HIRSCH INTERNATIONAL CORP.
2003 STOCK OPTION PLAN
1. Plan; Purpose; General. The purpose of this 2003 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.
2. 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").
3. 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 "non-employee director" 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.
4. 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 (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 "non-employee directors" within the meaning of Exchange Act
Rule 16b-3.
5. 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 1, 2013 but options
previously granted may extend beyond that date.
6. Terms and Conditions of Options.
(a) Exercise Price. The purchase price per Share for Shares
issuable upon exercise of options shall be determined by the Board except that
Incentive Options shall have an exercise price which is a minimum of one hundred
(100%) percent of fair market value on the date of grant. 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.
A Participant shall have the rights of a shareholder only as to Shares
actually acquired by him under the Plan.
(d) Vesting. The Board may impose such vesting restrictions on
options granted hereunder 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 or 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.
7. Shares Subject to Plan.
(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 750,000 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.
8. 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.
9. 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 the Plan, or any option granted thereunder, and against all
judgments, fines and amounts paid by him 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.
10. Amendments. The Board may at any time discontinue granting options
under the Plan. The Board may at any time or 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.