EXHIBIT 10.2

                                ROYALTY AGREEMENT


         THIS AGREEMENT is made and entered into as of this 23rd day of
December, 2002 (the "Effective Date"), by and between Insignia Systems, Inc., a
Minnesota corporation (the "Company"), and Paul A. Richards, Inc., a New York
corporation ("Richards").

                                    RECITALS

         The Company has purchased from Richards substantially all of its
assets, relating to the ValuStix(R) system, which is comprised of a patent
application, service marks and related equipment, supplies and methods, for the
affixing of coupons and other promotional materials to retail products
(collectively referred to, together with modifications and enhancements, as
"ValuStix"). The parties wish to enter into an agreement whereby the Company
shall pay Richards a royalty on future sales by the Company of ValuStix.

                                    AGREEMENT

         1. ROYALTY PAYMENTS. The Company shall pay Richards a royalty on any
"net sales" of ValuStix for which the Company receives a binding purchase order
during the 60 months following the Effective Date. "Net sales" are defined as
revenues or other consideration actually received, minus commissions,
arms-length revenue sharing payments to retailers up to 15 percent, reasonable
discounts and allowances, rebates, returns, shipping and sales taxes.
         For each 12-month period beginning with the Effective Date or an
anniversary of the Effective Date ("contract year"), royalties shall be paid at
the following rates:


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                                                                    EXHIBIT 10.2



         Annual Net Sales                            Royalty Rate
         ----------------                            ------------

         $0 to $4,000,000                                 0%
         $4,000,001 to $6,000,000                         5%
         $6,000,001 to $10,000,000                       10%
         $10,000,001 to $15,000,000                      12.5%
         $15,000,001 and above                           15%

         The rate payable for net sales will be for annual amounts in excess of
$4,000,000 and sales shall revert to zero at the beginning of each contract
year. The royalty rate for each specific tier shall not be applied to any sales
below that specific tier level. For example, if annual net sales are $7,500,000
the royalty earned that year would be $250,000 which consists of (a) no royalty
on the initial $4,000,000, (b) royalty of $100,000 related to the net sales from
$4,000,000 to $6,000,000 ($2,000,000 at 5%) and (c) royalty of $150,000 for the
sales in excess of $6,000,000 ($1,500,000 at 10%). If total royalties reach
$15,000,000 at any time during the 60 months, each of the percentages in the
above table shall be reduced by 50 percent of such percentage for the remainder
of the 60-month period.
         Royalties shall be payable quarterly, within 15 days after the end of
each quarter. The Company shall keep accurate records of ValuStix sales, and
each royalty payment shall include a statement showing total net sales during
the most recent quarter and total net sales year-to-date. Richards shall have
the right, at its own expense, and not more than twice in any contract year, to
have an independent accountant examine the books and records of the Company to
verify the payment of royalties. If the examination reveals that the Company has
underpaid Richards by more than five percent during any quarterly period, the
Company shall pay the cost of the examination. The Company shall



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                                                                    EXHIBIT 10.2



be liable for costs of collection, including reasonable attorney's fees, and
interest at the rate of 1.5 percent per month, on any late payment.
         2. RIGHT OF OFFSET. The Company may reduce any amount payable to
Richards under this Agreement by any amount payable to the Company by Richards
under the indemnification provisions contained in the Asset Purchase Agreement
dated December 23, 2002, among the Company, Paul A. Richards and Richards. If
the Company elects to exercise its right of offset under this paragraph, it
shall deposit in an interest-bearing escrow account with Wells Fargo Bank, N.A.,
the amount it claims that is payable to it under said indemnification provision.
The amount shall remain in the escrow until the Company's claim is resolved by
agreement between the parties or final, nonappealable court order, when it shall
then be distributed in accordance with the agreement between the parties or
court order. The expenses of the escrow agent shall be paid first from the
earnings on the escrow account and then equally by the parties. Any excess
interest after the payment of expenses shall be allocated between the parties in
the same ratio as the allocation of the principal amount.
         3. OPTION TO PURCHASE. If the Company, at any time during the 60-month
period after the Effective Date, decides to discontinue selling ValuStix, but
not including a sale or other transfer, the Company shall promptly give Richards
a written notice describing the proposed action. If the Company receives gross
revenues from ValuStix in calendar year 2004, 2005, 2006 or 2007, of $1,000,000
or less in any such year, the Company shall give Richards written notice of that
fact within 60 days after the end of such year. In either case, Richards shall
then have the option to purchase from the Company any assets of the Company
dedicated exclusively to ValuStix (the "ValuStix


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                                                                    EXHIBIT 10.2



Assets") for their appraised value in accordance with this Section 3. Within 15
days after its receipt of the Company's notice, Richards shall give the Company
a written notice stating whether Richards elects to exercise the option. If
Richards elects to exercise the option, then each party shall select an
independent qualified appraiser to calculate an appraised value within 30 days
of the receipt by the Company of Richards' notice. The Company shall cooperate
with both appraisers, subject to their agreement to keep any information they
receive strictly confidential. Each party shall immediately give a copy of its
appraisal to the other party upon completion. If the two appraisals differ by
less than 10%, the average of the two appraisals shall be the price at which
Richards may purchase the ValuStix Assets. If the two appraisals differ by more
than 10%, the two appraisers shall select a third independent qualified
appraiser to determine the appraised value. If they cannot agree, an appraiser
shall be selected by an arbitrator pursuant to the Commercial Arbitration Rules
of the American Arbitration Association. The third appraiser shall complete his
appraisal within 30 days after being appointed. After the price has been
determined, Richards shall have a period of 15 days to decide whether it wishes
to purchase the ValuStix Assets for the appraised value. If it elects to
exercise the option and purchase the ValuStix Assets, a closing shall be held
within 15 days thereafter at which Richards shall pay the Company the appraised
value in cash, and in which the Company shall transfer all of the ValuStix
Assets to Richards, including the RayPress Corporation agreement, free and clear
of all claims, liens, and encumbrances. If Richards elects not to exercise its
option, or fails to complete the closing after exercising its option (through no
fault of the Company), the option shall automatically expire.


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                                                                    EXHIBIT 10.2



         4. ASSIGNMENT. The Company may assign this Agreement at any time,
provided the assignee expressly agrees to assume and perform all of the
obligations of the Company herein, and further provided that the Company shall
remain liable for the performance of this Agreement unless the assignee has
shareholders' equity or net worth of $5,000,000 or more at the time of
assignment. Richards may assign this Agreement to Paul A. Richards, and Richards
or Paul A. Richards may also assign the provisions of Section 1 to Richards'
heirs and representatives after his death. Subject to the foregoing, this
Agreement is binding upon, and shall inure to the benefit of, the successors and
assigns of the parties.
         Any separate sale by the Company of ValuStix, which is not part of a
merger or a sale by the Company of all or substantially all of its assets, shall
require the prior consent of Richards, which shall not be unreasonably withheld
or delayed. Any sale of ValuStix by the Company, including a sale that is part
of a merger or sale by the Company of all or substantially all of its assets,
shall include an assignment of this Agreement and Paul A. Richards' Employment
Agreement with the Company.
         5. MISCELLANEOUS. This Agreement shall be interpreted in accordance
with Minnesota law. This Agreement constitutes the entire agreement between the
parties on the subject matter hereof, superseding any and all prior oral or
written agreements. This Agreement can only be amended in a written document,
signed by both parties. This Agreement is binding upon, and shall inure to the
benefit of, the successors and assigns of the parties.


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                                                                    EXHIBIT 10.2



         6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute the same Agreement.

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

                                       INSIGNIA SYSTEMS, INC.


                                       By: /s/ Scott F. Drill
                                          --------------------------------------
                                           Scott F. Drill, CEO

                                       PAUL A. RICHARDS, INC.


                                       By: /s/ Paul A. Richards
                                          --------------------------------------
                                           Paul A. Richards, President and CEO