Document:

Exhibit 4.2 to Insignia Systems, Inc. Form 8-K (05-20-04)

EXHIBIT 4.2  

REGISTRATION RIGHTS AGREEMENT  

        This
Registration Rights Agreement (the “Agreement”) is made and entered into as of
this ___ day of ____________, 2004 by and among Insignia Systems, Inc., a Minnesota
corporation (the “Company”), and the “Investors” named in that certain
Purchase Agreement by and among the Company and the Investors (the “Purchase
Agreement”). The parties hereby agree as follows: 

        1.    Certain Definitions. 

        As
used in this Agreement, the following terms shall have the following meanings: 

        “Affiliate”
means, with respect to any person, any other person which directly or indirectly controls,
is controlled by, or is under common control with, such person. 

        “Business Day” means
a day, other than a Saturday or Sunday, on which banks in New York City are open
for the general transaction of business. 

        “Common Stock” shall
mean the Company’s common stock, par value $0.01 per share, and any
securities into which such shares may hereinafter be reclassified. 

        “Effective Date” shall
mean the date on which the Registration Statement relating to the Shares issued
on the First Closing Date is first declared effective by the SEC. 

        “Investors”
shall mean the Investors identified in the Purchase Agreement and any Affiliate or
permitted transferee of any Investor who is a subsequent holder of any Registrable
Securities. 

        “Prospectus”
shall mean the prospectus included in any Registration Statement, as amended or
supplemented by any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration Statement and by
all other amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus. 

        “Register,”
“registered” and “registration” refer to a registration
made by preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of
such Registration Statement or document. 

        “Registrable Securities” shall
mean (i) the Shares and (ii) any other securities issued or issuable
with respect to or in exchange for Registrable Securities; provided, that, a
security shall cease to be a Registrable Security upon (A) sale pursuant to
a Registration Statement or Rule 144 under the 1933 Act, or (B) such
security becoming eligible for sale by the Investors pursuant to Rule 144(k).

        “Registration Statement” shall
mean any registration statement of the Company filed under the 1933 Act that
covers the resale of any of the Registrable Securities pursuant to the
provisions of this Agreement, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement. 

33 

        “Required Investors” means
the Investors holding a majority of the Registrable Securities. 

        “SEC”
means the U.S. Securities and Exchange Commission. 

        “Shares”
means the shares of Common Stock issued pursuant to the Purchase Agreement. 

        “1933 Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder. 

        “1934 Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder. 

        2.   Registration. 

            (a)   Registration Statements. 

            (i)   Promptly
following the First Closing Date (as defined in the Purchase Agreement) but no
later than thirty (30) days after the First Closing Date (the “First Filing
Deadline”), the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then available to the
Company, on such form of registration statement as is then available to effect a
registration for resale of the Registrable Securities), covering the resale of
the Registrable Securities in an amount at least equal to the number of Shares
issued on the First Closing Date (the date of such filing, the “First
Filing Date”). Such Registration Statement shall include the plan of
distribution attached hereto as Exhibit A. The Company shall use its reasonable
best efforts to obtain from each person who now has piggyback registration
rights a waiver of those rights with respect to the Registration Statement. The
Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) shall be provided in
accordance with Section 3(c) to the Investors and their counsel prior to its
filing or other submission. If a Registration Statement covering the Shares
issued on the First Closing Date is not filed with the SEC on or prior to the
First Filing Deadline, the Company will make pro rata payments to each Investor,
as liquidated damages and not as a penalty, in an amount equal to 1.0% of the
aggregate amount invested by such Investor for each 30-day period or pro rata
for any portion thereof following the date by which such Registration Statement
should have been filed for which no Registration Statement is filed with respect
to the Registrable Securities. Such payments shall be in partial compensation to
the Investors, and shall not constitute the Investors’ exclusive remedy for
such events. Such payments shall be made to each Investor in cash. 

            (ii)   Promptly
following the Option Closing Date (as defined in the Purchase Agreement) but no
later than thirty (30) days after the Option Closing Date (the “Option
Filing Deadline”), the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then available to the
Company, on such form of registration statement as is then available to effect a
registration for resale of the Registrable Securities), covering the resale of
the Registrable Securities in an amount at least equal to the number of Shares
issued on the Option Closing Date, unless such Shares were included in the
original S-3 Registration Statement filed by the Company (the date of such
filing, the “Option Filing Date”). Such Registration Statement shall
include the plan of distribution attached hereto as Exhibit A. The Company shall
use its reasonable best efforts to obtain from each person who now has piggyback
registration rights a waiver of those rights with respect to the Registration

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Statement. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided in accordance with
Section 3(c) to the Investors and their counsel prior to its filing or other
submission. If a Registration Statement covering the Shares issued on the Option
Closing Date is not filed with the SEC on or prior to the Option Filing
Deadline, the Company will make pro rata payments to each Investor, as
liquidated damages and not as a penalty, in an amount equal to 1.0% of the
aggregate amount invested by such Investor for each 30-day period or pro rata
for any portion thereof following the date by which such Registration Statement
should have been filed for which no Registration Statement is filed with respect
to the Registrable Securities. Such payments shall be in partial compensation to
the Investors, and shall not constitute the Investors’ exclusive remedy for
such events. Such payments shall be made to each Investor in cash. 

            (b)   Expenses. The
Company will pay all expenses associated with each registration, including
filing and printing fees, the Company’s counsel and accounting fees and
expenses, costs associated with clearing the Registrable Securities for sale
under applicable state securities laws, listing fees, fees and expenses of one
counsel to the Investors, subject to the overall $25,000 limit in the related
Purchase Agreement, and the Investors’ reasonable expenses in connection
with the registration, but excluding discounts, commissions, fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals with respect to the Registrable Securities being sold. 

            (c)   Effectiveness. 

            (i)    The
Company shall use commercially reasonable efforts to have any Registration
Statement declared effective as soon as practicable. The Company shall notify
the Investors by facsimile or e-mail as promptly as practicable, and in any
event, within twenty-four (24) hours, after any Registration Statement is
declared effective and shall simultaneously provide the Investors with copies of
any related Prospectus (which may be in electronic format) to be used in
connection with the sale or other disposition of the securities covered thereby.
If (A)(x) a Registration Statement covering the Shares issued on the First
Closing Date is not declared effective by the SEC within sixty (60) days after
the First Filing Date, or (y) a Registration Statement covering the Shares
issued on the Option Closing Date is not declared effective by the SEC within
sixty (60) days after the Option Filing Date (each, an “Effectiveness
Deadline”), or (B) after a Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to such Registration
Statement for any reason (including without limitation by reason of a stop
order, or the Company’s failure to update the Registration Statement), but
excluding the inability of any Investor to sell the Registrable Securities
covered thereby due to market conditions and except as excused pursuant to
subparagraph (ii) below, then the Company will make pro rata payments to each
Investor, as liquidated damages and not as a penalty, in an amount equal to 1.0%
of the aggregate amount invested by such Investor for each 30-day period or pro
rata for any portion thereof following the date by which such Registration
Statement should have been effective (the “Blackout Period”). Such
payments shall be in partial compensation to the Investors, and shall not
constitute the Investors’ exclusive remedy for such events. The amounts
payable as liquidated damages pursuant to this paragraph shall be paid monthly
within three (3) Business Days of the last day of each month following the
commencement of the Blackout Period until the termination of the Blackout
Period. Such payments shall be made to each Investor in cash. 

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            (ii)   For
not more than twenty (20) consecutive days or for a total of not more than
forty-five (45) days in any twelve (12) month period, the Company may suspend
the use of any Prospectus included in any registration contemplated by this
Section, the use of which, in the good faith opinion of the Company, is not in
the best interests of the Company because such use would require the Company to
make premature disclosure of material non-public information (an “Allowed
Delay”); provided, that the Company shall promptly (a) notify the Investors
in writing of the existence of (but in no event, without the prior written
consent of an Investor, shall the Company disclose to such Investor any of the
facts or circumstances regarding) material non-public information giving rise to
an Allowed Delay, (b) advise the Investors in writing to cease all sales under
the Registration Statement until the end of the Allowed Delay and (c) use
commercially reasonable efforts to terminate an Allowed Delay as promptly as
practicable. 

        3.   Company
Obligations. The Company will use commercially reasonable efforts to effect
the registration of the Registrable Securities in accordance with the terms
hereof, and pursuant thereto the Company will, as expeditiously as possible:

            (a)   use
commercially reasonable efforts to cause such Registration Statement to become
effective and to remain continuously effective for a period that will terminate
upon the earlier of (i) the date on which all Registrable Securities covered by
such Registration Statement as amended from time to time, have been sold, and
(ii) the date on which all Registrable Securities covered by such Registration
Statement may be sold pursuant to Rule 144(k) (the “Effectiveness
Period”) and advise the Investors in writing when the Effectiveness Period
has expired; 

            (b)   prepare
and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective for the period specified in Section 3(a) and to
comply with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all of the Registrable Securities covered thereby; 

            (c)   provide
copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments and supplements thereto no fewer than
three (3) Business Days prior to their filing with the SEC and not file any
document to which such counsel reasonably objects; 

            (d)   furnish
to the Investors and their legal counsel (i) promptly after the same is prepared
and publicly distributed, filed with the SEC, or received by the Company (but
not later than two (2) Business Days after the filing date, receipt date or
sending date, as the case may be) one (1) copy of any Registration Statement and
any amendment thereto, each preliminary prospectus and Prospectus and each
amendment or supplement thereto, and each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of correspondence from
the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and (ii) such number of
copies of a Prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as each Investor may reasonably
request in order to facilitate the 

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disposition of the Registrable
Securities owned by such Investor that are covered by the related Registration Statement; 

            (e)   use
commercially reasonable efforts to (i) respond to any written SEC comments
on a Registration Statement within five (5) Business Days of receipt,
(ii) prevent the issuance of any stop order or other suspension of
effectiveness and, (iii) if such order is issued, obtain the withdrawal of
any such order at the earliest possible moment; 

            (f)   prior
to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their counsel
in connection with the registration, qualification or exemption of such
Registrable Securities for offer and sale under the securities or blue sky laws
of the jurisdictions listed on Schedule 7.7 of the Purchase Agreement and
do any and all other commercially reasonable acts or things necessary or
advisable to enable the distribution in such jurisdictions of the Registrable
Securities covered by the Registration Statement; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(f),
(ii) subject itself to general taxation in any jurisdiction where it would
not otherwise be so subject but for this Section 3(f), or (iii) file a
general consent to service of process in any such jurisdiction; 

            (g)   use
commercially reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Company are then listed; 

            (h)   immediately
notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act, upon discovery that,
or upon the happening of any event as a result of which, the Prospectus included
in a Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and at the request of any such holder, promptly
prepare and furnish to such holder a reasonable number of copies of a supplement
to or an amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such Prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and

            (i)   otherwise
use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its security holders, as
soon as reasonably practicable, but not later than the Availability Date (as
defined below), an earnings statement covering a period of at least twelve
(12) months, beginning after the effective date of each Registration
Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder
(for the purpose of this subsection 3(i), “Availability Date” means the
45th day following the end of the fourth fiscal quarter that includes the
effective date 

37 

of such Registration
Statement, except that, if such fourth fiscal quarter is the last quarter of the
Company’s fiscal year, “Availability Date” means the
90th day after the end of such fourth fiscal quarter). 

            (j)   With
a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time
permit the Investors to sell shares of Common Stock to the public without
registration, the Company covenants and agrees to: (i) make and keep public
information available, as those terms are understood and defined in
Rule 144, until the earlier of (A) six months after such date as all
of the Registrable Securities may be resold pursuant to Rule 144(k) or any
other rule of similar effect or (B) such date as all of the Registrable
Securities shall have been resold; (ii) file with the SEC in a timely
manner all reports and other documents required of the Company under the 1934
Act; and (iii) furnish to each Investor upon request, as long as such
Investor owns any Registrable Securities, (A) a written statement by the
Company that it has complied with the reporting requirements of the 1934 Act,
(B) a copy of the Company’s most recent Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, and (C) such other
information as may be reasonably requested in order to avail such Investor of
any rule or regulation of the SEC that permits the selling of any such
Registrable Securities without registration. 

        4.    Due
Diligence Review; Information. Upon reasonable notice, the Company shall
make available, during normal business hours, for inspection and review by the
Investors, advisors to and representatives of the Investors (who may or may not
be affiliated with the Investors and who are reasonably acceptable to the
Company), all financial and other records, all SEC Filings (as defined in the
Purchase Agreement) and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company’s officers, directors and
employees, within a reasonable time period, to supply all such information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of such Registration
Statement. 

             The
Company shall not disclose material nonpublic information to the Investors, or
to advisors to or representatives of the Investors, unless prior to disclosure
of such information the Company identifies such information as being material
nonpublic information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review and any Investor wishing to obtain such
information enters into an appropriate confidentiality agreement with the
Company with respect thereto. 

        5.   Obligations
of the Investors. 

            (a)   Each
Investor shall furnish in writing to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of

38 

disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) Business Days prior
to the first anticipated filing date of any Registration Statement, the Company shall
notify each Investor of the information the Company requires from such Investor if such
Investor elects to have any of the Registrable Securities included in the Registration
Statement. An Investor shall provide such information to the Company at least two (2)
Business Days prior to the first anticipated filing date of such Registration Statement if
such Investor elects to have any of the Registrable Securities included in the
Registration Statement. 

            (b)   Each
Investor, by its acceptance of the Registrable Securities agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration Statement. 

            (c)    Each
Investor agrees that, upon receipt of any notice from the Company of either
(i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii)
or (ii) the happening of an event pursuant to Section 3(h) hereof,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities,
until the Investor’s receipt of the copies of the supplemented or amended
prospectus filed with the SEC and until any related post-effective amendment is
declared effective and, if so directed by the Company, the Investor shall
deliver to the Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies in the Investor’s
possession of the Prospectus covering the Registrable Securities current at the
time of receipt of such notice. 

        6.   Indemnification.  

            (a)   Indemnification
by the Company. The Company will indemnify and hold harmless each Investor
and its officers, directors, members, employees and agents, successors and
assigns, and each other person, if any, who controls such Investor within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof; (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Registrable Securities under
the securities laws thereof (any such application, document or information
herein called a “Blue Sky Application”); (iii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; (iv) any
violation by the Company or its agents of any rule or regulation promulgated
under the 1933 Act applicable to the Company or its agents and relating to
action or inaction required of the Company in connection with such registration;
or (v) any failure to register or qualify the Registrable Securities
included in any such Registration in any state where the Company or its agents
has affirmatively undertaken or agreed in writing that the Company will
undertake such registration or qualification on an Investor’s behalf and
will reimburse such Investor, and each 

39 

such officer, director or
member and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Investor or any such
controlling person in writing specifically for use in such Registration
Statement or Prospectus.  

            (b)   Indemnification
by the Investors. Each Investor agrees, severally but not jointly, to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees, agents, stockholders and each
person who controls the Company (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from any untrue statement of a material fact or any omission of
a material fact required to be stated in the Registration Statement or
Prospectus or preliminary prospectus or amendment or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but only
to the extent that such untrue statement or omission is contained in any
information furnished in writing by such Investor to the Company specifically
for inclusion in such Registration Statement or Prospectus or amendment or
supplement thereto. In no event shall the liability of an Investor be greater in
amount than the dollar amount of the proceeds (net of all expense paid by such
Investor in connection with any claim relating to this Section 6 and the amount
of any damages such Investor has otherwise been required to pay by reason of
such untrue statement or omission) received by such Investor upon the sale of
the Registrable Securities included in the Registration Statement giving rise to
such indemnification obligation. 

            (c)   Conduct
of Indemnification Proceedings. Any person entitled to indemnification
hereunder shall (i) give prompt notice to the indemnifying party of any
claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying
party has agreed to pay such fees or expenses, or (b) the indemnifying
party shall have failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such person or (c) in the reasonable judgment of
any such person, based upon written advice of its counsel, a conflict of
interest exists between such person and the indemnifying party with respect to
such claims (in which case, if the person notifies the indemnifying party in
writing that such person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such person); and provided,
further, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation. It is understood that the indemnifying party shall not, in
connection with any proceeding in the same jurisdiction, be liable for fees or
expenses of more than one separate firm of attorneys at any time for all such
indemnified parties. No indemnifying party will, except  

40 

with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation. 

            (d)   Contribution. If
for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder in connection with any claim relating to this Section 6 and
the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise
to such contribution obligation. 

        7.   Miscellaneous. 

            (a)   Amendments
and Waivers. This Agreement may be amended only by a writing signed by the
Company and the Required Investors. The Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the Required Investors. 

            (b)   Notices. All
notices and other communications provided for or permitted hereunder shall be
made as set forth in Section 9.4 of the Purchase Agreement. 

            (c)   Assignments
and Transfers by Investors. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Investors and their respective
successors and assigns. An Investor may transfer or assign, in whole or from
time to time in part, to one or more persons its rights hereunder in connection
with the transfer of Registrable Securities by such Investor to such person,
provided that such Investor complies with all laws applicable thereto and
provides written notice of assignment to the Company promptly after such
assignment is effected. 

            (d)   Assignments
and Transfers by the Company. This Agreement may not be assigned by the
Company (whether by operation of law or otherwise) without the prior written
consent of the Required Investors, provided, however, that the Company may
assign its rights and delegate its duties hereunder to any surviving or
successor corporation in connection with a merger or consolidation of the
Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company’s assets to another corporation,
without the prior written consent of the Required Investors, after notice duly
given by the Company to each Investor. 

41 

            (e)   Benefits
of the Agreement. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective permitted successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. 

            (f)   Counterparts;
Faxes. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement may also be executed via facsimile,
which shall be deemed an original. 

            (g)   Titles
and Subtitles. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement. 

            (h)   Severability. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provisions hereof prohibited or unenforceable in any respect.

            (i)   Further
Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained. 

            (j)   Entire
Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

            (k)   Governing
Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
New York without regard to the choice of law principles thereof. Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of the courts
of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this
Agreement and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served on each party
hereto anywhere in the world by the same methods as are specified for the giving
of notices under this Agreement. Each of the parties hereto irrevocably consents
to the jurisdiction of any such court in any such suit, action or proceeding and
to the laying of venue in such court. Each party hereto irrevocably waives any

42 

objection to the laying of venue of
any such suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL
BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS
BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER. 

43 

        IN
WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized
officers to execute this Agreement as of the date first above written. 

	 	 	 	 	 	 
	The Company:	 	INSIGNIA SYSTEMS, INC.
	

   		

By:  	 	

   	 
	 	

	   		Name:  	 	   	 
	   		Title:  	 	   	 

44 

	  	  	  	  	  	  
	The Investors: 	  	SPECIAL SITUATIONS FUND III, L.P. 
	

    		

By:   	 	

    	 
	 	

	   		Name:   	David M. Greenhouse 
	    		Title:   	General Partner 
	  	  	

SPECIAL SITUATIONS CAYMAN FUND, L.P. 
	

    		

By:   	 	

    	 
	 	

	   		Name:   	David M. Greenhouse 
	    		Title:   	General Partner 
	  	  	

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P. 
	

    		

By:   	 	

    	 
	 	

	   		Name:   	David M. Greenhouse 
	    		Title:   	General Partner 

45 

Exhibit A  

Plan of Distribution 

        The
selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common
stock received after the date of this prospectus from a selling stockholder as a gift,
pledge, partnership distribution or other transfer, may, from time to time, sell, transfer
or otherwise dispose of any or all of their shares of common stock or interests in shares
of common stock on any stock exchange, market or trading facility on which the shares are
traded or in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the prevailing market
price, at varying prices determined at the time of sale, or at negotiated prices. 

        The
selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein: 

        –  ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers; 

        –  block
trades in which the broker-dealer will attempt to sell the shares as agent, but
may position and resell a portion of the block as principal to facilitate the
transaction; 

        –  purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;

        –  an
exchange distribution in accordance with the rules of the applicable exchange; 

        –  privately
negotiated transactions; 

        –  short sales effected after the date of this Prospectus; 

        –  through
the writing or settlement of options or other hedging transactions, whether through an
options exchange or otherwise; 

        –  broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; 

        –  a
combination of any such methods of sale; and 

        –  any
other method permitted pursuant to applicable law. 

        The
selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell the
shares of common stock, from time to time, under this prospectus, or under an amendment to
this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the 

46 

list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling stockholders
under this prospectus. The selling stockholders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this prospectus. 

        In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the common stock in the course of
hedging the positions they assume. The selling stockholders may also sell shares of our
common stock short and deliver these securities to close out their short positions, or
loan or pledge the common stock to broker-dealers that in turn may sell these securities.
The selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction). 

        The
aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if
any. Each of the selling stockholders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part, any proposed purchase of
common stock to be made directly or through agents. We will not receive any of the
proceeds from this offering. 

        The
selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that
they meet the criteria and conform to the requirements of that rule. 

        The
selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be “underwriters” within
the meaning of Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be underwriting discounts
and commissions under the Securities Act. Selling stockholders who are
“underwriters” within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. 

        To
the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any
agents, dealer or underwriter, any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement that includes this
prospectus. 

        In
order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers.
In addition, in some states the common stock may not be sold unless it has been registered
or qualified for sale or an exemption from registration or qualification requirements is
available and is complied with. 

47 

        We
have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of
the selling stockholders and their affiliates. In addition, we will make copies of this
prospectus (as it may be supplemented or amended from time to time) available to the
selling stockholders for the purpose of satisfying the prospectus delivery requirements of
the Securities Act. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. 

        We
have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus. 

        We
have agreed with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as all of the
shares covered by this prospectus have been disposed of pursuant to and in accordance with
the registration statement or (2) the date on which the shares may be sold pursuant to
Rule 144(k) of the Securities Act. 

48Exhibit 4.3 to Insignia Systems, Inc. Form 8-K (05-20-04)

EXHIBIT 4.3  

VOTING AGREEMENT 

        VOTING
AGREEMENT, dated as of May 20, 2004 (the “Agreement”), between Insignia
Systems, Inc., a Minnesota corporation (the “Company”), and
Scott F. Drill (the “Stockholder”). 

W I T N E S S E T H  

        WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the Company is
entering into a Purchase Agreement, dated as of the date hereof (as such agreement may
hereafter be amended from time to time, the “Purchase Agreement”), with certain
investors (the “Investors”) which provides for, upon the terms and subject to
the conditions set forth therein, the sale of shares of the Company’s Common Stock,
par value $0.01 per share (the “Securities”);  

        WHEREAS,
pursuant to the Purchase Agreement, the Company has agreed to call a special meeting of
its stockholders to approve, among other things, the sale of the Shares to the Investors
(the “Proposal”);  

        WHEREAS,
as of the date hereof, the Stockholder owns beneficially the number of shares of Common
Stock set forth opposite the Stockholder’s name on Schedule I hereto
(all such shares so owned and which may hereafter be acquired by such Stockholder prior to
the termination of this Agreement, whether upon the exercise of options, conversion of
convertible securities, exercise of warrants or by means of purchase, dividend,
distribution or otherwise, being referred to herein as the Stockholder’s
“Shares”);  

        WHEREAS,
approval of the Proposal by the Company’s stockholders is required in order to
consummate the sale of the Securities; 

        WHEREAS,
as a condition to the Investors’ willingness to enter into the Purchase Agreement,
the Investors have requested that the Stockholder enter into this Agreement; and 

        WHEREAS,
in order to induce the Investors to enter into the Purchase Agreement, the Stockholder is
willing to enter into this Agreement. 

        NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the Company and the
Stockholder hereby agree as follows: 

ARTICLE 1. 

TRANSFER AND VOTING OF SHARES; AND

OTHER COVENANTS OF THE STOCKHOLDER 

        SECTION 1.1.   Voting
of Shares. From the date hereof until termination of this Agreement pursuant
to Section 3.2 hereof (the “Term”), at any meeting of the
stockholders of the Company, however called and at any adjournment or
postponement thereof, and in any action by consent of the stockholders of the
Company, the Stockholder shall (A) appear at such meeting or  

49 

otherwise cause his Shares to be
counted as present thereat for purposes of establishing a quorum and (B) vote (or
cause to be voted) its Shares in favor of the Proposal and such other matters as may be
necessary or advisable to consummate the transactions contemplated by the Purchase
Agreement. 

        SECTION 1.2.   No
Inconsistent Arrangements. Except as contemplated by this Agreement, the
Stockholder shall not during the Term (i) transfer, or consent to any
transfer of, any or all of the Stockholder’s Shares or any interest
therein, or create or permit to exist any lien or other encumbrance on such
Shares not in effect on the date hereof, (ii) enter into any contract,
option or other agreement or understanding with respect to any transfer of any
or all of such Shares or any interest therein, (iii) grant any proxy,
power-of-attorney or other authorization in or with respect to such Shares,
(iv) deposit such Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares, or (v) take any other
action that would in any way restrict, limit or interfere with the performance
of its obligations hereunder or the transactions contemplated hereby or by the
Purchase Agreement; provided, however, the Stockholder shall be permitted to
transfer any or all of such Shares to his Affiliates, provided that such
Affiliates agreed to be bound by the terms of this Agreement.  

        SECTION 1.3.   Proxy;
Reliance. The Stockholder hereby revokes any and all prior proxies or powers
of attorney in respect of any of the Stockholder’s Shares and constitutes
and appoints the Company, or any nominee of the Company, with full power of
substitution and resubstitution, at any time during the Term, as its true and
lawful attorney and proxy (its “Proxy”), for and in its name, place
and stead, to vote each of such Shares as his Proxy in favor of the matters set
forth in Section 1.1, at every annual, special, adjourned or postponed meeting
of the stockholders of the Company, including the right to sign its name (as
stockholder) to any consent, certificate or other document relating to the
Company that the Minnesota Business Corporation Act may permit or require as
provided in Section 1.1.  

THE FOREGOING PROXY
AND POWER OF ATTORNEY ARE 
IRREVOCABLE AND COUPLED WITH AN INTEREST THROUGHOUT THE TERM. 

        SECTION 1.4.   Stop
Transfer. The Stockholder shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Stockholder’s Shares, unless such transfer is made
in compliance with this Agreement. 

        SECTION 1.5.   Additional
Shares. The Stockholder hereby agrees, while this Agreement is in effect, to
promptly notify the Company of the number of any new Shares acquired (whether
upon the exercise of options, conversion of convertible securities, exercise of
warrants or by means of purchase, dividend, distribution or otherwise) by such
Stockholder, if any, after the date hereof. 

        SECTION 1.6.   Disclosure. The
Stockholder hereby authorizes the Company to publish and disclose in the Proxy
Statement (including all documents and schedules filed with the SEC), his
identity and ownership of the Shares and the nature of his commitments,
arrangements and understandings under this Agreement. 

50 

ARTICLE II. 

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER 

        The
Stockholder hereby represents and warrants to the Company as follows: 

        SECTION 2.1.   Due
Authorization, etc. The Stockholder has all requisite power and authority to
execute, deliver and perform this Agreement, to appoint the Company as his Proxy
and to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement, the appointment of the Company as
Stockholder’s Proxy and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of
Stockholder. This Agreement has been duly executed and delivered by or on behalf
of the Stockholder and constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of the court before
which any proceeding for such remedy may be brought.  

        SECTION 2.2.   Required
Filings and Consents. The execution and delivery of this Agreement by the
Stockholder does not, and the performance of this Agreement by the Stockholder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority (other than
any necessary filing under the Exchange Act), domestic or foreign, except where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay the performance
by the Stockholder of the Stockholder’s obligations under this Agreement.

        SECTION 2.3.   Ownership
of Shares. The Stockholder is the record and beneficial owner of the Shares
set forth opposite his name on Schedule I hereto. On the date hereof, such
Shares constitute all of the Shares owned of record or beneficially by such
Stockholder. 

ARTICLE III. 

MISCELLANEOUS 

        SECTION 3.1.   Definitions. Terms
used but not otherwise defined in this Agreement have the meanings ascribed to
such terms in the Purchase Agreement. 

        SECTION 3.2.   Termination. This
Agreement shall terminate and be of no further force and effect (i) by the
written mutual consent of the parties hereto, (ii) automatically and without any
required action of the parties hereto upon the approval of the Proposal at the
Stockholders’ Meeting, including any adjournments or postponements thereof,
or (iii) automatically and without any required action of the parties hereto
upon termination of the Purchase Agreement in accordance with its terms. No such
termination of this Agreement shall relieve any party hereto from any liability
for any breach of this Agreement prior to termination. 

51 

        SECTION 3.3.   Further
Assurance. From time to time, at another party’s request and without
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement. 

        SECTION 3.4.   No
Waiver. The failure of any party hereto to exercise any right, power or
remedy provided under this agreement or otherwise available in respect hereof at
law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, or any custom or practice of the parties at variance
with the terms hereof shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance. 

        SECTION 3.5.   Specific
Performance. The Stockholder acknowledges that if the Stockholder fails to
perform any of his obligations under this Agreement, immediate and irreparable
harm or injury would be caused to the Company for which money damages would not
be an adequate remedy. In such event, the Stockholder agrees that the Company
shall have the right, in addition to any other rights it may have, to specific
performance of this Agreement. Accordingly, should the Company institute an
action or proceeding seeking specific enforcement of the provisions hereof, the
Stockholder hereby waives the claim or defense that the Company has an adequate
remedy at law and hereby agrees not to assert in any such action or proceeding
the claim or defense that such a remedy at law exists. 

        SECTION 3.6.   Notice. All
notices and other communications given or made pursuant hereto shall be in
writing and shall be deemed to have been duly given or made (i) as of the
date delivered or sent by facsimile if delivered personally or by facsimile, and
(ii) on the third business day after deposit in the U.S. mail, if
mailed by registered or certified mail (postage prepaid, return receipt
requested), in each case to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice, except that
notices of changes of address shall be effective upon receipt): 

	(a) 	  	
If to the Company: 
Insignia Systems, Inc. 
6470 Sycamore Court North 
Maple Grove,
Minnesota 55369 
Attention: Scott F. Drill, CEO 
Fax: (763) 392-6222 

	(b) 	  	
If to the Stockholder, at the address set forth below the Stockholder’s
name on Schedule I hereto. 

        SECTION 3.7.   Expenses. All
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Company,
including, without limitation, the fees, costs and expenses incurred by the
Stockholder. 

52 

        SECTION 3.8.   Headings. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.

        SECTION 3.9.   Severability. If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the maximum extent possible. 

        SECTION 3.10.   Entire
Agreement; No Third-Party Beneficiaries. This Agreement constitutes the
entire agreement and supersedes any and all other prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, and this Agreement is not intended to
confer upon any other person any rights or remedies hereunder. 

        SECTION 3.11.   Assignment. Neither
this Agreement nor any of the rights, interests or obligations under this
Agreement shall be assigned, in whole or in part, by operation of law or
otherwise. 

        SECTION 3.12.   Governing
Law. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Minnesota applicable to contracts executed in and to be
performed entirely within that State. 

        SECTION 3.13.   Amendment. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the Company and the Stockholder. 

        SECTION 3.14.   Waiver. Any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto and (c) waive
compliance by the other parties hereto with any of their agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only as against such party and only if
set forth in an instrument in writing signed by such party. The failure of any
party hereto to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights. 

        SECTION 3.15.   Descriptive
Headings; Interpretation. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. 

        SECTION 3.16.   Counterparts. This
Agreement may be executed (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in 

53 

separate counterparts, each of which
when executed shall be deemed to be an original but all of which shall constitute one and
the same agreement. 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 

54 

        IN
WITNESS WHEREOF, the Company and the Stockholder have caused this Agreement to be executed
as of the date first written above. 

	  	  	  	  	  	  
	 	  	INSIGNIA SYSTEMS, INC. 
	

    		

By:   	 	

    	 
	 	

	   		 	 	Name:  
Title: 
	

    		

By:   	 	

    	 
	 	

	   		 	 	Scott F. Drill 

55 

Schedule I  

	Name and Address of Stockholder  	 	 	 		 
	  	 	Shares owned directly	 	80,020	 
	Scott F. Drill	 
	Insignia Systems, Inc.	 	Shares owned indirectly	 
	6470 Sycamore Court North 	 	(Family Limited Partnership)	 	80,000	 
	Maple Grove, MN 55369-6032 	

	
  	 	  	 	160,020 	  
	 	

	
  	 	Excludes stock options of: 	 	160,000	 

56

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