SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HIRSCH INTERNATIONAL CORP.
(Name of Registrant as Specified In Its Charter)
Paul Levine, Secretary
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check Appropriate Box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
[x] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $125.00
2) Form, Schedule or Registration Statement: Preliminary Proxy Statement
3) Filing Party: Paul Levine, Secretary, Hirsch International Corp.
4) Date Filed: May 13, 1996
<PAGE>
HIRSCH INTERNATIONAL CORP.
(a Delaware corporation)
NOTICE OF 1996 ANNUAL
MEETING OF STOCKHOLDERS TO BE
HELD AT 10:00 A.M. ON JUNE 21, 1996
To the Stockholders of HIRSCH INTERNATIONAL CORP.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders
(the "Meeting") of HIRSCH INTERNATIONAL CORP. (the "Company") will be held on
June 21, 1996, at 10:00 A.M. at The Huntington Hilton, 598 Broadhollow Road,
Melville, New York 11747 for the following purposes:
1. to elect six directors;
2. to consider and act upon a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of Class A Common
Stock, par value $.01 per share, from 9,500,000 shares to 20,000,000,
shares;
3. to consider and act upon a proposal to amend the Company's Stock Option
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder from 196,875 to 600,000;
4. to consider and act upon a proposal to ratify the bonus provisions of the
Company's employment agreements with its President and Executive Vice
President;
5. to ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending January 31, 1997; and
6. to transact such other business as may properly come before the Meeting and
any adjournment or postponement thereof.
The Board of Directors has fixed April 22, 1996, at the close of business,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Meeting, and only holders of record of shares of the
Company's Common Stock at the close of business on that day will be entitled to
vote. The stock transfer books of the Company will not be closed.
A complete list of stockholders entitled to vote at the Meeting shall be
available at the offices of the Company during ordinary business hours from May
22, 1996, until the Meeting for examination by any stockholder for any purpose
germane to the Meeting. This list will also be available at the Meeting.
All stockholders are cordially invited to attend the Meeting in person.
However, whether or not you expect to be present at the Meeting, you are urged
to mark, sign, date and return the enclosed Proxy, which is solicited by the
Board of Directors, as promptly as possible in the postage-prepaid envelope
provided to ensure your representation and the presence of a quorum at the
Meeting. The shares represented by the Proxy will be voted according to your
specified response. The Proxy is revocable and will not affect your right to
vote in person in the event you attend the Meeting.
By Order of the Board of Directors
Paul Levine, Secretary
Hauppauge, New York
May 23, 1996
<PAGE>
HIRSCH INTERNATIONAL CORP.
200 Wireless Boulevard
Hauppauge, NY 11788
------------------------------
PROXY STATEMENT
------------------------------
1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT 10:00 A.M. ON JUNE 21, 1996
The enclosed proxy is solicited by the Board of Directors of HIRSCH
INTERNATIONAL CORP. (the "Company") in connection with the 1996 Annual Meeting
of Stockholders (the "Meeting") to be held on June 21, 1996, at 10:00 a.m. at
The Huntington Hilton, 598 Broadhollow Road, Melville, N.Y. 11747 and any
adjournment thereof. The Board of Directors has set April 22, 1996, at the close
of business, as the record date for the determination of stockholders entitled
to notice of and to vote at the Meeting. A stockholder executing and returning a
proxy has the power to revoke it at any time before it is exercised by filing a
later proxy with, or other communication to, the Secretary of the Company or by
attending the Meeting and voting in person. The proxy will be voted in
accordance with your directions as to:
(1) the election of the persons listed herein as directors of the Company;
(2) the amendment of the Company's Certificate of Incorporation;
(3) the amendment of the Company's Stock Option Plan;
(4) the ratification of the bonus provisions of the Company's employment
agreements with its President and Executive Vice President;
(5) the ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending January 31, 1997;
and
(6) the transaction of such other business as may properly come before the
Meeting and any adjournment or postponement thereof.
In the absence of direction, the proxy will be voted in favor of these
proposals.
The entire cost of soliciting proxies will be borne by the Company. The
cost of solicitation, which represents an amount believed to be normally
expended for a solicitation relating to an uncontested election of directors,
will include the cost of supplying necessary additional copies of the
solicitation materials and the Company's 1996 Annual Report to Stockholders (the
"Annual Report") to beneficial owners of shares held of record by brokers,
dealers, banks, trustees, and their nominees, including the reasonable expenses
of such recordholders for completing the mailing of such materials and Annual
Report to such beneficial owners.
Only stockholders of record of the Company's 3,424,557 shares of Class A
Common Stock and 2,732,249 shares of Class B Common Stock outstanding at the
close of business on June 21, 1996, will be entitled to vote. In voting at the
Meeting, a stockholder of record of either Class A or Class B
<PAGE>
Common Stock will be entitled to one vote on all matters other than the
election of directors, where the holders of the Class B Common Stock will elect
two-thirds, i.e., four, of the directors (Class B directors), and the holders of
Class A Common Stock will elect one-third, i.e., two, of the directors (Class A
directors). Holders of a majority of the outstanding shares of Common Stock must
be represented in person or by proxy in order to achieve a quorum to vote on all
matters other than the election of directors. To vote for the Class A directors,
holders of a majority of the outstanding shares of Class A Common Stock must be
represented in person or by proxy in order to achieve a quorum. To vote for the
Class B directors, holders of a majority of the outstanding shares of Class B
Common Stock must be represented in person or by proxy in order to achieve a
quorum. The Proxy Statement, the attached Notice of Meeting, the enclosed form
of Proxy and the Annual Report are being mailed to stockholders on or about May
23, 1996.
1. ELECTION OF DIRECTORS
Six directors are to be elected by a plurality of the votes cast at the
Meeting, each to hold office until the next Annual Meeting of Stockholders and
until his respective successor is elected and qualified. Of the persons named
below, Messrs. Broitman and Schenendorf have been nominated for election as
Class A directors and Messrs. Arnberg, Gardner, Levine and Tsonis have been
nominated for election as Class B directors. The persons named in the
accompanying proxy have advised management that it is their intention to vote
for the election of Messrs. Broitman and Schenendorf as Class A directors and
for the election of Messrs. Arnberg, Gardner, Levine and Tsonis as Class B
directors unless authority is withheld.
Henry Arnberg
Marvin Broitman
Herbert M. Gardner
Paul Levine
Douglas Schenendorf
Tas Tsonis
Management believes that each nominee will be able to serve. If any nominee
becomes unable or unwilling to serve, proxies may be voted for the election of
such person or persons as the Board of Directors determines.
Information Regarding Officers and Directors
The following table sets forth the names and ages of the Company's
directors and executive officers and the positions they hold with the Company:
NAME AGE POSITION
- ---- --- --------
Henry Arnberg........ 53 Director, Chairman of the Board
of Directors, President and
Chief Executive Officer
Paul Levine.......... 43 Director, Executive Vice
President, Chief Operating
Officer and Secretary
Marvin Broitman...... 57 Director
2
<PAGE>
NAME AGE POSITION
- ---- --- --------
Herbert M. Gardner... 56 Director
Brian Goldberg....... 36 Vice President and Executive
Vice President of Pulse
Douglas Schenendorf.. 45 Director
Kenneth Shifrin...... 38 Vice President of Finance and
Chief Financial Officer
Tas Tsonis........... 44 Director, Vice President and
President of Pulse
Henry Arnberg has been employed by the Company since 1970 and has been a
director, Chairman of the Board of Directors, President and Chief Executive
Officer of the Company since 1980.
Paul Levine has been employed by the Company since 1974 and has been a
director, Executive Vice President, Chief Operating Officer and Secretary of the
Company since 1981.
Marvin Broitman was elected a director of the Company in April 1994. Since
1968, he has been Vice President of Uniwave, Inc., a company engaged in the
engineering and manufacturing of automation accessory equipment for textile
machinery.
Herbert M. Gardner was elected a director in April 1994. Since 1978, Mr.
Gardner has been a Senior Vice President of Janney Montgomery Scott Inc., an
investment banking firm and the underwriter of the Company's initial public
offering. Mr. Gardner is Chairman of the Board and President of Supreme
Industries, a specialized truck manufacturer and Chairman of the Board and a
director of Contempri Homes, Inc., a manufacturer of modular homes. Mr. Gardner
is also a director of Shelter Components Corporation, a supplier to the
manufactured housing and recreational vehicle industries, Nu Horizons
Electronics Corp., an electronic component distributor, Transmedia Network,
Inc., a specialized charge card company, TGC Industries, Inc., a specialty
packaging products manufacturer and geophysical services company and The Western
Transmedia Company, Inc., a franchisee of Transmedia Network for the states of
California, Oregon and Washington.
Brian Goldberg was elected Vice President of the Company in September 1994.
In 1982, Mr. Goldberg co-founded Pulse and has been retained or employed by
Pulse Microsystems Ltd. since that time. Since 1989, Mr. Goldberg has been the
Executive Vice President of Pulse.
Douglas Schenendorf was elected a director of the Company in April 1994.
Since 1980, he has been the President of D.S.I. Associates, Inc., an insurance
brokerage firm.
Kenneth Shifrin is a Certified Public Accountant and has been employed by
the Company since 1989. From January 1989 until October 1992, he was Controller
of the Company. Since November 1992, he has been Vice President of Finance and
Chief Financial Officer of the Company.
Tas Tsonis was elected a director of the Company in April 1994 and Vice
President of the Company in September 1994. Mr. Tsonis co-founded Pulse in 1982
and has been retained or employed by Pulse since that time. Since 1989, Mr.
Tsonis has been the President of Pulse.
3
<PAGE>
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Company's
officers are elected annually by the Board of Directors and serve at the
discretion of the Board. There are no family relationships between any of the
directors, executive officers or persons nominated or chosen by the Company to
become directors or executive officers.
The Company's By-Laws provide that the Company shall indemnify each
director and such of the Company's officers, employees and agents as the Board
of Directors shall determine from time to time to the fullest extent provided by
the laws of the State of Delaware.
The Company carries insurance providing indemnification, under certain
circumstances, to all of its directors and officers for claims against them by
reason of, among other things, any act or failure to act in their capacities as
directors or officers. The current annual premium for such insurance is
approximately $95,000, all of which is paid by the Company. To date, no sums
have been paid to any past or present director or officer of the Company under
this or any prior indemnification insurance policy.
The Company has also entered into Indemnity Agreements with all of its
directors and executive officers. The Indemnity Agreements provide for
indemnification of the Company's directors and officers to the fullest extent
permitted by the provisions of the General Corporation Law of the State of
Delaware.
The Indemnity Agreements provide that the Company will pay any costs which
an indemnitee actually and reasonably incurs because of any claims made against
him by reason of the fact that he is or was a director or officer of the
Company, except that the Company is not obligated to make any payment which the
Company is prohibited by law from paying as indemnity, or where (a) a final
determination is rendered on a claim based upon the indemnitee's obtaining a
personal profit or advantage to which he was not legally entitled; (b) a final
determination is rendered on a claim for an accounting of profits made in
connection with a violation of Section 16(b) of the Securities Exchange Act of
1934, or similar state or common law provisions; (c) a claim where the
indemnitee was adjudged to be deliberately dishonest; or (d) a final
determination is rendered that indemnification is not lawful.
Director's Compensation
Directors who are employees of the Company or its subsidiaries receive no
compensation, as such, for service as members of the Board other than
reimbursement of expenses incurred in attending meetings. Directors who are not
employees of the Company or its subsidiaries receive an annual directors' fee of
$6,000 plus $1,000 for each board meeting and $500 for each committee meeting
attended. In addition, all non-employee directors participate in the Company's
1994 Non-Employee Director Stock Option Plan and are reimbursed for expenses
incurred in attending such meetings. The Company's officers are elected annually
by the Board of Directors and serve at the discretion of the Board.
Meetings and Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Compensation Committee and
a Stock Option Committee. The Board of Directors does not have a nominating
committee or a committee performing the functions of a nominating committee.
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<PAGE>
The members of the Audit Committee are Henry Arnberg, Marvin Broitman,
Herbert M. Gardner and Douglas Schenendorf. The Audit Committee held two
meetings during the fiscal year ended January 31, 1996. The function of the
Audit Committee is to recommend annually to the Board of Directors the
appointment of the independent public accountants of the Company, discuss and
review the scope and the fees of the prospective annual audit and review the
results thereof with the independent public accountants, review and approve
non-audit services of the independent public accountants, review compliance with
existing major accounting and financial policies of the Company, review the
adequacy of the financial organization of the Company and review management's
procedures and policies relative to the adequacy of the Company's internal
accounting controls.
Messrs. Broitman, Gardner and Schenendorf also serve on the Stock Option
and Compensation Committees. The Compensation Committee did not meet during
fiscal 1996 and the Stock Option Committee acted two times by unanimous consent.
The function of the Compensation Committee is to determine the compensation of
the Company's executives. The Stock Option Committee administers the Company's
stock option plans and awards stock options.
The Board of Directors met on four occasions and acted two times by
unanimous written consent during the last fiscal year.
Key Employees
The following table sets forth the names and ages of the Company's key
employees:
NAME AGE POSITION
- ---- --- --------
Kristof Janowski....... 43 Vice President-Midwest Sales
Theodore Pawelec....... 45 Vice President-HAPL Leasing
Michael P. Petaja ..... 30 Corporate Controller
Lisa Muller............ 35 Manager of Brother Sales and
Customer and Software Support
Susan Lange............ 46 Manager of Human Resources
Kristof Janowski has been employed by the Company as Vice President of
Midwest sales since October 1994. Since 1987, Mr. Janowski has been employed by
the Company as Sales Manager for the Midwest region.
Theodore Pawelec has been employed by the Company as Vice President of HAPL
Leasing since May 1993. From June 1991 to May 1993, Mr. Pawelec was an
independent consultant to various leasing corporations. From November 1988 to
June 1991, Mr. Pawelec was Senior Vice President of Tiger Leasing Corp.
Michael P. Petaja is a Certified Public Accountant and has been employed by
the Company as Corporate Controller since August 1994. Prior to joining the
Company, Mr. Petaja was an audit manager for Deloitte & Touche LLP where he had
been employed since September 1987. Mr. Petaja received a Bachelor of Science in
Accounting from the New York Institute of Technology in 1987.
5
<PAGE>
Lisa Muller has been employed by the Company since 1983 and is Manager of
Brother Sales and Customer Software Support.
Susan Lange has been employed by the Company since 1988 and is Manager of
Human Resources.
Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended January 31, 1996, 1995 and 1994 to
the Company's Chief Executive Officer and to each of the Company's Executive
Officers whose total cash compensation for such periods exceeded $100,000 (the
"Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- Awards
----------------------
Other
Name and Annual
Principal Position Compen- All other
- ------------------ Fiscal Salary Bonus sation Compen-
Year ($) ($) ($) Options sation ($)
----- ------ ------ ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Henry Arnberg..............................1996 $ 365,049 $ 680,796 $ 17,849 3,125 $ 3,000
Chairman of the Board of 1995 $ 371,347 $ 479,405 $ 13,806 9,375 $ 3,000
Directors, President and 1994 $ 612,230 $ -0- $ 16,111 - $ 8,994
Chief Executive Officer
Paul Levine................................1996 $ 365,049 $ 680,796 $ 16,817 3,125 $ 3,000
Executive Vice President, 1995 $ 370,701 $ 479,405 $ 20,648 9,375 $ 3,000
Chief Operating Officer 1994 $ 600,216 $ -0- $ 11,640 - $ 8,994
and Secretary
Kenneth Shifrin........................... 1996 $ 104,300 $ 272,318 $ 2,572 - $ 2,075
Vice President-Finance and 1995 $ 100,715 $ 191,761 - 1,641 450
Chief Financial Officer 1994 $ 90,396 $ 35,000 - - -
Tas Tsonis.................................1996 $ 308,591 $ 355,306 $ 9,600 1,563 -
Vice President and President of 1995 $ 300,000 $ 116,917 $ 8,800 19,043 -
Pulse Microsystems Ltd. 1994 - - - - -
Brian Goldberg.............................1996 $ 308,591 $ 355,306 $ 9,600 1,563 -
Vice President and Executive Vice 1995 $ 300,000 $ 116,917 $ 8,800 19,043 -
President of Pulse Microsystems Ltd. 1994 - - - - -
</TABLE>
6
<PAGE>
Stock Options
The following table discloses information concerning stock options granted
to the Named Executives during the Company's fiscal year ended January 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
----------------- Annual Rates of Stock
Price Appreciation for
Option Term
----------------------
% of Total Market
Options Exercise or Price on
Options Granted to Employees Base Price Date of Expiration
Name Granted (#) in Fiscal Year ($/share) Grant Date 5%($) 10%($)
---- ----------- -------------- -------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry Arnberg 3,125 33.3% $ 12.54 $11.40 6/23/00 $ 10,827 $ 23,924
Paul Levine 3,125 33.3% $ 12.54 $11.40 6/23/00 $ 10,827 $ 23,924
Tas Tsonis 1,563 16.7% $ 11.40 $11.40 6/23/00 $ 4,923 $ 10,878
Brian Goldberg 1,563 16.7% $ 11.40 $11.40 6/23/00 $ 4,923 $ 10,878
</TABLE>
Option Exercises and Holdings
The following table sets forth information concerning the exercise of stock
options by the Named Executives during the Company's fiscal year ended January
31, 1996, the number of options owned by the Named Executives and the value of
any in-the-money unexercised stock options as of January 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
- --------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercisable
Unexercised In-the-Money
Options Options at
at Fiscal Year End (#) Fiscal Year End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) $ Unexercisable Unexercisable
---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Henry Arnberg 0 0 3,125/9,375 18,766/40,141
Paul Levine 0 0 3,125/9,375 18,766/40,141
Ken Shifrin 0 0 1,641/0 11,955/0
Tas Tsonis 0 0 15,918/4,688 115,007/23,949
Brian Goldberg 0 0 15,918/4,688 115,007/23,949
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<PAGE>
Stock Option Plans
The Company maintains two stock option plans pursuant to which options to
purchase an aggregate of 384,375 shares of Class A Common Stock may be granted.
1993 Stock Option Plan. The 1993 Stock Option Plan was adopted by the Board
of Directors in December 1993 and was approved by the stockholders of the
Company in July 1994 (the "1993 Plan"). Under the 1993 Plan, 196,875 shares of
Class A Common Stock have been reserved for issuance upon exercise of options
designated as either (i) incentive stock options ("ISOs") under the Internal
Revenue Code of 1986, as amended (the "Code"), or (ii) non-qualified options.
ISOs may be granted under the 1993 Plan to employees and officers of the
Company. Non-qualified options may be granted to consultants, directors (whether
or not they are employees), employees or officers of the Company.
The purpose of the 1993 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and to give them a greater personal
interest in the success of the Company. The 1993 Plan is administered by the
Stock Option Committee. The Committee, within the limitations of the 1993 Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, the time, manner and form of payment upon
exercise of an option, and whether restrictions such as repurchase rights in the
Company are to be imposed on shares subject to options. Options granted under
the 1993 Plan may not be granted at a price less than the fair market value of
the Class A Common Stock on the date of grant (or 110% of fair market value in
the case of persons holding 10% or more of the voting stock of the Company). The
aggregate fair market value of shares for which ISOs granted to any person are
exercisable for the first time by such person during any calendar year (under
all stock option plans of the Company and any related corporation) may not
exceed $100,000. The 1993 Plan will terminate in December 2003; however, options
granted under the 1993 Plan will expire not more than five years from the date
of grant. Options granted under the 1993 Plan are not transferable during an
optionee's lifetime but are transferable at death by will or by the laws of
descent and distribution.
1994 Non-Employee Director Stock Option Plan. The 1994 Non-Employee
Director Stock Option Plan (the "Directors Plan") was adopted by the Board of
Directors in September 1994 and was approved by the stockholders of the Company
in June 1995. The Directors Plan has 187,500 shares of Class A Common Stock
reserved for issuance. Pursuant to the terms of the Directors Plan, each
independent unaffiliated Director shall automatically be granted, subject to
availability, without any further action by the Board of Directors or the Stock
Option Committee: (i) a non-qualified option to purchase 7,500 shares of Class A
Common Stock upon their election to the Board of Directors; and (ii) a
non-qualified option to purchase 2,500 shares of Class A Common Stock on the
date of each annual meeting of stockholders following their election to the
Board of Directors. The exercise price of each option is the fair market value
of the Company's Class A Common Stock on the date of grant. Each option expires
five years from the date of grant and vests in three annual installments of 33%
each on the first, second and third anniversary of the date of grant. Options
granted under the Directors Plan are generally not transferrable during an
optionee's lifetime but are transferrable at death by will or by the laws of
descent and distribution. In the event an optionee ceases to be a member of the
Board of Directors (other than by reason of death or disability), then the
non-vested portion of the option immediately terminates and becomes void and any
vested but unexercised portion of the option may be exercised for a period of
180 days from the date the optionee ceased to be a member of the Board of
Directors. In the event of death or permanent disability of an optionee, all
options accelerate and become immediately exercisable until the scheduled
expiration date of the option.
8
<PAGE>
Stock Performance Graph
The following graph compares the percentage change in the cumulative total
stockholder return for the period beginning on February 17, 1994, and ending on
January 31, 1996, based upon the market price of the Company's Class A Common
Stock, with the cumulative total return of the S&P 500 and a defined peer group
based on similar market capitalization. The Company has elected to compare its
yearly percentage change in total stockholder return against a market
capitalization-based peer group due to the lack of publicly-held competitors in
the Company's industry. The Company therefore does not believe that it can
reasonably identify an industry-based peer group. The graph assumes a $100
investment on February 17, 1994 in each of the indices and the reinvestment of
any and all dividends.
Comparison of Five-Year Cumulative Total Return Among Hirsch International Corp.,
S&P 500 Index and Market Capitalization-Based Peer Group
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Period Ending Hirsch International Corp. S&P 500 Index Market Capitalization-Based
------------ -------------------------- ------------- Peer Group
---------------------------
<S> <C> <C> <C>
Measurement
Pt-2/17/94 $100 $100 $100
7/31/94 $108 $ 98 $ 86
1/31/95 $127 $102 $ 79
7/31/95 $203 $123 $ 96
1/31/96 $209 $141 $ 93
Employment Agreements
The Company has entered into five year employment agreements with Messrs.
Arnberg, Levine and Shifrin which expire February 17, 1999. These employment
agreements provide that each of Messrs. Arnberg and Levine will receive minimum
annual compensation of $350,000 for fiscal years beginning February 1, 1994. The
employment agreement for Mr. Shifrin provides for minimum annual compensation of
$100,000 and a bonus equal to 2% of pre-tax profits of the Company. The
employment agreements for Messrs. Arnberg and Levine also provide for bonuses
equal to 5% of pre-tax profits of the Company and use of an automobile. All
employment agreements provide for cost of living increases, reimbursement of
business expenses, health insurance and related benefits. Each employment
agreement requires that all of such executive's business time be devoted to the
Company and provides that it may be terminated if the executive dies or becomes
disabled (defined in the employment agreement as the inability to perform duties
for six consecutive months or nine months in any twelve-month period) or if the
Company discontinues operating its business. All employment agreements further
provide that each of Messrs. Arnberg, Levine and Shifrin will not compete with
the Company during the term of the agreement and for a period of two years from
the termination of the agreement. The employment agreements do not contain
change of control provisions.
Tas Tsonis and Brian Goldberg have each entered into a five-year employment
agreement with Pulse, guaranteed by the Company, providing each with an annual
base salary of $300,000. In addition, Messrs. Tsonis and Goldberg are entitled
to an annual bonus equal to 25% of annual pre-tax profits of
9
<PAGE>
Pulse between $400,000 and $1,200,000 and 12.5% of annual pre-tax profits in
excess of $1,200,000. If Pulse achieves certain performance standards as defined
in the employment agreements, each employment agreement may be extended at the
option of the employee for an additional three years upon the same terms except
that the bonus will be 3.75% of the first $1,200,000 of pre-tax profits and
12.5% of the excess above $1,200,000 of pre-tax profits. Upon expiration of the
first renewal period, each employment agreement may be extended at the option of
the employee for a final two-year term upon the same terms and conditions as
during the first renewal term except there is no further right of renewal. In
addition, each employment agreement provides for cost of living increases,
reimbursement of business expenses, health insurance and related benefits and an
automobile allowance. Each employment agreement requires that all of such
executive's business time be devoted to the Company. Each Employment Agreement
also contains provisions for termination if the employee dies or becomes
disabled (defined in the employment agreement as the inability to perform duties
for six consecutive months or nine months in any twelve-month period) or if the
Company discontinues operating its business or for cause (as defined in the
employment agreement). In connection with each employment agreement, Messrs.
Tsonis and Goldberg entered into a non-competition undertaking with the Company
pursuant to which Messrs. Tsonis and Goldberg have agreed not to compete with
the Company during their term of employment and for a period of two years
thereafter. The employment agreements do not contain change of control
provisions.
401(k) Plan
The Company sponsors a voluntary contribution profit sharing plan qualified
under Section 401(k) of the Code (the "401(k) Plan"). Employees of the Company
who have attained the age of 21 and who complete one year of continuous service
are eligible to participate in the 401(k) Plan. Under the 401(k) Plan, an
employee may elect to contribute annually on a pre-tax basis to a retirement
account a specified percentage of his or her compensation. Each employee is
fully vested at all times with respect to his or her contributions. Within
certain limits prescribed by the 401(k) Plan and applicable law, the Board of
Directors may authorize matching contributions and discretionary employer
contributions to the 401(k) Plan up to a maximum of two percent of an eligible
employee's annual compensation. For fiscal 1996, 1995 and 1994, the Company
contributed $3,000, $3,000 and $4,994, respectively, for the account of Henry
Arnberg and $3,000, $3,000 and $4,994, respectively, for the account of Paul
Levine. For fiscal 1996 and 1995 the Company made contributions of $2,075 and
$450, respectively, for Kenneth Shifrin. The Company did not make any
contributions for Mr. Shifrin during fiscal 1994.
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions
Prior to the Company's initial public offering in February 1994, the
Company was privately owned by only two stockholders and did not have a
Compensation Committee of its Board of Directors. In May 1994, the Company
formed a Compensation Committee. Prior to the formation of the Compensation
Committee, decisions regarding compensation were made by Henry Arnberg and Paul
Levine, the Company's sole stockholders and its Chairman, President and Chief
Executive Officer and Executive Vice President, Chief Operating Officer and
Secretary, respectively. Messrs. Arnberg and Levine, in their capacities as
directors, made all decisions concerning compensation of executive officers for
the Company's fiscal year ended January 31, 1994, including entering into five
year employment agreements between themselves and the Company, which agreements
became effective February 17, 1994 and terminate February 17, 1999.
Board Compensation Committee Report
10
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The Compensation Committee of the Board of Directors (the "Committee") is
composed of three independent outside directors of the Company.
The Committee focuses on compensating Company executives on a competitive
basis with other comparably sized and managed companies; in a manner consistent
and supportive of overall Company objectives; and through a compensation plan
which balances the long-term and short-term strategic initiatives of the
Company. The Committee intends that the Company's executive compensation program
will:
(1) reward executives for strategic management and enhancement of stockholder
value;
(2) reflect each executive's success at resolving key operational issues;
(3) facilitate both the short-term and long-term planning process; and
(4) attract and retain key executives believed to be critical to the long-term
success of the Company.
The Company's compensation program for executive officers generally
consists of a fixed base salary, performance-related annual bonus awards and
long-term incentive compensation in the form of stock options. In addition,
Company executives are able to participate in various benefit plans generally
available to other full-time employees of the Company.
In reviewing the Company and executives' performance over the past fiscal
year, the Committee took into consideration, among other things, the following
performance factors in making its compensation recommendations: revenues, net
income and cash flow.
Base Salary
Base salary for the Company's executives is intended to provide competitive
remuneration for services provided to the Company over a one year period. Base
salaries are set at levels designed to attract and retain the most appropriately
qualified individuals for each of the key management level positions within the
Company. Minimum base salary levels for the Named Executives are determined
according to employment agreements which are in effect through February 17,
1999.
Short-term Incentives
Short-term incentives are paid primarily to recognize specific operating
performance achieved within the last fiscal year. Since such incentive payments
are related to a specific year's performance, the Committee understands and
accepts that such payments may vary considerably from one year to the next. The
Company's bonus program ties executive compensation directly back to the annual
performance of both the individual executive and the Company overall. Through
this program, in fiscal 1996, each of the Named Executives' actual bonus payment
was derived from specific measures of Company and individual performance.
Depending on management level and seniority, executives within each entity are
able to earn a percentage of the base salary as a performance-related bonus. The
actual annual bonus awards payable to the Named Executives are based on the
terms established in their employment agreements which are in effect through
February 17, 1999.
Long-term Incentives
In keeping with its desire to align long-term executive compensation with
long-term shareholder value improvements, the Committee has again awarded stock
option grants to executives of the Company.
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Recognizing the value of these grants in motivating long-term strategic decision
making, the use of the stock options, in compensating other members of Company
management was again employed by the Company. In 1996, four of the five Named
Executives received an aggregate of 9,376 stock options. Options were granted to
the President and Executive Vice President of the Company at an exercise price
equal to 110% of the grant date market price with the remaining options having
been granted at an exercise price equal to the grant date market price, making
the options valuable to these executives only if the share price appreciates.
The options vest over three years as long as the option recipient remains an
employee of the Company.
Chief Executive Officer
Through February 17, 1999, Mr. Henry Arnberg, Chief Executive Officer, will
be compensated under a previously disclosed employment agreement between himself
and the Company. This contract establishes the minimum levels of compensation
which are to be paid to Mr. Arnberg by the Company.
During Fiscal 1996, Mr. Arnberg received a decrease in his base salary of
approximately 1.7% from the prior year's level. In addition to his base salary,
Mr. Arnberg is eligible to participate in the short-term or long-term incentive
programs outlined above for the other Named Executives. During Fiscal 1996, the
amount of Mr. Arnberg's short-term incentive bonus was calculated based on the
terms established in the employment agreement. Based on this formula, Mr.
Arnberg received a $680,796 bonus payment for fiscal year 1996.
Finally, Mr. Arnberg was granted 3,125 stock options as part of the
Company's previously described long-term incentive program. These options were
granted at an exercise price equal to 110% of the grant date market price, and
therefore attain value only through an increase in the publicly traded price per
share. The options vest over three years.
The Committee believes that Mr.Arnberg's compensation reflects his
contribution to the Company and the achievement of specific long-term and
short-term objectives of the Company. In addition to the Company's financial
performance, the Committee has taken into consideration a number of other
managerial and leadership factors.
COMPENSATION COMMITTEE:
Marvin Broitman
Herbert M. Gardner
Douglas Schenendorf
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of shares of Class
A Common Stock and Class B Common Stock as of April 22, 1996, by (i) each person
who owns more than 5% of the outstanding shares of Class A and Class B Common
Stock; (ii) each executive officer and director of the Company; and (iii) all
officers and directors of the Company as a group:
</TABLE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owners (1) Title of Class (2) Beneficial Ownership of Class
- --------------------- ----------------- -------------------- --------
<S> <C> <C> <C>
Henry Arnberg....................... Class A 43,230 (3) 1.2%
Class B 1,493,518 (4) 54.7%
Paul Levine......................... Class A 66,669 (5) 1.9%
Class B 1,163,731 (6) 42.6%
Tas Tsonis.......................... Class A 84,478 (7) 2.5%
Class B - -
Kenneth Shifrin..................... Class A 2,266 (8) *
Class B - -
Marvin Broitman..................... Class A 5,085 (9) *
Class B -
Herbert M. Gardner.................. Class A 45,675 (10) 1.3%
Class B - -
Douglas Schenendorf................. Class A 10,729 (11) *
Class B - -
Brian Goldberg...................... Class A 84,478 (12) 2.5%
Class B - -
All Officers and
Directors as a group Class A 342,610 (3)(5)(7) 9.8%
(seven persons)..................... (8)(9)(10)
(11)(12)
Class B 2,657,249 (4)(6) 97.3%
- -----------------
*less than one percent
(1) All addresses are c/o Hirsch International Corp., 200 Wireless Boulevard,
Hauppauge, New York 11788.
(2) The Company's outstanding Common Stock consists of two classes, Class A
Common Stock and Class B Common Stock. The Class A Common Stock and the
Class B Common Stock are substantially identical except that two-thirds of
the directors of the Company will be elected by the holders of the Class B
Common Stock, Messrs. Arnberg and Levine and members of their immediate
families, as long as the number of outstanding Shares of Class B Common
Stock equals or exceeds 400,000 shares.
(3) Includes 31,250 shares of Class A Common Stock owned by his wife and 7,813
shares of Class A Common Stock owned by his minor child as to which he
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disclaims beneficial ownership.Includes options to purchase 4,166 shares of
Class A Common Stock. Does not include options to purchase 8,334 shares of
Class A Common Stock not exercisable within sixty (60) days.
(4) Includes 100,000 shares of Class B Common Stock 25,000 shares of Class B
Common Stock owned by his minor child as to which he disclaims beneficial
ownership.
(5) Includes 31,250 shares of Class A Common Stock owned by his wife and 31,252
shares of Class A Common Stock owned by trusts created for the benefit of
his minor children as to which he disclaims beneficial ownership. Includes
options to purchase 4,166 shares of Class A Common Stock. Does not include
options to purchase 8,334 shares of Class A Common Stock not exercisable
within sixty (60) days.
(6) Includes 100,000 shares of Class B Common Stock owned by his wife and
100,000 shares of Class B Common Stock owned by trusts created for the
benefit of his minor children as to which he disclaims beneficial
ownership.
(7) Includes 47,532 shares owned by The Tsonis Family Trust. Also includes
options to purchase 16,438 shares of Class A Common Stock. Does not include
options to purchase 4,167 shares of Class A Common Stock not exercisable
within sixty (60) days.
(8) Includes an option to purchase 1,641 shares of Class A Common Stock.
(9) Includes options to purchase 4,166 shares of Class A Common Stock. Does not
include options to purchase 8,334 shares of Common Stock at exercise prices
of $6.70 and $11.40 per share, respectively, not exercisable within sixty
(60) days.
(10) Includes 6,563 shares held in his retirement account. Also includes 1,313
shares owned by his wife as to which he disclaims beneficial ownership.
Includes a warrant to purchase 33,633 shares of Common Stock and options to
purchase 4,166 shares of Class A Common Stock. Does not include options to
purchase 8,334 shares of Class A Common Stock not exercisable within sixty
(60) days.
(11) Includes 1,969 shares owned by his wife and 2,626 shares owned by his minor
children as to which he disclaims beneficial ownership. Includes options to
purchase 4,166 shares of Class A Common Stock. Does not include options to
purchase 8,334 shares of Class A Common Stock not exercisable within sixty
(60) days.
(12) Includes 47,532 shares owned by The Goldberg-Klapman Family Trust. Also
includes options to purchase 16,438 shares of Class A Common Stock. Does
not include an option to purchase 4,167 shares of Class A Common Stock not
exercisable within sixty (60) days.
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<PAGE>
The Company is unaware of any arrangements which may result in a change
in control of the Company.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports. New
rules governing these reports were adopted in February 1991 and generally became
effective in May 1991. Based solely on the Company's review of the copies of
such forms received by it during its fiscal year ended January 31, 1995, the
Company believes that the Reporting Persons complied with all filing
requirements applicable to them.
Certain Relationships and Related Transactions
Until August 15, 1995, the Company leased approximately 16,500 square feet
of executive office and warehouse space, at a base rental of $16,500 per month,
from HAPL Associates, a partnership owned by the Company's President and
Executive Vice President. On that date, HAPL Associates completed the sale of
this facility on which date the lease was cancelled.
The Company has advanced approximately $267,000 for premiums on split
dollar life insurance for the Company's President and Executive Vice President.
The President and Executive Vice President are the beneficiaries of these
policies. These advances are collateralized by the cash surrender value of the
policies, which was $248,000 at January 31, 1996.
The Company purchases certain policies of insurance through Douglas
Schenendorf, a director of the Company. In Fiscal 1996, 1995, and 1994 the
Company paid insurance premiums of $442,671, $544,860 and $361,765,
respectively, to companies with which Mr. Schenendorf is affiliated.
The Company's By-Laws provide that all transactions between the Company and
any of its officers, directors or affiliates must be approved by a majority of
the unaffiliated members of the Board of Directors, will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and will be in connection with bona fide business purposes.
2. AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
On March 12, 1996, the Board of Directors determined it advisable to amend
the Company's Certificate of Incorporation to increase the number of authorized
shares of Class A Common Stock from 9,500,000 shares to 20,000,000 shares. The
proposed amendment to the Certificate of Incorporation is set forth in full as
Exhibit "A" to this Proxy Statement.
The additional shares of Class A Common Stock for which authorization is
sought would be part of the existing class of Class A Common Stock and would
have the same rights and privileges as the shares of Class A Common Stock which
are presently authorized. Such additional shares would not (and the shares of
Class A Common Stock presently outstanding do not) entitle the holders thereof
to preemptive rights to subscribe for additional shares or cumulative voting
rights.
15
<PAGE>
As of the date hereof, there were 3,424,557 Class A Common Stock (of which
384,375 shares were reserved for issuance under the Company's stock option plans
and 125,000 were reserved for issuance upon the exercise of warrants granted to
the underwriter of the Company's initial public offering) and 2,732,249 shares
of Class B Common Stock outstanding. The remainder of shares of authorized Class
A Common Stock are not issued or subject to reservation.
The Company does not currently have any plans, agreements or commitments
with respect to the issuance of additional shares of Class A Common Stock.
Any authorized but unissued or unreserved Class A Common Stock would be
available for issuance at such times, on such terms and for such purposes as the
Board of Directors may deem advisable in the future without further action by
stockholders, except as may be required by law or the rules of the stock
exchange on which the Company's capital stock is listed at the time. In addition
to being available for future financing and general corporate purposes,
including, without limitation, stock splits and stock dividends. The Class A
Common Stock to be authorized by the proposed amendment would be available for
use in acquisitions.
The Board of Directors believes that an increase in the authorized shares
is advisable at this time since it would give the Company greater flexibility in
negotiating future acquisitions using Class A Common Stock, in addition to
providing a resource for future financing, and for other general corporate
purposes.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
THE ADOPTION OF PROPOSAL 2.
3. AMENDMENT OF STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER FROM 196,875 TO 600,000
At the Meeting, the Company's stockholders will be asked to approve an
amendment to the 1993 Plan to increase the number of shares of Class A Common
Stock authorized for issuance thereunder from 196,875 to 600,000. The 1993 Plan
was adopted by the Board of Directors of the Company in December, 1993, and
approved by the Stockholders of the Company in July, 1994.
The Board believes that in order to enable the Company to continue to
attract and retain personnel of the highest caliber, provide incentives for
certain directors, officers and employees of the Company and certain other
persons instrumental to the success of the Company and to continue to promote
the well-being of the Company, it is in the best interest of the Company and its
stockholders to provide to such persons, through the granting of stock options,
the opportunity to participate in the value and/or appreciation in value of the
Company's Common Stock. The Board has found that the grant of options under the
1993 Plan has proven to be a valuable tool in attracting and retaining key
employees. It believes that such authority, in view of the substantial growth of
the Company and need to continue to expand, should be expanded to increase the
number of options which may be granted under the 1993 Plan. The Board believes
that such authority (i) will provide the Company with significant means to
attract and retain talented personnel; (ii) will result in saving cash, which
16
<PAGE>
otherwise would be required to maintain current key employees and adequately
attract and reward key personnel; and (iii) consequently will prove beneficial
to the Company's ability to be competitive.
As of the date hereof, the Company has granted options to purchase 52,148
shares of Common Stock under the 1993 Plan including grants to certain officers
and directors.
If the above-described amendment to the 1993 Plan is approved by the
stockholders, additional options may be granted under the 1993 Plan, the timing,
amounts and specific terms of which cannot be determined at this time.
The following summary of the 1993 Plan does not purport to be complete, and
is subject to and qualified in its entirety by reference to the full text of the
1993 Plan, as proposed to be amended, set forth as Exhibit "B" to this Proxy
Statement.
Summary of the 1993 Plan
The 1993 plan has 196,875 shares of Common Stock reserved for issuance upon
the exercise of options designated as either (i) incentive stock options
("ISOs") under the Code or (ii) non-qualified stock options. ISOs may be granted
under the 1993 Plan to employees and officers of the Company. Non-qualified
options may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company. In certain circumstances, the
exercise of stock options may have an adverse effect on the market price of the
Common Stock.
The purpose of the 1993 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and give them a greater personal
interest in the success of the Company. The 1993 Plan is administered by the
Stock Option Committee. The Committee, within the limitations of the 1993 Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, the time, manner and form of payment upon
exercise of an option, and whether restrictions such as repurchase rights in the
Company are to be imposed on the shares subject to options. Options granted
under the 1993 Plan may not be granted at a price less than the fair market
value of the Common Stock on the date of the grant (or 110% of fair market value
in the case of persons holding 10% or more of the voting stock of the Company).
The aggregate fair market value of shares for which ISOs granted to any person
are exercisable for the first time by such person during any calendar year
(under all stock option plans of the Company and any related corporation) may
not exceed $100,000. The 1993 Plan will terminate in December 2003; however,
options granted under the 1993 Plan will expire not more than five years from
the date of grant. Options granted under the 1993 Plan are not transferable
during an optionee's lifetime but are transferable at death by will or by the
laws of descent and distribution.
Certain Federal Income Tax Consequences of the Plan
The following is a brief summary of the Federal income tax aspects of stock
options to be granted under the 1993 Plan based upon statutes, regulations and
interpretations in effect on the date hereof. This summary is not intended to be
exhaustive, and does not describe state or local tax consequences.
17
<PAGE>
Incentive Stock Options. A participant will recognize no taxable income
upon the grant or exercise of an ISO. Upon a disposition of the shares after the
later of two years from the date of grant and one year after the transfer of the
shares to the participant, (i) the participant will recognize the difference, if
any, between the amount realized and the exercise price as long-term capital
gain or long-term capital loss (as the case may be) if the shares are capital
assets; and (ii) the Company will not qualify for any deduction in connection
with the grant or exercise of the options. The excess, if any, of the fair
market value of the shares on the date of exercise of an ISO over the exercise
price will be treated as an item of adjustment for a participant's taxable year
in which the exercise occurs and may result in an alternative minimum tax
liability for the participant. In the case of a disposition of shares in the
same taxable year as the exercise, where the amount realized on the disposition
is less than the fair market value of the shares on the date of exercise, there
will be no adjustment since the amount treated as an item of adjustment, for
alternative minimum tax purposes, is limited to the excess of the amount
realized on such disposition over the exercise price which is the same amount
included in the regular taxable income.
If Common Stock acquired upon the exercise of an ISO is disposed of prior
to the expiration of the holding periods described above, (i) the participant
will recognize ordinary compensation income in the taxable year of disposition
on an amount equal to the excess, if any, of the lesser of the fair market value
of the shares on the date of exercise or the amount realized on the disposition
of the shares, over the exercise price paid for such shares; and (ii) the
Company will qualify for a deduction equal to any such amount recognized,
subject to the limitation that the compensation be reasonable. The participant
will recognize the excess, if any, of the amount realized over the fair market
value of the shares on the date of exercise, if the shares are capital assets,
as short-term or long-term capital gain, depending on the length of time that
the participant held the shares, and the Company will not qualify for a
deduction with respect to such excess.
Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following the termination of the participant's
employment, the option will generally be taxed as a nonqualified stock option.
See "Nonqualified Stock Options."
Nonqualified Stock Options. Except as noted below, with respect to
nonqualified stock options (i) upon grant of the option, the participant will
recognize no income; (ii) upon exercise of the option (if the shares of Common
Stock are not subject to a substantial risk of forfeiture), the participant will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the shares on the date of exercise over the exercise
price, and the Company will qualify for a deduction in the same amount, subject
to the requirement that the compensation be reasonable; (iii) the Company will
be required to comply with applicable Federal income tax withholding
requirements with respect to the amount of ordinary compensation income
recognized by the participant; and (iv) on a sale of the shares, the participant
will recognize gain or loss equal to the difference, if any, between the amount
realized and the sum of the exercise price and the ordinary compensation income
recognized. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets and as short-term or long-term capital gain or loss,
depending upon the length of time that the participant held the shares.
18
<PAGE>
Recommendation and Vote Required
The vote of the holders of a majority of the shares of the Company's Common
Stock present in person or represented by proxy at the Meeting is required to
adopt the foregoing proposal to amend the 1993 Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
THE ADOPTION OF PROPOSAL 3.
4. RATIFICATION OF THE BONUS PROVISIONS OF
THE COMPANY'S EMPLOYMENT AGREEMENTS WITH
ITS PRESIDENT AND EXECUTIVE VICE PRESIDENT.
The Company has previously entered into employment agreements with its
President and Executive Vice President, which agreements became effective
February 17, 1994 and terminate February 17, 1999. Each Employment Agreement was
ratified by the Compensation Committee in March 1996. Each employment agreement
contains a provision providing for the payment of an annual bonus equal to five
(5%) percent of the Company's pre-tax profits calculated without regard to the
bonus paid to such executive or any other executive bonus. A copy of such bonus
provision is set forth in full as Exhibit "C" to this Proxy Statement.
The bonus provisions are being submitted to the stockholders in an effort
to assure that payment of the bonus to the President and Executive Vice
President will be tax deductible by the Company. Section 162(m) of the Code
limits the deduction of compensation in excess of $1 million per year paid to
each Named Executive unless such compensation is based on the achievement of
certain pre-established performance goal(s) which have been set by the
Compensation Committee and approved by the Company's stockholders.
Stockholder approval of these bonus provisions is necessary for assuring
the tax-deductible status of the bonus payments made to the Company's President
and Executive Vice President. In the event stockholder approval is not obtained,
the Company will nevertheless be required to make the bonus payments to the
President and Executive Vice President pursuant to the terms of their employment
agreements any amounts paid in excess of $1 million will not be deductible by
the Company.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
THE ADOPTION OF PROPOSAL 4.
5. SELECTION OF AUDITORS
The Board of Directors recommends that the stockholders ratify the
appointment of Deloitte & Touche LLP, independent auditors, which served as the
Company's independent auditors for the last fiscal year, as independent auditors
to audit the Company's COnsolidated Financial Statements for the fiscal year
ending January 31, 1997. A representative of Deloitte & Touche is expected to be
present at the Meeting and will be given the opportunity to make a statement and
to answer any questions any stockholder may have with respect to the
Consolidated Financial Statements of the Company for the year ended January 31,
1996.
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<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
THE ADOPTION OF PROPOSAL 5.
6. OTHER BUSINESS
The Board of Directors has no knowledge of any other business which may
come before the Meeting and does not intend to present any other business.
However, if any other business shall properly come before the Meeting or any
adjournment thereof, the persons named as proxies will have discretionary
authority to vote the shares of Class A Common Stock represented by the
accompanying proxy in accordance with their best judgment.
Stockholder's Proposals
Any stockholder of the Company who wishes to present a proposal to be
considered at the next annual meeting of stockholders of the Company and who
wishes to have such proposal presented in the Company's proxy statement for such
Meeting must deliver such proposal in writing to the Company at 200 Wireless
Boulevard, Hauppauge, New York 11788, on or before February 22, 1997. In order
to curtail controversy as to the date on which the proposal was received by the
Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested.
By Order of the Board of Directors
Paul Levine, Secretary
The Company will furnish without charge to each person whose proxy is being
solicited by this proxy statement, on the written request of such person, a copy
of the Company's Annual Report on Form 10-K, for its fiscal year ended January
31, 1996. Such request should be addressed to Stockholder Relations, Hirsch
International Corp., 200 Wireless Boulevard, Hauppauge, New York 11788.
Dated: May 23, 1996
20
<PAGE>
EXHIBIT "A"
FORM OF AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION
By striking out the whole of ARTICLE FOURTH, as it now exists, and
inserting in lieu and instead thereof a new ARTICLE FOURTH, reading as follows:
"The Corporation may issue three classes of shares as follows:
1. Class A Common Stock. The aggregate number of shares of Class A Common
Stock which the Corporation may issue is 20,000,000 shares with a par value of
$.01. The shares shall be designated as "Class A Common Stock" and shall have
identical rights and privileges in every respect. The dividend rights
attributable to the holders of Class A Common Stock shall be identical to those
of the holders of Class B Common Stock and all stock dividends shall be paid in
Class A Common Stock. Each shareholder of record shall be entitled to one vote
per share on all matters submitted to a vote of the shareholders, except that as
long as the number of outstanding shares of Class B Common Stock equals or
exceeds 400,000 shares, the holders of the Class A Common Stock, voting as a
class, shall be entitled to elect one-third of the Board of Directors and the
holders of the Class B Common Stock, voting as a class, shall be entitled to
elect two-thirds of the Board of Directors.
2. Class B Common Stock. The aggregate number of shares of Class B Common
Stock which the Corporation may issue is 3,000,000 shares with a par value of
$.01. The shares shall be designated as "Class B Common Stock" and shall have
identical rights and privileges in every respect. The dividend rights
attributable to the holders of Class B Common Stock shall be identical to those
of the holders of Class A Common Stock and all stock dividends shall be paid in
Class A Common Stock. Each shareholder of record shall be entitled to one vote
per share on all matters submitted to a vote of the shareholders, except that as
long as the number of outstanding shares of Class B Common Stock equals or
exceeds 400,000 shares, the holders of the Class A Common Stock, voting as a
Class, shall be entitled to elect one-third of the Board of Directors and the
holders of the Class B Common Stock, voting as a class, shall be entitled to
elect two-thirds of the Corporation's Board of Directors. A holder of Class B
Common Stock may at any time convert any portion or all of such Stock into Class
A Common Stock on a one-for-one basis. In the event of any disposition of shares
of Class B Common Stock, other than to a holder of Class B Common Stock, such
shares shall be deemed to be automatically converted into an equal number of
fully paid and non-assessable shares of Class A Common Stock. At such time as
the number of outstanding shares of Class B Common Stock is less than 400,000,
all remaining shares of the Class B Common Stock shall be deemed automatically
converted into an equal number of shares of Class A Common Stock. This article
FOURTH may not be amended to increase the authorized number of shares of Class B
Common Stock.
3. Preferred Stock. The aggregate number of shares of Preferred Stock which
the Corporation may issue is 1,000,000, with a par value of $.01. The Preferred
Stock may by issued from time to time in series. The shares of each series shall
be subject not only to the provisions of this Article 4.c, which is applicable
to all series of preferred shares, but also to the additional provisions with
respect to such series as are fixed from time to time by the Board of Directors.
The Board of Directors is hereby authorized and required to fix, in the manner
and to the fullest extent provided
A-1
<PAGE>
and permitted by law, all provisions of the shares of each series not otherwise
set forth in this Certificate, including, but not limited to:
a. Designation of Series-Number of Shares. The distinctive designation of
each series and the number of shares constituting such series, which number may
be increased (except where otherwise provided by the Board of Directors in its
resolution creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by resolution of the Board of
Directors;
b. Dividend Rates and Rights. The annual rate and frequency of payment of
dividends payable on the shares of all series and the dividend rights applicable
thereto, including, in the event of Cumulative Preferred Stock, the date from
which dividends shall be cumulative on all shares of any series issued prior to
the record date for the first dividend on shares of such series;
c. Redemption. The rights, if any, of the Corporation to redeem; the terms
and conditions of redemption; and the redemption price or prices, if any, for
the shares of each, any, or all series;
d. Sinking Fund. The obligation, if any, of the Corporation to maintain a
sinking fund for the periodic redemption of shares of any series and to apply
the sinking fund to the redemption of such shares;
e. Voluntary Liquidation Preferences. The amount payable on shares of each
series in the event of any voluntary liquidation, dissolution, or winding up of
the affairs of the Corporation;
f. Conversion Rights. The rights, if any, of the holders of shares of each
series to convert such shares into the Corporation's Common Stock and the terms
and conditions of such conversion; and
g. Voting Rights. The voting rights, if any, of the holders of the shares
of each series, and any other preferences, and relative, participating,
optional, or other special rights, and any qualifications, limitations, or
restrictions thereof."
A-2
<PAGE>
EXHIBIT "B"
HIRSCH INTERNATIONAL CORP.
STOCK OPTION PLAN
1. Plan; Purpose; General. The purpose of this Stock Option Plan (the
"Plan") is to advance the interests of Hirsch International Corp. (the
"Company") by enhancing the ability of the Company to attract and retain
selected employees, consultants, advisors to the Board of Directors and
qualified directors (collectively the "Participants") by creating for such
Participants incentives and rewards for their contributions to the success of
the Company, and by encouraging such Participants to become owners of shares of
the Company's Class A Common Stock, par value $0.01 per share, as the title or
par value may be amended (the "Shares").
Options granted pursuant to the Plan may be incentive stock options
("Incentive Options") as defined in the Internal Revenue Code of 1986, as
amended (the "Code") or non-qualified options, or both. The proceeds received
from the sale of Shares pursuant to the Plan shall be used for general corporate
purposes.
1. Effective Date of Plan. The Plan will become effective upon approval by
the Board of Directors (the "Board"), and shall be subject to the approval by
the holders of at least a majority of all Shares present in person and by proxy
and entitled to vote thereon at a meeting of stockholders of the Company within
12 months after the Company has a class of equity securities registered under
the Securities Act of 1933, as amended (the "Act").
2. Administration of the Plan. The Plan will be administered by the Board
of the Company. The Board will have authority, not inconsistent with the express
provisions of the Plan, to take all action necessary or appropriate thereunder,
to interpret its provisions, and to decide all questions and resolve all
disputes which may arise in connection therewith. Such determinations of the
Board shall be conclusive and shall bind all parties.
The Board may, in its discretion, delegate its powers with respect to the
Plan to an employee benefit plan committee or any other committee (the
"Committee"), in which event all references to the Board hereunder, including
without limitation the references in Section 9, shall be deemed to refer to the
Committee. The Committee shall consist of not fewer than two members. Each of
the members must be a "disinterested person" as that term is defined in Rule
16b-3 adopted pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act"). A majority of the members of the Committee shall constitute a quorum, and
all determinations of the Committee shall be made by the majority of its members
present at a meeting. Any determination of the Committee under the Plan may be
made without notice or meeting of the Committee by a writing signed by all of
the Committee members.
The Board and the Committee, if any, shall have the authority to determine
eligibility, the number of options granted and the exercise price of options.
3. Eligibility. The Participants in the Plan shall be all employees,
consultants, advisors to the Board of Directors and qualified directors of the
Company or any of its present or future subsidiaries
<PAGE>
(as defined in Section 8) whether or not they are also officers of the Company.
Members of the Committee are eligible only if they do not exercise any
discretion in selecting Participants who receive grants of options, in
determining the number of shares to be granted to any Participant or in
determining the exercise price of any options, or if counsel to the Company may
otherwise advise the Committee that the taking of any such action does not
impair the status of such eligible Committee members as "disinterested persons"
within the meaning of Exchange Act Rule 16b-3.
4. Grant of Options.
(a) The Board shall grant options to Participants that it, in its sole
discretion, selects. Options shall be granted on such terms as the Board shall
determine except that Incentive Options shall be granted on terms that comply
with the Code and Regulations thereunder.
(b) No options shall be granted after December 3, 2003 but options
previously granted may extend beyond that date.
5. Terms and Conditions of Options
(a) Exercise Price. Except as provided in Section 5(b) of this Plan, the
purchase price per Share for Shares issuable upon exercise of options shall be a
minimum of 100% of fair market value on the date of grant and shall be
determined by the Board. For this purpose, "fair market value" will be
determined as set forth in Section 8. Notwithstanding the foregoing, if any
person to whom an option is to be granted owns in excess of ten percent of the
outstanding capital stock of the Company, then no option may be granted to such
person for less than 110% of the fair market value on the date of grant as
determined by the Board.
(b) Period of Options. Unless earlier terminated, options shall terminate
and no longer be exercisable five years from the date of grant.
(c) Payment for Delivery of Shares. Shares which are subject to options
shall be issued only upon receipt by the Company of full payment of the purchase
price for the Shares as to which the option is exercised. The purchase price
shall be payable by the Participant to the Company either (i) in cash or by
check, bank draft or money order payable to the order of the Company; or (ii)
for Incentive Options, through the delivery of Shares owned by the Participant
for a period of not less than six months and for which the Participant has good
title (free and clear of any liens and encumbrances) having a fair market value
equal to the purchase price; or (iii) for non-qualified options, by a
combination of cash and Shares as provided in (i) and (ii) above.
The Company shall not be obligated to deliver any Shares unless and until,
in the opinion of the Company's counsel, all applicable federal and state laws
and regulations have been complied with, nor, if the outstanding Class A Common
Stock is at the time listed on any securities exchange, unless and until the
Shares to be delivered have been listed (or authorized to be added to the list
upon official notice of issuance) upon such exchange, nor unless or until all
other legal matters in connection with the issuance and delivery of Shares have
been approved by the Company's counsel. Without limiting the generality of the
foregoing, the Company may require from the person exercising an option such
investment representation or such agreement, if any, as counsel for the Company
may consider necessary in order to comply with the Act and applicable state
securities laws.
B-2
<PAGE>
A Participant shall have the rights of a shareholder only as to Shares
actually acquired by him under the Plan.
(d) Vesting. Except for options granted pursuant to Section 5(b) of this
Plan, the Board may impose such vesting restrictions as it sees fit at the time
of grant.
(e) Non-Transferability of Options. Options may not be sold, assigned or
otherwise transferred or disposed of in any manner whatsoever except as provided
in Section 6(g).
(f) Forfeiture of Options upon Termination of Relationship. All previously
unexercised options including options which have not vested shall terminate and
be forfeited automatically upon the termination for any reasons whatsoever of a
Participant's status as an employee, consultant on advisor to the Board. Except
as provided in Section 6(g) below, unexercised options granted to directors
shall not terminate or be forfeited in the event such person is no longer a
director of the Company.
(g) Death. If a Participant dies at a time when he is entitled to exercise
an option, then at any time or times within one year after his death (or such
further period as the Board may allow) such options may be exercised, as to all
or any of the Shares which the Participant was entitled to purchase immediately
prior to his death, by his personal representative or the person or persons to
whom the options are transferred by the will or the applicable laws of descent
and distribution, and except as so exercised such options will expire at the end
of such period.
(h) Loans to Exercise Option. If requested by any Participant to whom a
grant of non-qualified options has been made, the Company or any subsidiary may
loan such person the amount of money necessary to pay the federal income taxes
incurred as a result of the exercise of any options (or guarantee a bank loan
for such purpose), assuming that the Participant is in the maximum federal
income tax bracket six months from the time of exercise and assuming that the
Participant has no deductions which would reduce the amount of such tax owed.
The loan shall be made on or after April 15th of the year following the year in
which the amount of tax is determined as may be requested by the Participant and
shall be made on such terms as the Company or lending bank determines.
(i) Withholding Taxes. To the extent that the Company is required to
withhold taxes for federal income tax purposes in connection with the exercise
of any options, the Company shall have the right to assist the Participant to
satisfy such withholding requirement by (i) the Participant paying the amount of
the required withholding tax to the Company, (ii) the Participant delivering to
the Company Shares of its Class A Common Stock previously owned by the
Participant or (iii) the Participant having the Company retain a portion of the
Shares covered by the option exercise. The number of Shares to be delivered to
or withheld by the Company times the fair market value as defined by Section 9
of this Plan shall equal the cash required to be withheld. To the extent that
the Company elects to allow the Participant either to deliver or have withheld
Shares of the Company's Class A Common Stock, the Board or the Committee may
require him to make such election only during certain periods of time as may be
necessary to comply with appropriate exemptive procedures regarding the
"short-swing" profit provisions of Section 16(b) of the Exchange Act or to meet
certain Code requirements.
6. Shares Subject to Plan.
B-3
<PAGE>
(a) Number of Shares and Stock to be Delivered. Shares delivered pursuant
to this Plan shall in the discretion of the Board be authorized but unissued
Shares of Class A Common Stock or previously issued Shares acquired by the
Company. Subject to adjustments as described below, the aggregate number of
Shares which may be delivered under this Plan shall not exceed 600,000 Shares of
Class A Common Stock of the Company.
(b) Changes in Stock. In the event of a stock dividend, stock split or
combination of Shares, recapitalization, merger in which the Company is the
surviving corporation or other change in the Company's capital stock, the number
and kind of Shares of stock or securities of the Company to be subject to the
Plan and to options then outstanding or to be granted thereunder, the maximum
number of Shares or securities which may be delivered under the Plan, the option
price and other relevant provisions shall be appropriately adjusted by the
Board, whose determination shall be binding on all persons. In the event of a
consolidation or merger in which the Company is not the surviving corporation or
which results in the acquisition of substantially all the Company's outstanding
stock by a single person or entity, or in the event of the sale or transfer of
substantially all the Company's assets, all outstanding options shall thereupon
terminate.
The Board may also adjust the number of Shares subject to outstanding
options, the exercise price of outstanding options and the terms of outstanding
options to take into consideration material changes in accounting practices or
principles, consolidations or mergers (except those described in the immediately
preceding paragraph), acquisitions or dispositions of stock or property or any
other event if it is determined by the Board that such adjustment is appropriate
to avoid distortion in the operation of the Plan.
7. Definitions.
(a) For purposes of the Plan, a subsidiary is any corporation (i) in which
the Company owns, directly or indirectly, stock possessing 50 percent or more of
the total combined voting power of all classes of stock or (ii) over which the
Company has effective operating control.
(b) The fair market value of the Class A Common Stock shall be deemed to
be:
(i) the closing price of the Company's Class A Common Stock appearing on a
national securities exchange if the Company's common stock is listed on such an
exchange, or if not listed, the average closing bid price appearing on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ");
(ii) if the Shares are not listed on NASDAQ, then the average bid price for
the Company's stock as listed in the National Quotation Bureau's pink sheets;
(iii) if there are no listed bid prices published in the pink sheets, then
the market value shall be based upon the average closing bid price as determined
following a polling of all dealers making a market in the Company's Shares.
8. Indemnification of Board. In addition to and without affecting such
other rights of indemnification as they may have as members of the Board or
otherwise, each member of the Board shall be indemnified by the Company to the
extent legally possible against reasonable expenses, including attorney's fees,
actually and reasonably incurred in connection with any appeal therein, to which
he may be a party by reason of any action taken or failure to act under or in
connection with
B-4
<PAGE>
the Plan, or any option granted thereunder, and against all judgments, fines and
amounts paid by his in settlement thereof; provided that such payment of amounts
so indemnified is first approved by a majority of the members of the Board who
are not parties to such action, suit or proceedings, or by independent legal
counsel selected by the Company, in either case on the basis of a determination
that such member acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company; and except that no
indemnification shall be made in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Board member is liable for
a breach of the duty of loyalty, bad faith or intentional misconduct in his
duties; and provide, further that the Board member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend same.
9. Amendments. The Board may at any time discontinue granting options under
the Plan. The Board may at any time of times amend the Plan or amend any
outstanding option or options for the purpose of satisfying the requirements of
any changes in applicable laws or regulations or for any other purpose which may
at the time be permitted by law, provided that (except to the extent explicitly
required or permitted herein above) no such amendment will, without the approval
of the stockholders of the Company, (a) increase the maximum number of Shares
available under the Plan, (b) reduce the option price of outstanding options or
reduce the price at which options may be granted, (c) extend the time within
which options may be granted, (d) amend the provisions of this Section 10 of the
Plan, (e) extend the period of an outstanding option beyond five years from the
date of grant, (f) adversely affect the rights of any Participant (without his
consent) under any options theretofore granted or (g) be effective if
stockholder approval is required by applicable statute, rule or regulation.
B-5
<PAGE>
EXHIBIT "C"
BONUS PROVISION FOR THE COMPANY'S
PRESIDENT AND EXECUTIVE VICE PRESIDENT
Executive shall be entitled to an annual bonus equal to five (5%) percent
of the Company's pre-tax profits calculated without regard to this or any other
executive bonus. Payment of the bonus, if any, shall be made within one hundred
twenty (120) days after the end of each fiscal year of the Company, with an
interim bonus advance being permitted based upon six (6) months operating
results, subject, however, to reimbursement to the Company by the Executive
based upon year-end operating results. Each payment shall be accompanied by a
financial statement of the Company and a schedule calculating such bonus.
Pre-tax profits of the Company shall be determined in accordance with generally
accepted accounting principles (under United States professional accounting
standards) consistently applied. Any period of less than a full year which this
bonus is calculated shall be pro rated.
C-1
<PAGE>
------------------------------------
CLASS A COMMON STOCK PROXY
------------------------------------
HIRSCH INTERNATIONAL CORP.
200 Wireless Boulevard
Hauppauge, NY 11788
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned, revoking all previous proxies, hereby appoints Henry
Arnberg, Paul Levine, Tas Tsonis and Herbert M. Gardner, and each of them,
proxies with power of substitution to each, for and in the name of the
undersigned to vote all shares of Class A Common Stock of Hirsch International
Corp. (the "Company"), held of record by the undersigned on April 22, 1996,
which the undersigned would be entitled to vote if present at the Annual Meeting
of Stockholders of the Company to be held on June 21, 1996, at 10:00 a.m. at The
Huntington Hilton, 598 Broadhollow Road, Melville, New York 11747, and any
adjournments thereof, upon the matters set forth in the Notice of Annual
Meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting, Proxy
Statement and the Company's 1996 Annual Report.
1. ELECTION OF DIRECTORS
FOR all nominees listed Withhold Authority to vote
below (except as marked for all nominees listed
to the contrary below) ______ below ______
(Instruction: To withhold authority to vote for an individual nominee
strike a line through such nominee's name in the list below.)
MARVIN BROITMAN
DOUGLAS SCHENENDORF
2. AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
FOR ______ AGAINST ______ ABSTAIN ______
3. AMENDMENT OF THE COMPANY'S STOCK OPTION PLAN
FOR ______ AGAINST ______ ABSTAIN ______
4. RATIFICATION OF THE BONUS PROVISIONS OF THE COMPANY'S EMPLOYMENT
AGREEMENTS WITH ITS PRESIDENT AND EXECUTIVE VICE PRESIDENT
FOR ______ AGAINST ______ ABSTAIN ______
5. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JANUARY 31,
1997
<PAGE>
FOR ______ AGAINST ______ ABSTAIN ______
6. TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF
FOR ______ AGAINST ______ ABSTAIN ______
PLEASE SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and when
properly executed will be voted as directed herein. If no direction is given,
this Proxy will be voted FOR Proposals 1, 2, 3, 4, 5 and 6.
- ---------------------------------
(Date)
- ---------------------------------
(Signature)
- ---------------------------------
(Signature, if held jointly)
Please sign exactly as name appears below. If Shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee or
guardian, please list full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Please sign, date and return promptly in the enclosed envelope. No postage need
be affixed if mailed in the United States.
</TABLE>
