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Hirsch International Corp.

50 Engineers Road
Suite 100
Hauppauge, New York 11788

                 , 2009

Dear Stockholders:

You are cordially invited to attend a special meeting of stockholders of Hirsch International, Corp. (the “Company”), a Delaware corporation, to be held on           , 2009 at          A.M., New York time at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York, New York.  The accompanying proxy statement provides information regarding the matters to be acted on at the special meeting, including at any adjournment or postponement thereof.

At the special meeting, you will be asked to consider and vote upon a proposal to approve an Agreement and Plan of Merger, dated as of July 2, 2009, that we entered into with Hirsch Holdings, Inc., a Delaware corporation (“Parent”) and HIC Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). Pursuant to the terms of the merger agreement, if the merger is approved and all of the other conditions of the merger are satisfied, you will receive $0.31 for each share of our Class A Common Stock and Class B Common Stock (together, our “common stock”) that you own, and Merger Sub will be merged with and into us and, as a result, we will continue as the surviving corporation. Following the consummation of the merger, Parent will own all of our common stock.  Paul Gallagher, our President, Chief Executive Officer and Chief Operating Officer, presently owns all of Parent’s common stock.

If the merger agreement and the merger are approved and the merger is consummated, each share of our common stock (other than shares of our common stock owned by Parent, Merger Sub, Mr. Gallagher or shares owned by stockholders who properly exercise dissenters’ rights of appraisal under Delaware law or shares of our common stock held in treasury by us), will be cancelled and converted into the right to receive $0.31 in cash, without interest. Following the consummation of the merger, we will be privately owned by Parent and its stockholders. A copy of the merger agreement is included as Annex A to the accompanying proxy statement.

After careful consideration, the Company’s board of directors by a unanimous vote of the directors (other than Mr. Gallagher, who abstained from the vote) has determined that the merger agreement and the merger are advisable, fair to and in the best interests of us and our stockholders, other than Mr. Gallagher, Parent and Merger Sub, and approved the merger agreement and the merger. This determination was based upon the unanimous recommendation of a special committee of the Company’s board of directors consisting of three independent and disinterested directors. Our board of directors unanimously recommends (with Mr. 

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Gallagher taking no part in such recommendation) that you vote FOR the approval of the merger agreement and the merger.

When you consider the recommendation of our board of directors to approve the merger agreement and the merger, you should be aware that some of our directors and an executive officer have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally.

The accompanying proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. You are urged to read the entire document carefully. You may also obtain more information about us from documents we have filed with the Securities and Exchange Commission.

Regardless of the number of shares you own, your vote is very important. The affirmative vote of the holders of at least a majority of all of the outstanding shares of our common stock entitled to vote at the special meeting is required to approve the merger agreement and the merger.

If you fail to vote on the merger agreement and the merger, the effect will be the same as a vote against the approval of the merger agreement and the merger. Once you have read the accompanying proxy statement, please vote on the proposals submitted to stockholders at the special meeting, whether or not you plan to attend the meeting, by signing, dating and mailing the enclosed proxy card. If you receive more than one proxy card because you own shares that are registered differently, please vote all of your shares shown on all of your proxy cards. If your shares are held in “street name” by your broker, your broker will be unable to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedures provided by your broker. Failure to instruct your broker to vote your shares will have exactly the same effect as voting against the approval of the merger agreement and the merger.

Voting by proxy will not prevent you from voting your shares in person in the manner described in the accompanying proxy statement if you subsequently choose to attend the special meeting.

Our board of directors, appreciates your continuing support of the Company and urge you to support the merger.

Sincerely,

Christopher J. Davino
Director and Chairman of the Special Committee

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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The proxy statement is dated         , 2009, and is first being mailed to stockholders on or about           , 2009.

IMPORTANT

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY CARD AT YOUR EARLIEST CONVENIENCE.

If you have any questions or need assistance voting your shares, please call Georgeson Inc., which is assisting us in the solicitation of proxies, toll-free at 1-888-264-6999.  Banks and brokers should contact Georgeson Inc. at 212-440-9800.

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HIRSCH INTERNATIONAL CORP.

NOTICE OF SPECIAL MEETING

TO BE HELD ON                , 2009

On               , 2009, Hirsch International Corp. will hold a special meeting of stockholders at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York, NY. The special meeting will begin at            A.M. New York time.

Only holders of shares of our Class A Common Stock, par value $0.01 per share and our Class B Common Stock, par value $0.01 per share (together, our “common stock”), of record at the close of business on                , 2009, may vote at this special meeting or at any adjournments or postponements thereof that may take place. At the special meeting, stockholders will be asked to:

(1)                                 consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of July 2, 2009, that we entered into with Hirsch Holdings, Inc., a Delaware corporation (“Parent”), HIC Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), which we refer to as the merger agreement, and approve the merger of Merger Sub with and into us, as a result of which (a) we will be the surviving corporation in the merger and will be owned by Parent and (b) each share of our common stock (other than shares of our common stock owned by Parent, Merger Sub, Mr. Gallagher, shares owned by stockholders who properly exercise dissenters’ rights of appraisal under Delaware law or shares of our common stock held in treasury by us) will be cancelled and converted into the right to receive $0.31 in cash, without interest; and

(2)                                 approve any motion to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal.   

Our board of directors (with Mr. Gallagher taking no part in the vote or recommendation) has unanimously approved and recommends that you vote FOR the approval of the merger agreement and the merger and FOR the adjournment proposal, which are discussed in more detail in the accompanying proxy statement.

When you consider the recommendation of our board of directors to approve the merger agreement and the merger, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally.

Regardless of the number of shares you own, your vote is very important. The affirmative vote of the holders of at least a majority of all of the outstanding shares of our common stock entitled to vote at the special meeting is required to approve the merger agreement and the merger.

If you fail to vote on the merger agreement and the merger, the effect will be the same as a vote against the approval of the merger agreement and the merger.

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We hope you will be able to attend the meeting, but whether or not you plan to attend, please vote your shares by signing and returning the enclosed proxy card as soon as possible.

Voting by proxy will not prevent you from voting your shares in person in the manner described in the accompanying proxy statement if you subsequently choose to attend the special meeting. If you hold your shares in “street name” through a bank, broker or custodian, you must obtain a legal proxy from such custodian in order to vote in person at the special meeting. You should not send in your certificates representing shares of our common stock until you receive written instructions to do so.

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SUMMARY TERM SHEET

This Summary Term Sheet, together with the “Questions and Answers About the Merger and the Special Meeting,” summarizes the material information in this proxy statement. We encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement before voting.  In this proxy statement, the terms “Hirsch,” “Company,” “we,” “our” and “us” refer to Hirsch International Corp. and its subsidiaries.  Where appropriate, we have set forth a section and page reference directing you to a more complete description of the topics described in this summary.

The Parties to the Merger (page 68)

Hirsch International Corp., a Delaware corporation, is a leading provider of equipment and education and support services to the graphic and decorated apparel industry.  The Company represents the decorated apparel industry’s leading brands including Tajima embroidery equipment, MHM screen printing equipment, SEIT textile bridge laser, Pulse Microsystems digitizing and design software and Kornit and Mimaki digital garment printers.

Hirsch Holdings, Inc., which we sometimes refer to in this proxy statement as “Parent,” is a Delaware Corporation, that following the consummation of the merger, will own all of the shares of common stock of the surviving corporation.  Currently, Parent is wholly-owned by Paul Gallagher, our President, Chief Executive Officer and Chief Operating Officer.  Mr. Gallagher intends to contribute all of his outstanding shares of our Class A Common Stock that he beneficially owns to Parent immediately prior to the effective time of the merger.

HIC Acquisition Company, which we sometimes refer to in this proxy statement as “Merger Sub,” is a Delaware corporation and, prior to the effective time of the merger, is a wholly-owned subsidiary of Parent.

In this proxy statement we sometimes refer to Mr. Gallagher, Parent and Merger Sub as the “Parent Group.”

The Proposal (page 64)

You are being asked to consider and vote to approve the Agreement and Plan of Merger, dated as of July 2, 2009 (as it may be amended from time to time), by and among Hirsch, Parent and Merger Sub, which agreement we sometimes refer to in this proxy statement as the “merger agreement.” Pursuant to the merger agreement, Merger Sub will merge with and into Hirsch International Corp. (which we refer to as the “merger”) and Hirsch will continue as the surviving corporation and a wholly-owned subsidiary of Parent.  Upon completion of the merger, Hirsch will cease to be a publicly traded company, and you will cease to have any rights in Hirsch as a stockholder.

Merger Consideration (page 71)

If the merger is consummated, holders of shares of our outstanding Class A Common Stock and Class B Common Stock (together, our “common stock”) (other than shares owned by the Parent Group (stockholders other than Parent Group are referred to as “unaffiliated

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stockholders”), shares owned by stockholders who properly exercise dissenters’ rights of appraisal under Delaware law, and shares of our common stock held in treasury by us) will be entitled to receive $0.31 in cash, without interest (which we refer to as the “merger consideration”), for each share of our common stock owned at the effective time of the merger. Mr. Gallagher intends to contribute, immediately prior to the effective time of the merger, all of the outstanding shares of our common stock that he owns to Parent. As of the date of this proxy statement, Mr. Gallagher owned 697,899 shares of our common stock.  We will be entitled to deduct and withhold from the merger consideration any amounts required to be deducted and withheld under any applicable tax law, and any amounts so withheld shall be treated as having been paid to the holder from whose merger consideration the amounts were so deducted and withheld.

Treatment of Outstanding Options (page 72)

Our board of directors has taken action to terminate all of our existing stock option plans effective immediately prior to the effective time of the merger.  If the merger is consummated, all outstanding options to purchase shares of Hirsch common stock granted under a Hirsch stock option plan and not exercised prior to the merger will vest and be cancelled and converted into the right to receive a cash payment equal to the number of shares of our common stock subject to such options, multiplied by the amount by which $0.31 exceeds the option exercise price, without interest.  Upon cancellation, none of our outstanding options will receive the consideration set forth in the prior sentence, as all of the outstanding options have an exercise price above $0.31.

Expected Completion Date of the Merger

We currently anticipate that the merger will be completed during the third quarter of 2009. However, there can be no assurances that the merger will be completed at all, or if completed, that it will be completed during the third quarter of 2009.

Votes Required for Adoption of the Merger Agreement (page 65)

The presence, in person or by proxy, of stockholders holding at least a majority of our shares of common stock outstanding on the record date will constitute a quorum for the special meeting. The affirmative vote of the holders of a majority of all of the outstanding shares of our common stock entitled to vote is required to approve and adopt the merger agreement and the merger.

Approval of a motion to adjourn the meeting to a later date requires the affirmative vote of the holders of a majority of the shares of our common stock present, in person or by proxy, and entitled to vote at the special meeting on that matter, even if less than a quorum. If you fail to vote on the merger agreement and the merger or abstain from voting, the effect will be the same as a vote against the approval of the merger agreement and the merger.

Recommendation of Our Board of Directors (page 27)

Our board of directors formed a special committee of independent directors on February 12, 2009 to have full authority to consider and pursue all of our strategic alternatives, including any proposal that Mr. Gallagher or any other party might make to acquire all of our outstanding

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shares of common stock, and to explore and negotiate any specific proposals that Hirsch might have received.  The special committee has unanimously (i) determined that the merger is advisable and in our best interest and the best interest of our unaffiliated stockholders, and (ii) recommended to our board of directors that the board approve and adopt the merger agreement in order to effect the merger.  The members of the special committee comprise a majority of our board of directors, with the only other members being Mr. Gallagher and Henry Arnberg.  After carefully considering various factors, including the unanimous recommendation of the special committee, our board of directors (with Mr. Gallagher taking no part in the vote) unanimously

·                                           determined that the merger and the terms and conditions set forth for the merger in the merger agreement are approved and are advisable, fair to, and in the best interest of, Hirsh and its unaffiliated stockholders;

·                                           determined that the merger agreement is approved and adopted; and

·                                           directed that the Merger Agreement be submitted to our stockholders for their approval and adoption and recommends that the stockholders approve the merger agreement and the merger.

Accordingly, our board of directors (with Mr. Gallagher taking no part in the voting) unanimously recommends that you vote to approve the merger agreement.

Opinion of Burnham Securities Inc. (page 32)

Burnham Securities Inc., which we refer to as “Burnham,” delivered its oral opinion, which was subsequently confirmed in writing, to the special committee that, as of July 1, 2009 and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on its review undertaken and other matters considered by Burnham, the merger consideration of $0.31 per share in cash to be received by the unaffiliated stockholders was fair from a financial point of view to such stockholders.  The full text of the written opinion of Burnham, dated July 1, 2009, is attached as Annex B to this proxy statement. We encourage you to read this opinion in its entirety.  The opinion of Burnham was provided to the special committee in connection with the special committee’s evaluation of the merger, does not address any other aspect of the merger and is not a recommendation as to how any stockholder should vote with respect to the merger or any other matter.

Interests of Certain Persons in the Merger (page 56)

In considering the recommendation of our board of directors, you should be aware that our directors and an executive officer have interests in the merger that are different from, or in addition to, your interests as a stockholder and that may present actual or potential conflicts of interest. These interests include, among others:

·                                           Mr. Gallagher’s ownership of shares of our common stock prior to the merger and his ownership of Parent (and through Parent, Merger Sub), and, after the completion of the merger, his indirect ownership interest in Hirsch; and

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·                                           continued indemnification and directors’ and officers’ liability insurance to be provided by the surviving corporation to our directors and officers for the period following completion of the merger.

The special committee and our board of directors were aware of these interests and considered them, among other matters, prior to providing their respective recommendations with respect to the merger agreement and the merger.

Financing of the Merger (page 52)

Parent estimates that the aggregate amount of financing necessary to complete the merger, and the payment of related fees and expenses will be approximately $3.4 million. This amount is expected to be funded by Parent and Merger Sub with debt financing contemplated by a commitment letter from Keltic Financial Services LLC (which we refer to as “Keltic Financial”) further described below, together with available cash of the Company.

Mr. Gallagher has received a debt financing commitment letter that provides for up to $4 million of debt financing to Parent or Merger Sub from Keltic Financial.  The obligation to provide the debt financing to Parent or Merger Sub is subject to the satisfaction of conditions set forth in the commitment letter.  Parent has agreed to use its commercially reasonable efforts to arrange the debt financing on the terms and conditions described in the debt commitment letter.  The closing of the merger is conditioned on the receipt of the debt financing from Keltic Financial.

Material United States Federal Income Tax Consequences (page 54)

For U.S. federal income tax purposes, your receipt of cash in exchange for your shares of our common stock in the merger generally will result in your recognizing gain or loss measured by the difference, if any, between the cash you receive in the merger and your tax basis in your shares of Company common stock. You should consult your tax advisor for a complete analysis of the effect of the merger on your U.S. federal, state, local and/or foreign taxes.

Restrictions on Solicitations of Other Offers and Change in Recommendation (page 78)

The merger agreement provides that during the period beginning on the date of the merger agreement and continuing until the close of business on July 22, 2009, which we refer to as the “go-shop period,” we, under the direction of the special committee, are permitted to:

·                                           initiate, solicit and encourage “takeover proposals” (as defined below);

·                                           participate in any discussions or negotiations regarding a takeover proposal or otherwise cooperate with or take any other action to facilitate any proposal that constitutes, or could reasonably be expected to lead to, a takeover proposal.

After the end of the go-shop period and until the earlier of (i) the termination of the merger agreement in accordance with its terms, or (ii) the effective time of the merger, we have agreed that we, our subsidiaries and representatives will not, subject to certain exceptions discussed below, directly or indirectly:

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·                                           initiate, solicit or knowingly encourage (including by way of providing information) the submission of any inquiries, proposals or offers or any other efforts or attempts that constitute or may reasonably be expected to lead to a takeover proposal or engage in any discussions or negotiations with respect thereto; or

·                                           approve, endorse or recommend, or publicly propose to approve, endorse or recommend, any takeover proposal or enter into any letter of intent, agreement in principal, merger agreement, acquisition agreement or other similar agreement providing for or relating to any takeover proposal, or enter into any agreement or agreement in principle requiring that we abandon, terminate or fail to consummate the transactions contemplated by the merger agreement or breach our obligations thereunder, or publicly propose or agree to do any of the foregoing.

Prior to terminating the merger agreement or entering into an agreement with respect to any such takeover proposal, we are required to comply with certain terms of the merger agreement described under “ The Merger Agreement—Restrictions on Solicitations of Other Offers. ”

Notwithstanding the foregoing, under certain circumstances, we, acting under the direction of our special committee, from and after the end of the go-shop period, (i) may continue discussions or negotiations with any third party with respect to any takeover proposal if such discussions or negotiations commenced and were ongoing prior to the end of the go-shop period and (ii) may respond to a bona fide unsolicited takeover proposal or terminate the merger agreement and enter into an acquisition agreement with respect to a “superior proposal” (as defined below), in each case so long as we comply with certain terms of the merger agreement described under “ The Merger Agreement—Restrictions on Solicitations of Other Offers .”

A “takeover proposal” as defined in the merger agreement, means any inquiry, proposal or offer other than from Parent or its affiliates relating to, or that is reasonably likely to lead to, any direct or indirect acquisition or purchase, in one transaction or a series of related transactions, of assets (including equity securities of any subsidiary of the Company) or businesses that constitute 25% or more of the revenues, net income or assets of the Company and its subsidiaries (taken as a whole), or 25% or more of any class of equity securities of the Company or any our subsidiaries, any tender offer or exchange offer that if consummated would result in any person or group beneficially owning 25% or more of any class of equity securities of the Company or any of our subsidiaries, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving the Company or any our subsidiaries pursuant to which any person or group would own 25% or more of any class of equity securities of the Company or any of our subsidiaries, in each case other than the transactions contemplated by this Agreement.

A “superior proposal” as defined in the merger agreement, means any written takeover proposal that, if consummated, would result in such person or group (or their equityholders) owning, directly or indirectly, more than 50% of the shares of the Company’s common stock then outstanding (or of the shares of the surviving entity in a merger or the direct or indirect parent company of the surviving entity in a merger) or a majority of the assets of the Company and its subsidiaries (taken as a whole), which the special committee determines in good faith

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(after consultation with its outside counsel and financial advisor) would, if consummated, be more favorable to our stockholders from a financial point of view than the transactions contemplated by the merger agreement (taking into account all the terms and conditions of such takeover proposal and the merger agreement, including (x) the likelihood and timing of consummation of such transaction on the terms set forth therein (as compared to the terms in the merger agreement), (y) all appropriate legal, financial (including the financing terms of such takeover proposal), regulatory and other aspects of such takeover proposal, and (z) any changes to the financial and other terms of the merger agreement proposed by Parent in response to such takeover proposal or otherwise).

Conditions to the Completion of the Merger (page 86)

The completion of the merger is subject to, among other things, the following conditions:

·                                           the adoption of the merger agreement by the majority of the outstanding shares of our Class A Common Stock and Class B Common Stock, voting together as class;

·                                           the absence of any governmental orders or statutes or rules that have the effect of making the merger illegal or otherwise prevents the consummation of the merger;

·                                           each party’s respective representations and warranties in the merger agreement being true and correct as of the closing date in the manner described in “ The Merger Agreement—Conditions to the Completion of the Merger ”;

·                                           each party’s performance in all material respects of its obligations required to be performed under the merger agreement prior to the closing date of the merger;

·                                           the aggregate number of shares of our common stock at the effective time of the merger for which appraisal rights shall have been perfected under Section 262 of the Delaware General Corporate Law (the “DGCL”) not having exceeded 10% or more of the number of our outstanding shares of common stock as of the record date for the special meeting;

·                                           Parent shall have obtained the debt financing on the terms and conditions set forth in the debt financing commitment letter;

·                                           the Company shall have obtained the consent to the merger from Tajima Industries, Ltd.; and

·                                           Burnham shall not have withdrawn, amended or modified its opinion dated July 1, 2009 to the effect that, as of such date, the per share merger consideration is fair, from a financial point of view, to our unaffiliated stockholders.

Termination of the Merger Agreement (page 87)

The merger agreement may be terminated and the merger abandoned at any time before the effective time of the merger, whether before or after our stockholders approve and adopt the merger agreement:

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·                                           by mutual written consent of Parent and the Company;

·                                           by either Parent or the Company:

·                       if the merger has not been consummated on or before the “outside date” (which is October 30, 2009) unless the failure to consummate the merger on or before the outside date is due (in whole or material part) to the terminating party’s breach of a representation warranty, covenant or agreement contained in the merger agreement;

·                       if our stockholders fail to approve the merger and to approve and adopt the merger agreement and the transactions contemplated thereby at the special meeting or any adjournment or postponement of that meeting;

·                       if a final, non-appealable legal restraint or order permanently restraining or prohibiting the consummation of the merger is issued, provided that the party seeking to terminate the merger agreement shall have used its reasonable best efforts to remove the restraint or order;

·                       if the non-terminating party has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the merger agreement such that the closing conditions to the merger agreement would not be satisfied, and which breach cannot be cured by the outside date or, if capable of being cured, has not been cured within thirty days after receipt by the breaching party of written notice from the terminating party stating its intention to terminate, so long as the terminating party is not then in breach of any of its representations, warranties, covenants or agreements such that the closing conditions to the merger agreement would not be satisfied;

·                                           by the Company if:

·                       prior to obtaining the affirmative vote of a majority of our outstanding shares of common stock, (i) the special committee or our board of directors approves, endorses or recommends another takeover proposal or the entering into another agreement with respect to another takeover proposal , or (ii) our board of directors, acting under the direction of the special committee, modifies its recommendation to our stockholders to adopt the merger agreement and approve the merger, in a manner adverse to Parent, or withdraws such recommendation, in order to enter into a definitive agreement providing for the implementation of a transaction that is a superior proposal (each such event in (i) or (ii) a “change in recommendation”), provided that we complied with the notice and other requirements described below in “ The Merger Agreement—Restrictions on Solicitations of Other Offers ” and we pay to Merger Sub the termination fee described in “ —Termination Fee ”;

·                       any portion of the Parent or Merger Sub’s debt financing becomes unavailable in the manner or from the source contemplated by the commitment letter delivered to the Company (or in certain instances, an alternative source), provided that this right may not be exercised by the

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Company if it has not provided Parent with at least five business days notice and Parent has not obtained a new debt financing arrangement within such period;

·                       by Parent if (i) we shall have made a change in recommendation, (ii) we fail to comply in any material respect with the merger agreement’s requirements regarding solicitation of other offers or termination in connection with a superior proposal described above in “- Restrictions on Solicitations of Other Offers and Change in Recommendation ” and below in “The Merger Agreement — Restrictions on Solicitations of Other Offers ,” or (iii) we fail to include in our proxy statement relating to the approval and adoption of the merger agreement by our stockholders our board of directors’ recommendation to our stockholders to adopt the merger agreement and approve the merger.

Termination Fees and Expense Reimbursement (page 89)

If the merger agreement is terminated under certain circumstances we will be obligated to reimburse Parent for reasonable actual out of pocket expenses incurred by Parent and Merger Sub in connection with the proposed merger and the other transactions contemplated by the merger agreement in an amount not to exceed either $250,000 or $300,000, depending upon the circumstances of the termination.

Appraisal Rights (page 92)

Under Delaware law, holders of our common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares of our common stock as determined by the Court of Chancery of the State of Delaware if the merger is completed, but only if they comply with all requirements of Delaware law for exercising appraisal rights set forth in Section 262 of the General Corporation Law of the State of Delaware (which we refer to as the “DGCL” in this proxy statement), the text of which can be found in Annex C to this proxy statement, which are summarized in this proxy statement. This appraisal amount could be more than, the same as or less than the merger consideration. Any holder of shares of our common stock intending to exercise appraisal rights must, among other things, submit a written demand for an appraisal to us prior to the vote on the adoption of the merger agreement at the special meeting and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement. Your failure to follow exactly the procedures specified under Section 262 of the DGCL will result in the loss of your appraisal rights, and your shares of Hirsch common stock will instead entitle you to receive merger consideration with respect to such shares.

Market Price of the Company’s Common Stock and Dividend Information (page 103 )

The closing trading price of our Class A Common Stock on the Nasdaq Capital Market on June 12, 2009, the last completed trading day prior to the public announcement of Mr. Gallagher’s offer, was $0.21 per share. The merger consideration represents a premium of approximately 47.6% to the closing trading price on June 12, 2009.  On July 1, 2009, the last completed trading day prior to public announcement of our entry into the merger agreement, the

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closing trading price of our Class A Common Stock was $0.25 per share.  The merger consideration represents a premium of approximately 24% to the closing trading price on July 1, 2009.  On            , 2009, which is the most recent practicable trading date prior to the date of this proxy statement, the closing trading price of our common stock was $       per share.  You are urged to obtain a current market price quotation for our shares of Class A Common Stock.

We have not paid or declared cash dividends on our common stock within the past five years and we do not intend to pay or declare cash dividends on our common stock in the future.  In addition, the merger agreement prohibits us from declaring or paying dividends on our common stock until the earlier of the termination of the merger agreement in accordance with its terms or the consummation of the merger.

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following questions and answers address briefly some questions you may have regarding the proposed merger and the special meeting. These questions and answers may not address all questions that may be important to you as a stockholder of Hirsch. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

Q:               What is the proposed transaction?

A:               The proposed transaction is a merger of Merger Sub with and into us pursuant to the merger agreement.  Once the merger agreement has been adopted by the Company’s stockholders and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation. Upon consummation of the merger, the Company will become a wholly-owned subsidiary of Parent.  All of the common stock of Parent is presently owned by Mr. Gallagher.  After the merger, shares of Hirsch will no longer be publicly traded.

Q:               What will I receive for my shares of Hirsch’s common stock in the merger?

A:               Upon completion of the merger, you will receive $0.31 in cash, without interest, and less any applicable withholding taxes, for each share of our common stock that you own. This does not apply to shares held by the Parent Group, or any of our stockholders who are entitled to and who properly exercise appraisal rights under Delaware law or shares held by us in our treasury. Upon consummation of the merger, you will not own shares of Hirsch or Parent.

Q:               What are the material United States federal income tax consequences of the transaction to stockholders?

A:               In general, your receipt of cash in exchange for shares of Hirsch common stock pursuant to the merger will be a taxable transaction for United States federal income tax purposes. Since the tax consequences of the merger to you will depend on your particular circumstances, you should consult your own tax advisor for a full understanding of the U.S. federal, state, local, non-U.S. and other tax consequences of the merger to you. See “Special Factors—Material United States Federal Income Tax Consequences“ beginning on page 54.

Q:               Where and when is the special meeting?

A:               The special meeting will take place at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York, New York on                 , 2009 at            A.M. New York time.

Q:               What matters will be voted on at the special meeting?

A:               You will be asked to consider and vote on the following proposals:

·                        to approve the merger agreement and the merger;

·                        to approve any motion to adjourn the special meeting, if necessary or appropriate, to a later date to solicit additional proxies if there are insufficient votes at the time of the

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special meeting to approve the proposal on the merger agreement.

Q:               Does our board of directors recommend that our stockholders vote “FOR” the adoption of the merger agreement?

A:               Yes. After careful consideration, our board of directors, by a unanimous vote of the directors (other than Paul Gallagher, who abstained from the vote) recommends that you vote:

·                        “FOR” the adoption of the merger agreement and approval of the merger; and

·                        “FOR” the adjournment proposal.

You should read “ Special Factors—Recommendation of the Special Committee and of our Board of Directors; Reasons for Recommending Approval of the Merger Agreement ” beginning on page 27, for a discussion of the factors that our special committee and board of directors considered in deciding to recommend the adoption of the merger agreement. In addition, in considering the recommendation of our special committee and board of directors with respect to the merger agreement, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. See “ Special Factors—Interests of Certain Persons in the Merger ” beginning on page 56.

Q:               Who is entitled to vote at the special meeting?

A:               The record date for the special meeting is              , 2009.  Only holders of Hirsch’s common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement thereof.

Q:               What constitutes a quorum for the special meeting?

A:               The presence, in person or by proxy, of stockholders representing a majority of the shares of Hirsch’s common stock outstanding on the record date will constitute a quorum for the special meeting.

Q:               What vote of the Company’s stockholders is required to adopt the merger agreement and to approve the adjournment proposal?

A:               The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock voting as a single class and entitled to vote on the adoption of the merger agreement at the special meeting.  A failure to vote your shares of common stock, abstention from the vote to adopt the merger agreement or a “broker non-vote” will have the same effect as voting “AGAINST” the adoption of the merger agreement. A “broker non-vote” occurs when a broker does not have discretion to vote on the matter and has not received instructions from the beneficial holder as to how such holder’s shares are to be voted on the matter.

Approval of an adjournment of the special meeting requires the affirmative vote of the holders of a majority of the shares of Hirsch common stock present, in person or by proxy, and entitled to vote at the special meeting on that matter. A failure to vote your shares of

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common stock or a “broker non-vote” will not affect the vote or any proposal to adjourn the special meeting, if necessary.

Q:               How do the directors and executive officers of the Company intend to vote?

A:               As of August 24, 2009, the record date, the directors and executive officers of Hirsch held and were entitled to vote, in the aggregate, 2,036,075 shares of our common stock representing approximately 21.5% of the outstanding shares. We believe our directors and executive officers intend to vote all of their shares of our common stock FOR the adoption of the merger agreement and approval of the merger, and FOR the adjournment proposal.

Q:               When do you expect the merger to be completed?

A:               We are working toward completing the merger as quickly as possible, and we anticipate that it will be completed in the third quarter of 2009. In order to complete the merger, we must obtain the stockholder approval described above and the other closing conditions under the merger agreement must be satisfied or waived. Neither we, nor Parent and Merger Sub, are obligated to complete the merger unless and until the closing conditions in the merger agreement have been satisfied or waived, which conditions are described in “ The Merger Agreement—Conditions to the Completion of the Merger ” beginning on page 86.

Q:               What effects will the proposed merger have on the Company?

A:               Upon completion of the proposed merger, Hirsch will cease to be a publicly traded company and will be wholly-owned by Parent. As a result, you will no longer have any interest in our future earnings or growth, if any. Following completion of the merger, the registration of our common stock and our reporting obligations with respect to our common stock under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” are expected to be terminated. In addition, upon completion of the proposed merger, shares of Hirsch common stock will no longer be listed on the Nasdaq Capital Market or any other stock exchange or quotation system.

Q:               What happens if the merger is not completed?

A:               If the merger agreement is not adopted by our stockholders, or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares of our common stock pursuant to the merger agreement. Instead, Hirsch will remain as a public company and our common stock will continue to be registered under the Exchange Act and listed and traded on the Nasdaq Capital Market. Under specified circumstances, Hirsch may be required to pay Parent a termination fee or reimburse Parent for its actual out-of-pocket expenses not to exceed $300,000, as described in “ The Merger Agreement—Termination Fee ” beginning on page 89.

Q:               What do I need to do now?

A:               Please vote as soon as possible.  We urge you to read this proxy statement carefully, including its annexes, and to consider how the transaction affects you as a stockholder.  You may also want to review the documents referenced under “Where You Can Find More

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Information” on page 107.

Q:               How do I vote?

A:               You should simply indicate on your proxy card how you want to vote, and sign and mail your proxy card in the enclosed return envelope as soon as possible so that your shares will be represented at the special meeting. If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be counted as a vote for approval of the merger, and the approval and adoption of the merger agreement and the other transactions contemplated thereby, and for the adjournment proposal, if such adjournment is necessary. If you fail to vote your shares or do not instruct your broker how to vote any shares held for you in a brokerage account, the effect will be the same as a vote against the approval of the merger, and the approval and adoption of the merger agreement, but it will not affect the vote on any proposal to adjourn the special meeting, if necessary. If your shares are held by your broker, bank or other nominee, see below.

Q:               If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A:               Your broker will not vote your shares on your behalf unless you provide instructions to your broker on how to vote. You should follow the directions provided by your broker regarding how to instruct it to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting “AGAINST” the adoption of the merger agreement.

Q:               What does it mean if I get more than one proxy card or vote instruction form?

A:               If your shares are registered differently and are in more than one account, you may receive more than one proxy card or voting instruction form. Please complete, sign, date and return all of the proxy cards and voting instruction forms you receive regarding this special meeting to ensure that all of your shares are voted.

Q:               May I change my vote?

A:               Yes. You may change your vote at any time before your proxy is voted at the special meeting, subject to the limitations described below. You may do this in a number of ways. First, you may send us a written notice stating that you would like to revoke your proxy. Second, you may complete and submit a new proxy card. If you choose either of these two methods, you must submit your notice of revocation or your new proxy card to the secretary of Hirsch at or before the taking of the vote at the special meeting, at the address under “The Parties to the Merger—Hirsch International Corp.” on page 68.  You may also change your vote by attending the special meeting and voting in person. Simply attending the special meeting, without voting in person, will not revoke your proxy. Notwithstanding the foregoing, if your shares are held in street name and you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote at the special meeting.

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Q:              What happens if I sell my shares of Hirsch common stock before the special meeting?

A:               The record date for the special meeting is earlier than the date of the special meeting and the date that the merger is expected to be completed. If you transfer your shares of Hirsch common stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will transfer the right to receive the per share merger consideration of $0.31 in cash, without interest and less any applicable withholding taxes, to the person to whom you transfer your shares, so long as such person owns the shares of Hirsch common stock when the merger is completed. In such case, your vote is still very important and you are encouraged to vote.

Q:               Are appraisal rights available?

A:               Yes. As a holder of shares of common stock of the Company, you are entitled to appraisal rights under Delaware law if (a) you do not vote in favor of adopting the merger agreement, (b) you continue to hold your shares of Hirsch common stock until the consummation of the merger, (c) you deliver to us a written demand for appraisal prior to the vote at the special meeting and (d) you satisfy certain other conditions. See “ Appraisal Rights ” beginning on page 92.

Q:               Should I send in my stock certificates now?

A:               No. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY.

If you hold your shares in your name as a stockholder of record, then shortly after the merger is completed you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the paying agent in order to receive the merger consideration in respect of your shares of our common stock. You should use the letter of transmittal to exchange your stock certificates for the merger consideration which you are entitled to receive as a result of the merger. If you hold your shares in “street name” through a broker, bank or other nominee, then you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your “street name” shares in exchange for the merger consideration.

Q:               Will any proxy solicitors be used in connection with the special meeting?

A:               Yes. To assist in the solicitation of proxies, we have engaged Georgeson Inc., who may be contacted toll-free at 1-888-264-6999.  Banks and brokers may contact Georgeson Inc. at 212-440-9800.

Q:               Who can help answer my other questions?

A:               If you have any questions about the merger, need assistance in submitting your proxy or voting your shares, or need additional copies of the proxy statement or the enclosed proxy card, you should contact Georgeson Inc., which is acting as the proxy solicitation agent in connection with the merger.  They may be contacted toll-free at 1-888-264-6999.  Banks and brokers may contact Georgeson Inc. at 212-440-9800.

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SPECIAL FACTORS

Background of the Merger

Our board of directors and management regularly evaluate our business and operations and periodically review and assess strategic alternatives available to enhance value to our stockholders. As part of this process, our board of directors and management have regularly considered opportunities that could complement, enhance or expand our current business or products or that might otherwise offer growth opportunities for the Company. In this regard, over the course of the past two years, we have explored several strategic alternatives. To assist us in identifying opportunities, the Company engaged an investment bank in May 2007 to serve as its financial advisor and to help identify and evaluate potential strategic alternatives.  In May and June of 2007, the investment bank assisted us in our evaluation of an acquisition candidate, which was a screen printing equipment manufacturer, but ultimately the transaction was not consummated and our engagement with the investment bank was terminated in September 2007.

During the remainder of 2007 and the first two quarters of 2008, our board of directors and management continued to evaluate potential strategic alternatives for the Company. On August 4, 2008, we acquired 80% of the equity interests of US Graphic Arts, Inc., a company primarily engaged in developing and manufacturing printers for the decorative apparel industry, and viewed as complementary to the Company’s business of providing equipment and education and support services to the decorated apparel industry.

Beginning in the fall of 2008, the rapidly deteriorating general economic conditions in the United States and the tightening of the credit markets had a significant impact upon the business of the Company. The reduced demand for capital goods that began during this period hurt the Company’s business. Additionally, the movement of the currency exchange rates between the dollar and the Japanese yen also adversely affected the Company, as the Company purchases its largest amount of embroidery machine equipment from a Japanese vendor.

Between January and March 2009, the Company approached approximately 20 financial institutions to obtain a new credit facility to address its working capital needs.  Unfortunately, due to the Company’s continuing losses, which were projected to continue for the foreseeable future, the Company was unsuccessful in its efforts.

At a board of directors’ meeting on February 2, 2009, the board of directors acknowledged the difficult business environment facing the Company. At this meeting, the topic of the Company’s strategic alternatives was raised. Mr. Gallagher presented certain information to the board of directors that detailed the Company’s financial situation if it were (i) to continue operating in its present form, or (ii) to identify a potential acquirer for the Company in an effort to eliminate its public stockholders.  Mr. Gallagher also indicated that the Company had approximately $3 to $4 million in cash at such time, but that the costs of remaining a public company were approximately $1 million per year. The board of directors then discussed the possibilities of the Company engaging in a transaction whereby it would cease to be a publicly owned Company or the Company liquidating and distributing the proceeds upon liquidation to its stockholders. There was also initial discussion of forming a special committee comprised of independent members of the board of directors, whose responsibility it would be to further investigate the Company’s strategic alternatives. The board of directors authorized the executive

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officers of the Company to retain a firm to conduct an analysis of the Company’s liquidation value.

After consultation from the independent members of the board of directors, and after contacting several valuation consultants, the Company retained Clear Thinking Group LLC (“Clear Thinking”) on February 5, 2009 to perform a liquidation analysis of the Company.  Clear Thinking was selected by the Company after consideration of, among other things, the fact that it is a national advisory firm that specializes in corporate restructuring, operations improvements, litigation analytics, liquidation and asset sales, case management services, with expertise in providing financial advisory services to financially distressed entities.  Clear Thinking provided a liquidation analysis for the Company on February 12, 2009, and then issued an updated liquidation analysis for the Company on May 29, 2009.  No material relationship existed between the Company and Clear Thinking during the two years prior to the engagement of Clear Thinking to perform the liquidation analyses, and no such material relationships are contemplated.  No limitations were placed on Clear Thinking regarding the preparation of its two liquidation analyses.  Clear Thinking was paid an aggregate of $25,412 for the preparation of its two analyses.  A summary of each of Clear Thinking’s liquidation analyses are included below.  However, as the descriptions below are only a summary and do not contain all of the information set forth in the liquidation analyses prepared by Clear Thinking, we urge you to read the full text of each of the liquidation analyses in their entirety, which are attached as Exhibits (c)(3) and (c)(4) to the Schedule 13E-3 filed with the SEC in connection with the merger and which analyses are incorporated to this Proxy Statement by reference.

Another meeting of the board of directors was held on February 12, 2009. The first topic discussed was the liquidation analysis that had been prepared for the Company by Clear Thinking. The analysis indicated that the Company’s liquidation value was estimated to be in the range of $1.2 million to $3.5 million in the aggregate, resulting in an estimated per share value of $0.13 to $0.36.  A summary of Clear Thinking’s liquidation analysis follows.

Clear Thinking’s report dated February 12, 2009 (the “February Analysis”) was based upon meetings with Mr. Gallagher, the Company’s President, Chief Executive Officer and Chief Operating Officer, and the Company’s then Chief Financial Officer, as well as the following financial data: the Company’s balance sheet as of December 31, 2008 and other historical income statements and balance sheets, estimated wind down expenses, consolidated 2009 forecast of net sales, gross profit, gross margin by manufacturer, and salary and other operating expenses last updated by management as of February 9, 2009, and additional information on the following items: (i) available cash on hand, (ii) aging accounts receivable, (iii) aging inventory, (iv) equipment purchase order, (v) furniture, fixture and equipment, (vi) real estate lease liabilities, (vii) miscellaneous leases and contracts, (viii) estimated wind down expenses, (ix) accounts payable and accrued expenses payable, and (x) employee severance.  In connection with Clear Thinking’s review, Clear Thinking assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Clear Thinking by the Company, and formed a substantial basis for its opinion.  Clear Thinking also assumed that the financial projections that were furnished to it had been reasonably prepared on bases reflecting the best current estimates and judgments of the management of the Company of the future financial performance of the Company.

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In addition to reviewing the foregoing materials, Clear Thinking assumed that the Company would employ a carefully orchestrated and executed wind down process which would maximize value for the Company’s stockholders.  Clear Thinking assumed that the Company would employ a two stage approach, and that phase I would commence March 1, 2009, and take approximately sixty days to complete, during which period, the Company would aggressively sell most of its less expensive inventory that required a greater amount of customer service, training and sales support.  At the conclusion of such period, it was assumed that a significant reduction in sales staff and support could be implemented, resulting in a reduction of a significant monthly cash expenditure.  Phase II would then focus on selling the remaining inventory to more established customers that need less sales support and training.  It was assumed that this phase would take sixty days, and that most sales offices could be closed with only a limited number of the best sales staff remaining.  Simultaneously with the occurrence of phase I and phase II, the Company would collect its accounts receivable.

After the expiration of the initial 120 days during the two stage approach, it was assumed that an additional thirty days would then be necessary for the Company to close down its business.  Based upon the March 1, 2009, start date, it was estimated that the liquidation process could be completed by July 1, 2009.

In preparing its liquidation analysis, the recovery rates utilized were based upon Clear Thinking’s experience in connection with other liquidation scenarios. 

Based upon the foregoing, and the additional material assumptions in the notes following the table below, Clear Thinking estimated the Company’s liquidation value in its February 12, 2009 report, as follows:

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a.                          Available cash on hand as of February 9, 2009, as per company cash flow summary report, less amounts committed for outstanding letters of credit.

b.                         Accounts receivable (includes customer payments by credit cards where the Company has not yet actually received the underlying payment, as well as credits owed to customers, which are reflected in line p as an expense) as of February 9, 2009, as per the Company’s aging accounts receivable records.  This amount assumes that half of the balance will be collected in the normal fashion, and the other half will be collected utilizing a collection agency.

c.                          Inventory value indicated is at cost as per the Company’s aging inventory summary as of February 9, 2009.  The total includes parts inventory and on order inventory.

d.                         Amount indicated is from the Company’s December 31, 2008 balance sheet and assumes most pre-paid expenses are unrecoverable other than supplies.

e.                          Assumes real estate lease deposits of $35,703 are unrecoverable.

f.                            Amount indicated is from the December 31, 2008 balance sheet and includes furniture, fixtures and equipment, leasehold improvements, computer upgrades and website development costs.

g.                         Assumes the Company’s intellectual property has no value in the marketplace.

h.                         Assumes a liquidator recovery fee of 20% of gross sales of furniture, fixtures and equipment, after sales tax.

i.                             Assumes company uses a collection agency to collect half of the accounts receivable; a collection fee of 15% of recovered receivables is applied on the half recovered by the collection agency.

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j.                             Assumes normal use of cash plus payment of additional commissions and advertising for two months, and two months with reduced expenses; also includes severance of $1.2 million.

k.                          Assumes approximately $750,000 for legal and other professional fees for winding down the business, including, without limitation, SEC filings, shareholder communication, possible litigation.

l.                             Estimated real estate liability based on leases as of December 31, 2008.  Assumes all offices and locations vacated by June 30, 2009.

m.                       Estimated other contracts and lease liabilities as of December 31, 2008.

n.                         Accounts payable and accrued expenses as of February 9, 2009.

o.                         Includes payables associated with the current inventory on order as of February 9, 2009.

p.                         Assumes that credits in favor of customers as of February 9, 2009 will be returned to customers.

q.                         Assumes the last three weeks of February 2009 will result in use of cash in the amount of $150,000 per week.

r.                            Outstanding checks as of February 9, 2009, estimated at $200,000.

Miscellaneous Assumption: Assumes no recovery or additional liability with respect to the Company’s U.S. Graphic Arts, Inc. subsidiary.

Also discussed at the meeting on February 12, 2009 was the fact that, although the Company was cutting expenses wherever possible, the condition of the embroidery marketplace together with the rate that the Company was using its available cash was placing the Company in a precarious financial position. The Company’s strategic alternatives were again discussed, with the following options being mentioned:

·                                           the Company pursuing a “going private” transaction;

·                                           the Company’s sale to a third party;

·                                           the liquidation of the Company;

·                                           the Company electing to “go dark”(i.e. ceasing to be a Securities and Exchange Commission (the “SEC”) reporting company as permitted under the rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)); and

·                                           maintaining the status quo while trying to further minimize the Company’s expenses, and waiting for improvement in the embroidery market.

During discussion of the various alternatives, it was determined that it was appropriate at such time to form a special committee comprised of independent members of the board of directors, who would not be participants in any going private transaction if one were proposed, to have full authority to consider and pursue the Company’s strategic alternatives.  The directors appointed to the special committee , each of whom met the criteria referenced in the preceding sentence, were Marvin Broitman, Christopher J. Davino and Mary Ann Domuracki and the special committee was empowered to retain legal, financial and other advisors to assist the special committee in the fulfillment of its duties.

During the remainder of February and during March the special committee met several times to consider candidates to serve as independent legal advisor to the special committee. During this period, the special committee also interviewed and considered five different firms to serve as independent financial advisor to the special committee. On March 31, 2009, the special committee retained Thompson Hine LLP (“Thompson Hine”) as its independent legal advisor.

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Also during the remainder of February 2009, and through the beginning of April, the board of directors met several times, at which meetings the board of directors discussed, among other things, the Company’s business and financial condition and the Company’s strategic alternatives. Additionally, the special committee reported to the board of directors on the status of retaining its independent financial and legal advisors during several of these meetings.

On April 7, 2009, the special committee met to discuss the Company’s strategic alternatives with representatives of Thompson Hine in attendance.  The special committee discussed the initial issues that should be considered in connection with the pursuit of any strategic alternatives, including the interests of the Company’s stockholders, the interests of the Company’s creditors, and the interests of the Company’s employees. The special committee also discussed the likely process that would need to be completed with respect to considering any strategic alternatives for the Company. Additionally, the special committee discussed the status of its search for an investment banking advisor to solicit and evaluate various strategic alternatives that might be considered by the special committee.

Also during April, Mr. Gallagher met with representatives of the special committee to confirm his interest in possibly undertaking a going private transaction involving all of the outstanding shares of the Company, and discuss with the special committee the status of potential financing.

On April 21, 2009, the special committee met to discuss retaining Burnham as its investment banking advisor. Representatives of Thompson Hine attended the meeting and representatives of Burnham attended a portion of the meeting. The special committee also discussed the potential terms of retaining Burnham.  The special committee discussed the Company’s strategic alternatives in light of its financial condition. Between April 21, 2009 and April 28, 2009, the special committee met several more times to discuss the Company’s strategic alternatives and the terms and scope of retaining Burnham.

The special committee elected to retain Burnham after interviewing several other financial advisory firms.  In selecting Burnham, the special committee considered, among other things, that Burnham is a nationally recognized investment banking firm with substantial experience in similar transactions to the merger, and that Burnham is familiar with the Company and its business.  A further description of Burnham’s experience is set forth in “— Opinion of Burnham Securities Inc.”

On April 29, 2009, the board of directors met to receive an update on the Company’s business and financial position. During the meeting, the special committee disclosed it was retaining Burnham as its investment banking advisor and generally discussed the services that Burnham would provide. A discussion ensued regarding the potential strategic alternatives that might be available to the Company. During such discussion, the members of the special committee requested that the officers of the Company obtain an updated liquidation analysis from Clear Thinking Group LLC, which had previously provided a liquidation analysis to the Company as noted above.

From April 28, 2009, through the first week of June 2009, Burnham began the process described in “— Opinion of Burnham Securities Inc. ” below, including reviewing publicly available financial statements and other business and financial information of the Company;

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reviewing financial projections prepared by management of the Company; meeting with senior executives of the Company and discussing with them the past and current operations and financial condition and the prospects of the Company; and conducting other financial analyses on the Company that Burnham deemed appropriate.

Also during the month of May, the special committee met several times to discuss the Company’s strategic alternatives with representatives of Burnham and Thompson Hine in attendance. Additionally, in early May, representatives of the special committee contacted Tajima Industries, Ltd. (“Tajima”), a major supplier to the Company equipment accounts for approximately 54% of Hirsch’s sales, to discuss the potential impact of various strategic alternatives upon the agreement between the Company and that supplier. Tajima’s contracts with the Company provide that it may be a breach of such agreements (determinable by Tajima), if a material change should occur in Hirsch’s stockholders, directors or officers, or a change in control of Hirsch occurs.  Tajima indicated to the representatives of the special committee that they would be supportive of the concept of the Company becoming a private company through an acquisition if Mr. Gallagher would continue to be involved with the successor company.  They also confirmed their view that an acquisition of Hirsch by a third party without their consent would be a violation of their agreement with the Company.

On May 29, 2009, the Company received the updated liquidation analysis from Clear Thinking Group LLC.  The analysis indicated that the Company’s liquidation value was estimated to be in the range of $277,000 to $2.2 million in the aggregate, resulting in an estimated per share value of $0.03 to $0.22.

The updated liquidation analysis was prepared based upon a review of the Company’s preliminary balance sheet as of April 30, 2009 and other historical income statements and balance sheets, estimated wind down expenses, the consolidated 2009 forecast of net sales, gross profit, gross margin by manufacturer, salary and other operating expenses that was utilized in preparing the February Analysis, and updated information of the same type reviewed for the February Analysis, except for an updated furniture, fixture and equipment and miscellaneous lease and contract information.  Similar to the February Analysis, Clear Thinking assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Clear Thinking by the Company, and formed a substantial basis for its opinion. 

As in the February Analysis, Clear Thinking continued to assume that the Company would employ a carefully orchestrated and executed wind down process which would maximize the value for the Company’s stockholders, and would employ the same two phase process as described in the summary of the February Analysis.  In the present analysis, Clear Thinking assumed that the Company would have commenced the wind down process by May 1, 2009, and would utilize the same sixty day period for each of phase I and phase II, followed by the same thirty day period needed to complete the necessary financial and legal requirements to close down the business. 

Based upon the foregoing, and the additional material assumptions in the notes to the following table, Clear Thinking estimated the Company’s liquidation value in its May 29, 2009 report as follows:

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a.                          Available cash on hand as of May 6, 2009, as per company cash flow summary report; less amounts committed for outstanding letters of credit.

b.                         Accounts receivable (includes credits owed to customers, which are reflected in line p as an expense) as of April 30, 2009, as per the Company’s aging accounts receivable records.  This amount assumes that half of the balance will be collected in the normal fashion, and the other half will be collected utilizing a collection agency.

c.                          Inventory value indicated is at cost as per the Company aging inventory summary as of April 30, 2009.  The total includes parts inventory and on order inventory.

d.                         Amount indicated is from the Company’s March 31, 2009 balance sheet and assumes most pre-paid expenses are unrecoverable other than supplies.

e.                          Assumes real estate lease deposits of $35,703 are unrecoverable.

f.                            Amount indicated is from the preliminary April 30, 2009 balance sheet and includes furniture, fixtures and equipment, leasehold improvements, computer upgrades and website development costs.

g.                         Assumes the Company’s intellectual property has no value in the marketplace.

h.                         Assumes a liquidator recovery fee of 20% of gross sales of furniture, fixtures and equipment, after sales tax.

i.                             Assumes company uses a collection agency to collect half of the accounts receivable.  A collection fee of 15% of is applied on the half recovered by the collection agency.

j.                             Assumes normal use of cash plus payment of additional commissions and advertising for two months, and two months with reduced expenses; also includes severance of approximately $1 million.

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k.                          Assumes approximately $750,000 for legal and other professional fees for winding down the business, including, without limitation, SEC filings, shareholder communication and possible litigation.

l.                             Estimated real estate liability based on lease summary as of April 30, 2009.  Assumes all offices and locations vacated by August 31, 2009.

m.                       Estimated other contracts and leases liabilities as of April 30, 2009.

n.                         Accounts payable and accrued expenses as of April 30, 2009.

o.                         Includes payables associated with the current inventory on order as of May 23, 2009.

p.                         From the preliminary April 30, 2009 balance sheet and assumes current accounts receivable credits returned to customers.

q.                         From the preliminary April 30, 2009 balance sheet.

Miscellaneous Assumption: assumes no recovery or additional liability with respect to the Company’s U.S. Graphic Arts, Inc. subsidiary.

On June 9, 2009, the board of directors met to discuss the Company’s strategic alternatives. During the meeting, the special committee inquired as to whether Mr. Gallagher intended to formulate and submit an offer for the Company. To the extent a proposal was not forthcoming, the special committee indicated that it would begin to seek offers for the Company from other third parties, and that it would also prepare plans for the Company’s potential liquidation. The special committee indicated its urgency was premised upon the rate at which the Company was utilizing its available cash. Mr. Gallagher indicated that, subject to his receipt of a satisfactory loan commitment letter, he expected to formulate and submit a proposal for the special committee’s consideration within the next week.

On June 12, 2009, Mr. Gallagher sent to the special committee a letter offering to acquire, through acquisition entities to be formed by him, all of the outstanding shares of the Company’s Class A and Class B Common Stock, for $0.28 per share in cash, other than shares held by Mr. Gallagher and any investors that may invest in his acquisition entities, by way of a merger transaction. Mr. Gallagher’s letter also specified that any definitive agreement would need to include the right for him to terminate such agreement in the event that he was unable to arrange sufficient financing to make the acquisition, that he receive a break-up fee in the event that the Company should accept an alternative acquisition proposal, and other customary terms and conditions. On the same date that Mr. Gallagher sent his proposal letter to the Company, he filed an amendment to his Schedule 13D disclosing his offer, and the Company issued a press release and filed a Form 8-K with the SEC disclosing its receipt of Mr. Gallagher’s offer.

On June 15, 2009, the special committee met to discuss Mr. Gallagher’s offer with representatives of Burnham and Thompson Hine in attendance. The special committee discussed the price of $0.28 per share contained in Mr. Gallagher’s offer in light of the Company’s financial condition and the likelihood of locating any superior strategic alternatives. The special committee discussed the approximately 30% premium that the price of $0.28 per share offered to the Company’s stockholders over the Company’s closing stock price on June 12, 2009. The special committee also discussed the financing commitment to which Mr. Gallagher’s offer was subject, including the likelihood that Mr. Gallagher would be able to obtain the financing in light of the Company’s financial condition. The special committee determined that it was in the best interests of the Company and its stockholders to negotiate with Mr. Gallagher with respect to the price of $0.28 per share. From June 15, 2009, until June 22, 2009, representatives of the special committee negotiated with Mr. Gallagher regarding the price of $0.28 per share.

Commencing on June 16, 2009, Burnham, on behalf of the special committee, began conducting a “market check,” during which it contacted a number of wholesale and distribution

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companies and private equity firms to determine whether any of those entities would be interested in considering an acquisition of the Company. Burnham selected the entities to contact based on numerous factors, including perceived interest in the businesses in which the Company operates, familiarity with the garment and decorated apparel industries, financial position and ability to consummate an acquisition of the Company.

On June 22, 2009, the special committee held a meeting with Burnham and Thompson Hine in attendance. During this meeting, a representative of Burnham reported on its “market check” inquiries.  Burnham reported that it had contacted 20 financial and strategic buyers to determine whether these other parties might be interested in engaging in a transaction with the Company, and that it had received no indications of interest. Also during the meeting, the Committee discussed Mr. Gallagher’s indication that he would be willing to increase his offer acquisition price per share to $0.31, subject to arriving at mutually agreed terms and conditions for the transaction. The special committee then discussed the fact that Mr. Gallagher’s revised offer (conditional on agreement on all other terms) was now substantially above the high-end liquidation value estimate for the Company of $0.22 per share reflected in the most recent liquidation report received. The special committee also discussed several other issues regarding Mr. Gallagher’s offer, including the credit facility that was to be used to finance the offer and the conditions to which it was subject. The special committee then discussed whether to enter into negotiations with Mr. Gallagher with respect to a definitive merger agreement. Based in part upon Burnham’s report of the results of its “market check” inquiries and the success of the special committee in negotiating a higher price (conditioned on agreement on all other terms), the special committee determined that it should participate in those discussions.

Following the meeting of the special committee, a full board of directors’ meeting was held, in which representatives of Burnham participated. At this meeting, the special committee and Mr. Gallagher agreed to commence negotiation of a definitive merger agreement based upon the terms specified in Mr. Gallagher’s June 12, 2009 letter, subject to the increased purchase price per share that representatives of the special committee and Mr. Gallagher had previously discussed. Mr. Gallagher indicated that he would have his counsel prepare an initial draft merger agreement for review by the special committee and Thompson Hine.

On June 24, 2009, the special committee requested that Mr. Gallagher extend the expiration date of his offer, which was scheduled to expire pursuant to his proposal letter on June 25, 2009. Mr. Gallagher agreed to such request, and extended his offer until June 30, 2009.  Additionally, on the same date, Mr. Gallagher distributed to the special committee an initial draft agreement and plan of merger, or merger agreement.

On June 26, 2009, the special committee held a meeting with representatives of Burnham and Thompson Hine in attendance to discuss the specific provisions of the merger agreement. The special committee discussed various issues regarding the merger agreement, including the provision requiring the consent to the merger of Tajima, the waiver of the change of control severance provisions of Mr. Gallagher’s employment agreement, and the need for the merger agreement to contain a “go-shop” provision to allow the special committee a period of time to initiate, solicit and encourage competing offers. After consideration of the initial draft merger agreement, the special committee directed Thompson Hine to prepare and circulate a revised draft agreement to Mr. Gallagher. Thereafter, the parties, with their respective legal counsel, continued negotiations and exchanging drafts of the merger agreement. 

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On June 29, 2009, the special committee held a meeting with representatives of Burnham and Thompson Hine in attendance to further discuss the specific provisions of the merger agreement.  The special committee discussed the “go-shop” provision that had been added to the revised draft of the merger agreement, pursuant to which the special committee would be able to continue to explore other potential sale alternatives for a specified period, notwithstanding any signed agreement to sell the Company to Mr. Gallagher. After further discussion, the special committee determined that it would be in the best interests of the Company and its stockholders to consult with Delaware counsel about the use of “go-shop” provisions in similar situations.  Counsel to Mr. Gallagher joined the meeting and the special committee negotiated several specific provisions of the merger agreement. The special committee again requested that Mr. Gallagher extend the term of his offer, and Mr. Gallagher provided an extension until July 2, 2009.

On June 30, 2009, the special committee met again to discuss, among other matters, the advice received from Delaware counsel regarding the inclusion of the “go-shop” provision in the merger agreement. After further discussion, the special committee determined to request a “go-shop” provision, which after a specified period of time, would switch to a “no-shop” period, during which, the Company could not solicit offers to engage in a strategic transaction with other parties, but which would permit the special committee to consider unsolicited competing offers.

On July 1, 2009, the special committee met to discuss the proposed merger agreement. At the meeting, the special committee discussed the terms and conditions of the merger agreement as negotiated by legal counsel. Representatives of Burnham also attended this meeting. At the meeting, a representative of Burnham presented its financial and other analyses with respect to the consideration to be paid to the unaffiliated stockholders of the Company in the proposed merger. Burnham then rendered an oral opinion to the special committee (which was confirmed in writing by delivery of Burnham’s written opinion dated July 1, 2009 to the special committee), to the effect that, as of such date and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Burnham in preparing its opinion, the merger consideration to be received by the unaffiliated stockholders in the merger was fair, in the opinion of Burnham, from a financial point of view. Burnham was then excused from the meeting. Following further discussion, the special committee unanimously determined that the terms of the proposed merger, and the merger agreement and the other transactions contemplated thereby, were advisable and fair to, and in the best interests of, our unaffiliated stockholders, and recommended that our board of directors approve the proposed merger and the merger agreement and the other transactions contemplated thereby.

Immediately following the meeting of the special committee, the compensation committee of the board of directors, consisting of Messrs. Broitman, Davino and Domuracki, held a meeting at which it considered and approved a second amended and restated employment agreement for Mr. Gallagher to be entered into in connection with the proposed merger agreement. The revised employment agreement for Mr. Gallagher primarily amended his prior employment agreement in order to (i) extend the termination date of the agreement one year to September 11, 2010, and (ii) prevent Mr. Gallagher from being entitled to receive severance payments and benefits from the Company under his employment agreement, or the acceleration of any of his stock options, in connection with any termination of employment, resignation or non-renewal of the agreement which occurs after the completion of the merger, or any other

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transaction pursuant to which (a) the shares of the Company’s Class A Common Stock become eligible for deregistration under the Exchange Act, and (b) Mr. Gallagher becomes the beneficial owner, directly or indirectly, of 25% or more of the Company’s voting stock.

Early the next morning, before the commencement of trading on the Nasdaq Capital Market, the board of directors met to consider approval of the proposed transaction and the merger agreement and the other transactions contemplated thereby. At this meeting, Burnham provided a summary of its presentation to the special committee the previous evening regarding its opinion, and the special committee reported the results of its meeting held the previous evening. Additionally, counsel to the Company reviewed the material terms and provisions of the merger agreement. Following this discussion, the board of directors unanimously determined (without the participation of Mr. Gallagher in voting) that the proposed merger and the merger agreement were advisable and fair to, and in the best interests of, our unaffiliated stockholders.  The board of directors then unanimously approved (without the participation of Mr. Gallagher in voting) the proposed merger and the merger agreement, and recommended that our stockholders vote in favor of the proposed merger and directed that the merger agreement be finalized and executed. Following these meetings, a definitive merger agreement between the Company, Parent and Merger Sub was executed.

On July 2, 2009, prior to the commencement of trading on the Nasdaq Capital market, we issued a press release announcing the execution of the merger agreement.

On the morning of July 7, 2009, during the “go-shop” period, Mr. Broitman received an unsolicited call from a prospective buyer who had not previously expressed an interest in acquiring the Company. Given the nature of the call, the special committee met with Burnham that afternoon and discussed expanding the terms and scope of Burnham’s engagement to include conducting another “market check” during the “go-shop” period and delivering a “bring-down” to Burnham’s written opinion dated July 1, 2009 if requested by the Company. On July 9, 2009, the special committee and Burnham amended Burnham’s engagement letter to expand the scope of its services to include, among other things, conducting a market check and rendering a bring-down opinion to its opinion dated July 1, 2009 if requested by the Company.

After engaging in initial discussions with members of the special committee, the above mentioned prospective buyer informed the members of the special committee on July 13, 2009 that he would not pursue a competing proposal to acquire the Company.

From July 9, 2009 until July 15, 2009, Burnham conducted a market check, contacting other parties that might be potentially interested in presenting a takeover proposal to the Company. On July 16, 2009, the special committee met with Burnham. During this meeting, a representative of Burnham reported on its market check inquiries. Burnham reported that it had contacted 24 financial and strategic buyers, including 15 parties that it had contacted in connection with its earlier market check conducted before June 22, 2009, to determine whether other parties might be interested in engaging in a transaction with the Company, and that at that time it had received no indications of interest.   Burnham selected the entities to contact based on numerous factors, including perceived interest in the businesses in which the Company operates, familiarity with the garment and decorated apparel industries, financial position and ability to consummate an acquisition of the Company.  Neither Burnham nor the Company

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received any additional indications of interest prior to the end of the go-shop period on July 22, 2009.   At this time, the Company has not requested Burnham to update its opinion dated July 1, 2009.  The Company’s board of directors currently does not expect that it will ask Burnham to update the fairness opinion.

Recommendation of the Special Committee and of our Board of Directors; Reasons for Recommending Approval of the Merger Agreement

The Special Committee .  On February 12, 2009, the board of directors established a special committee consisting of three members of the board of directors, Mr. Davino, who served as chairman, and Mr. Broitman and Ms. Domuracki, to consider strategic alternatives for the Company, with full authority from the board.  The criteria for selecting the members of the special committee was independence from the Company, and persons that would not be a party to a management led buy-out if one were to be proposed.  The special committee was also empowered to retain legal, financial and other advisors to assist the special committee in the fulfillment of its duties. The special committee retained Thompson Hine as its legal advisor, Burnham as its financial advisor, and also consulted special Delaware counsel. The special committee conducted an extensive review and evaluation of Mr. Gallagher’s proposal and conducted negotiations with Mr. Gallagher and his representatives with respect to the merger agreement. On July 1, 2009, the special committee, after considering the presentations and advice of its financial and legal advisors, unanimously, among other things, (i) determined that the merger is advisable and in the best interests of the Company and its unaffiliated stockholders, (ii) recommended that the board of directors approve and adopt the merger agreement in order to effect the merger.

In the course of reaching the determinations and decisions and making the recommendations described above, the special committee considered the following substantive positive factors and potential benefits of the merger and the merger agreement, each of which the special committee believed supported its decision:

·                                           its belief that the merger was more favorable to the unaffiliated stockholders of the Company than the alternative of remaining a stand-alone, independent company, because of the uncertain returns to such stockholders if the Company remained independent, in light of the challenging environment faced by the Company and the Company’s business, operations, financial condition, strategy and prospects, as well as the risks involved in achieving those returns, and general economic, market, credit, currency exchange rate and regulatory conditions;

·                                           the special committee’s belief that $0.31 per share was above the high end of the range of liquidation values that could be payable for the Company, as provided in the updated liquidation analysis prepared for the Company by Clear Thinking Group LLC;

·                                           the fact that the merger consideration of $0.31 per share represents a 47.6% premium above the June 12, 2009 closing price of $0.21 per share (the last trading day completed prior to receipt of Mr. Gallagher’s initial offer) and a premium of 54.5% above the volume-weighted average closing price of $0.2006 for the thirty day period prior to the announcement of Mr. Gallagher’s offer;

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·                                           the information contained in the July 1, 2009 financial presentation of Burnham and Burnham’s opinion, as of July 1, 2009, based upon and subject to the factors and assumptions set forth in the opinion and other matters as Burnham considered relevant, as to the fairness, from a financial point of view, to the unaffiliated stockholders of the Company of the merger consideration to be received by such stockholders in the merger (see “— Opinion of Burnham Securities Inc. ”);

·                                           the efforts made by the special committee and its advisors to negotiate and execute a merger agreement favorable to the Company;

·                                           the fact that the merger will provide consideration to the unaffiliated stockholders of the Company entirely in cash, which allows such stockholders to immediately realize a fair value for their investment and provides such stockholders certainty of value for their shares;

·                                           the fact that the merger agreement provides the Company with a twenty day post-signing “go-shop” period during which the Company can solicit interest in competing proposals involving the Company, and, after such twenty day period, permits the Company to respond to unsolicited proposals under certain circumstances;

·                                           the fact that, subject to compliance with the terms and conditions of the merger agreement, the board of directors is permitted to change its recommendation or terminate the merger agreement, prior to the adoption of the merger agreement by the Company’s stockholders, in order to approve a superior proposal, upon the payment to Parent of a termination fee equal to the expenses incurred by Parent and Merger Sub incurred in connection with the merger, such amount not to exceed $300,000; and

·                                           the availability of appraisal rights to the holders of the Company’s common stock who comply with all of the required procedures under Delaware law, which allows such stockholders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery.

In the course of reaching the determinations and decisions, and making the recommendations, described above, the special committee considered the following factors relating to the procedural safeguards that the special committee believes were and are present to ensure the fairness of the merger and to permit the special committee to represent the interests of the unaffiliated stockholders of the Company, each of which the special committee believes supports its decision and provides assurance of the fairness of the merger to us and our unaffiliated stockholders:

·                                           the fact that negotiations were conducted by a special committee comprised of independent directors who are not employees of the Company and who have no financial interest in the merger that is different from that of the unaffiliated stockholders of the Company;

·                                           the fact that the special committee retained and received advice and assistance from its own independent financial and legal advisors, each of which has

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extensive experience in transactions similar to the proposed merger, in evaluating, negotiating or recommending the terms of the merger agreement, as applicable;

·                                           the fact that neither Thompson Hine nor Burnham previously represented the Company or Mr. Gallagher before their respective engagement by the special committee;

·                                           the fact that the board of directors could not proceed with a transaction involving Mr. Gallagher without the approval of the special committee, which had the ultimate authority to decide whether or not to pursue such a transaction (subject to approval of the merger agreement by the board of directors);

·                                           the fact that the directors of the Company (other than Mr. Gallagher) will not receive any merger consideration in connection with the merger that is different from that received by any other unaffiliated stockholder of the Company;

·                                           the fact that the financial and other terms and conditions of the merger agreement were the product of negotiations between the special committee and its independent advisors, on the one hand, and Mr. Gallagher and his advisors, on the other hand;

·                                           the fact that the opinion of Burnham, dated as of July 1, 2009, based upon and subject to the factors and assumptions set forth in the opinion and the other matters as Burnham considered relevant, addresses the fairness, from a financial point of view, to the unaffiliated stockholders of the Company of the merger consideration to be received by such stockholders in the merger;

·                                           the fact that the merger agreement contains a “go-shop” provision pursuant to which the Company, at the direction of the special committee, has the right to solicit and engage in discussions and negotiations with respect to competing proposals for a period of twenty days following execution of the merger agreement and, after that time, to continue discussions with certain of such parties provided certain conditions are met, and/or to respond to inquiries regarding competing proposals under certain circumstances;

·                                           the fact that a provision in the merger agreement allows the board of directors to withdraw or change its recommendation of the merger agreement, and to terminate the merger agreement, in certain circumstances; and

·                                           the fact that appraisal rights under Delaware law are available to holders of shares of the Company’s common stock who dissent from the merger and comply with all of the required procedures under Delaware law, which provides stockholders who dispute the fairness of the merger consideration with an opportunity to have the Delaware Court of Chancery determine the fair value of their shares.

The special committee believes that the merger is procedurally fair despite the fact that the merger agreement does not require that a majority of the shares of our common stock held by unaffiliated stockholders is necessary to approve the merger agreement and the merger. The special committee feels that the above-referenced procedural safeguards, in combination with the

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requirement that a majority of the outstanding shares of common stock approve the transaction, were a sufficient safeguard to Mr. Gallagher’s position with the Company, and as a result, that a requirement that a majority of the shares of our common stock held by unaffiliated stockholders would not materially enhance the fairness of this transaction to the unaffiliated stockholders.  The special committee also noted that Mr. Gallagher’s ownership of approximately 7.4% of the Company’s outstanding shares was not sufficient to control the outcome of the vote on the merger proposal.

The special committee also considered the following risks and other potentially negative factors concerning the proposed merger and merger agreement:

·                                           the fact that the $0.31 per share to be paid for each share of the Company’s common stock is less than the 52-week high stock price for the Company’s Class A Common Stock of $1.61 in the 52-week period prior to execution of the merger agreement;

·                                           the fact that the unaffiliated stockholders of the Company will have no ongoing equity participation in the Company following the merger, and that such stockholders will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the Company’s common stock;

·                                           the conflict of interest of Mr. Gallagher, who, as a result of his interest in Parent will indirectly control all of the shares of common stock of Hirsch, as the surviving company, following the effective time of the merger;

·                                           the fact that an auction was not conducted for the sale of the Company;

·                                           the merger agreement restrictions on the conduct of the Company’s business prior to the completion of the merger, generally requiring the Company to conduct its business only in the ordinary course, subject to specific limitations, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the merger without Parent’s consent;

·                                           the risks and costs to the Company if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on business and customer relationships;

·                                           that the receipt of cash in exchange for shares of the Company’s common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes; and

·                                           the possibility that, under the merger agreement, the Company may be required to reimburse Parent and Merger Sub for its expenses incurred in connection with the merger of up to $250,000 or $300,000, depending on the circumstances of termination.

In the course of reaching the determinations and decisions, and making the recommendations, described above, the special committee did not consider the going concern

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value of the Company because, as disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, there is substantial doubt as to the Company’s ability to continue as a going concern, and the special committee therefore did not consider going concern value to be a relevant methodology. The special committee did not believe that the Company’s net book value as of March 31, 2009 of $1.09 per share was indicative of the Company’s going concern value due to the rapid rate at which the  Company was utilizing its available cash, which would prevent the Company from sustaining such net book value.   The special committee also did not consider the purchase price paid in the last two years for shares of the Company’s common stock, because neither the Company nor the members of the Parent Group purchased any shares during this period.  Finally, the special committee did not consider any offers within the last two years made by a third-party to (a) merge or consolidate the Company with or into another company, (b) sell or otherwise transfer all or any substantial part of the assets of the Company, or (c) purchase an amount of the Company’s common stock that would enable the holder to exercise control of the Company, because the Company is not aware of any such offers.

The special committee expressly adopted the analyses and the opinion of Burnham, among other factors considered, in the course of reaching its decision to recommend to the board of directors that the board of directors approve the merger agreement.

The foregoing discussion of the information and factors considered by the special committee includes the material factors considered by the special committee. In view of the variety of factors considered in connection with its evaluation of the merger, the special committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The special committee approved and recommends the merger agreement and the merger based upon the totality of the information presented to and considered by it.

The Board of Directors.  At a meeting on July 2, 2009, the board of directors, based upon the unanimous recommendation of the special committee, unanimously (without the participation of Mr. Gallagher in voting) (i) determined that the merger and the merger agreement, are advisable, fair to, and in the best interests of the unaffiliated stockholders of the Company, (ii) approved and adopted the merger agreement, and (iii) recommended that our stockholders adopt the merger agreement and approve the merger. In reaching these determinations, our board of directors considered (i) the financial presentation of Burnham that was prepared for the special committee and an abbreviated version of which was delivered to the board of directors at its request, as well as the fact that the special committee received a written opinion delivered by Burnham as to the fairness, from a financial point of view, to the unaffiliated stockholders of the Company of the merger consideration to be received by such stockholders in the merger, and (ii) the unanimous recommendation and analysis of the special committee to approve the merger agreement.  After consideration of such factors, our board of directors adopted the special committee’s discussion and analysis set forth above of the factors regarding the fairness of the merger, and the discussion of Burnham set forth below in “ Special Factors—Opinion of Burnham Securities Inc. ” regarding the same topic.

The foregoing discussion of the information and factors considered by the board of directors includes the material factors considered by the board of directors. In view of the variety of factors considered in connection with its evaluation of the merger, the board of directors did

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not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board of directors approved and recommends the merger agreement and the merger based upon the totality of the information presented to and considered by it.

Our Board of Directors recommends that you vote “FOR” the approval of the proposed merger, and the approval and adoption of the merger agreement and the other transactions contemplated thereby, and “FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies.

Opinion of Burnham Securities Inc.

On July 1, 2009, at a meeting of the special committee held to evaluate the proposed merger, Burnham delivered to the special committee an oral opinion, confirmed by delivery of a written opinion, dated July 1, 2009, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the consideration to be received in the merger by the stockholders of the Company other than the unaffiliated stockholders is fair from a financial point of view to such stockholders.

The full text of Burnham’s opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Burnham.  The opinion is attached as Annex B and is incorporated into this proxy statement by reference.  Burnham’s opinion is directed only to the fairness, from a financial point of view, of the consideration to be received in the merger by the unaffiliated stockholders and does not address any other aspect of the merger.  The opinion does not address the relative merits of the merger or any related transaction as compared to other business strategies or transactions that might be available with respect to the Company or the Company’s underlying business decision to effect the merger or any related transaction.  The opinion does not constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the merger or any related transaction.  The Company’s stockholders are encouraged to read the opinion carefully in its entirety. 

In arriving at its opinion, Burnham, among other things:

(a)                                   reviewed certain publicly available financial statements and other business and financial information of the Company;

(b)                                  reviewed an accounts receivable reserve analysis and the Company’s projected monthly cash flow through 2009 prepared by management of the Company;

(c)                                   reviewed certain financial projections prepared by management of the Company;

(d)                                  discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;

(e)                                   reviewed the letter dated June 12, 2009 from Mr. Gallagher to the special committee regarding his offer to acquire all of the shares of common stock of the

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Company, which letter was filed by the Company with the SEC under cover of a Current Report on Form 8-K dated June 12, 2009;

(f)                                     at the request of the special committee, conducted a market check after the public announcement of Mr. Gallagher’s offer letter;

(g)                                  reviewed the Company’s liquidity, liquidity projections prepared by management of the Company and the Company’s efforts to access additional capital;

(h)                                  reviewed a liquidation analysis conducted by a third party commissioned by the special committee;

(i)                                      reviewed the limited trading in the Company’s common stock and the Company’s comparatively small market capitalization;

(j)                                      compared the market prices and trading history of the Company’s common stock with those of certain other publicly-traded companies that Burnham deemed relevant, as reported by reliable information sources;

(k)                                   reviewed the financial terms and premiums paid, to the extent publicly available, of certain other transactions;

(l)                                      considered the Company’s prospects if it were to remain independent, as well as the risks involved in achieving those prospects;

(m)                                reviewed drafts of the merger agreement as they became available; and

(n)                                  performed such other analyses and considered such other factors as Burnham deemed appropriate.

In connection with Burnham’s review, with the consent of the special committee, Burnham assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Burnham by the Company, and formed a substantial basis for the opinion.  With respect to the financial projections provided to Burnham, Burnham assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company.  In addition, Burnham assumed that the merger would be consummated in accordance with the terms set forth in the merger agreement without any material waiver, amendment or delay of any terms or conditions.  Burnham further noted that Burnham is not a legal, tax, regulatory or actuarial advisor, and that it is a financial advisor only and relied upon, without independent verification, the assessment of Parent and the Company and their respective legal, tax, regulatory or actuarial advisors with respect to such matters.  Burnham further noted that it had not made any independent valuation or appraisal of the assets or liabilities of the Company, nor had it been furnished with any such appraisals.  Burnham took no responsibility for the accuracy of the liquidation analysis provided to Burnham and did not independently verify it or the assumptions or methodologies used to prepare it.  Burnham’s opinion was necessarily based upon economic, monetary and market conditions as they existed and could be evaluated on the date of the opinion, and its opinion does not predict or take into account any changes that may have

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occurred, or information that may have become available, after the date of the opinion.  Burnham has no responsibility for updating, revising or reaffirming its opinion on circumstances or events occurring after the date of the opinion.

At the special committee’s direction, Burnham was not asked to, and it did not, offer any opinion as to the terms, other than the merger consideration to the extent expressly specified in Burnham’s opinion, of the merger agreement or any related documents or the form of the merger or any related transaction.  Burnham expressed no opinion with respect to fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the unaffiliated stockholders pursuant to the merger agreement.  The opinion is not, and is not intended to be, a present or future valuation of the Company or of its shares, nor is it an appraisal of any asset or liability.  The opinion does not address, and is not intended to address, whether Merger Sub or Parent is able to pay the consideration in the merger or to fund post-merger operations, or the solvency of the Company pre- or post-merger.  Specifically, the opinion does not address, and is not intended to address:

·                                          whether the remaining capital of the Company is a reasonable amount for the business in which it is engaged,

·                                          whether post-merger the Company will be able to pay its debt and contingent liabilities as they mature, and

·                                          whether the fair market value and present salable value of the Company’s assets exceeds the stated value of the contingent liabilities.

Except as described above, the special committee imposed no other instructions or limitations on Burnham with respect to the investigations made or the procedures followed by Burnham in rendering its opinion.  The issuance of Burnham’s opinion was approved by the fairness committee of Burnham.

In connection with rendering its opinion to the special committee, Burnham performed a variety of financial and comparative analyses that are summarized below.  The following summary of the material financial analyses performed by Burnham does not purport to be is not a complete description of all analyses performed and factors considered by Burnham in connection with its opinion.  The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description.  With respect to the selected public companies analysis and the selected transactions analysis summarized below, no company or transaction used as a comparison was either identical or directly comparable to the Company or the merger.  These analyses necessarily involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or acquisition values of the companies concerned.

The estimates of the future performance of the Company provided by the management of the Company in or underlying Burnham’s analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates.  In performing its analyses, Burnham considered industry performance, general business and economic

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conditions and other matters, many of which are beyond the control of the Company.  Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at which companies actually may be sold.

The merger consideration was determined through negotiation between the special committee and Mr. Gallagher, and the decision by the special committee and the Company’s board of directors to enter into the merger agreement was solely that of the special committee and the Company’s board of directors.  Burnham’s opinion and financial analyses were among many factors considered by the special committee and the Company’s board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the special committee or the Company’s board of directors or management with respect to the merger or the merger consideration.

Financial Analyses of Burnham Securities Inc.

The following is a brief summary of the material financial analyses performed by Burnham and reviewed with the special committee in connection with Burnham’s opinion relating to the proposed merger.   The financial analyses summarized below include information presented in tabular format.  To fully understand Burnham’s financial analyses, the tables must be read together with the text of each summary.  The tables alone do not constitute a complete description of the financial analyses.  Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Burnham’s financial analyses.  Burnham did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all analyses it performed and assessed as a whole.  Except as otherwise noted, the following quantitative information is based on market and financial data as it existed on or before July 1, 2009, and is not necessarily indicative of current market conditions.

Implied Valuation, Transaction Multiples and Transaction Premiums.   Based on the cash consideration of $0.31 net per share of the Company’s common stock (the “Per Share Equity Purchase Price”) Burnham calculated the implied “equity purchase price” to be $2.9 million.Equity purchase price is defined as the Per Share Equity Purchase Price multiplied by the Company’s total number of diluted common shares outstanding, including gross shares issuable upon the exercise of stock options, less assumed option proceeds, as of March 31, 2009.  In addition, Burnham calculated the implied “total purchase price” to be $0.4 million.  Total purchase price is defined as the equity purchase price plus the book value of the Company’s total debt and preferred stock, less cash, cash equivalents and marketable securities, as of March 31, 2009.  Burnham then calculated the multiples of the total purchase price to the Company’s revenues, to its earnings before interest, taxes, depreciation and amortization (“EBITDA”), and to its earnings before interest and taxes (“EBIT”), for the last twelve months (“LTM”) ended March 31, 2009.  Burnham noted that, as per the Company’s SEC filings, both EBIT and EBITDA for the full year 2008 and for the LTM ended March 31, 2009 were negative.  The following table summarizes these transaction multiples.

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