EXHIBIT 10.2

SECURITY AGREEMENT

September 16, 2004

Borrower:  Insignia Systems, Inc.

Secured Party: Itasca Business Credit, Inc.

Address:  6470 Sycamore Court North

                  Maple Grove, MN  55369

 

Address:

Parkdale Plaza, Suite 146

1660 South Highway 100

St. Louis Park, MN 55416-1524

1.

SECURITY INTEREST AND COLLATERAL.  

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

(a)

Accounts, Contract Rights and Other Rights to Payment:

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

(b)

Inventory:

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

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(c)

Equipment:

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

(d)

General Intangibles:

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

2.

REPRESENTATIONS, WARRANTIES AND AGREEMENTS.  

Borrower represents, warrants and agrees that:

(a)

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

(b)

The Collateral will be used primarily for business.

(c)

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

and the name of the record owner is: _______________________________________

_________________________________________

_________________________________________

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

_________________________________________

_________________________________________

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

3.  ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

Borrower represents, warrants and agrees that:  

(a)

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

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

(b)

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

(c)

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

(d)

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

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

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

(e)

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

4.

LOCK BOX, COLLATERAL ACCOUNT.  

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

5.

COLLECTION RIGHTS OF SECURED PARTY.  

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

6.

ASSIGNMENT OF INSURANCE.  

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

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

7.

EVENTS OF DEFAULT.  

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

8.

REMEDIES UPON EVENT OF DEFAULT.  

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

9.

OTHER PERSONAL PROPERTY.

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

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

10.

MISCELLANEOUS.

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

11.

OTHER AGREEMENT.

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

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

ITASCA BUSINESS CREDIT, INC.

Secured Party

By:     /s/ Gary Peters

Name:  Gary Peters

Title:    Vice President

 

INSIGNIA SYSTEMS, INC.

Borrower

By:     /s/ Scott F. Drill

Name:  Scott F. Drill

Title:    Chief Executive Officer

 

         

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