Exhibit 4.2 to Insignia Systems, Inc. Form 8-K dated February 1, 2006







EXHIBIT 4.2 


NONQUALIFIED STOCK OPTION AGREEMENT

UNDER

INSIGNIA SYSTEMS, INC. 2003 INCENTIVE

STOCK OPTION PLAN 



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



Recitals  



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



Agreement  



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



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



        3.       Option
Exercise.   The Option shall vest on February 1, 2006 and the Option may be exercised in whole or in part. The
Option shall become immediately exercisable in full in the event the Company is acquired by merger, purchase of all or
substantially all of the Company’s assets, or purchase of a majority of the outstanding stock by a single party or a group
acting in concert. 














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        4.       Option Termination.  



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







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







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






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



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



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



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



	 	INSIGNIA SYSTEMS, INC. 
	 
	    	By:    	/s/   Scott Drill 

	 	 	Its:   CEO 

	 
	 	/s/   Gary Vars  

	 	Gary Vars 
	 











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