Edgar Filing: INSIGNIA SYSTEMS INC/MN

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

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Insignia Systems, Inc.
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(Name of Registrant as Specified in Its Charter)

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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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[INSIGNIA SYSTEMS, INC. LOGO]
6470 Sycamore Court North, Maple Grove, MN 55369
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 20, 2003

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TO THE SHAREHOLDERS OF INSIGNIA SYSTEMS, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Insignia Systems, Inc. (the "Company"), a Minnesota corporation, will be held on
Tuesday, May 20, 2003 at 9:00 a.m., Central Daylight Savings Time, at the
Radisson Hotel & Conference Center, 3131 Campus Drive, Plymouth, Minnesota, for
the following purposes:

1. To approve an amendment to the Company's Articles of Incorporation,
which provides that the Board shall be divided into three classes and
each class will serve for a period of three years;

2. To elect seven directors to serve for a period of up to three years and
until their successors are elected;

3. To approve the 2003 Incentive Stock Option Plan, and the reservation of
350,000 shares for the grant of options under the Plan;

4. To transact such other business as may properly come before the meeting
or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

The Board of Directors has fixed the close of business on March 25,
2003 as the record date for the determination of shareholders entitled to notice
of and to vote at the meeting.

By Order of the Board of Directors

John R. Whisnant
Secretary

Maple Grove, Minnesota
April 8, 2003

ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID
ENVELOPE ENCLOSED FOR THAT PURPOSE.

[INSIGNIA SYSTEMS, INC. LOGO]
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PROXY STATEMENT
-------------------------------------------------------

This Proxy Statement is furnished to the shareholders of Insignia
Systems, Inc. in connection with the Board of Directors' solicitation of proxies
to be voted at the annual meeting of shareholders to be held on May 20, 2003 or
any adjournment thereof (the "Meeting"). The mailing of this Proxy Statement to
shareholders commenced on or about April 8, 2003.

All expenses in connection with solicitation of proxies will be borne
by the Company. The Company will pay brokers, nominees, fiduciaries, or other
custodians their reasonable expenses for sending proxy material to, and
obtaining instructions from, persons for whom they hold stock of the Company.
The Company expects to solicit proxies by mail, but directors, officers, and
other employees of the Company may also solicit in person, by telephone, by
telegraph or by mail. The Company's principal offices are located at 6470
Sycamore Court North, Maple Grove, Minnesota 55369.

Any proxy may be revoked at any time before it is voted by written
notice, mailed or delivered to the Secretary of the Company, or by revocation in
person at the Meeting; but if not so revoked, the shares represented by such
proxy will be voted in the manner directed by the shareholder. If no direction
is made, proxies received from shareholders will be noted "for" the proposals
set forth in the Notice of Meeting.

The Company has 12,202,920 shares of Common Stock, par value $.01 per
share (the "Common Stock") outstanding and entitled to vote at the Meeting. Each
share of Common Stock is entitled to one vote. Only shareholders of record at
the close of business on March 25, 2003 are entitled to vote at the meeting and
at any continuation or adjournment thereof. The presence, in person or by proxy,
of the holders of a majority of the shares of Common Stock entitled to vote at
the meeting will constitute a quorum for the transaction of business.

Under Minnesota law, each item of business properly presented at a
meeting of shareholders generally must be approved by the affirmative vote of
the greater of: (1) the holders of a majority of the voting power of the shares
present, in person or by proxy, and entitled to vote on that item of business;
or (2) a majority of the voting power of the minimum number of the shares
entitled to vote that would constitute a quorum for the transaction of business
at the meeting. Votes cast by proxy or in person at the Meeting will be
tabulated at the Meeting to determine whether or not a quorum is present.
Abstentions will be treated as unvoted for purposes of determining the approval
of the matter submitted to the shareholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.

SECURITY OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table presents information provided to the Company as to
the beneficial ownership of Common Stock as of January 31, 2003 (i) by persons
known to the Company to hold 5% or more of such stock, (ii) each of the
directors of the Company, (iii) each of the executive officers named in the
Summary Compensation Table on page 3 and (iv) by all current officers and
directors as a group. Beneficial ownership includes shares available for
purchase under warrants or options which are either currently exercisable or
exercisable within 60 days after January 31, 2003.

Page 1

Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Shares
------------------------------------- -------------------- ----------

5% Shareholders
---------------
Perkins Capital Management, Inc. 1,253,642(1) 10.6%
730 East Lake Street
Wayzata, MN 55391

W. Robert Ramsdell 936,550(2) 7.9%
6740 Sycamore Court North
Maple Grove, MN 55369l

Perkins Opportunity Fund 725,000(1) 6.2%
730 East Lake Street
Wayzata, MN 55391

Directors and Executive Officers
--------------------------------
Scott F. Drill 505,406(3) 4.1%

Gary L. Vars 271,120(4) 2.3%

Frank D. Trestman 175,000(5) 1.5%

Erwin A. Kelen 170,000(6) 1.4%

John R. Whisnant 90,839(7) *

Gordon F. Stofer 26,814(8) *

Donald J. Kramer - *

All current Directors and Officers as a Group 2,175,729(9) 18.2%
(9 persons)

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* Indicates less than one percent.
(1) Perkins Opportunity Fund is affiliated with Perkins Capital Management,
Inc.
(2) Includes 15,000 shares subject to options which are currently
exercisable. Mr. Ramsdell is also a director.
(3) Includes 475,000 shares subject to options which are currently
exercisable.
(4) Includes 215,000 shares subject to options and 15,000 shares subject to
warrants which are currently exercisable, and 4,650 shares owned by Mr.
Vars' spouse, as to which he disclaims beneficial ownership.
(5) Includes 30,000 shares subject to options and 25,000 shares subject to
warrants which are currently exercisable. Also includes 40,000 shares
held in trust for Mr. Trestman's spouse and children and 50,000 shares
subject to warrants currently exercisable by the trust, as to which Mr.
Trestman disclaims beneficial ownership.
(6) Includes 30,000 shares subject to options and 75,000 shares subject to
warrants which are currently exercisable and 30,000 shares held in trust
for Mr. Kelen's children, as to which he disclaims beneficial ownership.
(7) Includes 66,334 shares subject to options which are currently exercisable
and 1,250 shares owned by Mr. Whisnant's children, as to which he
disclaims beneficial ownership.
(8) Consists of 25,000 shares subject to options which are currently
exercisable.
(9) Includes 856,334 shares subject to options and 115,000 shares subject to
warrants currently exercisable by officers and directors of the Company,
30,000 shares held in trust for the children of a director, 40,000 shares
and 50,000 shares subject to warrants which are currently exercisable
held in trust for the spouse and children of another director, 1,250
shares held by an officer's children and 4,650 shares held by the spouse
of another director.

Page 2

EXECUTIVE COMPENSATION AND OTHER INFORMATION

The following table shows, for the fiscal years ending December 31,
2000, 2001 and 2002, the cash compensation paid by the Company, as well as
certain compensation paid or accrued for such years, to Scott F. Drill, the
Company's President and Chief Executive Officer, and to each other executive
officer of the Company (together with Mr. Drill, the "Named Executives") whose
total cash compensation exceeded $100,000 during 2002 in all capacities in which
they served:

SUMMARY COMPENSATION TABLE

Long-Term
Annual Compensation(1) Compensation
Fiscal Year ------------------------------- -----------------
Ended Stock Options All Other
Name and Position December 31, Salary Commission and Awards Compensation(2)
-------------------------- ----------------- ---------- ----------------- ----------------- -------------------

Scott F. Drill, 2002 $275,000 -- 50,000 $3,180
President and Chief 2001 $250,000 -- 75,000 $360
Executive Officer 2000 $216,670 -- -- $300

Gary L. Vars, 2002 $250,000 $24,521 50,000 $792
Chairman of the Board of 2001 $225,000 -- 100,000 $1,386
Directors; President, 2000 $187,667 -- -- $899
POPS Division

John R. Whisnant, 2002 $142,917 -- 10,000 $9,279
Vice President of 2001 $135,000 -- 10,000 $10,039
Administration and 2000 $125,000 -- -- $6,290
Secretary

--------------------------
(1) No bonuses have been paid for the last three fiscal years.
(2) Includes amounts for car allowance and payment of life insurance premiums.

CHANGE IN CONTROL AGREEMENTS

Messrs. Drill, Vars and Whisnant have Change in Control Agreements with
the Company. The agreements provide that, following a change in control of the
Company, they will receive severance payments equal to two years' salary for
Messrs. Drill and Vars, and one year's salary for Mr. Whisnant, if they are
terminated without cause, or if they voluntarily terminate for "good reason,"
defined in the agreement to include demotion, reduction in salary or benefits,
relocation, and certain other events. In addition, Messrs. Drill's and Vars'
agreements provide that they will receive their severance payments if they
voluntarily terminate their employment for any reason following a hostile
takeover of the Company.

STOCK OPTIONS

The Company's 1990 Stock Plan (the "1990 Plan") provides for the
granting of stock options or restricted stock awards to key employees,
consultants and directors. An aggregate of 2,470,000 shares of common stock have
been issued or reserved for issuance under the Plan. On February 24, 2003, the
Board of Directors adopted the 2003 Incentive Stock Option Plan (the "2003
Plan"), to replace the 1990 Plan. All future incentive stock option grants will
be made under the 2003 Plan, provided the shareholders approve the 2003 Plan at
the Meeting. See Item III in this Proxy Statement.

Page 3

OPTION GRANTS IN LAST FISCAL YEAR

% of Total Potential Realizable
Options Value at Assumed
Number of Granted to Annual Rates of Stock
Shares Employees in Price Appreciation for
Covered by Fiscal Year Exercise Option Term
Option Ended Price Expiration ------------------------
Name Grants(1) Dec. 31, 2002 Per Share(2) Date 5% 10%
-------------- ------------ ---------------- --------------- ------------- ------------------------

Scott F. 50,000 12.5% $9.30 5/22/2012 $292,436 $741,090
Drill

Gary L. Vars 50,000 12.5% $9.30 5/22/2012 $292,436 $741,090

Denni J. 40,000 10.0% $10.61 12/02/2012 $266,903 $676,384
Lester

John R. 10,000 2.5% $9.30 5/22/2012 $58,487 $148,218
Whisnant

--------------------------
(1) All option grants vest at the rate of 33.33% per year over three years.
(2) Equal to the market value of the Company's Common Stock on the date of
grant.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares at December 31, 2002 at December 31, 2002(1)
Acquired Value ------------------------------- ----------------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------- ----------- -------- ----------- ------------- ----------- -------------

Scott F. Drill -- -- 475,000 50,000 $3,957,800 $58,500
Gary L. Vars 10,000 $43,050 215,000 50,000 $1,265,125 $58,500
Denni J. Lester -- -- -- 40,000 -- --
John R. Whisnant 12,000 $76,200 66,334 16,666 $588,028 $29,032

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(1) Based on the market price of $10.47 per share for the Company's Common Stock
on December 31, 2002.

Page 4

EQUITY COMPENSATION PLAN INFORMATION

(c)
(a) Number of Securities
Number of Securities (b) Remaining Available for
to be Issued Upon Weighted-Average Future Issuance under
Exercise of Exercise Price of Equity Compensation Plans
Outstanding Options Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column (a))
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Equity compensation plans
approved by security holders 2,196,639 $5.64 15,623(1)

Equity compensation plans not
approved by security holders 0 0 0

Total 2,196,639 $5.64 15,623(1)
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(1) Does not include 350,000 additional shares proposed to be authorized under
the 2003 Incentive Stock Option Plan as described in Item III in this Proxy
Statement.

REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

OVERVIEW AND PHILOSOPHY

The Compensation Committee of the Board of Directors (the "Committee")
operates pursuant to a Charter adopted by the Board of Directors on February 24,
2003. The Charter includes a mission statement which states that the Committee's
mission is to ensure that the Company's executive officers are compensated
consistent with the following philosophy and objectives: (1) to support the
Company's overall business strategy and objectives; (2) to attract, retain and
motivate the best executives in the Company's industry; (3) to promote the
Company's pay-for-performance philosophy; and (4) to ensure that the Company's
compensation programs and practices are of the highest quality and designed with
full consideration of all accounting, tax, securities law, and other regulatory
requirements.

Pursuant to the Charter, the Committee is appointed by the Board and is
comprised of between three and five outside directors. The main duties of the
Committee, as described in the Charter, are as follows: (1) review and approve
annual base salary and incentive compensation levels, employment agreements, and
benefits of the Chief Executive Officer and other key executives; (2) review the
performance of the Chief Executive Officer; (3) review and assess performance
target goals established for bonus plans and determine if goals were achieved at
the end of the plan year; (4) act as the administrative committee for the
Company's Stock Plans, the Employee Stock Purchase Plan, and any other incentive
plans established by the Company; (5) consider and approve grants of incentive
stock options, nonqualified stock options, restricted stock or any combination
to any employee; and (6) prepare the Report of the Compensation Committee for
inclusion in the Annual Proxy Statement.

It is the intention of the Committee to utilize a pay-for-performance
compensation strategy that is directly related to achieving the financial
objectives of the Company. The primary elements of the executive compensation
program are base salary, annual incentives, and long-term incentives.

Page 5

BASE SALARY

Base salaries of the Company's executive officers are intended to be
competitive with the median base salaries paid by other corporations similar to
the Company and to serve as a platform for performance-based (incentive) pay.
Base salaries are determined for executive positions using compensation surveys,
taking into account variables such as geography, job comparability, size of the
company and nature of the business. In addition to base salary, executive
officers are eligible to participate in the Company's employee benefit plans on
the same terms as other employees.

ANNUAL INCENTIVES

No bonuses were paid to executive officers for the three fiscal years
ended December 31, 2000, 2001 and 2002. The Company has adopted a bonus plan for
its executive officers for 2003. Bonus payments are contingent on the
performance of the Company.

LONG-TERM INCENTIVES

The 1990 Stock Plan, and now the 2003 Incentive Stock Option Plan, are
the basis of the Company's long-term incentive plans for executive officers and
other key employees. The objective of the plans is to align executives'
long-term interests with those of the shareholders by creating a direct
incentive for executives to increase shareholder value. The stock option grants
allow executives to purchase shares of Company stock at a price equal to the
fair market value of the stock on the date of grant over a term of five to ten
years. The options generally vest and become exercisable over a period of two to
four years following the date of grant. The award of option grants is consistent
with the Company's objective to include in total compensation a long-term equity
interest for executive officers, with greater opportunity for reward if
long-term performance is sustained.

The Company also maintains the Employee Stock Purchase Plan, pursuant
to which eligible employees can contribute up to ten percent of their base pay
per year to purchase shares of Common Stock. The shares are issued by the
Company at a price per share equal to 85 percent of market value on the first
day of the offering period or the last day of the plan year, whichever is lower.

CHIEF EXECUTIVE OFFICER COMPENSATION

The Committee determines compensation for the Chief Executive Officer
on an annual basis. Mr. Drill's current base salary was established by the
Compensation Committee, and became effective January 1, 2002. The Committee
believes that this base salary is consistent and competitive with salaries paid
to Chief Executive Officers of companies of similar size and type. Mr. Drill has
not received a bonus for the past five years.

CONCLUSION

The Committee believes that the executive compensation plan discussed
in this Proxy Statement is consistent with the overall corporate strategy for
continued growth in earnings and shareholder value.

SUBMITTED BY THE COMPENSATION COMMITTEE:
Gordon Stofer, Chairman Erwin Kelen W. Robert Ramsdell Frank Trestman

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors is responsible for
providing independent objective oversight of the Company's financial reporting
system by overseeing and monitoring management's and the independent auditors'
participation in the financial reporting process. The Audit Committee is
comprised of independent directors, and acts under a written charter first
adopted and approved by the Board of Directors on October 23, 1991. On April 7,
2003, the Board of Directors approved a revised charter. A copy of the charter
is attached as an appendix. Each of the members of the Audit Committee is
independent as defined by the Nasdaq listing standards.

Page 6

The Audit Committee reviewed and discussed the audited financial
statements with management and Ernst & Young LLP. Management represented to the
Audit Committee that the Company's financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the financial statements with management
and the independent auditors. The discussions with Ernst & Young LLP also
included the matters required by Statement on Auditing Standards No. 61
(Communication with Audit Committees).

Ernst & Young LLP provided to the Audit Committee the written
disclosures and the letter regarding its independence as required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). The Committee discussed with the independent auditors the auditors'
independence from management and the Company and considered the compatibility of
nonaudit services with the auditors' independence.

Based on the discussions with management and Ernst & Young LLP, the
Audit Committee's review of the representations of management and the report of
Ernst & Young LLP, the Audit Committee recommended to the Board that the audited
financial statements be included in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 2002 filed with the Securities and Exchange
Commission.

SUBMITTED BY THE AUDIT COMMITTEE:
Erwin Kelen Gordon Stofer Frank Trestman

The preceding report shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 (the "1993 Act") or the Securities
Exchange Act of 1934 (the "1934 Act"), except to the extent the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under the 1993 Act or the 1934 Act.

AUDITORS

Ernst & Young LLP, independent auditors, have been the Company's
auditors since 1990. A representative of Ernst & Young LLP is expected to be
present at the Meeting, and will be given the opportunity to make a statement
and will be available to answer appropriate questions.

AUDIT AND AUDIT RELATED FEES

The aggregate fees billed to the Company during fiscal 2002 by Ernst &
Young LLP for professional services rendered for the audit of the Company's
annual financial statements, reviews of the financial statements included in the
Company's Form 10-Q's for fiscal 2002 and services provided in connection with
statutory and regulatory filings related to those periods were $69,000. Other
consultations including services in connection with the private placement and
ValuStix transactions in 2002 were $8,600.

ALL OTHER FEES

Other than audit fees, the aggregate fees billed to the Company by
Ernst & Young LLP for the most recent fiscal year, none of which related to
financial information systems design and implementation fees, were $24,400. This
figure includes fees for all nonaudit services such as tax-related services. The
Audit Committee determined that the non-audit services performed by Ernest &
Young LLP are not incompatible with maintaining Ernst & Young LLP's independence
with respect to the Company.

Page 7

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total shareholder return on
the Company's Common Stock for the five fiscal years beginning December 31, 1997
and ending December 31, 2002, with the cumulative total return on the Nasdaq
Stock Market -- U.S. Index and the Russell 2000 Index ("Russell Index") over the
same period (assuming the investment of $100 in the Company's Stock, the Nasdaq
Stock Market -- U.S. Index and the Russell Index on December 31, 1997 and the
reinvestment of all dividends).

Page 8

5-YEAR CUMULATIVE TOTAL RETURN COMPARISON AMONG
INSIGNIA SYSTEMS, THE NASDAQ COMPOSITE INDEX, & THE RUSSELL 2000 INDEX

[LINE GRAPH]

Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002
--------------------------------------------------------------------------------------------

ISIG 100.0 117.1 278.1 387.9 655.7 817.3
--------------------------------------------------------------------------------------------------------------
Nasdaq Composite 100.0 139.6 259.1 157.3 124.2 85.0
--------------------------------------------------------------------------------------------------------------
Russell 2000 100.0 96.6 115.5 110.6 111.8 87.7
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Page 9

ITEM I
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION

The Board of Directors has approved, and is recommending to the
shareholders for approval at the Meeting, an amendment to Article V of the
Articles of Incorporation, to divide the Board of Directors into three separate
"classes". The members of each class would serve for a term of three years, with
one class to be elected each year. The directors of the Company currently serve
until their successors are elected, or until their prior resignation, removal or
incapacity.

PURPOSES AND EFFECTS OF PROPOSED CHANGE IN THE ELECTION AND TERM OF DIRECTORS

The Board of Directors believes that the three-year staggered terms
provide stability and will ensure that a majority of the Company's directors at
any given time have prior experience as directors of the Company. Directors who
have experience with the Company and knowledge about its business are a valuable
resource and are better positioned to make the fundamental decisions that are
best for the Company and its shareholders. The Board observes that numerous
well-respected U.S. corporations and institutional investors have classified
boards.

In addition, the Board of Directors believes that electing directors to
staggered three-year terms enhances long-term strategic planning. The Board
continuity made possible by the classified board structure is essential to the
proper oversight of the Company. The Board of Directors believes a classified
board is appropriate for the Company and ensures responsible, knowledgeable
representation of the long-term interests of the Company and its shareholders.
The annual election of only one-third of the Board also helps to prevent abrupt
changes in corporate policies, based on misplaced short-term objectives that
might result if the entire Board could be replaced in one year.

Moreover, the Board believes that electing directors to three-year
terms enhances the independence of non-management directors by providing them
with a longer assured term of office. Three-year terms for directors assist the
Company in attracting director candidates who are willing to make a longer-term
commitment to the Company.

The Board of Directors also believes that a classified board structure
enhances the Board's ability to negotiate the best results for shareholders in a
takeover situation. A classified board encourages a person seeking to obtain
control of the Company to negotiate with the Board. At least two annual meetings
will be required to effect a change in control of the Board. This gives the
incumbent directors the time and leverage necessary to evaluate the adequacy and
fairness of any takeover proposal, negotiate on behalf of all shareholders, and
weigh alternative methods of maximizing shareholder value for all shareholders.
It is important to note, however, that although the classified board is intended
to cause a person seeking to obtain control of the Company to negotiate with the
Board, the existence of a classified board will not, in fact, prevent a person
from accomplishing a hostile acquisition.

Page 10

AMENDMENT TO ARTICLES OF INCORPORATION

If approved, Article V of the Company's Articles of Incorporation would
be amended and restated as follows:

ARTICLE V.
DIRECTORS

The board of directors shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be
elected for a term of three years (or for a shorter period when
necessary to ensure that the Board is divided into three equal
classes), and until their successors are elected and qualified. One
class of directors shall be elected annually.

EFFECTIVE DATE OF PROPOSED AMENDMENT

The proposed amendment to Article V of the Articles of Incorporation of
the Company, if adopted by the required vote of the shareholders, will become
effective upon filing with the Minnesota Secretary of State. The directors
elected at the Meeting will be designated in classes, with such designation to
become effective at the time the amendment becomes effective.

SHAREHOLDER APPROVAL AND BOARD RECOMMENDATION

The affirmative vote of holders of a majority of the shares of Common
Stock present and entitled to vote at the Meeting is required to approve the
proposed amendment. If the amendment is not approved by the shareholders, the
Company's Articles of Incorporation, which currently do not specify classes or
definite terms for directors, will continue in effect and the election and term
of directors will not change.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO
THE COMPANY'S ARTICLES OF INCORPORATION.

ITEM II
ELECTION OF DIRECTORS

Contingent on the effectiveness of the Amendment of Article V of the
Articles of Incorporation to divide the Board of Directors into three separate
classes, the Board of Directors has fixed at seven the size of the Board of
Directors with each director designated in one of three classes. Class One shall
be scheduled for reelection in 2004, Class Two in 2005, and Class Three in 2006.
The Board has nominated as the management slate the current seven members. It is
anticipated that proxies will be voted for the management slate, and that each
nominee will serve if elected. Should any nominee be unable to serve, the
persons named in the proxies may in their discretion vote for a substitute. If
the Amendment does not become effective, each director shall serve until his
successor is elected, or until his prior resignation, removal or incapacity.

The names and ages of the management slate of nominees, their principal
occupations and other information is set forth below, based upon information
furnished to the Company by the nominees.

Page 11

To Be Elected to
Director Serve Until Annual
Name and Age Occupation Since Meeting in Year
----------------------------- -------------------------------------- ---------- ---------------------

Gary L. Vars (62) Chairman of the Board of Directors, 1999 2004
and President of POPS Division

Scott F. Drill (50) President and Chief Executive Officer 1998 2004

Erwin A. Kelen (67) Private Investor, Consultant 1990 2005

Gordon F. Stofer (56) Managing General Partner, Cherry 1990 2005
Tree Ventures

Donald J. Kramer (70) Private Investor, Consultant 2002 2006

W. Robert Ramsdell (62) Private Investor, Consultant 1999 2006

Frank D. Trestman (68) Private Investor, Consultant 1990 2006
----------------------

BUSINESS EXPERIENCE

Gary L. Vars has been Chairman of the Board of Directors since March
2001, and President of the POPS Division since December 2002. From September
1998 to December 2002, he was Executive Vice President and General Manager of
the POPS Division. Prior to joining the Company in 1998, Mr. Vars spent 22 years
as a marketing and business development consultant to Fortune 500 companies.
From 1966 to 1976, Mr. Vars held various management positions at the Pillsbury
Co., including Director of Marketing and New Product Development, Grocery
Products Division.

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

Erwin A. Kelen has been a director of the Company since August 1990.
Since October 1990, Mr. Kelen has served as President of Kelen Ventures, a
venture capital investment and consulting firm located in Minneapolis,
Minnesota. From January 1984 to October 1990, Mr. Kelen was President and Chief
Executive Officer of DataMyte Corporation, a manufacturer of computerized
factory data collection systems based in Minneapolis, Minnesota. He is a
director of Printronix, Inc., a manufacturer of printers for computer based
systems located in Irvine, California; Computer Network Technologies, Inc., a
Minneapolis-based designer and manufacturer of high-speed computer networking
equipment; and CyberOptics Corp., a Minneapolis-based manufacturer of laser
sensors and sensor systems.

Donald J. Kramer was appointed to the Board in December 2002. Until
1996, he was a principal of TA Associates, a private equity capital firm located
in Boston, Massachusetts. He is also a director of Micro Component Technology,
Inc., a manufacturer of semiconductor handling and testing equipment based in
St. Paul, Minnesota.

W. Robert Ramsdell has been a director of the Company since October
1999. Mr. Ramsdell has been engaged in private investments in micro cap
companies since 1990. From 1970 to 1990, Mr. Ramsdell was in the institutional
equity business where he became senior partner in 1973 as director of research
and Los Angeles Office manager of Cantor Fitzgerald & Co and retired in 1990. He
has been financial advisor to many companies including Occupational Urgent Care
Systems (OUCH) and Preferred Voice.

Page 12

Gordon F. Stofer has been a director of the Company since February
1990. Since 1980, Mr. Stofer has been the managing general partner of Cherry
Tree Investments, Inc., a venture capital and investment banking firm located in
Minneapolis, Minnesota. Mr. Stofer has been a director of numerous public and
private companies over the past 25 years.

Frank D. Trestman has been a director of the Company since August 1990.
Since November 1986, Mr. Trestman served as President of Trestman Enterprises, a
Minneapolis-based investment and consulting firm. Mr. Trestman is Chairman of
The Avalon Group, a developer of retail shopping centers located in Minneapolis,
Minnesota. He also serves as a director of Best Buy Co., Inc., a national
retailer of consumer electronic products based in Minneapolis, Minnesota, and
Metris Companies, Inc., located in Minneapolis, Minnesota, an information-based
direct marketer of consumer credit products, extended service plans and other
fee based products and services to moderate income consumers.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors met four times during 2002. Each director
attended at least 75% of all meetings of the Board and committees of the Board
on which he served.

The Board of Directors has three standing committees, the Audit
Committee, the Compensation Committee, and the Nominating and Governance
Committee. The Audit Committee consists of Mr. Kelen, Mr. Stofer and Mr.
Trestman. The Audit Committee met four times in fiscal 2002 and has met three
times since December 31, 2002 to review the 2002 audit plan, review the results
of operations for 2002 prior to the year-end press release, and to review the
2002 Audit Report and the required annual communications from the Company's
independent auditors. These meetings were designed to facilitate and encourage
private communication between the Audit Committee and the Company's independent
auditors, Ernst & Young LLP. Among other duties, the Audit Committee reviews and
evaluates significant matters relating to the audit and the internal controls of
the Company, reviews the scope and results of audits by, and the recommendations
of, the Company's independent auditors and approves additional services to be
provided by the auditors. See the Report of the Audit Committee in this Proxy
Statement.

The Compensation Committee consists of Mr. Kelen, Mr. Stofer, Mr.
Ramsdell and Mr. Trestman. Among other duties, the Compensation Committee
reviews the compensation of the Company's officers and approves option grants to
employees. The Committee met four times during 2002. See the Report of the
Compensation Committee in this Proxy Statement.

The Nominating and Governance Committee was formed in December 2002 and
consists of Mr. Kelen, Mr. Stofer and Mr. Trestman. The Committee met once in
2002. It reviews and approves nominees for election of directors, and other
matters relating to the governance of the Company. The Committee will consider
nominees proposed by the shareholders addressed to the Committee and received
before January 1 of the year of the next Annual Meeting.

COMPENSATION OF DIRECTORS

Prior to 2003, the Company's directors did not receive any fees for
their service on the Board of Directors, other than reimbursement of reasonable
out-of-pocket expenses incurred on behalf of the Company. Beginning in 2003,
outside directors will receive a fee of $10,000 per year and $1,000 for each
Board meeting that they attend. In addition, the Chair of each committee will
receive $1,000 for each meeting of the committee, and members of the committee
will receive $500 for each meeting of the committee, that they attend. The 2003
Incentive Stock Option Plan provides for the grant to each non-employee director
of a non-qualified option to purchase 10,000 shares of common stock at the time
the director is first elected or appointed to the Board, and grants of
non-qualified options for 5,000 shares each year that the director is
re-elected. All grants have an exercise price equal to the closing market price
on the date of grant.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ELECTION
OF THE MANAGEMENT SLATE OF NOMINEES.

Page 13

ITEM III
APPROVAL OF 2003 INCENTIVE STOCK OPTION PLAN

On February 24, 2003, the Board of Directors adopted, subject to
shareholder approval, the 2003 Incentive Stock Option Plan (the "2003 Plan").
The 2003 Plan replaces the 1990 Stock Plan (the "1990 Plan"). Substantially all
of the shares reserved for issuance under the 1990 Plan were either issued or
covered by outstanding options, and the 1990 Plan included a number of
provisions that had become obsolete. The Board of Directors deemed it prudent to
adopt a new plan containing all provisions currently required by applicable laws
and regulations, and to permit the continued grant of options to attract, retain
and motivate key employees and directors.

Options previously granted under the 1990 Plan will remain in effect
until they are exercised or expire according to their terms. All future option
grants will be made under the 2003 Plan, provided the shareholders approve the
2003 Plan at the Annual Meeting.

SUMMARY OF THE PLAN

The 2003 Plan provides for the granting of stock options to employees,
non-employee directors, consultants and advisors. There are currently 140
employees, and five non-employee directors, who are eligible to receive options
under the 2003 Plan. An aggregate of 350,000 shares of Common Stock have been
issued or reserved for issuance under the 2003 Plan. Shares covered by expired
or terminated stock options may be used for subsequent awards under the 2003
Plan.

The 2003 Plan is administered by the Compensation Committee, whose
members are appointed by the Board. The Committee has the power to select
recipients, make grants of stock options, and adopt regulations and procedures
for the 2003 Plan. Non-employee directors receive automatic option grants for
10,000 shares in the year in which they are first appointed or elected to the
Board, and option grants for 5,000 shares each year they are re-elected.

The 2003 Plan permits the grant of both stock options that qualify as
"incentive stock options" under the Internal Revenue Code and options that do
not so qualify ("non-qualified options"). Incentive stock options differ as to
their tax treatment and are subject to a number of limitations under the
Internal Revenue Code. Incentive stock options may only be granted to employees,
and may not be granted with an exercise price less than 100% of the fair market
value of the Common Stock on the date of the grant (or, for an option granted to
a person holding more than 10% of the Company's voting stock, at less than 110%
of fair market value). The 2003 Plan states that the maximum number of shares
for which any person may be granted options in any year shall not exceed 100,000
shares.

Following an optionee's death or disability, the optionee's options may
be exercised by the optionee (or the optionee's legal representative or legatee)
for a period of one year or until the expiration of the stated term of the
option, whichever is less. If an optionee's employment with the Company
terminates for any other reason, the optionee's options will remain exercisable
for 90 days or until the expiration of the stated term, whichever is less,
except if such optionee is terminated for conduct which is contrary to the best
interest of the Company, or violates any written nondisclosure agreement, the
optionee's options will immediately terminate. Options may not be transferred
other than by will or the laws of descent and distribution, and during the
lifetime of an optionee may be exercised only by the optionee.

The term of each option, which is fixed by the Committee at the time of
grant, may not exceed ten years from the date the option is granted (except that
an incentive option granted to a person holding more than 10% of the Company's
voting stock may be exercisable only for five years). Options may be made
exercisable in whole or in installments, as determined by the Committee. The
vesting of options will be accelerated upon a change in control of the Company.

Page 14

FEDERAL INCOME TAX TREATMENT

Generally the grant of either an incentive stock option or a
non-qualified option under the 2003 Plan will not cause recognition of income by
the optionee or entitle the Company to an income tax deduction. Upon exercise of
an option, the tax treatment will generally vary depending on whether the option
is an incentive stock option or a non-qualified option. The exercise of an
incentive stock option will generally not cause recognition of income by the
optionee or entitle the Company to a tax deduction. However, the amount by which
the fair market value of the shares obtained exceeds the exercise price on the
date of exercise is an item of tax preference to the optionee for alternative
minimum tax purposes.

The exercise of a non-qualified option will generally cause the
optionee to recognize taxable income equal to the difference between the
exercise price and the fair market value of the stock obtained on the day of
exercise. The Company must then in most cases obtain from the optionee funds to
meet tax withholding requirements arising from that income recognition. The
exercise of a non-qualified option will also generally entitle the Company to an
income tax deduction equal to the amount of the income recognized by the
exercising option holder.

The foregoing discussion of the federal income tax treatment of options
is necessarily general and any option holder should consult his tax advisor as
to his own particular circumstances and applicable laws and regulations.

REGISTRATION WITH THE SEC

Upon approval of the 2003 Plan, the Company will file a Registration
Statement on Form S-8 with the SEC to register the 350,000 shares reserved under
the 2003 Plan.

SHAREHOLDER APPROVAL AND BOARD RECOMMENDATION

Approval of the 2003 Plan requires the affirmative vote of a majority
of the shares present and entitled to vote at the Meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE 2003 STOCK OPTION PLAN.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and 10% shareholders to file reports with the
Securities and Exchange Commission concerning their initial beneficial ownership
and changes in beneficial ownership of Company securities. To the Company's
knowledge, all such reports were filed in a timely manner for 2002.

OTHER BUSINESS

The Management of the Company knows of no matters other than the
foregoing to be brought before the Meeting. However, the enclosed proxy gives
discretionary authority in the event any additional matters should be presented.

Page 15

SHAREHOLDER PROPOSALS

The proxy rules of the Securities and Exchange Commission permit
shareholders, after timely notice to issuers, to present proposals for
shareholder action in issuer proxy statements where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by issuer action in accordance with the
proxy rules. The Company's next meeting of Shareholders (for the year ending
December 31, 2003) is expected to be held on or about May 18, 2004 and proxy
materials in connection with that meeting are expected to be mailed on or about
April 1, 2004. Any shareholder proposals prepared in accordance with the proxy
rules for inclusion in the Company's proxy materials must be received by the
Company on or before December 1, 2003.

The Company's Annual Report on Form 10-K/A for the year ended December
31, 2002 is being mailed to shareholders with this Proxy Statement.

By Order of the Board of Directors

John R. Whisnant
Secretary

Page 16

APPENDIX I

INSIGNIA SYSTEMS, INC.

REVISED AUDIT COMMITTEE CHARTER

REVISED: APRIL 7, 2003

A. PURPOSE

The Audit Committee (the "Committee") shall be responsible for assisting the
Board of Directors in fulfilling its responsibility to the shareholders,
potential shareholders, the investment community, and others by overseeing:

o the Company's financial statements and the financial reporting
process;

o the systems of internal accounting and financial controls;

o the annual independent audit of the Company's financial
statements;

o the independent auditor's qualifications and independence; and

o the Company's compliance with legal, ethical and regulatory
requirements.

In fulfilling its purpose, the Committee shall maintain free and open
communication between the Committee, independent auditors and management of the
Company. The Company shall provide funding to the Committee necessary for it to
perform its responsibilities.

B. MEMBERSHIP

1. APPOINTMENT. The members of the Committee shall be appointed
by the Board of Directors and shall comprise at least three
directors, each of whom shall be independent of management and
the Company.

2. INDEPENDENCE. Members of the Committee shall be considered
independent if they have no relationship that may interfere
with the exercise of their independence from management and
the Company, and they meet the relevant independence
requirements of SEC and Nasdaq rules. Among other things,
members shall not accept any consulting, advisory or other
compensatory fee from the Company, other than as a director,
and shall not be an affiliated person of the Company or its
subsidiaries.

3. FINANCIAL LITERACY. All Committee members shall be financially
literate, meaning they shall be able to read and understand
fundamental financial statements, including a company's
balance sheet, income statement and cash flow statement, or
meet such other standard required by applicable law (including
SEC and Nasdaq rules). At least one member shall be a
"financial expert", as defined by SEC and Nasdaq rules. The
Committee Chair shall have accounting or financial expertise.

C. RESPONSIBILITIES AND AUTHORITIES

1. ROLES OF COMMITTEE, MANAGEMENT, INDEPENDENT AUDITOR. The
primary responsibility of the Audit Committee shall be to
oversee the Company's financial reporting process on behalf of
the Board and report the result of their activities to the
Board. While the Committee has the responsibilities and powers
set forth in this Charter, it is not the duty of the Committee
to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in
accordance with generally accepted accounting principles.
Management is responsible for preparing the Company's
financial statements and for the appropriateness of the
accounting principles and reporting policies that are used by
the Company. The independent auditors are responsible for
auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements.

2. REGULAR MEETINGS. The Committee shall meet as often as it
determines, but not less frequently than quarterly. The
Committee may request any officer or employee of the Company,
or the Company's outside counsel or external auditor, to
attend a meeting or meet with any members of, or consultants
to, the Committee. The Committee shall keep minutes and other
relevant documentation of all meetings held.

3. AUTHORITY TO ENGAGE INDEPENDENT COUNSEL. The Committee is
empowered to investigate any matter brought to its attention
with full access to all books, records, facilities, and
personnel of the Company and to retain outside counsel or
other experts for this purpose.

4. FLEXIBILITY. In carrying out its responsibilities, the
Committee shall ensure its policies and procedures remain
flexible in order to best react to changing conditions and
circumstances. The Committee should take the appropriate
actions to set the overall corporate "tone" for quality
financial reporting, sound business risk practices, and
ethical behavior.

5. INDEPENDENT AUDITORS. The Committee shall:

a. be directly responsible for appointing, setting
compensation, evaluating and, where appropriate,
replacing the independent auditors. The independent
auditors shall report directly to the Committee.

b. be directly responsible for the oversight of the work
of the independent auditors, including resolution of
disagreements between management and the auditor
regarding financial reporting.

c. pre-approve all audit and non-audit services provided
by the independent auditors and shall not engage the
independent auditors to perform non-audit services
not permitted by law or regulation. The Committee may
delegate pre-approval authority to a member of the
Committee. The decisions of any Committee

member to whom pre-approval authority is given must
be presented to the full Committee at its next
scheduled meeting.

d. at least annually, review a report by the independent
auditors describing:

i. the independent auditor's internal quality
control procedures;

ii. any material issues raised by the most
recent internal quality control review, or
peer review, of the independent auditor, or
by any inquiry or investigation by
governmental or professional authorities,
within the preceding five years, respecting
one or more independent audits carried out
by the independent auditor, and any steps
taken to deal with any such issues; and

iii. all relationships between the independent
auditor and the Company (to assess the
independent auditor's independence).

e. set clear hiring policies for employees or former
employees of the independent auditors that meet the
SEC and Nasdaq rules and regulations.

f. have and foster a clear understanding with management
and the independent auditors that the independent
auditors are ultimately accountable to the Board and
the Audit Committee, as representatives of the
Company's shareholders.

6. RECURRING PROCESSES. The following shall be the principal
recurring processes of the Audit Committee in carrying out its
oversight responsibilities. The processes are set forth with
the understanding that the Committee may supplement them as
appropriate. The Committee shall set a schedule to complete
these processes at the appropriate time during the year.

The Committee shall:

a. discuss with the independent auditors the overall
scope and plans for their respective audits including
the adequacy of staffing and compensation.

b. discuss with management and the independent auditors
the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to
monitor and manage business risk, and legal and
ethical compliance programs.

c. periodically meet separately with management and the
independent auditors to discuss issues and concerns
warranting committee attention.

d. provide sufficient opportunity for the independent
auditors to meet privately with the members of the
committee.

e. review with the independent auditor any audit
problems or difficulties and management's response.

f. receive a report from the independent auditor, prior
to the filing of its audit report with the SEC, on
all critical accounting policies and practices of the
Company, all material alternative treatments of
financial information within generally accepted
accounting principles that have been discussed with
management, including the ramifications of the use of
such alternative treatments and disclosures and the
treatment preferred by the independent auditor, and
other material written communications between the
independent auditor and management.

g. review management's assertion on its assessment of
the effectiveness of internal controls as of the end
of the most recent fiscal year and the independent
auditors' report on management's assertion.

h. review and discuss earnings press releases prior to
issuance.

i. review the interim financial statements and
disclosures under Management's Discussion and
Analysis of Financial Condition and Results of
Operations with management and the independent
auditors prior to the filing of the Company's
Quarterly Report on Form 10-Q.

j. discuss the results of the quarterly review and any
other matters required to be communicated to the
committee by the independent auditors under generally
accepted auditing standards.

k. review with management and the independent auditors
the financial statements and disclosures under
Management's Discussion and Analysis of Financial
Condition and Results of Operations to be included in
the Company's Annual Report on Form 10-K (or the
annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment
about the quality, not just the acceptability, of
accounting principles, the reasonableness of
significant judgments, and the clarity of the
disclosures in the financial statements.

l. discuss the results of the annual audit and any other
matters required to be communicated to the committee
by the independent auditors under generally accepted
auditing standards.

m. establish procedures for the receipt, retention, and
treatment of complaints received by the Company
regarding accounting, internal accounting controls,
or auditing matters, and the confidential, anonymous
submission by employees of the Company of concerns
regarding questionable accounting or auditing
matters.

n. review and approve all related-party transactions.

o. receive corporate attorneys' reports of evidence of a
material violation of securities laws or breaches of
fiduciary duty.

p. prepare its report to be included in the Company's
annual proxy statement, as required by SEC
regulations.

D. ANNUAL REVIEW

The Committee shall review and reassess this Charter at least annually and
recommend any updates or changes to Board of Directors for approval. The
Committee also shall perform an evaluation of its performance at least annually
to determine whether it is functioning effectively.

APPENDIX II

INSIGNIA SYSTEMS, INC.
2003 INCENTIVE STOCK OPTION PLAN
(Adopted by Board of Directors February 24, 2003)

1. PURPOSE. The purpose of this Plan is to provide a means whereby Insignia
Systems, Inc. (the "Company"), may be able, by granting options to purchase
stock in the Company, to attract, retain and motivate capable and loyal
employees, directors, consultants and advisors of the Company and its
subsidiaries, for the benefit of the Company and its shareholders. Both
incentive stock options which qualify for favorable tax treatment under Section
422 of the Internal Revenue Code (the "Code"), and nonqualified stock options
which do not qualify for favorable tax treatment, may be granted under the Plan.

2. RESERVATION OF SHARES. A total of 350,000 shares of the authorized but
unissued shares of Common Stock of the Company, par value $.01 per share, is
reserved for issue upon the exercise of options granted under the Plan. If any
option expires or terminates for any reason without having been exercised in
full, the unpurchased shares covered thereby shall become available for
additional options which may be issued to persons eligible under the Plan so
long as it remains in effect. Shares reserved for issue as provided herein shall
cease to be reserved upon termination of the Plan.

3. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Committee"). The Committee shall be
appointed by the Board of Directors and shall be comprised solely of two or more
"non-employee directors" within the meaning of SEC Rule 16b-3. Each member of
the Committee shall also be an "outside director" within the meaning of Code
Section 162(m). The Committee shall have the full power to construe and
interpret the Plan and to establish and amend rules and regulations for its
administration. The Committee shall determine which persons shall be granted
options hereunder, the number of shares for which each option shall be granted,
the types of options to be granted, and any limitations on the exercise of
options in addition to those imposed by this Plan. The Committee may also waive
any restrictions on the exercise of outstanding options and approve amendments
to outstanding options, provided there is no conflict with the terms of the
Plan. The Committee shall apply such criteria as it deems appropriate in
determining the persons to whom options are granted and the number of shares to
be covered by each option.

4. ELIGIBILITY. An option may be granted to any employee, director,
consultant or advisor of the Company or its subsidiaries, except that no
consultant or advisor shall be granted options in connection with the offer and
sale of securities in a capital raising transaction on behalf of the Company.
The maximum number of shares for which any person may be granted options under
the Plan in any year is limited to 100,000 shares.

5. OPTION GRANTS TO OUTSIDE DIRECTORS. Each outside director of the Company
shall automatically be granted an option to purchase 10,000 shares of Common
Stock immediately upon first being appointed or elected as a director. Each
outside director shall also automatically be granted an option to purchase 5,000
shares of Common Stock immediately upon each re-election as a director, or on
the anniversary of the prior year's grant in any year in which there is no
meeting of the shareholders at which directors are elected. In no event shall a
director receive more than one grant in any fiscal year.

The period within which an option granted to an outside director must be
exercised shall be the earlier of (a) five years from the date of grant, or (b)
90 days after the director ceases to be a director for any reason. Options
granted to outside directors shall be immediately exercisable in full when
granted.

6. EXERCISE PRICE. The per share exercise price for each option shall be
determined by the Committee at the time of grant, provided that the per share
exercise price for any incentive stock option, and any option granted to an
outside director, shall be not less than the fair market value of the Common
Stock on the date the option is granted. In making such determination, the
Committee shall rely on market quotations, if available, but if not available,
upon independent appraisals of the stock or such other information deemed
appropriate by the Committee.

7. CHANGES IN PRESENT STOCK. In the event of a recapitalization, merger,
consolidation, reorganization, stock dividend, stock split or other change in
capitalization affecting the Company's present capital stock, appropriate
adjustment may be made by the Committee in the number and kind of shares and the
option price of shares which are or may become subject to options granted or to
be granted hereunder.

8. EXERCISE OF OPTION. Receipt by the Company of a written notice from an
optionee, specifying the number of shares to be purchased, and accompanied by
payment of the purchase price for such shares, shall constitute exercise of the
option as to such shares. The date of receipt by the Company of such written
notice shall be the date of exercise of the option. The Company may accept
payment from a broker and, upon receipt of written instructions from the
optionee, deliver the purchased shares to the broker.

9. OPTION AGREEMENT PROVISIONS. Each option granted under the Plan shall be
evidenced by a Stock Option Agreement executed by the Company and the optionee,
and shall be subject to the following terms and conditions, and such other terms
and conditions as may be prescribed by the Committee:

(a) PAYMENT. The full purchase price of the shares acquired upon
exercise of an option shall be paid in cash, certified or
cashier's check, or in the form of Common Stock of the Company
with a market value equal to the option exercise price and free
and clear of all liens and encumbrances.

The Committee in its sole discretion may also permit the
"cashless exercise" of an option. In the event of a cashless
exercise, the optionee shall surrender the option to the Company,
and the Company shall issue the optionee the number of shares
determined as follows:

X = Y (A-B) /A where:

X = the number of shares to be issued to the optionee.

Y = the number of shares with respect to which the option is
being exercised.

A = the closing sale price of the Common Stock on the date
of exercise, or in the absence thereof, the fair market
value on the date of exercise.

B = the option exercise price.

(b) EXERCISE PERIOD. The period within which an option must be
exercised shall be fixed by the Committee, and shall not exceed
ten years from the date of grant for an incentive stock option.
The Committee may provide that an option will vest and become
exercisable upon the completion of specified periods of
employment, or the attainment of specified performance goals. To
the extent exercisable, an option may be exercised in whole or in
part. Outstanding unvested options 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.

(c) RIGHTS OF OPTIONEE BEFORE EXERCISE. The holder of an option shall
not have the rights of a shareholder with respect to the shares
covered by his or her option until such shares have been issued
to him or her upon exercise of the option.

(d) NO RIGHTS TO CONTINUED EMPLOYMENT. Nothing in the Plan or in any
Stock Option Agreement entered into pursuant hereto shall be
construed to confer upon any optionee any right to continue in
the employ of his or her employer or interfere in any way with
the right of his or her employer to terminate his or her
employment at any time.

(e) DEATH OF OPTIONEE. Upon the death of an optionee, the option, or
any portion thereof, may be exercised to the extent the optionee
was entitled to do so at the time of the optionee's death, by his
or her executor or administrator or other person entitled by law
to the optionee's rights under

the option, at any time within one year subsequent to the date of
death. The option shall automatically expire one year after the
optionee's death to the extent not exercised.

(f) DISABILITY OF OPTIONEE. If an optionee is an employee of the
Company or its subsidiaries, and if the optionee's employment is
terminated due to his or her disability, the optionee may, within
one year of such termination, exercise any unexercised portion of
the option to the extent he or she was entitled to do so at the
time of such termination. The option shall automatically expire
one year after such termination to the extent not exercised.

(g) OTHER TERMINATION OF EMPLOYMENT. If an optionee is an employee of
the Company or its subsidiaries, and if the optionee's employment
is terminated other than by death, disability, or conduct which
is contrary to the best interests of his or her employer, the
optionee may, within 90 days of such termination, exercise any
unexercised portion of the option to the extent he or she was
entitled to do so at the time of such termination. The option
shall automatically expire 90 days after such termination to the
extent not exercised. If the optionee's employment is terminated
by his or her employer for conduct which is contrary to the best
interests of his or her employer, or if the optionee violates any
written nondisclosure agreement with his or her employer, as
determined in either case by the optionee's employer in its sole
discretion, the unexercised portion of the optionee's option
shall automatically expire at that time. Inter-company transfers
and approved leaves of absence for up to 90 days shall not be
considered termination of employment.

(h) NON-TRANSFERABILITY OF OPTION. No option shall be transferable by
the optionee other than by will or by the laws of descent and
distribution, and each option shall be exercisable during the
optionee's lifetime only by the optionee. No option may be
attached or subject to levy by an optionee's creditors.

(i) DATE OF GRANT. The date on which the Committee approves the
granting of an option shall be considered the date on which such
option is granted.

10. ADDITIONAL PROVISIONS FOR INCENTIVE STOCK OPTIONS.

(a) DOLLAR LIMIT. Each option granted to an employee shall constitute
an incentive stock option, provided that no more than $100,000 of
such options (based upon the fair market value of the underlying
shares as of the date of grant) can first become exercisable for
any employee in any calendar year. To the extent an option grant
exceeds the $100,000 limitation, it shall constitute a
non-qualified stock option. Each Stock

Option Agreement with an employee shall specify the extent to
which it is an incentive and/or non-qualified stock option. For
purposes of applying the $100,000 limitation, options granted
under this Plan and all other incentive stock option plans of the
Company and any parent or subsidiary corporation shall be
included.

(b) TEN PERCENT SHAREHOLDERS. No incentive stock option shall be
granted to any employee who at the time directly or indirectly
owns more than 10 percent of the combined voting power of all
classes of stock of the Company or of a parent or subsidiary
corporation, unless the exercise price is not less than 110
percent of the fair market value of such stock on the date of
grant, and unless the option is not exercisable more than five
years after the date of grant.

11. RESTRICTIONS ON TRANSFER. During any period in which the offering of
the shares under the Plan is not registered under federal and state securities
laws, an optionee shall agree in his or her option agreement that he or she is
acquiring shares under the Plan for investment purposes, and not for resale, and
that the shares cannot be resold or otherwise transferred except pursuant to
registration or unless, in the opinion of counsel for the Company, registration
is not required.

Any restrictions upon shares acquired upon exercise of an option pursuant
to the Plan and the Stock Option Agreement shall be binding upon the optionee,
and his or her heirs, executors, and administrators. Any stock certificate
issued under the Plan which is subject to restrictions shall be endorsed so as
to refer to the restrictions on transfer imposed by the Plan, and by applicable
securities laws.

12. WITHHOLDING OF TAXES. The Company shall make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of any
taxes that the Company is required by any law or regulation to withhold in
connection with any option including, but not limited to, withholding a portion
of the shares issuable on exercise of an option, or requiring the optionee to
pay to the Company, in cash, an amount sufficient to cover the Company's
withholding obligations.

13. DURATION OF PLAN. The Plan shall terminate ten years after the date of
its adoption by the Board of Directors, unless sooner terminated by issuance of
all shares reserved for issuance hereunder, or by the Board of Directors
pursuant to Section 13. No option shall be granted under the Plan after such
termination date.

14. TERMINATION OR AMENDMENT OF THE PLAN. The Board of Directors may at any
time terminate the Plan, or make such modifications to the Plan as it shall deem
advisable. No termination or amendment of the Plan may, without the consent of
the optionee to whom any option shall previously have been granted, adversely
affect the rights of such optionee under such option.

15. SHAREHOLDER APPROVAL. The Board of Directors shall submit the Plan to
the shareholders for their approval within 12 months of the date of its adoption
by the Board. Options granted prior to such approval are contingent on receipt
of such approval, and shall automatically lapse if such approval is not granted.
The Board shall also submit any amendments to the shareholders for approval if
required by applicable law or regulation.

16. INTERPRETATION. The Plan shall be interpreted in accordance with
Minnesota law.

[INSIGNIA SYSTEMS, INC. LOGO]

ANNUAL MEETING OF STOCKHOLDERS

TUESDAY, MAY 20, 2003
9:00 A.M.

RADISSON HOTEL AND CONFERENCE CENTER
3131 CAMPUS DRIVE
PLYMOUTH, MN 55441

[INSIGNIA SYSTEMS, INC. LOGO]
6470 SYCAMORE COURT NORTH, MAPLE GROVE, MN 55369 PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 20, 2003.

The shares of stock you hold in your account will be voted as you specify on
the reverse side.

IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.

By signing the proxy, you revoke all prior proxies and appoint Scott F. Drill
and John R. Whisnant, and each of them, with full power of substitution, to
vote your shares on the matters shown on the reverse side and any other matters
which may come before the Annual Meeting and all adjournments.

SEE REVERSE FOR VOTING INSTRUCTIONS.

[PLEASE DETACH HERE]

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.

1. To amend Article V of the Articles of Incorporation to establish staggered terms of three years each for the Directors.

[ ] For [ ] Against [ ] Abstain

2. Election of 01 Scott F. Drill (1-yr term) 05 Donald J. Kramer (3-yr term) [ ] Vote FOR [ ] Vote WITHHELD
directors: 02 Gary L. Vars (1-yr term) 06 W. Robert Ramsdell (3-yr term) all nominees from all nominees
03 Gordon F. Stofer (2-yr term) 07 Frank D. Trestman (3-yr term) (except as marked)
04 Erwin A. Kelen (2-yr term)

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, ---------------------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) | |
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3. To approve the 2003 Incentive Stock Option Plan and the reservation of
350,000 shares for the grant of options under the Plan. [ ] For [ ] Against [ ] Abstain

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.

Address Change? Mark Box [ ]
Indicate changes below:
Date _______________________________________________

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Signature(s) in Box
Please sign exactly as your name(s) appears on
Proxy. If held in joint tenancy, all persons must
sign. Trustees, administrators, etc., should include
title and authority. Corporations should provide
full name of corporation and title of authorized
officer signing the proxy.