-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VbRqkQfa2LeQbJv/fA3EOcpTAaFdAuxzfDLvfZ82/cwvcFwMWHcmZk2itEaLFOWP yhsUnvrUxcAMB6kvbuHJYw== 0000950138-09-000403.txt : 20090612 0000950138-09-000403.hdr.sgml : 20090612 20090612171932 ACCESSION NUMBER: 0000950138-09-000403 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20090612 DATE AS OF CHANGE: 20090612 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GALLAGHER PAUL CENTRAL INDEX KEY: 0001212270 FILING VALUES: FORM TYPE: SC 13D/A SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HIRSCH INTERNATIONAL CORP CENTRAL INDEX KEY: 0000915909 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 112230715 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-48341 FILM NUMBER: 09890495 BUSINESS ADDRESS: STREET 1: 50 ENGINEERS ROAD CITY: HAPPAUGE STATE: NY ZIP: 11787 BUSINESS PHONE: 631-436-7100 MAIL ADDRESS: STREET 1: 50 ENGINEERS ROAD CITY: HAUPPAUGE STATE: NY ZIP: 11787 SC 13D/A 1 sch13da.htm

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE

13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)

(Amendment No. 3)*

Hirsch International Corp.

(Name of Issuer)

Class A Common Stock, par value $0.01 per share

(Title of Class of Securities)

433550 10 0

(CUSIP Number)

Paul Gallagher

c/o Hirsch International Corp.

50 Engineers Road

Hauppauge, NY 11788

(631) 436-7100

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

June 12, 2009

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: o.

Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See § 240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section of the Exchange Act but shall be subject to all other provisions of the Exchange Act (however, see the Notes).

Page 1 of 6

NAMES OF REPORTING PERSONS

I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (Entities Only)

Paul Gallagher

CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*

(a)

(b)

SEC USE ONLY

SOURCE OF FUNDS*

CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e)

CITIZENSHIP OR PLACE OF ORGANIZATION

United States of America

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON WITH

SOLE VOTING POWER

1,331,233 shares of Class A Common Stock(1)

SHARED VOTING POWER

SOLE DISPOSITIVE POWER

1,331,233 shares of Class A Common Stock(1)

SHARED DISPOSITIVE POWER

AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON

1,331,233 shares of Class A Common Stock⁽¹⁾

CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*

PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

13.7% ⁽²⁾

TYPE OF REPORTING PERSON*

Page 2 of 6

⁽¹⁾ This amount includes (a) 697,899 shares of Class A Common Stock held by Paul Gallagher individually, and (b) vested options and options that vest within 60 days of June 12, 2009 held by Paul Gallagher, to purchase 633,334 shares of Class A Common Stock.

⁽²⁾ Based upon 9,083,065 shares of Class A Common Stock outstanding as of May 11, 2009, as reported in the Issuer’s Form 10-Q filed on May 15, 2009, plus the number of shares of Class A Common Stock issuable upon the exercise of vested options and options that vest within 60 days of June 12, 2009 beneficially owned by Paul Gallagher.

Item 1.

Security and Issuer.

This Amendment No. 3 to Schedule 13D, filed by Mr. Paul Gallagher (the “Reporting Person”), relates to the Class A common stock, par value $0.01 per share (the “Class A Common Stock”), of Hirsch International Corp. (the “Issuer”), a Delaware corporation, and amends the Schedule 13D filed by the Reporting Person with the Securities and Exchange Commission (“SEC”) on December 30, 2002, as subsequently amended by Amendment No. 1 to Schedule 13D filed with the SEC by the Reporting Person on June 12, 2003 and Amendment No. 2 to Schedule 13D filed with the SEC by the Reporting Person on February 4, 2009 (the “Schedule 13D”).

Item 3.

Source and Amount of Funds or Other Consideration.

Item 3 is hereby amended by the addition of the following information:

The Reporting Person currently anticipates that the source of the funding for the proposed transaction described in Item 4 will be obtained through third party debt financing, the existing cash balances of the Issuer and equity capital in the holding company he proposes to establish.

The Reporting Person has received a commitment letter from Keltic Financial Services LLC (the “Commitment Letter”), pursuant to which the acquisition company he proposes to establish will be able to borrow up to $4 million under a senior secured credit facility. The availability of these funds are subject to a number of conditions, including, inter alia, the negotiation and execution of definitive borrowing agreements satisfactory to Keltic.

The Commitment Letter and the accompanying term sheet are filed with this Amendment No. 3 to Schedule 13D as Exhibit 1 hereto and the discussion in this Item 3 concerning the Commitment Letter is qualified in its entirety by reference to the full text of the Commitment Letter.

Item 4.

Purpose of Transaction.

Item 4 is hereby amended in its entirety to read as follows:

On June 12, 2009, the Reporting Person submitted an offer letter (the “Offer Letter”) proposing a going-private merger transaction to the Issuer’s Board of Directors (the “Board of Directors”). The Board of Directors has formed a special committee of independent directors (the “Special Committee”) to consider the Offer Letter and the terms of the proposal contained therein.

A copy of the Offer Letter is filed with this Amendment No. 3 to Schedule 13D as Exhibit 2 hereto and is incorporated in this Item 4 by reference. The description herein of the Offer Letter and the matters contemplated thereby is qualified in its entirety by reference to such letter.

As described in the Offer Letter, the Reporting Person proposes to form a new holding company (“Newco”) that would be owned by the Reporting Person and other investors he intends to invite to have an equity interest therein. Newco, in turn would organize a wholly-owned subsidiary (“Acquisition Co.”) which would be merged with and into the Issuer. In the merger transaction (the “Merger”), all of the

Page 3 of 6

Company’s holders of outstanding shares (other than Newco) would receive a cash payment of $0.28 per share. If the proposed Merger is completed, Newco would deregister the Issuer’s Class A Common Stock under applicable provisions of the Securities Exchange Act of 1934 and delist such shares from the Nasdaq Stock Market.

The Reporting Person’s proposal is subject to the negotiation and execution of a definitive merger agreement, any required government approvals and third party consents, the approval of the merger agreement by the Special Committee and the Board of Directors, the Board having rendered inapplicable any anti-takeover provisions or shareholder rights plans, approval of the shareholders of the Issuer as required by law and by the Issuer’s charter, and the availability of financing.

The proposal expires without any action of the part of either party on June 25, 2009.

The Offer Letter shall not create any agreement, arrangement or understanding between the Reporting Person or other parties with respect to the Issuer or the Class A Common Stock for purposes of any law, rule, regulation, agreement or otherwise, until such time as definitive documentation and any agreement, arrangement or understanding has been approved by the Special Committee and the Board of Directors and thereafter executed and delivered by the Issuer and all other appropriate parties.

The foregoing is a summary of the Reporting Person’s proposal and the Offer Letter and is qualified in its entirety by reference to the full text of the Offer Letter which is filed as Exhibit 2 to this Amendment No. 3 to Schedule 13D.

Other than as set forth in the Offer Letter, the Reporting Person has no plans or proposals that relate to or would result in any of the events set forth in Items 4(a) through (j) of Schedule 13D or any similar action. If the transaction proposed in the Offer Letter is not consummated for any reason, the Reporting Person intends to review continuously the Issuer’s business affairs, capital needs and general industry and economic conditions, and, based on such review, the Reporting Person may, from time to time, determine to increase (or decrease) his ownership of Class A Common Stock, approve an extraordinary corporate transaction with regard to the Issuer or engage in any of the events set forth in Items 4(a) through (j) of Schedule 13D. The Reporting Person currently has no intention of selling any shares of Class A Common Stock.

Item 6.

Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the

Issuer.

Item 6 is hereby amended by the addition of the following information:

In connection with the proposed transaction referred to in Item 4, Keltic Financial Services LLC has agreed to provide financing as detailed in the Commitment Letter, described in response to Item 3 above. Keltic’s agreement to provide financing is subject a number of terms and conditions, including the negotiation and execution of definitive borrowing documents. The Commitment Letter and the accompanying term sheet are filed with this Amendment No. 3 to Schedule 13D as Exhibit 1 hereto and the discussion in this Item 6 concerning the Commitment Letter is qualified in its entirety by reference to the full text of the Commitment Letter.

Item 7.

Materials to be Filed as Exhibits.

Exhibit 1:

Commitment Letter dated June 12, 2009 from Keltic Financial Services LLC

Exhibit 2

Offer Letter dated June 12, 2009.

Page 4 of 6

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Dated:

June 12, 2009

	/s/ Paul Gallagher
	Paul Gallagher

Page 5 of 6

EXHIBIT INDEX

Exhibit No.

Description

Commitment Letter dated June 12, 2009 from Keltic Financial Services LLC

Offer Letter dated June 12, 2009

Page 6 of 6

EX-1 2 ex1.htm COMMITMENT LETTER

Exhibit 1

KELTIC FINANCIAL SERVICES LLC

580 WHITE PLAINS ROAD

SUITE 610

TARRYTOWN, NEW YORK 10591

TEL: (914) 921-3555

FAX: (914) 921-1154

Friday, June 12, 2009

Mr. Paul Gallagher

President & CEO

Hirsch Acquisition Corporation

50 Engineers Road

Hauppauge, NY 11788

Dear Paul:

Based on our discussions to date and a review of information provided to us, it is our pleasure to advise you, based on the attached Term Sheet dated April 1, 2009, Keltic Financial Partners II, LP (“Keltic”) has approved your request for a Senior Secured Credit Facility up to $4,000,000.

The Senior Secured Credit Facility will be subject to the following conditions to be achieved prior to or following the closing:

The official Borrower will be a NewCo anticipated to be called Hirsch Acquisition Corporation, and is intended to be the entity acquiring all of the stock of Hirsch International Corporation.

All legal documentation (including legal, background check and insurance due diligence) required to close the loan Facility shall be satisfactory to Keltic.

There shall be no material adverse change in the operations, financial condition or prospects of the Borrower prior to closing.

All other terms, conditions and capitalized terms not defined herein as stated in the attached Term Sheet remain in full force and effect. Any conflict between this document and the Term Sheet are governed by this document.

Satisfactory establishment of Lockbox and Blocked Accounts.

The value of customer deposits will be required to act as an accounts receivable ineligible for any customer that currently has an open accounts receivable balance.

The number of eligible inventory locations will be limited to five locations. Each location must have an acceptable executed landlord waiver associated with it. The TAJIMA location can not be considered eligible, due to the significant amount of accounts payable consistently outstanding to that vendor. The other ineligibles for the inventory will include inventory that is in

Hirsch Acquisition Corp

Commitment Letter

excess of eighteen months old, inventory that considered used, or inventory that is considered demo.

A warranty reserve will be implemented and updated during field exams based on historical trends of warranty expense. At the closing the warranty reserve is expected to be $50,000.

Keltic will require the review of expected going private transaction prior to the closing of this Facility, and must be confident that the legal implications with such transaction have been resolved.

10.

Keltic will require the review of interim financials for each month applicable prior to the closing of this Facility.

11.

Keltic will require the ability to perform a limited roll forward field exam no later than two weeks prior to the closing of this Facility.

12.

Keltic is requiring that Ms. Beverly Eichel continue to be involved in the Borrower once a week for at least a year post closing of this Facility.

13.

Borrower is permitted to disclosure this commitment and term sheet, where necessary to complete this transaction and to comply with all applicable laws, rules and regulations.

This Commitment and Term Sheet are intended to be a summary of the most important elements of the agreement to enter into a financing transaction with the Borrower, and is subject to all requirements and conditions contained in the final loan documentation proposed by Keltic in the course of closing the loan Facility described herein. Not every provision that imposes duties, obligations, or limitations on Borrower is contained herein, but shall be contained in the final loan documentation satisfactory to Keltic.

In the sole determination of Keltic, if any representation or warranty made previously by Borrower in connection with requesting this loan Facility shall prove to be untrue or incorrect in any respect prior to closing, or if relevant Information is not disclosed, or if there exists a material adverse change in the financial condition, operations or prospects of the Borrower prior to closing, Keltic shall be under no obligation to proceed, and this Commitment shall be rescinded and Keltic will be entitled to retain all deposits and fees paid or due from Borrower.

This Commitment will expire if: i) it is not executed and returned by the close of business on Friday June 19, 2009 along with a check (preferably a wire in the interest of time) for $40,000 which represents the first installment of the Closing and Commitment Fee (2% of the Facility as outlined in the attached Term Sheet) and the second installment of $40,000 is received on or before July 31, 2009, or ii) the transaction proposed herein does not close on or before September 30, 2009. Keltic will not begin legal documentation until after the second installment of the Closing & Commitment Fee is received. Additional Good Faith Deposit’s are not required at the signing of the Commitment; however, may be required to cover Keltic’s continued out of pocket due diligence expenses in the future.

[Signature Page to Follow]

Hirsch Acquisition Corp

Commitment Letter

This Commitment shall become effective when executed by Keltic and an authorized signor for the Borrower. We look forward to proceeding expeditiously with the closing of this loan Facility and to a mutually beneficial relationship.

Sincerely,

/s/ John P. Kelly
John P. Kelly
President & CEO

	AGREED AND ACCEPTED
	HIRSCH ACQUISITION CORPORATION


	/s/ Paul Gallagher
	Mr. Paul Gallagher, President & CEO

Attachment:

Hirsch International Corporation Term Sheet dated April 1, 2009.

Hirsch Acquisition Corp

Commitment Letter

Hirsch International Corporation

$4,000,000 Senior Secured Credit Facility

Term Sheet

April 1, 2009

SUPERCEDES TERM SHEET DATED 3/24/09 IN ITS ENTIRETY

Borrower:	Hirsch International Corp. (“Hirsch”) also referred herein as the (“Borrower”)

Lender:	Keltic Financial Partners, LP (“Keltic” or “Lender”).

Facility:	$4,000,000 Senior Secured Facility (the “Facility”).

Purpose:	The Facility will be used: 1) to partially finance a contemplated transaction (herein referred to as the “going private transaction”) that would take the Borrower from a publicly traded entity to a privately held corporation and 2) for ongoing working capital purposes. The Facility will be comprised entirely of a revolving line of credit up to $4,000,000 based upon advances on eligible accounts receivable and inventory

Maturity Date:	3 years from the closing date of this facility

Security:	First perfected security interest in all tangible and intangible assets of the Borrower, now owned and hereafter acquired wherever located. No secondary or other liens on this Security will be permitted, excepted for specific fixed assets pledged currently to Term Loan lenders, unless the indebtedness secured by such lien has been subordinated to Keltic in a manner satisfactory to Keltic. Keltic will require the receipt of customer remittances through a lockbox at a banking institution satisfactory to Keltic.

Availability:

Advances under the Facility will be:

Accounts Receivable: up to 85% on eligible accounts receivable that are aged less than 90 days from invoice date. Accounts receivable due from account debtors domiciled outside of the United States will be considered ineligible. A concentration limit of 15% will be established for customer accounts. The balance of any customer’s accounts receivable, which exceeds 15% of the aggregate accounts receivable balance, would be considered ineligible. Keltic would consider increasing the concentration limit beyond the 15% for specific customer accounts based on credit review and at Keltic’s sole and absolute discretion. A 25% cross age ineligibility requirement will also be implemented.

Inventory: up to 30% on raw material and finished goods inventory. Total loans on eligible inventory will be limited to the lesser of 1) 50% of total borrowings under the Facility or 2) $1,000,000. Eligible inventory includes all raw materials and finished goods aged twelve months or less or balances of less than twelve months of average use.

The Borrower’s outstanding loan shall be reduced immediately by cash collections received by Keltic, however, for the purpose of calculating interest, such collections will be subject to 4 business days after receipt of collected funds.

Interest Rate:	Revolver: The higher of: a) Prime rate plus 3.50% or b) 90 day LIBOR rate plus 5.75% or c) 7.50%

Fees:	Facility Fee: 1.00% per annum on the total amount of the Facility, earned in full as of the closing and at each contract anniversary date and payable monthly in advance. Collateral Management Fee: $1,500 payable monthly in arrears. Closing and Commitment Fee: 2.00% of the Facility earned and payable at the time of Keltic’s commitment to Borrower.

Conditions:	• Review of collateral, business plan and financial analysis, personal credit/background checks, insurance review, and other due diligence conducted by Keltic and its representatives, with results satisfactory to Keltic. • Legal due diligence, and all necessary documentation required to close the Facility to be acceptable to Keltic. • In addition, all aspects of the contemplated transaction including all legal requirements and prohibitions related to the “going private transaction” must also be acceptable to Keltic. • No material adverse change in the Borrower’s operations or financial conditions prior to funding. • Keltic will have the option to have other lending institutions acceptable to Keltic participate in the Facility. • Minimum opening excess availability under the Facility of no less than $500,000 after giving effect to (i) the closing of the proposed Facility and completion of the “going private transaction,” (ii) the payment of all related fees and expenses, (iii) a provision, if any based on the Keltic’s further due diligence, to cause accounts payable to be brought to a current status as determined by Keltic in such due diligence (typically any vendor payables over 90 days). • Keltic to visit main operating facility prior to commitment by Keltic.

Financial and other Covenants:	The financial covenants are EBITDA and capital expenditures. The required levels for these covenants will be based on the Borrower’s projection provided to Keltic. There will also be a restriction on additional indebtedness and the payment of dividends, a limitation on loans/advances to employees and stockholders, and restrictions on transactions with affiliated parties.


Events of Default:	Usual and customary, including (without limitation) nonpayment, misrepresentation, breach of covenants, defaults under other indebtedness agreements and other material contracts or agreements, bankruptcy, judgments, change of control or key management, and material adverse effects. Upon the occurrence, and during the continuance of an event of default, at the discretion of Keltic, the Interest Rate currently in effect will be increased by 3.50%, and the Collateral Management Fee will increase by $2,000 per month.

Termination Fee:	5.00% in year one, 4.00% in year two and 2.00% in year three if Borrower terminates the Facility prior to the Maturity Date, calculated on the Facility amount.

Guarantees & Support Agreements:	Keltic will require unlimited Personal Guarantees of Paul Gallagher and all other owners. Keltic will also require the execution of Validity and Support Agreements by all key managers as well as updated Personal Financial Statements from all Guarantors.

Expenses:	Borrower shall pay or reimburse Keltic promptly whether or not the transaction closes for all of Keltic’s reasonable expenses incurred in connection with negotiation, preparation, and execution of the Facility and any other loan and related documents including, without limitation, the fees and expenses of Keltic’s counsel, collateral examination fees, insurance review, credit reference checks on the principals, and any other reasonable out-of-pocket expenses. Borrower will also pay or reimburse Keltic for all reasonable expenses incurred in connection with the enforcement of the Facility and the other loan documents, the exercise of any remedies thereunder or with respect to any collateral.

Good Faith Deposit:	Upon acceptance of this term sheet, Keltic shall require a good faith deposit of $20,000 to cover the Keltic’s out of pocket due diligence expenses, which includes credit investigations, lien and judgment searches, and an examination of the books, records, operations, and assets of Hirsch, and the guarantors. Hirsch will be required to increase the amount of the good faith deposit should the due diligence expenses exceed $20,000. 1) If Keltic delivers a commitment substantially the same as this proposal, and the deal does not close for any reason, Keltic shall retain the Good Faith Deposit. 2) If Keltic delivers a commitment substantially the same as this proposal, or if Keltic’s investigations and examinations reveal the financial conditions, operations, books and records and/or assets of Hirsch are not as represented to Keltic, or if Keltic’s legal due diligence reveals that relevant information has not been disclosed to Keltic, Keltic shall retain the balance of the Good Faith Deposit. 3) If Keltic delivers a commitment substantially the same as this proposal and the Facility is funded, the Good Faith Deposit, less all out of pocket costs and attorney’s fees will be credited to Hirsch. 4) If Keltic does not deliver a commitment substantially the same as this proposal, Keltic will return the Good Faith Deposit, less all costs and expenses incurred.

Confidentiality:	All information in this Term Sheet is to be maintained by Borrower and Guarantors as a confidential communication and may not be disclosed to any third party for any purpose whatsoever, provided, however, Borrower or Guarantors may disclose such information to its attorneys and accountants, solely for purposes related to the transaction between Keltic and Borrower contemplated hereby.

Expiration:	Acceptance of this Term Sheet shall be made by your execution and return of this letter with the good faith deposit on or before the end of business on April 10, 2009.

THE PROPOSED TERMS AND CONDITIONS SUMMARIZED IN THIS TERM SHEET ARE PROVIDED FOR DISCUSSION PURPOSES ONLY AND DO NOT CONSTITUTE AN AGREEMENT OR COMMITMENT TO LEND. THE ACTUAL TERMS AND CONDITIONS UPON WHICH KELTIC FINANCIAL PARTNERS, LP (“KELTIC”) MIGHT EXTEND CREDIT TO HIRSCH INTERNATIONAL CORP. ARE SUBJECT TO SATISFACTORY COMPLETION OF DUE DILIGENCE, KELTIC APPROVAL, SATISFACTORY REVIEW AND COMPLETION OF LEGAL DOCUMENTATION AND SUCH OTHER TERMS AND CONDITIONS AS MAY BE DETERMINED BY KELTIC IN ITS SOLE DISCRETION.

Sincerely,

/s/ John P. Reilly

John P. Reilly

President and CEO

Accepted by:

/s/ Paul Gallagher

Date: June 12, 2009

EX-2 3 ex2.htm OFFER LETTER

Exhibit 2

June 12, 2009

Hirsch International Corp.

50 Engineers Road

Hauppauge, NY 11788

Attn: Special Committee of the Board of Directors

Dear Sirs:

The purpose of this letter is to set forth the terms of an offer pursuant to which an investor group to be organized and led by me would acquire all of the outstanding shares of Class A Common Stock, par value $.01 per share (“Class A Stock”), of Hirsch International Corp. (the “Company”) and all of the outstanding shares of Class B Common Stock, par value $.01 per share (“Class B Stock”), of the Company, other than those shares owned by the investor group. In contemplation of this transaction, I will be organizing a new Delaware holding company (“Newco”) to which all of the Class A Stock and Class B Stock owned by me and the investor group will be contributed and a new Delaware acquisition company (“Acquisition Co.”) that will be a wholly-owned subsidiary of Newco.

Newco would acquire all of the Class A Stock and Class B Stock of the Company not owned by Newco pursuant to the terms of a merger agreement to be entered into among Newco, Acquisition Co. and the Company. Pursuant to the terms of this merger agreement, and subject to the conditions set forth therein, Acquisition Co. would be merged with and into the Company, and all of the shares of the Class A Stock and Class B Stock not owned by Newco would be converted into a right to receive $0.28 per share, in cash.

Upon the completion of this transaction no stockholder of the Company (other than those persons who have an interest in Newco) will have an equity interest in the Company, and the Company’s shares will be delisted from Nasdaq and deregistered with the Securities and Exchange Commission. The Company would no longer be a reporting company and would no longer have any public stockholders.

The offer contained in this letter is subject to the following terms and conditions:

1. Negotiation and execution of a mutually acceptable agreement of merger with customary representations, warranties, covenants and conditions, including, inter alia, a condition that the merger shall be subject to Newco and Acquisition Co. obtaining sufficient financing to complete the transaction and provision for a break-up fee in the event the Company accepts an alternative proposal from another purchaser after the execution of the merger agreement;

2. Approval of the merger and the merger agreement by the Special Committee of the Board of Directors of the Company (“Special Committee”) and the full Board of Directors and an affirmative recommendation of the merger to the stockholders of the Company by the Special Committee;

3. Receipt of all necessary government regulatory and third party contractual approvals for the merger and the change of control that will result;

4. Board action to render inapplicable to the proposed merger any statutory or charter imposed anti-takeover provisions, including any merger “freeze” provisions and any stockholder rights plan; and

5. Approval of the transaction by such majority of the outstanding voting shares of Class A Stock and Class B Stock, as may be required by applicable law and the Company’s charter.

Although the merger transaction will be conditioned on the availability of sufficient financing to complete the transaction and operate the Company, please note that I have received a commitment letter, dated June 12, 2009, from Keltic Financial Services LLC (the “Commitment Letter”), approving my request for a Senior Secured Facility of up to $4 million to be borrowed by Acquisition Co. A copy of the Commitment Letter and the accompanying term sheet is attached hereto. I anticipate that the funds necessary to complete the acquisition and to provide necessary working capital would include funds borrowed from Keltic, the Company’s existing capital balances and the equity participation in Newco that I will be arranging.

I am requesting that the Board consider the foregoing proposal expeditiously. I understand that the Board has appointed the Special Committee, and that the Special Committee will review the proposal and report to the Board as to the fairness of the proposal. I also understand that the Special Committee has retained special counsel and independent financial advisers to review the proposal and render an opinion as to the fairness of the proposal from a financial point of view.

I will provide the Special Committee and its representatives with any information in my possession with respect to this proposal which the Special Committee reasonably requests, and I and my representatives will be available to meet with the Special Committee and its representatives to discuss this proposal further. Because of my familiarity with the Company, I believe that I will be in a position to finalize a merger agreement expeditiously.

No binding obligation on the part of the Company or the undersigned will arise with respect to the proposal or any transaction unless and until such time as a definitive merger agreement has been executed and delivered.

This offer will remain open for the Company’s consideration until June 25, 2009, at which point it will expire without any further action.

Very truly yours,

/s/ Paul Gallagher
Paul Gallagher

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