majeure. If Tenant refuses to inspect the Premises with Landlord as reasonably requested by Landlord prior to or upon Substantial Completion, Tenant is deemed to have accepted the Premises as delivered, subject to any Punch List items Landlord develops and Tenant’s rights under Section 17.1.11.

17.1.11Construction Warranty. Landlord warrants Tenant Improvements and all components thereof against defective workmanship and materials for a period of one (1) year after Substantial Completion, unless certain warranties extend beyond one (1) year in which case such extended warranties to the extent

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extending beyond such one (1) year period (if Landlord so elects to have Tenant enforce same) shall be assigned to Tenant. Landlord’s sole obligation under the warranties in this Section 7.1.11 is to repair or replace, as necessary, any item defective in workmanship or materials if Tenant notifies Landlord of the defective item within such one year period. Landlord has no obligation to repair or replace any item after such one year period expires. THE WARRANTY TERMS PROVIDE THE SOLE AND EXCLUSIVE RIGHT AND REMEDY OF TENANT FOR INCOMPLETE OR DEFECTIVE WORKMANSHIP OR MATERIALS OR OTHER DEFECTS IN THE PREMISES IN LIEU OF ANY CONTRACT, TORT, WARRANTY OR OTHER RIGHTS OR CLAIMS, WHETHER EXPRESS OR IMPLIED, THAT MIGHT OTHERWISE BE AVAILABLE UNDER APPLICABLE LAW. ALL OTHER WARRANTIES ARE EXPRESSLY DISCLAIMED.

17.2 Security Deposit. Concurrently with Tenant’s execution of this Lease, Tenant will deposit with Landlord the Security Deposit. If Tenant defaults with respect to any of the terms, provisions, covenants and conditions of this Lease beyond any applicable cure period, Landlord may use, apply or retain the whole or any part of the Security Deposit for the payment of any Rent in default or any other sum which Landlord expends by reason of Tenant’s default. Tenant is not entitled to any interest on the Security Deposit. It is expressly agreed that the Security Deposit is not an advance rental deposit or a measure of Landlord’s damages in the case of Tenant’s default. Upon application of all or any part of the Security Deposit, Tenant must upon demand restore the Security Deposit to its original amount. No application of the Security Deposit by Landlord will be deemed to have cured Tenant’s default. Tenant waives all provisions of Law, now or hereinafter in force, which restrict the amount or types of claim that a landlord may make upon a security deposit or imposes upon a landlord (or its successors) any obligation with respect to the handling or return of security deposits. The Security Deposit will be released to Tenant within thirty (30) days of the surrender of the Premises to Landlord subject to any deductions made by Landlord pursuant to the terms of this Lease.

ARTICLE 18

MISCELLANEOUS PROVISIONS

18.1 Notices. All Notices must be in writing and must be sent by personal delivery, United States registered or certified mail (postage prepaid) or by an independent overnight courier service, addressed to the addresses specified in the Basic Terms or at such other place as either party may designate to the other party by written notice given in accordance with this section. Notices given by mail are deemed delivered and effective four (4) Business Days after the party sending the Notice deposits the Notice with the United States Post Office. Notices delivered by courier are deemed delivered and effective on the next Business Day after the day the party delivering the Notice timely deposits the Notice with the courier for overnight (next day) delivery.

18.2 Transfer of Landlord’s Interest. If Landlord Transfers (other than for collateral security purposes) its ownership interest in the Premises, the transferor is

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automatically relieved of all obligations on the part of Landlord accruing under this Lease from and after the date of the Transfer, provided that (a) the transferee agrees in writing to assume such obligations, and (b) the transferor delivers or credits to the transferee any funds the transferor holds in which Tenant has an interest (such as a security deposit). Landlord’s covenants and obligations in this Lease bind each successive Landlord only with respect to its respective period of ownership.

18.3 Successors. The covenants and agreements contained in this Lease bind and inure to the benefit of Landlord, its successors and assigns, bind Tenant and its successors and assigns and inure to the benefit of Tenant and its permitted successors and assigns.

18.4 Captions and Interpretation. The captions of the articles and sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular includes the plural and the plural includes the singular.

18.5 Relationship of Parties. This Lease does not create the relationship of principal and agent, or of partnership, joint venture, or of any association or relationship between Landlord and Tenant other than that of landlord and tenant.

18.6 Entire Agreement; Amendment. The Basic Terms and all exhibits, addenda and schedules attached to this Lease are incorporated into this Lease as though fully set forth in this Lease and together with this Lease contain the entire agreement between the parties with respect to the improvement and leasing of the Premises. All prior and contemporaneous negotiations, including, without limitation, any letters of intent or other proposals and any drafts and related correspondence, are terminated and superseded by this Lease. No subsequent alteration, amendment, change or addition to this Lease (other than to the Property Rules) is binding on Landlord or Tenant unless it is in writing and signed by the party to be charged with performance.

18.7 Severability. If any covenant, condition, provision, term or agreement of this Lease is, to any extent, held invalid or unenforceable, the remaining portion thereof and all other covenants, conditions, provisions, terms and agreements of this Lease will not be affected by such holding, and will remain valid and in force to the fullest extent permitted by law.

18.8 Landlord’s Limited Liability. Tenant will to look solely to Landlord’s interest in the Property and the rents and proceeds thereof for recovering any judgment or collecting any obligation from Landlord or any other Landlord Party. Tenant agrees that neither Landlord nor any other Landlord Party will be personally liable for any judgment or deficiency decree. Except as otherwise expressly provided herein, in no event shall Landlord or Tenant be liable to the other party in contract other than for reasonably foreseeable contract damages.

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18.9 Survival. All of Tenant’s obligations under this Lease (together with interest on payment obligations at the Maximum Rate) and all of Landlord’s obligations under this Lease accruing prior to expiration or other termination of this Lease survive the expiration or other termination of this Lease. Further, all releases and indemnification, defense and hold harmless obligations under this Lease survive the expiration or other termination of this Lease, without limitation.

18.10Attorneys’ Fees. If either Landlord or Tenant commences any litigation or judicial action to determine or enforce any of the provisions of this Lease, the prevailing party in any such litigation or judicial action is entitled to recover all of its costs and expenses (including, but not limited to, reasonable attorneys’ fees, costs and expenditures) from the nonprevailing party.

18.11Brokers. Tenant represents that Tenant has dealt directly with and only with Brokers in connection with this Lease and that insofar as Tenant knows, no other broker negotiated or participated in negotiations of this Lease or submitted or showed the Premises or is entitled to any commission in connection therewith. Landlord and Tenant each represent and warrant to the other that (except as to the fee payable by Landlord set forth below) they have not incurred any obligation or liability, contingent or otherwise, for brokerage or finder’s fees or agent’s commissions or other like payment in connection with this agreement or the transaction contemplated hereby, and Tenant and Landlord each agree to indemnify, defend and hold the other harmless against and in respect of any such obligation and liability based in any way upon agreements, arrangements or understandings made or claimed to have been made by the indemnifying party with any third person except as to the commission payable by Landlord described herein. Landlord acknowledges that it will be responsible to pay the brokerage commission, payable to CB Richard Ellis pursuant to the terms of the agreement dated March 27, 2007, as amended by instrument dated March 25, 2008, between Landlord and CB Richard Ellis. Landlord acknowledges that CB Richard Ellis is responsible under such agreement to pay co-broker fees in accordance with such agreement.

18.12  (Intentionally Omitted.)

18.13Governing Law. This Lease is governed by, and must be interpreted under, the internal laws of the state in which the Property is located. Any suit arising from or relating to this Lease must be brought in the county in which the Property is located or, if the suit is brought in federal court, in any federal court appropriate for suits arising in such county; Landlord and Tenant waive the right to bring suit elsewhere.

18.14Time is of the Essence. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

18.15Joint and Several Liability. All parties signing this Lease as Tenant and any Guarantor(s) of this Lease are jointly and severally liable for performing all of Tenant’s obligations under this Lease.

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18.16No Accord and Satisfaction. No statement on a payment check from Tenant or in a writing accompanying a payment check is binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of any such statement. No acceptance by Landlord of full or partial Rent during the continuance of any breach or default by Tenant constitutes a wavier of any such breach or default. If Tenant pays any amount other than the actual amount due Landlord, receipt or collection of such partial payment does not constitute an accord and satisfaction. Landlord may retain any such partial payment, whether restrictively endorsed or otherwise, without prejudice to Landlord’s right to collect the balance properly due. If all or any portion of any payment is dishonored for any reason, payment will not be deemed made until the entire amount due is actually collected by Landlord. The foregoing provisions apply in kind to the receipt or collection of any amount by a lock box agent or other person on Landlord’s behalf.

18.17Tenant’s Authority. If Tenant is an entity, Tenant will, within 10 days after Landlord’s written request, deliver to Landlord evidence of Tenant’s authority to enter into this Lease in the form of an opinion of Tenant’s counsel or a certified resolution of its board of directors. Tenant and each individual signing this Lease on behalf of Tenant represents and warrants that they are duly authorized to sign on behalf of and to bind Tenant and that this Lease is a duly authorized, binding and enforceable obligation of Tenant.

18.18Force Majeure. If a party is delayed or prevented from performing any obligation under this Lease (excluding, however, the payment of money) by reason of Force Majeure, such party’s performance of such obligation will be excused for a period equal to the period of delay actually caused by the Force Majeure event. In order to avail itself of this Section 18.18, the party asserting Force Majeure as to construction of the Tenant’s Improvements shall provide written notice to the other party within ten (10) business days after the party becomes aware of the applicable Force Majeure and forms a belief that a delay is more likely to occur than not.

18.19Management. Property Manager is authorized to manage the Property. Landlord appointed Property Manager to act as Landlord’s agent for leasing, managing and operating the Property. The Property Manager then serving is authorized to accept service of process and to receive and give notices and demands on Landlord’s behalf.

18.20Financial Statements. Tenant will, prior to Tenant’s execution of this Lease and within 10 days after Landlord’s request at any time during the Term, deliver to Landlord complete, accurate and up-to-date financial statements with respect to Tenant and any Guarantor(s) or other parties obligated upon this Lease, which financial statements must be (a) prepared according to generally accepted accounting principles consistently applied, and (b) certified by an independent certified public accountant or by Tenant’s (or Guarantor’s, as the case may be) chief financial officer that the same are a true, complete and correct statement of Tenant’s (or Guarantor’s) financial condition as of the date of such financial statements. Tenant shall not be required to supply such financial statements to the extent same are available to the public and Tenant is a “Reporting Company” under SEC rules and regulations. If non-public

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financial statements are provided, Landlord will use reasonable effort to keep same “confidential” in the same manner as it uses to protect its other confidential information. Such information may be disclosed to prospective purchasers and lenders and prospective lenders so long as the recipients agree to similar confidentiality restrictions.

18.21Quiet Enjoyment. Landlord covenants and agrees that Tenant will quietly hold, occupy and enjoy the Premises during the Term, subject to the terms and conditions of this Lease free from molestation or hindrance by Landlord or any person claiming by, through or under Landlord, if Tenant pays all Rent as and when due and keeps, observes and fully satisfies all other covenants, obligations and agreements of Tenant under this Lease.

18.22No Recording. Tenant will not record this Lease or any memorandum of this Lease.

18.23Outside Storage Prohibited. No storage by Tenant of trash or rubbish or trash containers or dumpsters shall be permitted outside the Premises except in the enclosed or screened area constructed by Landlord immediately outside the Premises as part of the Tenant’s Improvements.

18.24Construction of Lease and Terms. The terms and provisions of this Lease represent the results of negotiations between Landlord and Tenant, each of which are sophisticated parties and each of which has been represented or been given the opportunity to be represented by counsel of its own choosing, and neither of which has acted under any duress or compulsion, whether legal, economic or otherwise. Consequently, the terms and provisions of this Lease must be interpreted and construed in accordance with their usual and customary meanings, and Landlord and Tenant each waive the application of any rule of law that ambiguous or conflicting terms or provisions contained in this Lease are to be interpreted or construed against the party who prepared the executed Lease or any earlier draft of the same. Landlord’s submission of this instrument to Tenant for examination or signature by Tenant does not constitute a reservation of or an option to lease and is not effective as a lease or otherwise until Landlord and Tenant both execute and deliver this Lease. The parties agree that, regardless of which party provided the initial form of this Lease, drafted or modified one or more provisions of this Lease, or compiled, printed or copied this Lease, this Lease is to be construed solely as an offer from Tenant to lease the Premises, executed by Tenant and delivered to Landlord for acceptance on the terms set forth in this Lease, which acceptance and the existence of a binding agreement between Tenant and Landlord may then be evidenced only by Landlord’s execution of this Lease and delivery of the fully-executed Lease to Tenant. Once so delivered by Landlord, this Lease shall be deemed effective as of the Effective Date.

18.25Exhibits. The following Exhibits are made a part hereof, with the same force and effect as if specifically set forth herein:

EXHIBIT “A” Definitions

EXHIBIT “B” Legal Description of the Land

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EXHIBIT “C” Floor Plan

EXHIBIT “D” Commencement Date Memorandum

EXHIBIT “E” Property Rules

EXHIBIT “F” Tenant Sign Criteria

EXHIBIT “G” Parking Areas

EXHIBIT “H” List of Plans and Specifications for the Tenant’s Improvements

EXHIBIT “I” Monument Sign Drawing

EXHIBIT “J” Form Subordination, Non-Disturbance and Attornment Agreement

ARTICLE 19

SIGNAGE

19.1    Provided Tenant receives all necessary governmental and quasi-governmental approvals therefor, Landlord shall allow Tenant to erect a sign on the exterior of the Building. Such sign shall be Tenant’s “name”, shall be subordinate in size to Landlord’s building designation sign and shall be subject to the reasonable approval of Landlord as to location, size, graphics, color(s), and style pursuant to Landlord’s Tenant Sign Criteria, a copy of which is attached hereto as Exhibit F and made a part hereof. Tenant shall pay all costs of installation and maintenance of such sign and shall keep such sign in good condition, order and repair at its sole cost and expense, shall remove such sign prior to termination of the term of this Lease and shall repair and restore any damage to the Building caused by such installation and/or removal. Any such sign shall be subject to the terms of any restrictive covenants recorded in connection with the Property and all applicable laws, ordinances and regulations. Tenant shall also be allowed to place a sign face on the top panel of each side of the monument sign located on the Land as shown on the drawing attached hereto as Exhibit “I”. Tenant shall pay all costs of such sign face and shall remove same prior to termination of this Lease. No sign face shall be placed until Landlord’s written approval (as to size, location, graphics and placement) is first obtained. Such approval shall not unreasonably be withheld.

ARTICLE 20

PARKING RIGHTS

20.1    Tenant shall have the right in common with other tenants to have the use for its employees and invitees of 110 unreserved parking spaces in the common parking facilities (exclusive of “handicapped” stalls which shall be open for all those legally permitted to use same) at the Building, such unreserved spaces to be used in common with the other tenants in the Building and 10 reserved parking spaces. At least 41 of the 110 unreserved spaces shall be in the paved truck court area as depicted on Exhibit G attached hereto. Tenant shall not utilize more than 69 of the unreserved spaces in the main building parking area (other than the truck court area). Landlord reserves the right to designate areas of the appurtenant common parking facilities where Tenant, its agents, employees and invitees shall park and may exclude Tenant, its agents,

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employees and invitees from parking in other areas as designated by Landlord; provided, however, Landlord shall not be liable to Tenant for the failure of any tenant, its invitees, employees, agents and customers to abide by Landlord’s designations or restrictions. Landlord shall have the right to designate and Tenant shall thereupon have the right to use 110 designated unreserved parking spaces as the exclusive parking spaces to be used by Tenant, its agents and employees. Except as expressly provided herein, Landlord’s designations shall be equitable as between tenants. Tenant, its agents, employees and invitees shall not use more (in absolute numbers) of the common parking facilities at the Building than Tenant could use if Landlord made the designations permitted herein. Notwithstanding anything contained in this Lease to the contrary, all costs and expenses of such special parking control, signs in connection therewith, and costs of any enforcement shall be a part of Operating Expenses. Tenant shall pay all reasonable costs and expenses in connection with signs or traffic control devices for Tenant’s exclusively designated parking area, if any. Tenant’s 10 reserved parking spaces shall be located as shown on Exhibit G attached hereto. No overnight parking shall be allowed.

Notwithstanding the above, Landlord shall have the right to designate up to 15 stalls for the exclusive use of other tenants in reasonably close proximity to the premises of such other tenants.

ARTICLE 21

OPTION TO EXTEND

21.1    Tenant shall have the right, to be exercised as hereinafter provided, to extend the term of this Lease for two (2) periods of five (5) years each on the following terms and conditions and subject to the limitations hereinafter set forth, each such five (5) year renewal period being in this Lease sometimes referred to as a “Renewal Term.”

(a) That at the time hereinafter set forth for the exercise of the applicable extension option, this Lease shall be in full force and effect and there shall be no pending Event of Default with respect to Tenant as of the date of the exercise of the option, but Landlord shall have the right, at its sole discretion, to waive the non-default conditions herein.

(b) That the Renewal Term shall be upon the same terms, covenants and conditions as in this Lease provided; provided, however, the annual Base Rent for the applicable Renewal Term shall be 95% of the fair market Base Rent rate (taking into account market concessions and financial credit of the Tenant) for such space on the date such Renewal Term shall commence in relation to comparable (in quality and location) space located in the Minneapolis – St. Paul metropolitan area. The fair market Base Rent for the Premises shall be determined as of the date eight (8) months prior to commencement of the Renewal Term. Provided Tenant has properly elected to renew the term of this Lease, and if Landlord and Tenant fail to agree to least seven (7) months prior to commencement of the

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Renewal Term upon the fair market Base Rent of the Premises, the amount of the fair market Base Rent of the Premises shall be determined by arbitration in accordance with the provisions of Article 22 hereof. For purposes hereof, “Fair Market Base Rent” shall mean the net annual Base Rent as of the commencement of the Renewal Term that a willing tenant would pay and a willing landlord would accept, in arm’s length bona fide negotiations for the Premises for use in its as-is condition for the Renewal Term. The rental rate shall not be reduced for the cost to Landlord of commissions or the cost to competing landlords of commissions or costs of fitting up other space to be comparable to the tenant improvements in the Premises. Further, concessions granted by other landlords solely for moving expenses shall not be a reduction from the rental rate.

(c) That Tenant shall exercise its rights to extend the term of this Lease for each Renewal Term by notifying Lessor, in writing, of its election to exercise the right to renew and extend the term of this Lease no sooner than the date 12 months, prior to commencement of the applicable Renewal Term and no later than the date nine (9) months prior to the commencement of the applicable Renewal Term. The Tenant’s right to extend the term for the second Renewal Term shall terminate if the Tenant does not properly and timely exercise right to extend the term for the first Renewal Term.

(d) Landlord shall have no obligations to provide alterations or improvements or any improvement allowances or to amortize any costs in rent during any Renewal Term.

ARTICLE 22

ARBITRATION

22.1    Any disagreement, dispute or determination required by or arising under the provisions of Article 21 of this Lease requiring arbitration shall be carried on and concluded in accordance with the provisions of paragraphs (a) and (b) hereof.

(a) In each case where it shall become necessary to resort to arbitration, and the subject of the arbitration is to determine fair market Base Rent, all arbitrators appointed by or on behalf of either party or appointed pursuant to the provisions hereof shall be MAI members of the American Institute of Real Estate Appraisers with not less than ten (10) years of experience in the appraisal of improved commercial and industrial real estate in the Minneapolis-St. Paul metropolitan area and be devoting substantially all of their time to professional appraisal work at the time of appointment and be in all respects impartial and disinterested.

(b) The party desiring such arbitration shall give written notice to that effect to the other party, specifying in such notice the name, address and professional qualifications of the person designated to act as arbitrator on its behalf. Within twenty (20) days after service of such notice, the other party shall give written notice to the party desiring such arbitration specifying the name, address and professional qualifications of the person designated to act as arbitrator on its

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behalf. If the two (2) arbitrators so selected cannot agree within fifteen (15) days after the appointment of the second arbitrator, the two (2) arbitrators shall, within ten (10) days thereafter, select a third arbitrator. The decision of the arbitrators so chosen shall be given within a period of thirty (30) days after the appointment of such third arbitrator. Each party shall pay the fees and expenses of the arbitrator appointed by or on behalf of such party and the fees and expenses of the third arbitrator shall be borne equally by both parties. If the party receiving a request for arbitration fails to appoint its arbitrator within the time above specified, or if the two (2) arbitrators so selected cannot agree on the selection of the third arbitrator within the time above specified, then either party, on behalf of both parties, may request such appointment of such second or third arbitrator, as the case may be, by application to any Judge of the District Court of the County of Hennepin, State of Minnesota, upon ten (10) days prior written notice to the other party of such intent. The arbitrators so selected shall have all rights and powers conferred on them by the Uniform Arbitration Act of the state in which the Premises are situated, and except as otherwise provided for herein, the arbitration proceedings shall be carried on and governed by such Act. Upon an established date at an established time, all three (3) arbitrators shall simultaneously submit their determinations as to fair market Base Rent, such determinations to be submitted in sealed envelopes and to be opened jointly by Landlord and Tenant. The fair market Base Rent for the applicable Renewal Term shall be determined by averaging the two (2) arbitrators’ fair market Base Rent determinations which are closest in amount to each other (or if one appraisal is less than one of the other appraisals and more than the other appraisal by the same amount, all three appraisals shall be averaged).

ARTICLE 23

RIGHT OF FIRST OFFER

23.1    In the event Landlord desires during the initial Term of this Lease to enter into a lease with any third party for any space in the Building if such space to be leased to such third party is within the 10,000 square feet of space contiguous to the Premises, Landlord shall deliver to Tenant written notice thereof. If after receipt of such notice, Tenant desires to lease approximately 10,000 square feet of space adjacent to the Premises (the “First Offer Space”), it shall be leased in its then current “as is” condition but with the obligation of Landlord to provide a per square foot allowance for tenant improvements equal to $20.00 per square foot multiplied by a fraction, the numerator of which is the number of months remaining in the initial term after the Effective Date (hereafter defined) and the denominator is 87. All improvements to such space shall be Tenant’s responsibility and shall be subject to the provisions of Article 8. The allowance shall be paid out only after substantial completion of the improvements and issuance of a certificate of occupancy. The annual Base Rent for the balance of the initial term for such First Offer Space shall be at the annual Base Rent rate(s) provided herein for the initially demised Premises. Tenant shall have five (5) Business Days from its receipt of Landlord’s notice in which to notify Landlord, in writing, of Tenant’s election to lease the First Offer Space In the event Tenant gives such notice to Landlord, then the First Offer Space shall be added to the Premises upon the effective date specified in Landlord’s

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notice (the “Effective Date”); and upon Landlord’s receipt of Tenant’s notice, Landlord shall prepare, and Landlord and Tenant shall execute, within twenty (20) days thereafter, an amendment to this Lease evidencing such addition of the First Offer Space, subject to all other terms and conditions of this Lease. In the event Tenant fails to give such notice to Landlord within said five (5) Business Day period, or fails to execute said amendment to this Lease within twenty (20) days after the same has been received by Tenant from Landlord, then Landlord may thereafter lease the First Offer Space to any third party and all rights of Tenant under this Article 23 shall be deemed terminated and of no further force and effect.

ARTICLE 24

TENANT’S EQUIPMENT

24.1    Tenant agrees that it will operate all of its equipment in the Premises in a manner which will reduce noise, vibration and odor in order to prevent it being a nuisance, and to avoid interfering with the rights of other tenants in the Building to quiet enjoyment.

Landlord and Tenant have each caused this Lease to be executed and delivered by their duly authorized representatives.

Effective Date:	LANDLORD: OPUS NORTHWEST, L.L.C., a Delaware limited liability company
March 27, 2008
(to be completed by Landlord)
	By:	/s/ Brad J. Osmundson
	Name:	Brad J. Osmundson
	Title:	Vice President and General Counsel
	TENANT: INSIGNIA SYSTEMS, INC. a Minnesota corporation
	By:	/s/ Justin W. Shireman
	Name:	Justin W. Shireman
	Title:	VP Finance, Treasurer and CFO

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EX-10.23

EXHIBIT 10.23

INSIGNIA SYSTEMS, INC.

2008 CEO BONUS PLAN

1. Purpose.   The purpose of this Plan is to assist the corporation in retaining and motivating the CEO of the corporation, for the benefit of the corporation and its shareholders.

2. Eligibility.   The sole employee eligible to participate in this Plan is the CEO of the corporation. The CEO must be employed on December 31, 2008 to earn any bonus.

3. Duration of Plan.   This Plan shall be effective for the corporation’s fiscal year ending December 31, 2008.

4. Bonus Formula.   The CEO may earn a bonus for 2008 equal to the sum of the following:

(a)       1% of total POPS revenue for 2008 between $21.5 million and $26.5 million, for a maximum bonus under this paragraph of $50,000; plus

(b)       3.75% of the corporation’s gross margin for POPS sales in 2008, multiplied by total POPS revenue for 2008 over $26.5 million.

5. Calculation of Bonus.   POPS revenue, POPS gross margin and earned bonus shall be calculated by the corporation’s CFO based on the accounting methods and procedures used in preparing the corporation’s audited financial statements for 2008.

6. Payment of Bonus.   Earned bonus shall be calculated and paid as soon as administratively feasible after December 31, 2008.

7. Non-Assignability.   The CEO may not assign or transfer his right to payment under this Plan, and his right to payment may not be attached by creditors.

8. No Continued Employment.   Nothing contained in this Plan shall be construed as guaranteeing continued employment to the CEO.

9. Administration.   The Plan shall be administered by the Compensation Committee, which shall have the authority to construe and interpret the Plan, and determine amounts payable under the Plan.

EX-10.24

EXHIBIT 10.24

INSIGNIA SYSTEMS, INC.

2008 EXECUTIVE INCENTIVE BONUS PLAN

1.Purpose.   The purpose of this Plan is to assist the corporation in retaining and motivating certain officers of the corporation for the benefit of the corporation and its shareholders.

2.Eligibility.   The employees eligible to participate in this Plan are the individuals employed in the following positions as of February 19, 2008: the Vice President of Finance, Senior Vice President of Marketing Services, Vice President of Operations, Vice President of Technology Development, and Controller. An eligible employee must be employed on December 31, 2008 to earn a bonus.

3.Duration of Plan.   This Plan shall be effective for the corporation’s fiscal year ending December 31, 2008.

4.Bonus Amounts.   Each eligible employee may earn a bonus in 2008, equal to a specified percentage of his base salary, based upon the amount of POPS revenue and corporate net income earned by the Company in 2008. Attached is a schedule showing different tiers of bonus levels, and the minimum amounts of POPS revenue and corporate net income required to earn the bonus payable at each tier. If the amount of POPS revenue and/or corporate net income earned by the Company in 2008 increases above the minimum amounts required for any tier, but does not reach the minimum amounts required for the next tier, the bonus percentages payable within such tier shall increase proportionately. In calculating corporate net income for 2008, any amount awarded to the Company as damages in litigation, any amount payable to the Company in settlement of litigation, and any recorded tax benefit from the adjustment of the deferred tax asset valuation allowance shall be excluded.

5.Calculation and Approval of Bonuses.   Bonus amounts shall be calculated by the corporation’s CFO based on the accounting methods and procedures used in preparing the corporation’s audited financial statements for 2008.

All bonus calculations shall be reviewed and approved by the Compensation Committee prior to payment. The Compensation Committee retains sole and absolute discretion to increase, decrease or otherwise modify any bonus payable to any eligible employee.

6.Payment of Bonuses.   Earned bonuses shall be paid as soon as administratively feasible after December 31, 2008. All payments shall be reduced by applicable withholdings.

7.Non-Assignability.   An eligible employee may not assign or transfer his right to payment under this Plan, except to his heirs in the event of his death after December 31, 2008 and prior to payment, and his right to payment may not be attached by his creditors.

8.No Continued Employment.   Nothing contained in this Plan shall be construed as guaranteeing continued employment to any eligible employee.

9.Administration.   The Plan shall be administered by the Compensation Committee, which shall have the authority to construe and interpret the Plan, and determine amounts payable under the Plan.

SCHEDULE

	POPS Revenue Based Bonus
Bonus Tier	Minimum POPS Revenue	Bonus as Percentage of Salary
Minimum Bonus	$21,500,000	12.75%(1)
Full Bonus	$24,500,000	15.00%(2)

____________

Notes:

(1)	10.625% for VP of Technology Development, and 8.5% for Controller.
(2)	12.5% for VP of Technology Development, and 10% for Controller.

	Corporate Net Income Based Bonus
Bonus Tier	Minimum Corporate Net Income	Bonus as Percentage of Salary
Minimum Bonus	$2,000,000	3.0% (1)
Intermediate Bonus	$2,700,000	7.5% (2)
Full Bonus	$3,100,000	15.0% (3)

____________

Notes:

(1)	2.5% for VP of Technology Development, and 2% for Controller.
(2)	6.25% for VP of Technology Development, and 5% for Controller.
(3)	12.50% for VP of Technology Development, and 10% for Controller.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 28, 2008, accompanying the financial statements and schedule included in the Annual Report of Insignia Systems, Inc. on Form 10-K for the year ended December 31, 2007. We hereby consent to the incorporation by reference of said report in the Registration Statements of Insignia Systems, Inc. on Forms S-3 and amendments (File No. 333-102486, effective April 14, 2003 and File No. 333-121587, effective January 21, 2005) and Forms S-8 (File No. 333-145506, effective August 16, 2007, File No. 333-136591, effective August 14, 2006, File No. 333-127606, effective August 16, 2005, File No. 333-120504, effective November 15, 2004, File No. 333-107087, effective July 16, 2003, File No. 333-97513, effective August 1, 2002, File No. 333-83062, effective February 20, 2002, File No. 333-65172, effective July 16, 2001, File No. 333-41240, effective July 12, 2000, File No. 333-41242, effective July 12, 2000, File No. 333-80261, effective June 9, 1999, File No. 333-59709, effective July 23, 1998, File No. 333-43781, effective January 6, 1998, File No. 33-92376, effective prior to 1998, File No. 33-92374, effective prior to 1998, File No. 33-75372, effective prior to 1998, and File No. 33-47003, effective prior to 1998).

/s/ Grant Thornton LLP

Minneapolis, Minnesota

March 28, 2008

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Scott F. Drill, certify that:

1. I have reviewed this report on Form 10-K of Insignia Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the Company, particularly during the period in which this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2008	/s/ Scott F. Drill
	Scott F. Drill President and Chief Executive Officer (principal executive officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Justin W. Shireman, certify that:

1. I have reviewed this report on Form 10-K of Insignia Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within the Company, particularly during the period in which this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2008	/s/ Justin W. Shireman
	Justin W. Shireman Vice President of Finance and CFO (principal financial officer)

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATION

The undersigned certify pursuant to 18 U.S.C. § 1350, that:

1. The accompanying Annual Report on Form 10-K for the period ended December 31, 2007, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the accompanying Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 28, 2008	/s/ Scott F. Drill
	Scott F. Drill President and Chief Executive Officer (principal executive officer)

Date: March 28, 2008	/s/ Justin W. Shireman
	Justin W. Shireman Vice President, Finance and CFO (principal financial officer)