EXHIBIT 4.1

                             HAUPPAUGE DIGITAL, INC.
                   2003 PERFORMANCE AND EQUITY INCENTIVE PLAN

                                    ARTICLE 1

                                NAME AND PURPOSE

1.1 Name. The name of this Plan is the "Hauppauge Digital, Inc. 2003 Performance
and Equity Incentive Plan".

1.2 Purpose. The purpose of the Plan is to enhance the profitability and value
of the Company for the benefit of its shareholders by providing equity ownership
opportunities and performance based incentives to attract and retain the
services of key employees, directors and non-employee consultants of the Company
and its Subsidiaries and to motivate such individuals to put forth maximum
efforts on behalf of the Company.

                                   ARTICLE II

                  DEFINITION OF TERMS AND RULES OF CONSTRUCTION

2.1 General Definitions. The following words and phrases when used in the Plan,
unless otherwise specifically defined or unless the context clearly otherwise
requires, shall have the following respective meanings:

            (a)   "Board" means the Board of Directors of the Company.

            (b)   "Change in Control" and "Change in Control Price" have the
                  meanings set forth in Sections 10.2 and 10.3, respectively.

            (c)   "Code" means the Internal Revenue Code of 1986, as amended
                  from time to time.

            (d)   "Commission" means the Securities and Exchange Commission or
                  any successor agency.

            (e)   "Committee" means the Committee referred to in Section 4.1, or
                  the Board.

            (f)   "Company" means Hauppauge Digital, Inc., a corporation


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                  organized under the laws of the State of Delaware, or any
                  successor corporation.

            (g)   "Disability" means permanent and total disability as
                  determined under procedures established by the Committee for
                  purposes of the Plan.

            (h)   "Early Retirement" means retirement, with the consent, for
                  purposes of the Plan, of the Committee or such officer of the
                  Company as may be designated from time to time by the
                  Committee, from active employment with the Company or a
                  Subsidiary prior to Normal Retirement.

            (i)   "Exchange Act" means the Securities Exchange Act of 1934, as
                  amended from time to time.

            (j)   "Fair Market Value" means the closing price of a share of
                  Stock, as of any given date, on any Exchange or in the
                  over-the-counter market on such date (or, if there is no
                  reported sale on such date, on the last preceding date on
                  which any reported sale occurred), or if no such reported
                  sales prices are available, the fair market value of the Stock
                  as established by a good faith determination of the Committee.

            (k)   "Holder" means an Optionee or a Transferee, as defined in this
                  Section 2.1 (p) and (y), respectively and shall include any
                  person to whom a Stock Option has been transferred by will or
                  the laws of descent and distribution.

            (l)   "Incentive Stock Option" means any Stock option intended to
                  qualify as an "incentive stock option" within the meaning of
                  Section 422 of the Code.

            (m)   "Long Term Performance Award" or "Long Term Award" means an
                  award under Article IX.

            (n)   "Non-Qualified Stock Option" means any Stock Option that is
                  not an Incentive Stock Option.

            (o)   "Normal Retirement" means retirement from active employment
                  with the Company or a Subsidiary at or after the retirement
                  age determined by the Board.

            (p)   "Optionee" means a person who is granted a Stock Option


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                  under Article VI.

            (q)   "Plan" means the Hauppauge Digital, Inc. 2003 Performance and
                  Equity Incentive Plan, as set forth herein and as hereinafter
                  amended from time to time.

            (r)   "Restricted Stock" means an award under Article VIII.

            (s)   "Retirement" means Normal or Early Retirement.

            (t)   "Rule 16b-3" means Rule 16b-3 as promulgated by the Commission
                  under Section 16(b) of the Exchange Act as amended from time
                  to time.

            (u)   "Stock" means the Common Stock, $.01 par value, of the
                  Company.

            (v)   "Stock Appreciation Right" means a right granted under Article
                  VII.

            (w)   "Stock Option" or "Option" means an option granted under
                  Article VI.

            (x)   "Subsidiary" means any business entity in which the Company,
                  directly or indirectly, owns 50 percent or more of the total
                  combined voting power of all classes of stock or other equity
                  interest.

            (y)   "Transferee" means a member of an Optionee's Immediate Family,
                  a partnership or a trust to whom or which any Option is
                  transferred as provided in Section 6.5(c).

2.2 Other Definitions. In addition to the above definitions, certain words and
phrases used in the Plan and any agreement may be defined in other portions of
the Plan or in such agreement.

2.3 Conflicts in Plan. In the case of any conflict in the terms of the Plan, or
between the Plan and an agreement, relating to a benefit, the provisions in the
Article of the Plan which specifically grants such benefit shall control.


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                                   ARTICLE III

                              STOCK SUBJECT TO PLAN

3.1 Number of Shares. The number of shares of Stock reserved for distribution
pursuant to Stock Options or other awards under the Plan shall be equal to
500,000 shares. Such shares may consist, in whole or in part, of authorized and
unissued shares or issued shares heretofore or hereafter acquired and held as
treasury shares.

3.2 Reusage. If an outstanding Stock Option or Stock Appreciation Right shall
expire or terminate without having been exercised in full, or if any Restricted
Stock award or Long Term Performance Award is not earned or is forfeited in
whole or in part, the shares subject to the unexercised or forfeited portion of
such award shall again be available for distribution in connection with awards
under the Plan. In the event that a Stock Option is exercised by tendering
shares to the Company as full or partial payment of the option exercise price,
only the number of shares issued net of the shares tendered shall be deemed
delivered under the Plan. Further, shares tendered or withheld for the payment
of taxes in connection with any award shall again be available for distribution
in connection with awards under the Plan.

3.3 Adjustments. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split (including reverse stock splits),
or other change in corporate structure affecting the Stock such substitution or
adjustments shall be made in the aggregate number of shares reserved for
issuance under the Plan, in the number and option price of shares subject to
outstanding Stock Options, in the determination of the amount payable upon
exercise of outstanding Stock Appreciation Rights and in the number of shares
subject to other outstanding awards granted under the Plan as may be determined
by the Committee, in its sole discretion, to be equitable to prevent substantial
dilution or enlargement of the rights granted to participants hereunder,
provided, however, that the number of shares subject to any award will always be
a whole number. The Committee shall give notice to each participant of any
adjustment made pursuant to this paragraph, and upon such notice, such
adjustment shall be effective and binding for all purposes of the Plan.

3.4 Settlement of Awards. Shares issued under the Plan as the result of the
settlement or assumption of, or substitution of awards under the Plan for, any
awards or obligations to grant future awards of any entity acquired by or
merging with the Company shall not reduce the number of shares available for
delivery under the Plan.

3.5 Maximum Number of Shares for Incentive Stock Options and Awards. The maximum
number of shares available for delivery under the Plan through Incentive Stock
Options shall be 500,000 shares.


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                                   ARTICLE IV

                                 ADMINISTRATION

4.1 Committee. The Plan shall be administered by the Committee composed of two
or more members who are who are non-employee directors as defined under Rule
16b-3 or the Board. With respect to grants to non-employee directors, the grants
shall be subject to Board approval.

4.2 Authorization of Committee. Except as limited by the express provisions of
the Plan, the Committee shall have the sole and complete authority:

      (a)   to select the employees, employee and non-employee directors, and
            non-employee consultants to whom Stock Options, Stock, Appreciation
            Rights, Restricted Stock and Long Term Performance Awards may from
            time to time be granted;

      (b)   to determine whether and to what extent Incentive Stock Options,
            Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
            Stock, Long Term Performance Awards, or any combination thereof are
            to be granted, hereunder, provided that Incentive Stock Options may
            only be granted to employees.

      (c)   to determine the number of shares to be covered by each award
            granted hereunder;

      (d)   to determine the terms and conditions of any award granted hereunder
            (including, but not limited to, the share price, any restriction or
            limitation, any vesting acceleration or any forfeiture waiver
            regarding any Stock Option or other award and the shares of Stock
            relating thereto), based on such factors as the Committee shall
            determine;

      (e)   to adjust the performance goal and measurements applicable to
            performance-based awards pursuant to the terms of the Plan; and

      (f)   to determine to what extent and under what circumstances Stock and
            other amounts payable with respect to an award shall be deferred;


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4.3 Administrative Rules. The Committee shall have the authority to adopt,
alter, and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable, to interpret the terms
and provisions of the Plan and any award issued under the Plan (and any
agreement relating thereto), and otherwise to supervise the administration of
the Plan. The Committee may act only by a majority of its members then in
office, except that the members thereof may authorize any one or more of their
number or any officer of the Company to execute and deliver documents on behalf
of the Committee. Any determination made by the Committee pursuant to the
provisions of the Plan with respect to any award shall be made in its sole
discretion at the time of the grant of the award or, unless in contravention of
any express term of the Plan, at any time thereafter. Whenever the Committee has
the power, or right under this Plan to adjust, alter, amend, award, consent,
deem advisable, deem appropriate, deem desirable, deem necessary, determined,
determine conditions, determine criteria, determine factors, determine terms,
elect, exercise authority, exercise discretion, grant, interpret, make a
decision, provide, set, specify, supervise, use criteria, use factors or any
similar power or right, the Committee shall have the sole, absolute and
uncontrolled discretion in doing so. The Committee's determinations under the
Plan (including, without limitation, of the persons to receive grants or awards
and the terms thereof) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, grants or awards under
the Plan, whether or not such persons are similarly situated.

                                    ARTICLE V

                                   ELIGIBILITY

5.1 Eligibility. All employees, employee and non-employee directors, and
non-employee consultants to the Company (authorized under Form S-8 of the
Securities Act of 1933, as amended) and its Subsidiaries who in the opinion of
the Committee are responsible for, or contribute to, the management, growth, and
profitability of the business of the Company or its Subsidiaries are eligible to
be granted awards under the Plan, as hereinafter provided.

                                   ARTICLE VI

                                  STOCK OPTIONS

6.1 Grants. Stock Options may be granted alone or in addition to other awards
granted under the Plan and may be of two types: Incentive


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Stock Options and Non-Qualified Stock Options. Any Stock Option granted under
the Plan shall be in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any Optionee Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock Options (in each
case with or without Stock Appreciation Rights); provided, however, that the
Committee shall not have the authority to grant Incentive Stock Options to any
non-employee consultant or non-employee director. To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option.

6.2 Option Agreements. Stock Options shall be evidenced by option agreements,
the terms and provisions of which may differ. An option agreement shall indicate
on its face whether it is an agreement for Incentive Stock Options or
Non-Qualified Stock Options. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an employee as a participant in any grant of
Stock Options, determines the number of Stock Options to be granted to such
employee, and specifies the terms and provisions of the option agreement;
provided, however, that the Committee may designate in such resolution a later
date as the date of grant of any or all of the Stock Options covered thereby.
The Company shall notify a participant of any grant of Stock Options, and a
written option agreement or agreement shall be duly executed between the Company
and the participant.

6.3 No Disqualifications Under Section 422 of the Code. Anything in the Plan to
the contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended, or altered nor shall any discretion or
authority granted under the Plan be exercised so as to disqualify the Plan under
Section 422 of the Code or, without the consent of the Optionee affected, to
disqualify any Incentive Stock Option under such Section 422.

6.4 Terms and Conditions of Option Grants. Options granted under the Plan shall
be subject to the following terms and conditions and shall contain such
additional terms and conditions as the Committee shall deem desirable:

      (a)   Option Price. The option price per share of Stock purchasable under
            an Incentive Stock Option shall be equal to the Fair Market Value of
            the Stock on the date of grant or such higher price as shall be
            determined by the Committee at grant. The option price per share of
            Stock for all other Options shall be as determined by the Committee.


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      (b)   Option Term. The term of each Stock Option shall be fixed by the
            Committee, but no Incentive Stock Option shall be exercisable more
            than 10 years after the date of grant of the Option, and no
            Non-Qualified Stock Option shall be exercisable more than 10 years
            and one month after the date of grant of the Option.

      (c)   Transferability of Options.

            (i)   No Stock Option shall be transferable by the Optionee other
                  than by will, by the laws of descent and distribution or in
                  accordance with the provisions of Section 6.4(c)(ii).

            (ii)  Subject to applicable securities laws, the Committee may
                  determine that a Non-Qualified Stock Option may be transferred
                  by the Optionee to one or more members of the Optionee's
                  Immediate Family, as defined in Section 6.4(c)(iii), to a
                  partnership of which the only partners are members of the
                  Optionee's Immediate Family, or to a trust established by the
                  Optionee for the benefit of one or more members of the
                  Optionee's Immediate Family. No Transferee to whom or which a
                  Non-Qualified Stock Option is transferred may further transfer
                  such Stock Option. A Non-Qualified Stock Option transferred
                  pursuant to this Section shall remain subject to the
                  provisions of the Plan, including, but not limited to, the
                  provisions of this Section 6 relating to the exercise of the
                  Stock Option upon the death, Disability, Retirement or other
                  termination of employment of the Optionee, and shall be
                  subject to such other rules as the Committee shall determine.

            (iii) For purposes of this Article VI, "Immediate Family"of the
                  Optionee means the Optionee's spouse, parents, children and
                  grandchildren.

      (d)   Exercisability. Stock Options shall be exercisable at such time or
            times and subject to such terms and conditions as shall be
            determined by the Committee. If the Committee provides that any
            Stock Option is exercisable only in installments, the Committee may
            at any time waive such installment exercise provisions, in whole or
            in part based on such factors as the Committee may determine.


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      (e)   Notwithstanding the foregoing, Incentive Stock Options shall not be
            granted to any owner of 10% or more of the combined voting power of
            the Company, unless the exercise price is at least 110% of the Fair
            Market Value on the date of grant and the option states that it is
            not exercisable after the expiration of five years from the date of
            grant.

      (f)   The aggregate fair market value (determined on the date the option
            is granted) of shares subject to an Incentive Stock Option granted
            to an Optionee in any calendar year shall not exceed $100,000.

      (g)   Termination by Death. Subject to Section 6.4(d), if an Optionee's
            employment or service on the Board terminates by reason of death,
            any Stock Option held by such Optionee or any Transferee of such
            Optionee may thereafter be exercised, to the extent then exercisable
            or on such accelerated basis as the Committee may determine, for a
            period of two years from the date of such death or until the
            expiration of the stated term of such Stock Option, whichever period
            is the shorter; provided, however, that if the expiration of the
            stated term of any such Stock Option is less than one year following
            the death of the Optionee, the Stock Option shall be exercisable for
            a period of one year from the date of such death.

      (h)   Termination by Reason of Disability. Subject to Section 6.4(d), if
            an Optionee's employment or service on the Board terminates by
            reason of Disability, any Stock Option held by such Optionee or any
            Transferee of such Optionee may thereafter be exercised by the
            Holder, to the extent it was exercisable at the time of termination
            or on such accelerated basis as the Committee may determine, for a
            period of two years from the date of such termination of employment
            or until the expiration of the stated term of such Stock Option,
            whichever period is the shorter; provided, however, that, if the
            Holder dies while any such Stock Option remains exercisable, any
            unexercised Stock Option held by such Holder at death shall continue
            to be exercisable to the extent to which it was exercisable at the
            time of the Holder's death for a period of 12 months from the date
            of such death. In the event of termination of employment by reason
            of Disability, if an Incentive Stock Option is exercised after the
            expiration of the exercise periods that apply for purposes of
            Section 422 of the Code, such Stock Option will thereafter be
            treated as a Non-Qualified Stock Option.


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      (i)   Termination by Reason of Retirement. Subject to Section 6.4(d), if
            an Optionee's employment or service on the Board terminates by
            reason of Retirement, any Stock Option held by such Optionee or any
            Transferee of such Optionee may thereafter be exercised by the
            Holder, to the extent it was exercisable at the time of Retirement
            or on such accelerated basis as the Committee may determine, for a
            period of three years from the date of such termination of
            employment or until the expiration of the stated term of such Stock
            Option, whichever period is the shorter; provided, however that, if
            the Holder dies within such three-year period, any unexercised Stock
            Option held by such Holder shall, notwithstanding the expiration of
            such three-year period, continue to be exercisable to the extent to
            which it was exercisable at the time of death for a period of 12
            months from the date of such death. In the event of termination of
            employment by reason of Retirement, if an Incentive Stock Option is
            exercised after the expiration of the exercise periods that apply
            for purposes of Section 422 of the Code, such Stock Option will
            thereafter be treated as a Non-Qualified Stock Option.

      (j)   Other Termination. Subject to Section 6.4(d), if an Optionee's
            employment terminates for any reason other than death, Disability,
            Retirement, or Cause (as hereinafter defined in Section 10.1(v)),
            any Stock Option held by such Optionee or any Transferee of such
            Optionee may thereafter be exercised by the Holder, to the extent it
            was exercisable at the time of termination, for a period of three
            months from the date of such termination of employment or until the
            expiration of the stated term of such Stock Option, whichever period
            is the shorter; provided, however, that if the Holder dies within
            such three-month period, any unexercised Stock Options held by such
            Holder shall, notwithstanding the expiration of such three-month
            period, continue to be exercisable to the extent to which it was
            exercisable at the time of death for a period of 12 months from the
            date of such death. If an Optionee's employment is terminated for
            Cause (as determined pursuant to section 10.1 (a)(v)), all rights
            under any Stock Option held by such Optionee or any Transferee of
            such Optionee shall expire immediately upon the giving to the
            Optionee of notice of such termination, unless otherwise determined
            by the Committee. Notwithstanding anything to the contrary contained
            in this plan, non-qualified options, at the determination of the
            Committee, may be exercised after an Optionee's employment
            terminates.


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      (k)   Method of Exercise. Stock Options shall be exercisable (i) during
            the Holder's lifetime, only by the Holder or by the guardian or
            legal representative of the Holder, and (ii) following the death of
            the Holder, only by the person to whom they are transferred by will
            or the laws of descent and distribution. For purposes of this
            Section 6.4(k) only, the term "Holder" shall include any person to
            whom a Stock Option is transferred by will or the laws of descent
            and distribution. Subject to the provisions of this Article VI,
            Stock Options may be exercised, in whole or in part, at any time
            during the option term by giving written notice of exercise to the
            Company specifying the number of shares to be purchased. Such notice
            shall be accompanied by payment in full of the purchase price in
            cash (including check, bank draft, money order, or such other
            instrument as the Company may accept). Unless otherwise determined
            by the Committee at any time or from time to time, payment in full
            or in part may also be made (i) by delivering a duly executed notice
            of exercise together with irrevocable instructions from the Holder
            to a broker to deliver promptly to the Company sufficient proceeds
            from a sale or loan of the shares subject to the Stock Option to pay
            the purchase price, or (ii) in the form of Stock which is not
            Restricted Stock already owned by the Holder or, in the case of the
            exercise of a Non-Qualified Stock Option, Restricted Stock subject
            to an award hereunder (based, in each case, on the Fair Market Value
            of the Stock on the date the Stock Option is exercised). If payment
            of the option exercise price of a Non-Qualified Stock Option is made
            in whole or in part in the form of Restricted Stock, such Restricted
            Stock (and any replacement shares relating thereto) shall remain
            restricted in accordance with the original terms of the Restricted
            Stock award in question, and any additional Stock received upon the
            exercise shall be subject to the same forfeiture restrictions,
            unless otherwise determined by the Committee.

      Notwithstanding the foregoing, no shares of Stock shall be issued until
full payment therefor has been made. Subject to any forfeiture restrictions that
may apply if a Stock Option is exercised using Restricted Stock, a Holder shall
have all of the rights of a stockholder of the Company, including the right to
vote the shares and the right to receive dividends, with respect to shares
subject to the Stock Option when the Holder has given written notice of
exercise, has paid in full for such shares, and, if requested, has given the
representation described in


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Section 14.1.

            Shares issued upon exercise of a Stock Option shall be issued in the
name of the Holder or, at the request of the Holder, in the names of such Holder
and the Holder's spouse with right of survivorship as community property,
community property with right of survivorship or joint tenants.

      (l)   Cashing Out of Options. In any case when a Stock Option is exercised
            after the death of a Holder, the Committee may elect to cash out all
            or any part of the Stock Option by paying the person to whom the
            Stock Option has been transferred by reason of the death of the
            Holder an amount, in cash or shares of Stock, equal in value to the
            excess of the Fair Market Value of the Stock over the option price
            on the effective date of such cash out.

      (m)   Substitute Options. Stock Options or Stock Appreciation Rights may
            be granted under the Plan from time to time in substitution for
            stock options or stock appreciation rights held by employees of any
            corporation who, as the result of a merger, consolidation, or
            combination of such other corporation with, or the acquisition of
            all or substantially all of the assets or stock of such other
            corporation by, the Company or a Subsidiary, become employees of the
            Company or a Subsidiary. The terms and conditions of any substitute
            Stock Options or Stock Appreciation Rights so granted may vary from
            the terms and conditions set forth in the Plan to such extent as the
            Committee at the time of grant may deem appropriate to conform, in
            whole or in part, to the provisions of the stock options or stock
            appreciation rights in substitution for which they are granted;
            provided, however, that in the event a stock option for which a
            substitute Stock Option is being granted is an incentive stock
            option, no such variation shall be permitted the effect of which
            would be to adversely affect the status of any such substitute Stock
            Options as an Incentive Stock Option.

      (n)   Deferral of Option Gains. An Optionee may elect to defer to a future
            date receipt of the shares of Stock to be acquired upon exercise of
            a Stock Option. Such election shall be made by delivering to the
            Company not later than six months prior to the exercise of the Stock
            Option a written notice of the election specifying the future date
            (the "Deferral Date") for receipt of the shares. At any time, and
            from time to time, prior to the


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            delivery to the Optionee of shares the receipt of which has been
            deferred as provided in this section, the Optionee may designate by
            written notice to the Company a new date, which date shall be later
            than the Deferral Date, and such new date shall thereafter be the
            Deferral Date with respect to such shares.

                                   ARTICLE VII

                            STOCK APPRECIATION RIGHTS

7.1 (a) Grant of Stock Appreciation Right. A Stock Appreciation Right may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a Non-Qualified Stock Option, such Right may be granted
only at the time of grant of such Stock Option. A Stock Appreciation Right
independent of a Stock Option grant may also be awarded by the Committee, in
which event the provisions of this Article VII shall be applied for purposes of
determining the operation of such Stock Appreciation Right as if a Non-Qualified
Stock Option had been granted on the date of the grant of and in conjunction
with such independent Stock Appreciation Right.

      (b)   A Stock Appreciation right granted with respect to a given Stock
            Option shall terminate and no longer be exercisable to the extent of
            the shares with respect to which the related Stock Option is
            exercised or terminates. A Stock Appreciation Right may be exercised
            by a Holder in accordance with the provisions of this Article VII by
            surrendering the applicable portion of the related Stock Option in
            accordance with procedures established by the Committee. Upon such
            exercise and surrender, the Holder shall be entitled to receive an
            amount determined in the manner prescribed in Section 7.2. The Stock
            Option which has been so surrendered shall no longer be exercisable
            to the extent the related Stock Appreciation Right has been
            exercised.

      (c)   Stock Appreciation Rights shall be subject to such terms and
            conditions as shall be determined by the Committee, including, but
            not limited to, the following:

            (i)   Exercisability. A Stock Appreciation Right shall be
                  exercisable only at such time or times and to the extent that
                  the Stock Option to which it relates is exercisable in
                  accordance with the provisions of Article VI and this Article
                  VII; provided, however, that a Stock Appreciation Right shall
                  not be exercisable during the first six months


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                  of its term by an Optionee who is actually or potentially
                  subject to Section 16(b) of the Exchange Act, unless otherwise
                  determined by the Committee in the event of death or
                  Disability of the Optionee prior to the expiration of the
                  six-month period.

7.2 Payment Upon Exercise. Upon the exercise of a Stock Appreciation Right, a
Holder shall be entitled to receive an amount in cash, shares of Stock, or both
equal in value to the excess of the Fair Market Value on the date of exercise of
one share of Stock over the option exercise prior per share specified in the
related Stock Option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised. The Committee shall have the
right to determine the form of payment in each case.

            In the case of a Stock Appreciation Right held by an Optionee who is
            actually or potentially subject to Section 16 of the Exchange Act,
            the Committee may require that such Stock Appreciation Right be
            exercised only in accordance with the applicable provisions of Rule
            16b-3.

7.3 Non-transferability. A Stock Appreciation Right shall be transferable only
when and to the extent that the related Stock Option would be transferable under
Section 6.4(c).

7.4 Effect of Change in Control. The Committee may provide, at the time of
grant, that a Stock Appreciation Right can be exercised only in the event of a
Change in Control, subject to such terms and conditions as the Committee may
specify at grant. The Committee may also provide that, in the event of a Change
in Control, the amount to be paid upon the exercise of a Stock Appreciation
Right shall be based on the Change in Control price, subject to such terms and
conditions as the Committee may specify at grant.

                                  ARTICLE VIII

                                RESTRICTED STOCK

8.1 Administration. Shares of Restricted Stock may be issued either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers, employee and non-employee directors and non-employee consultants
to whom and the time or times at which grants of Restricted Stock will be made,
the number of shares to be awarded the time or times within which such awards
may be subject to


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forfeiture, and any other terms and conditions of the awards, in addition to
those contained in Section 8.3. The Committee may condition the grant of
Restricted Stock upon the attainment of specified performance goals or such
other factors or criteria as the Committee shall determine. The provisions of
Restricted Stock awards need not be the same with respect to each recipient.

8.2 Awards and Certificates. Each participant receiving a Restricted Stock award
shall be issued a certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such participant and shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form or such other form
as authorized by the Committee:

            "The transferability of this certificate and the shares of stock
            represented hereby are subject to the terms and conditions
            (including forfeiture) of the Hauppauge Digital, Inc. 2003
            Performance and Equity Incentive Plan and a Restricted Stock
            Agreement. Copies of such Plan and Agreement are on file at the
            offices of Hauppauge Digital, Inc., 91 Cabot Court, Hauppauge, New
            York 11788.

The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Restricted Stock award, the participant shall have
delivered a stock power, endorsed in blank, relating to the Stock covered by
such award.

8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to the
following terms and conditions:

            (i)   Subject to the provisions of the Plan and the Restricted Stock
                  Agreement referred to in Section 8.3(vi), during such period
                  commencing with the date of such award as shall be set by the
                  Committee (the "Restriction Period"), the participant shall
                  not be permitted to sell, assign, transfer, pledge, or
                  otherwise encumber shares of Restricted Stock. Within these
                  limits, the Committee may provide for the lapse of such
                  restrictions in installments and may accelerate or waive such
                  restrictions, in whole or in part, based on service,
                  performance, and such other


                                       25
<PAGE>

                  facts or criteria as the Committee may determine.

            (ii)  Except as provided in Section 8.3(i), the participant shall
                  have, with respect to the shares of Restricted Stock, all of
                  the rights of a stockholder of the Company, including the
                  right to vote the shares and the right to receive any cash
                  dividends thereon; provided, however, that the Committee may
                  provide at the time of an award that cash dividends shall be
                  automatically deferred and reinvested in additional Restricted
                  Stock. Dividends on Restricted Stock which are payable in
                  Stock shall be paid in the form of additional shares of
                  Restricted Stock.

            (iii) Except to the extent otherwise provided in the applicable
                  Restricted Stock Agreement and Sections 8.3(i) and (iv), upon
                  termination of a participant's employment for any reason
                  during the Restriction Period, all shares still subject to
                  restriction shall be forfeited by the participant.

            (iv)  In the event of the death of a participant during the
                  Restriction Period without a prior forfeiture of the
                  Restricted Stock subject to such Restriction Period,
                  unlegended certificates for such shares shall be delivered to
                  the participant, except as otherwise may be necessary with
                  respect to any applicable securities laws.

            (v)   If and when the Restriction period expires without a prior
                  forfeiture of the Restricted Stock subject to such Restriction
                  Period, unlegended certificates for such shares shall be
                  delivered to the participant, except as otherwise may be
                  necessary with respect to any applicable securities laws.

            (vi)  Each award shall be confirmed by, and be subject to the terms
                  of, a Restricted Stock Agreement which shall be executed by
                  the Company and the recipient of the Restricted Stock.

                                   ARTICLE IX

                          LONG TERM PERFORMANCE AWARDS

9.1 Awards and Administration. Long Term Performance awards may be


                                       26
<PAGE>

awarded either alone or in addition to other awards granted under the Plan. The
Committee shall determine the nature, length, and starting date of the
performance period (the "Performance Period") for each Long Term Performance
Award, which shall be at least two years (subject to Article X), and shall
determine the performance objectives to be used in valuing Long Term Performance
awards and determining the extent to which such Long Term Performance Awards
have been earned. The maximum award for any individual with respect to any one
year of any Performance Period shall be 100,000 shares of Stock. Performance
objectives may vary from participant to participant and between groups of
participants and shall be based upon one or more of the following Company,
Subsidiary, business unit, or individual performance factors or criteria (on a
pre- or post- tax basis and on an aggregate or per share basis) as the Committee
may deem appropriate; earnings, sales, Stock price, return on equity, assets or
capital, economic value added, cash flow, total shareholder return, costs,
margins, market share, any combination of the foregoing. Performance Periods may
overlap and participants may participate simultaneously with respect to Long
Term performance Awards that are subject to different Performance Periods and
different performance factors and criteria. Long Term Performance Awards shall
be confirmed by, and be subject to the terms of, a Long Term Performance Award
Agreement. The terms of such awards need not be the same with respect to each
participant.

      (a)   Adjustment of Awards. The Committee may adjust the performance goals
            and measurements applicable to Long Term Performance Awards to take
            into account changes in law and accounting and tax rules and to make
            such adjustments as the Committee deems necessary or appropriate to
            reflect the inclusion or exclusion of the impact of extraordinary or
            unusual items, events, or circumstances in order to avoid windfalls
            or hardships.

      (b)   Termination of Employment. Subject to Article X and unless otherwise
            provided in the applicable Long Term Performance Award Agreement, if
            a participant terminates employment during a Performance Period
            because of death, Disability, or Retirement, such participant shall
            be entitled to a payment with respect to each outstanding Long Term
            Performance Award at the end of the applicable Performance Period;

            (i)   based, to the extent relevant under the terms of the award,
                  upon the participant's performance of the portion of such
                  Performance Period ending on the date of termination and the
                  performance of the Company or any applicable business unit for
                  the entire Performance Period, and


                                       27
<PAGE>

            (ii)  prorated for the portion of the Performance Period during
                  which the participant was employed by the Company or a
                  Subsidiary, all as determined by the Committee. The Committee
                  may provide for an earlier payment in settlement of such award
                  in such amount and under such terms and conditions as the
                  Committee deems appropriate. Subject to Article X and except
                  as otherwise provided in the applicable Long Term Performance
                  Award Agreement, if a participant terminates employment during
                  a Performance Period for any other reason, then such
                  participant shall not be entitled to any payment with respect
                  to the Long Term Performance Awards subject to such
                  Performance Period, unless the Committee shall otherwise
                  determine.

      (c)   Form of Payment. The earned portion of a Long Term Performance Award
            may be paid currently or on a deferred basis and may provide for
            such interest or earnings equivalent as the Committee may determine.
            Payment shall be made in the form of cash or whole shares of Stock,
            including Restricted Stock, or a combination thereof, either in a
            lump sum payment or in annual installments, all as the Committee
            shall determine.

                                    ARTICLE X

                          CHANGE IN CONTROL PROVISIONS

10.1 Impact of Event. In the event of:

      (a)   a "Change in Control" as defined in Section 10.2, but only if and to
            the extent so determined by the Committee, the following
            acceleration and valuation provisions shall apply:

            (i)   Stock Options and Stock Appreciation Rights outstanding as of
                  the date such Change in Control is determined to have occurred
                  and not then exercisable and vested shall become fully
                  exercisable and vested as provided in Section 10.1(a)(v)
                  below, unless the terms of the award provide otherwise;
                  provided, however, that, in the case of Stock Appreciation
                  rights held by an Optionee who is actually subject to Section
                  16(b) of the Exchange Act, such Stock Appreciation Rights
                  shall not become exercisable and vested unless they shall have
                  been outstanding for at least six months at the date such
                  Change in Control is determined to


                                       28
<PAGE>

                  have occurred.

            (ii)  The restrictions and forfeiture provisions applicable to any
                  restricted Stock shall lapse, and such Restricted Stock shall
                  become fully vested, unless the terms of the award provide
                  otherwise.

            (iii) The value of all outstanding Stock Options, Stock Appreciation
                  Rights, and Restricted Stock shall, unless otherwise
                  determined by the Committee at or after grant, if cashed out
                  shall be on the basis of the"Change in Control Price", as
                  defined in Section 10.3, as of the date such change in Control
                  is determined to have occurred or such other date as the
                  Committee may determine prior to the Change in Control.

            (iv)  Any outstanding Long Term Performance Awards shall, unless the
                  Committee otherwise determines, be vested and paid out based
                  on the prorated target results for the Performance Periods in
                  question, unless the Committee provides prior to the Change in
                  Control event for a different payment.

            (v)   Each Option, Stock Appreciation Right, Long Term Performance
                  Award or restricted stock award granted to an employee of the
                  Company shall vest or be exercisable upon termination of the
                  employee's employment within twenty-four (24) months from the
                  date of the Change in Control, unless the employee is
                  terminated for "Cause" or the employee resigns his employment
                  without "Good Reason". Except for death or disability, in
                  which event the Option, Stock Appreciation Right, Long Term
                  Performance Award or restricted stock award must be exercised
                  within twelve (12) months thereafter, the Employee shall have
                  30 days from after his employment is terminated, after a
                  Change in Control, to exercise all unexercised Options, Stock
                  Appreciation Rights, Long Term Performance Awards, or
                  restricted stock awards. "Cause" is defined herein as the
                  failure of the employee to properly perform his duties on
                  behalf of the Company, as reasonably determined by the
                  Committee in its sole discretion or as provided in the
                  Agreement making the grant. "Good Reason" shall be the
                  assignment to the Employee of duties inconsistent with his or
                  her duties prior to the Change in Control, or any other


                                       29
<PAGE>

                  action (but not a change in title) that results in a
                  diminution of the Employee's duties or responsibilities, other
                  than an isolated, insubstantial or inadvertent action which is
                  remedied by the Company. In the event that the employee is
                  offered a position after a Change in Control that has a salary
                  and bonus level at least equal to that in effect prior to the
                  Change in Control, it shall be presumed that the employee did
                  not have Good Reason.

10.2 Definition of "Change in Control". For purposes of Section 10.1(a), a
"Change in Control" means a change in control of the Company of a nature that
would be required to be reported in response to Item 1(a) of the Current Report
on Form 8-K, as in effect on the effective date of the Plan, pursuant to Section
13 or 15(d) of the Exchange Act; provided that, without limitation, such a
"Change in Control" shall be deemed to have occurred if:

      (a)   A third person, including a "group" as such term is used in Section
            13(d)(3) of the Exchange Act, other than the trustee of a Company
            employee benefit plan, becomes the beneficial owner, directly or
            indirectly of 20 percent or more of the combined voting power of the
            company's outstanding voting securities ordinarily having the right
            to vote for the election of the Board;

      (b)   During any period of 24 consecutive months individuals who, at the
            beginning of such consecutive 24-month period, constitute the Board
            of Directors of the Company (the "Board" generally and as of the
            effective date of the Plan the "Incumbent Board") cease for any
            reason (other than Retirement upon reaching Normal Retirement age,
            Disability, or death) to constitute at least a majority of the
            Board; provided that any person becoming a director subsequent to
            the effective date of the Plan whose election, or nomination for
            election by the Company's shareholders, was approved by a vote of at
            least three-quarters of the Directors comprising the Incumbent Board
            (other than an election or nomination of an individual whose initial
            assumption of office is in connection with an actual or threatened
            election contest relating to the election of the Directors of the
            Company, as such terms are used in Rule 14a-11 of Regulation 14A
            promulgated under the Exchange Act) shall be, for purposes of this
            Agreement, considered as though such person were a member of the
            Incumbent Board; or


                                       30
<PAGE>

      (c)   The Company shall cease to be a publicly owned corporation.

10.3 Change in Control Price. For purposes of this Section 10, "Change in
Control Price" means the highest price per share paid or offered in any bona
fide transaction related to an actual Change in Control of the Company at any
time during the preceding 60-day period as determined by the Committee, except
that, in the case of Incentive Stock Options and Stock Appreciation Rights
relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Committee decides to cash out
such Stock Options.

                                   ARTICLE XI

                                 RELOAD OPTIONS

11.1 Authorization of Reload Options. Concurrently with an award of Stock
Options, the Committee may authorize reload options ("Reload Options") to
purchase a number of shares of Stock. The number of Reload Options shall equal
to the extent authorized by the committee:

      (a)   the number of shares of Stock used to exercise the underlying Stock
            Options and

      (b)   the number of shares of Stock used to satisfy any tax withholding
            requirement incident to the exercise of the underlying Stock
            Options.

            The grant of a Reload Option will become effective upon the exercise
            of underlying Stock Options through the use of shares of Stock held
            by the Optionee for at least 12 months. Notwithstanding the fact
            that the underlying option may be an Incentive Stock Option, a
            Reload Option is not intended to qualify as an Incentive Stock
            Option.

11.2 Reload Option Amendment. Each option agreement shall state whether the
Committee has authorized Reload Options with respect to the underlying Stock
Options. Upon the exercise of an underlying Stock Option, the Reload Option will
be evidenced by an amendment to the underlying stock option agreement.

11.3 Reload Option Price. The option price per share of Stock deliverable upon
the exercise of a Reload Option shall be the Fair Market Value of a share of
Stock on the date the grant of the Reload Option becomes effective.


                                       31
<PAGE>

11.4 Term and Exercise. Each Reload Option is fully exercisable six months from
the effective date of grant. The term of each Reload Option shall be equal to
the remaining option term of the underlying Stock Option.

11.5 Termination of Employment. No additional Reload Options shall be granted to
Optionees when Stock Options are exercised pursuant to the terms of this Plan
following termination of the Optionee's employment.

                                   ARTICLE XII

                                   AMENDMENTS

12.1 Amendments to Plan. The Board may amend, suspend, or discontinue the Plan
or any portion thereof at any time, but no amendment, suspension, or
discontinuation shall be made which would impair the rights of a Holder under a
Stock Option or a recipient of a Stock Appreciation Right, restricted stock
award, or Long Term Performance Award theretofore granted without the Holder's
or recipient's consent or which without the approval of the Company's
stockholders, would:

      (a)   except as expressly Provided in the Plan, increase the total number
            of shares reserved for the purpose of the Plan;

      (b)   decrease the option price of any Stock Option to less than the Fair
            Market Value on the date of grant;

      (c)   change the class of employees eligible to participate in the Plan;
            or

      (d)   extend the maximum option periods under Section 6.4.

12.2 Amendments to Stock Options or Amounts. The Committee may amend the terms
of any Stock Option or other award theretofore granted, prospectively or
retroactively, but no such amendment shall impair the right of any holder
without the holder's consent. Subject to the above provisions, the Board shall
have authority to amend the Plan to take into account changes in law and tax and
accounting rules, as well as other developments.


                                       32
<PAGE>

                                  ARTICLE XIII

                             UNFUNDED STATUS OF PLAN

13.1 It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; provided, however, that, unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.

                                   ARTICLE XIV

                               GENERAL PROVISIONS

14.1 Certificates. All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Commission, any stock exchange upon which the
Stock is then listed, and any applicable Federal or state securities law, and
the Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions. The Committee may require
any Optionee purchasing shares pursuant to a Stock Option to represent to and
agree with the Company in writing that the Optionee is acquiring the shares
without a view to the distribution thereof.

14.2 Compensation Arrangements. Nothing contained in this Plan shall prevent the
Company or a Subsidiary from adoption of other or additional compensation
arrangements for its employees.

14.3 No Rights to Continued Employment. Neither the adoption of the Plan nor the
granting of any Stock Option, Stock Appreciation Right, Restricted Stock or Long
Term Award shall confer upon any employee any right to continued employment or
constitute an agreement or understanding that the Company will retain a director
for any period of time or at any particular rate of compensation, nor shall the
same interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any employee or the service of any director at any
time.

14.4 Withholding and Employment Taxes. No later than the date on which the
Company is required to withhold federal or state income taxes or employment
taxes in respect of an award, the participant shall pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any Federal,
state, local, or other taxes of any kind required by law to be withheld with
respect to such award or any payment or


                                       33
<PAGE>

distribution made in connection therewith. Unless otherwise determined by the
Committee, withholding or employment tax obligations may be settled with Stock,
including Stock that is part of the award that gives rise to the withholding or
employment tax requirements; provided, however, that in the case of any Optionee
who is actually subject to Section 16(b) of the Exchange Act, any such
settlement shall comply with the applicable requirements of Rule 16(b)-3. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the participant.

14.5 Reinvestment of Dividends. The reinvestment of dividends in additional
Restricted Stock at the time of any dividend payment shall be permissible only
if sufficient shares of Stock are available under Article III for such
reinvestment (taking into account then outstanding Stock Options and other Plan
awards).

14.6 Beneficiaries Designation. The Committee shall establish such procedures as
it deems appropriate for a participant to designate a beneficiary to whom any
amounts payable with respect to outstanding awards under the Plan in the event
of the participant's death are to be paid.

14.7 Loan Program. The Board may institute a loan program to assist one or more
participants in financing the exercise of outstanding options through
full-recourse interest bearing promissory notes. However, the maximum amount of
financing provided any optionee may not exceed the cash consideration payable
for the issued shares plus all applicable taxes incurred in connection with the
acquisition of the shares. No loans may be made to anyone not authorized by any
applicable law.

14.8 Governing Law. The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
New York, except where Delaware may otherwise be applicable.

14.9 Rule 16b-3 Requirement. Notwithstanding anything in this Plan to the
contrary, if the Committee determines that the Plan or grant or award cannot
satisfy the requirements of Rule 16b-3, then it shall have the authority to
waive or modify those provisions of the Plan or grant or award so as to enable
compliance with Rule 16b-3.

14.10 Attestation. Wherever in this Plan or any agreement evidencing an Award a
Participant is permitted to pay the exercise price


                                       34
<PAGE>

of an Option or taxes relating to the exercise of an Option by delivering
Shares, the Participant may, subject to procedures satisfactory to the
Committee, satisfy such delivery requirement by presenting proof of beneficial
ownership of such Shares, in which case the Company shall treat the Option as
exercised without further payment and/or shall withhold such number of Shares
from the Shares acquired by the exercise of the Option, as appropriate.

                                   ARTICLE XV

                  EFFECTIVE DATE OF PLAN; SHAREHOLDER APPROVAL

15.1 The Plan shall be effective as of May 29, 2003, subject however to the
approval of the Plan by the holders of at least a majority of the outstanding
shares of Stock of the Company present or represented and entitled to vote at a
meeting of shareholders of the Company. Awards may be made under the Plan on and
after its effective date; provided, however, that any such awards shall be null
and void if shareholder approval of the Plan is not obtained within 12 months of
the adoption of the Plan by the Board.


                                       35
<PAGE>

                                   ARTICLE XVI

                                  TERM OF PLAN

16.1 No Stock Option, Stock Appreciation Right, restricted stock award, or Long
Term Performance award shall be granted on or after the tenth anniversary of the
effective date of the Plan, but awards granted prior to such tenth anniversary
(including, without limitation, Long Term Performance Awards for Performance
Periods commencing prior to such tenth anniversary) may extend beyond that date.


                                       36