<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Forward Industries, Inc.
...............................................................................
(Name of Registrant as Specified In Its Charter)
Forward Industries, Inc.
...............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
......................................................................
2) Aggregate number of securities to which transaction applies:
......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
......................................................................
4) Proposed maximum aggregate value of transaction:
......................................................................
5) Total fee paid:
......................................................................
1 Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
......................................................................
2) Form, Schedule or Registration Statement No.:
......................................................................
3) Filing Party:
......................................................................
4) Date Filed: .......................................................
<PAGE>
FORWARD INDUSTRIES, INC.
275 HEMPSTEAD TURNPIKE
WEST HEMPSTEAD, NEW YORK 11552
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Forward Industries, Inc.
The Annual Meeting of Shareholders of Forward Industries, Inc. (the
"Company") will be held at ______________________ at [10:00] a.m., Eastern
Standard Time, on [__________] 1997, for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to increase the authorized
capital stock of the Company such that the aggregate number
of shares which the Company shall have the authority to
issue shall be increased from 10,000,000 to 40,000,000, all
of which shall be designated "Common Stock."
3. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to increase the authorized
capital stock of the Company such that the Company shall
have the authority to issue an additional 4,000,000 shares,
all of which shall be designated "Preferred Stock."
4. To consider and act upon a proposal to effectuate a
one-for-two reverse stock split of the Company's Common
Stock.
5. To consider and act upon a proposal to adopt the Company's
1996 Stock Incentive Plan.
6. To ratify the appointment of Miller, Ellin & Company as the
independent auditors and accountants for the Company for the
year ending September 30, 1997.
7. To transact such other business as may properly come before
the meeting.
All shareholders are invited to attend the meeting. Shareholders of
record at the close of business on February 5, 1997, the record date fixed by
the Board of Directors, are entitled to notice of and to vote at the meeting. A
complete list of shareholders entitled to notice of and vote at the meeting
will be open to examination by shareholders beginning ten days prior to the
meeting for any purpose germane to the meeting during normal business hours at
the office of the Secretary of the Company at 275 Hempstead Turnpike, West
Hempstead, New York 11552.
Whether or not you intend to be present at the meeting, please sign
and date the enclosed proxy and return it in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
STEPHEN SCHIFFMAN
Secretary
West Hempstead, New York
______, 1997
<PAGE>
FORWARD INDUSTRIES, INC.
275 Hempstead Turnpike
West Hempstead, New York 11552
(516) 564-1100
-------------
PROXY STATEMENT
-------------
The accompanying proxy is solicited by the Board of Directors of
Forward Industries, Inc. (the "Company") for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at [10:00 A.M.], Eastern
Standard New York time, on ___________, 1997 at ______________________________
and any adjournment thereof.
VOTING SECURITIES; PROXIES
The Company will bear the cost of solicitation of proxies. In addition
to the solicitation of proxies by mail, certain officers, consultants and
employees of the Company, without extra remuneration, may also solicit proxies
personally by telefax and by telephone. In addition to mailing copies of this
material to shareholders, the Company may request persons, and reimburse them
for their expenses in connection therewith, who hold stock in their names or
custody or in the names of nominees for others to forward such material to
those persons for whom they hold stock of the Company and to request their
authority for execution of the proxies.
The holders of a majority of the outstanding shares of Common Stock,
par value $.01 per share (the "Common Stock"), present in person or represented
by proxy shall constitute a quorum at the Annual Meeting. The approval of a
plurality of the outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting is required for election of the
nominees as directors. In all other matters, the affirmative vote of the
majority of the outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting is required for the adoption of such
matters.
The form of proxy solicited by the Board of Directors affords
shareholders the ability to specify a choice among approval of, disapproval of,
or abstention with respect to each matter to be acted upon at the Annual
Meeting. Shares of Common Stock represented by the proxy will be voted, except
as to matters with respect to which authority to vote is specifically withheld.
Where the solicited shareholder indicates a choice on the form of proxy with
respect to any matter to be acted upon, the shares will be voted as specified.
Abstentions and broker non-votes will not have the effect of votes in
opposition to a director or "against" any other proposal to be considered at
the Annual Meeting.
All shares of Common Stock represented by properly executed proxies
which are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, the shares of Common Stock represented by such proxy will be voted FOR
the Board's nominees for director, FOR the approval of Proposals 2, 3, 4 , 5,
and 6 and in accordance with the proxy-holder's best judgment as to any other
matters raised at the Annual Meeting.
A shareholder who has given a proxy may revoke it at any time prior to
its exercise by giving written notice of such revocation to the Secretary of
the Company, executing and delivering to the Company a later dated proxy
reflecting contrary instructions or appearing at the Annual Meeting and taking
appropriate steps to vote in person.
At the close of business on ___________, 1997, _________ shares of
Common Stock were outstanding and eligible for voting at the meeting. Each
shareholder of record is entitled to one vote for each share of Common Stock
held on all matters that come before the meeting. Only shareholders of record
at the close of business on February 5, 1997 are entitled to notice of, and to
vote at, the meeting.
NO DISSENTER'S RIGHTS
Under New York law, shareholders are not entitled to dissenter's
rights of appraisal with respect to Proposals 2, 3, 4, 5 and 6.
This proxy material is first being mailed to shareholders commencing
on or about February __ 1997.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The number of directors of the Company is set by a resolution adopted
by a majority of the entire Board of Directors. The number of directors is
currently fixed at four. The number of directors to be elected at the Annual
Meeting to constitute the Board of Directors has also been fixed at four. The
directors are to be elected to hold office for a period of one year, and in any
event until a successor has been elected and qualified. It is intended that the
accompanying proxy will be voted in favor of the following persons to serve as
directors, unless the shareholder indicates to the contrary on the proxy. Each
of the nominees is currently a director of the Company.
For reelection to the Board of Directors for one-year terms, the Board
of Directors has nominated the following individuals, each a current director:
THEODORE H. SCHIFFMAN
MICHAEL SCHIFFMAN
NOAH FLESCHNER
WILLIAM E. MOOAR
The persons named in the accompanying proxy intend to vote for the
election as director of the nominees listed herein. Each nominee has consented
to serve if elected. The Board of Directors has no reason to believe that any
nominee will not serve if elected, but if any of them should become unavailable
to serve as a director, and if the Board of Directors designates a substitute
nominee or nominees, the persons named as proxies will vote for the substitute
nominee or nominees designated by the Board of Directors.
The following table sets forth certain information with respect to
each person who is currently a director or executive officer of the Company and
the individuals nominated and recommended to be elected by the Board of
Directors of the Company and is based on the records of the Company and
information furnished to it by such persons. Reference is made to "Security
Ownership of Certain Beneficial Owners and Management" for information
pertaining to stock ownership by each director and executive officer of the
Company and the nominees.
NAME AGE POSITION WITH THE COMPANY
Theodore H. Schiffman 63 Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
William E. Mooar 51 President and Director
Michael Schiffman 31 Executive Vice President and Director
Noah Fleschner 60 Director
Stephen Schiffman 28 Secretary
Each of the directors holds office until the next annual meeting of
shareholders and until his successor has been duly elected and qualified.
THEODORE H. SCHIFFMAN, a co-founder of the Company, has been its
Chairman and Chief Executive Officer for more than the past five years and has
been a director since 1961.
WILLIAM E. MOOAR became the president and a director of the Company in
October 1996. Prior to joining the Company, Mr. Mooar was the Chief Executive
Officer of Coast Manufacturing Company, a company engaged in manufacturing and
distribution of carrying cases, primarily for the photographic, audio and video
markets.
MICHAEL SCHIFFMAN has been employed by the Company in various
capacities for more than the past five years and became a director in April
1992. Beginning as a salesman for the Company's advertising specialties
products in 1985, Mr. Schiffman became marketing manager for such products in
1987 and, following the acquisition of the custom carrying case business in
1989, was appointed General Manager of that division. Mr. Schiffman has been
the Company's Executive Vice-President and a director since 1992. Michael
Schiffman is the son of Theodore H. Schiffman. Michael Schiffman is presently
on assignment in Hong Kong.
NOAH FLESCHNER has been Chairman of the Board and Chief Executive
Officer of Diversified Data Equipment Corp. and Verified System Solutions,
Inc., sellers of new and used computer equipment to dealers and commercial
end-users, for more than the past five years. Mr. Fleschner is a Certified
Public Accountant. Mr. Fleschner became a director of the Company in October
1994.
- 2 -
<PAGE>
STEPHEN SCHIFFMAN has been employed by the Company in various
capacities for more than the past five years. Beginning in 1990, Mr. Schiffman
was employed in the production department, followed by a move to the Purchasing
Department and Inventory Control in the Forward Division. Subsequently, Mr.
Schiffman moved to the Marketing Department of the Koszegi division in 1995.
Presently, Mr. Schiffman is Vice-President of Marketing and Sales for Terrapin.
Stephen Schiffman is the son of Theodore H. Schiffman.
Pursuant to their respective employment agreements with the Company,
(a) Theodore Schiffman is employed as Chief Executive Officer through September
30, 1997 and the Company has agreed to use its best efforts to elect him
annually as Chairman of the Board; (b) Michael Schiffman is employed as
Executive Vice President through October 31, 1997 and the Company has agreed to
use its best efforts to elect him annually as a director; and (c) William Mooar
is employed as President through October 14, 1998.
SHAREHOLDER VOTE REQUIRED
Election of each director requires a plurality of the votes of the
shares of Common Stock present in person or requested by proxy at the meeting
and entitled to vote on the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION TO THE BOARD OF
DIRECTORS OF THE COMPANY FOR EACH OF THE NOMINEES.
COMMITTEES OF THE BOARD - BOARD MEETINGS
The Board of Directors does not have a nominating committee, an audit
committee, a compensation committee or a stock option committee. These
functions are performed by the Board as a whole. The Board of Directors met or
acted by unanimous written consent on nine occasions during the fiscal year
ended September 30, 1996. All directors attended at least 75% of the meetings
held by the Board and committees of which they are members.
- 3 -
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has made unsecured loans from time to time to Mr. and Mrs.
Theodore H. Schiffman and to Mr. Schiffman's son, Michael Schiffman. As of
September 30, 1995, (a) Theodore A Schiffman executed a promissory note to the
Company in the principal amount of $235,535, bearing interest at 6% per annum,
payable annually on September 30 of each year, commencing September 30, 1996,
with the first four installments each in the sum of $50,000 and the remaining
installment in the sum of the balance due, and (b) Michael Schiffman executed
a similar note in the principal amount of $50,000, bearing interest at 7% per
annum, payable in equal annual installments of $10,000 each September 30
commencing September 30, 1996 through September 30, 2000.
Theodore H. Schiffman's son, Stephen Schiffman, is employed by the
Company at an annual salary of $32,000. Stephen Schiffman is an administrator
of the Company's Terrapin(TM) line of notebook computer carrying cases.
On September 1, 1995, the Company borrowed $100,000 from Carl Waldman,
uncle of Theodore H. Schiffman, for a term of five years pursuant to a
promissory note bearing interest at 10% per annum.
On September 11, 1995, the Company borrowed $400,000 from Cheryl
Fenster Fishoff, a principal shareholder of the Company and the sister of
Theodore H. Schiffman, pursuant to a Convertible Note bearing interest at 1%
over the prime rate as published in The Wall Street Journal and due on
September 10, 2000, unless converted to shares of Common Stock of the Company.
The Note provides that it may be converted, in whole or in part, into such
Common Stock at any time at the conversion price of $2.00 per share. In
December and January of 1995 the Company borrowed an additional $157,200 from
Mrs. Fishoff pursuant to a Convertible Note due on December 18, 2000 and
otherwise under the same terms and conditions. On February 12, 1996
Mrs. Fishoff exercised her option to convert her debt into 278,600 Shares of
Common Stock. The proceeds of these loans were used to fund working capital
obligations of the Company.
Theodore H. Schiffman and Cheryl Fenster Fishoff have each guaranteed
payment to the landlord of the Brooklyn Facility of the Company's promissory
note in the principal amount of $170,000 given in connection with the
termination of the lease for the Brooklyn Facility.
The Company has incurred indebtedness created in connection with
letters of credit extended for the benefit of the Company by a corporation
controlled by the spouse of Cheryl Fenster Fishoff. The Company pays such
corporation a commission of 5% of the amount of the letters of credit, together
with expenses related to opening and collection of such letters of credit, and
interest on the open balances thereof at 1.5% over the prime rate of the
issuing bank. At September 30, 1996, $53,900 of such indebtedness was
outstanding. During Fiscal 1996, the Company incurred interest on open letters
of credit in the amount of $47,475.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and the other equity securities of the Company. Officers,
directors, and persons who beneficially own more than ten percent of a
registered class of the Company's equities are required by the regulations of
the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms they file. To the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended September 30, 1996, all Section 16(a) filing requirements applicable to
its officers, directors, and greater than ten percent beneficial owners were
complied with.
- 4 -
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
all cash and non-cash compensation paid by the Company during Fiscal 1996,
Fiscal 1995 and Fiscal 1994 to each of its executive officers earning more than
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Fiscal Other Annual Underlying All Other
Principal Position Year Salary Compensation Options Compensation
- ------------------ ------ ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Theodore H. Schiffman, 1996 $275,000 300,000 shares(c)
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
1995 $275,000 300,000 shares
1994 $275,000
Michael Schiffman, 1996 $112,500 300,000 shares(c)
Executive Vice President
1995 $150,000 $76,500(a)(b) 300,000 shares
1994 $125,000
</TABLE>
(a) Fair market value of 408,000 shares of the Company's Common Stock
issued to Michael Schiffman as of August 3, 1994.
(b) Does not include rental value of apartment and related expenses
provided to Mr. Schiffman, aggregating approximately $9,000 per month
since July 1995, while on Company assignment in Hong Kong.
(c) Cancelled in December 1996.
The following table sets forth certain information concerning options
granted to each of the Chief Executive Officer and Executive Vice President
during the fiscal year ended September 30, 1996.
OPTIONS GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
Percentage of
Number of Total Options
Underlying Granted
Name Shares in Fiscal Year Exercise Price Expiration Date
- ---- --------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Theodore H. Schiffman 300,000 (a) 24.3% $5.775 2/12/2002
Michael Schiffman 300,000 (a) 24.3% $5.775 2/12/2002
</TABLE>
(a) Cancelled in December 1996.
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND
FISCAL YEAR END OPTION VALUES
- 5 -
<PAGE>
The following table sets forth certain information concerning the
number and value of securities underlying exercisable and unexercisable stock
options as of the fiscal year ended September 30, 1996 by the Chief Executive
Officer and Executive Vice President. No options were exercised by the Chief
Executive Officer or Executive Vice President during the fiscal year ended
September 30, 1996.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of In-the-Money
Number of Securities Securities Underlying
Underlying Unexercised Unexercised Options at
Options at September 30, 1996 September 30, 1996(a)
----------------------------- ---------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Theodore H. Schiffman 300,000 300,000(b) $675,000 $675,000
Michael Schiffman 300,000 300,000(b) $675,000 $675,000
</TABLE>
a Based on closing bid quotation of $2.25 per share on September 30, 1996
b Cancelled in December 1996
EMPLOYMENT AGREEMENTS
Effective October 1, 1994, the Company entered into an employment
agreement with Theodore H. Schiffman (the "Agreement") pursuant to which Mr.
Schiffman is employed as Chief Executive Officer of the Company through
September 30, 1997. The Agreement provides for an annual salary of $275,000
plus annual bonus compensation generally equal to 5% of net pre-tax annual
income of the Company in excess of $1,000,000 (which is determined without
taking into consideration bonus compensation payable to any employee, including
Mr. Schiffman). If the Agreement is terminated as a result of disability or if
Mr. Schiffman should die, in each case prior to the end of his employment term,
then the Board of Directors would determine in good faith the bonus, if any,
payable to him or to his estate. If Mr. Schiffman becomes incapacitated so as
to be unable to perform his services for a period of 120 consecutive days or
150 days in any period of 365 days, the Company is entitled to terminate the
Agreement, in which event the Company is required to retain Mr. Schiffman as a
consultant for a period equal to the shorter of the period of disability or
five years, at a rate equal to 75% of his salary at the time of termination of
employment. Such compensation will be paid to Mr. Schiffman until the earlier
to occur of the end of his employment term (e.g., September 30, 1997), the
expiration of the five-year consulting period, or his death; and after the end
of his employment term until the earlier to occur of the expiration of his
consulting period or his death, at a rate equal to 60% of salary, in each case
less whatever sums may be paid to Mr. Schiffman pursuant to any disability
insurance, the premiums for which have been paid by the Company. If Mr.
Schiffman dies during his employment term, and if the Company is the recipient
of at least $1,000,000 of proceeds of insurance on his life, the Company will
pay to his widow, or if his wife has predeceased him, his estate, a monthly
death benefit of $10,000 for a ten-year period. If the Company is not the
recipient of at least $1,000,000 of insurance, such monthly death benefit will
be paid for a period of three years, followed by a monthly death benefit of
$5,000 for seven years; if his widow dies prior to the end of such ten year
period, such payments will cease. In the event that the Agreement is breached
by the Company (which would include failure of Mr. Schiffman to be elected to
his office and as a director of the Company), which breach is not cured within
30 days after notice from Mr. Schiffman, Mr. Schiffman is entitled to terminate
his obligations under the Agreement and the Company would continue to remain
obligated to compensate Mr. Schiffman as provided in the Agreement (including
payment of death benefits), which compensation would be reduced by any
compensation received by Mr. Schiffman from other employment.
Effective November 1, 1994, the Company entered into an employment
agreement with Michael Schiffman, employing Mr. Schiffman as Executive Vice
President of the Company through October 31, 1997 at an annual salary of
$150,000, plus annual bonus compensation generally equal to 7.5% of net annual
pre-tax income of the Company in excess of $1,000,000 (which is determined
without taking into consideration bonus compensation payable to any employee,
including Mr. Schiffman). If his employment agreement is terminated as a result
of disability or if Mr. Schiffman should die, in each case prior to October 31,
1997, then the Board of Directors would determine in good faith the bonus, if
any, payable to him. The balance of the terms of Michael Schiffman's employment
agreement are substantially identical to those of Theodore Schiffman's
employment agreement, except that Michael Schiffman's agreement provides that
the monthly death benefit would be $5,500 if the Company were the recipient of
at least $1,000,000 of proceeds of insurance on his life, and $2,750 if the
Company did not receive such insurance payment.
Effective October 14, 1996, the Company entered into an employment
agreement (as amended, the "Agreement") with William Mooar, pursuant to which
Mr. Mooar will serve as President of the Company and perform duties for the
Company of a senior executive nature. Simultaneously, Mr. Mooar became a
director of the Company. Mr. Mooar is employed at an annual base salary of
$150,000, received a signing bonus of $30,000 and
- 6 -
<PAGE>
will receive incentive compensation with respect to each fiscal year of the
Company ending during the term of the Agreement equal to the product of (i)
$100,000, and (ii) a fraction, the numerator of which will be the Company's
audited pre-tax operating profit (if any) for such fiscal year and the
denominator of which will be $500,000. The Agreement provides that, subject to
shareholder approval, Mr. Mooar will receive an option to purchase 300,000
shares of the Company's common stock, par value $.01 per share, at an exercise
price equal to the fair market value of such shares as of the date of the
approval of the shareholders of the Company thereof. The option will vest in
four equal semi-annual installments commencing October 14, 1996, provided that
Mr. Mooar continues in the Company's employ at each such vesting date. If such
option is not approved by the Company's shareholders by March 30, 1997, the
Company is required to sell Mr. Mooar on such date 300,000 shares of common
stock at a price equal to the fair market value of such shares on such date, in
lieu of such option, subject to Mr. Mooar's obligation to resell to the
Company, at his purchase price, up to 225,000 of such shares on termination of
his employment with the Company depending on when his employment terminates.
The Agreement also provides that, subject to shareholder approval, the Company
will grant Mr. Mooar an additional option (the "Incentive Option) to purchase
an additional 500,000 shares of Common Stock if the Company's audited pre-tax
operating income for its 1997 or 1998 fiscal year is at least $1 million. The
Incentive Option, if earned, will be granted as of the date that the Company's
independent auditors certify the Company's year-end financial statements which
reflect achievement of the required pre-tax operating income. The Incentive
Option will vest in four equal semi-annual installments commencing six months
after the date of grant if Mr. Mooar is employed by the Company at such time,
and will expire ten years after the date of grant. The Agreement expires
October 13, 1998; however, the Company has the right to terminate the Agreement
during the first 90 days thereof without cause and without incurring any
termination obligation to Mr. Mooar.
DIRECTOR'S COMPENSATION
The Company's employee directors do not receive any additional
compensation for their services as directors. Non-employee directors do not
receive a fee for serving as such, but are reimbursed for expenses. In
addition, non-employee directors are eligible to participate in the Company's
1996 Stock Option Plan (the "Option Plan"). The Option Plan provides for an
automatic grant of stock options to purchase 300,000 shares of Common Stock to
each of Messrs. Theodore H. Schiffman and Michael Schiffman. If the Incentive
Plan is approved, such grants will be cancelled and replaced by the automatic
grants provided by the Company's proposed 1996 Stock Incentive Plan (the
"Incentive Plan") consisting of stock options to purchase 300,000 shares of
Common Stock to each of Messrs. Theodore H. Schiffman, Michael Schiffman and
William E. Mooar. Additionally, Mr. Mooar shall be granted options to purchase
an additional 500,000 shares of Common Stock if the Company's pre-tax income
for the fiscal year ended September 30, 1997 or the fiscal year ended September
30, 1998 is at least $1,000,000.
REPORT ON REPRICING OF STOCK OPTIONS
The Company did not adjust or amend the exercise price of stock
options previously awarded to the Company's Chairman of the Board, Chief
Executive Officer or Executive Vice President during the fiscal year ended
September 30, 1996. As previously noted, certain stock options granted to the
Company's Chairman of the Board, Chief Executive Officer, and Executive Vice
President during the fiscal year ended September 30, 1996, were cancelled in
December 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information, as of December 31, 1996, with respect
to the beneficial ownership of the Common Stock by (i) each person or group who
is known by the Company to be the beneficial owner of 5% or more of the
outstanding Common Stock, (ii) each of the directors of the Company, (iii) each
of the executive officers of the Company named in the compensation table under
Item 10 - "Executive Compensation", and (iv) all directors and executive
officers of the Company, as a group (six persons).
Number of Shares Percent
Identity of Beneficial Owners Of Common Stock of Class
- ----------------------------- ---------------- --------
Theodore H. Schiffman 742,200 shares (a)(b)(c) 11.9%
275 Hempstead Turnpike
West Hempstead, New York 11552
William E. Mooar 300,000 shares (d) 4.8%
541 Westover Road
Stamford, Connecticut 06902
- 7 -
<PAGE>
Michael Schiffman 800,654 shares (b)(c) 12.9%
275 Hempstead Turnpike
West Hempstead, New York 11552
Stephen Schiffman 107,070 shares 1.8%
275 Hempstead Turnpike
West Hempstead, New York 11552
Noah Fleschner 660 shares *
275 Hempstead Turnpike
West Hempstead, New York 11552
All directors and executive 1,950,584 shares (a)(b)(c)(d) 28.6%
officers as a group
(a) Includes 81,400 shares owned by Mr. Schiffman's wife, as to all of which
shares Mr. Schiffman disclaims beneficial ownership.
(b) Includes shares subject to options granted by the Company on October 12,
1994 to each of Theodore H. Schiffman and Michael Schiffman to purchase
300,000 shares of the Company's Common Stock at an exercise price of
$0.75 per share during the five-year period commencing December 1, 1995.
(c) Theodore H. Schiffman, the Chairman of the Board and the Chief Executive
Officer of the Company, is the father of Michael Schiffman, the Executive
Vice President and a director of the Company and Stephen Schiffman, the
Secretary of the Company, and the brother of Cheryl Fenster Fishoff. Each
of Theodore H. Schiffman, Michael Schiffman, Stephen Schiffman and Cheryl
Fenster Fishoff disclaims beneficial ownership of shares beneficially
owned by the others.
(d) Includes options to purchase 300,000 shares subject to shareholder
approval of such options (provided, that if such approval is not obtained
prior to March 30, 1997, the Company has agreed instead to sell Mr. Mooar
300,000 shares for the fair marker value as of such date) at fair market
value on the date of such approval. Such options (or shares, as the case
may be,) vest in four equal installments of 75,000 every six months
commencing October 14, 1996. Does not include options to purchase up to
500,000 shares which the Company has agreed to grant Mr. Mooar, subject
to shareholder approval, on achievement of certain income levels.
*Less than 1.0%.
PROPOSAL 2
APPROVAL OF AMENDMENT
OF CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED COMMON STOCK
GENERAL
The Board of Directors has determined that it would be advisable to
amend Paragraph THIRD of the Company's Certificate of Incorporation to increase
the authorized capital stock of the Company such that the aggregate number of
shares which the Company shall have the authority to issue shall be increased
from 10,000,000 to 40,000,000, all of which shall be designated "Common Stock";
The Board of Directors has unanimously adopted and declared it
advisable and unanimously recommends to the Company's shareholders that
Paragraph THIRD of the Company's Certificate of Incorporation be amended as
described. A copy of Paragraph THIRD of the Company's Certificate of
Incorporation, as proposed to be amended by the resolution adopted by the Board
of Directors, is attached as Annex A.
INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved, subject to shareholder approval
at the 1996 Annual Meeting of Shareholders, an increase in the number of
authorized shares of Common Stock from 10,000,000 to 40,000,000 ("Authorized
Stock Proposal"). The Company's Certificate of Incorporation currently
authorizes the issuance of 10,000,000 shares of Common Stock. As of February 5,
1997, the record date for the Annual Meeting (the "Record Date"), [5,922,282]
shares of Common Stock were outstanding (exclusive of 329,780 shares held by
the Company
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as treasury stock), and 1,494,000 shares are reserved for issuance in relation
to outstanding options and warrants. Accordingly, there are only [2,253,938]
authorized shares of Common Stock unissued and not reserved for future
issuance. If Proposal 4 relating to a proposed one for two reverse stock
split is adopted, the numbers referred to in the preceding two sentences would
be [2,961,144], 164,890, 747,010 and [1,126,969], respectively.
The Board of Directors considers the proposed authorization of an
additional 30,000,000 shares of Common Stock desirable because it would provide
the Company with the ability to take advantage of future opportunities for the
issuance of equity in connection with financings, possible future acquisitions,
other programs to facilitate expansion and growth and for other general
corporate purposes, including stock dividends, stock splits and employee
benefit plans, without the delay and expense incident to the holding of a
special meeting of shareholders to consider any specific issuance. Such
additional shares could also be issued in a public offering or privately placed
in order to raise capital for various purposes. Authorized but unissued shares
may be issued at such time or times, to such person or persons and for such
consideration as the Board of Directors determines to be in the best interests
of the Company, without further authorization from the shareholders except as
may be required by the rules of NASDAQ or any stock exchange on which the
Common Stock is then listed. The authorization of additional shares of Common
Stock will not, by itself, have any effect on the rights of holders of existing
shares. Any new shares of Common Stock, when issued, would have the same rights
and privileges as the shares of Common Stock presently outstanding, and would
be available for issuance at such time and on such terms as the Board of
Directors may consider appropriate. Depending on the circumstances, issuance of
additional shares of Common Stock could affect the existing holders of shares
by diluting the voting power of the outstanding shares. The shareholders do not
have pre-emptive rights to purchase additional shares of Common Stock nor will
they as a result of this proposal.
Currently, the Company is not engaged in any negotiations concerning
the issuance of any shares of Common Stock, nor are there any plans,
commitments, agreements or understandings relating to the issuance of any
additional shares of Common Stock, except as described herein under Proposal 5
below - the "1996 Stock Incentive Plan" and except that the Company is
currently seeking sources of equity financing. The timing of any other actual
issuance of additional shares will depend upon market conditions, the specific
purpose for which the stock is to be issued and other similar factors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED STOCK PROPOSAL
The primary purpose of the Authorized Stock Proposal is to provide the
Company with the flexibility to raise additional capital from the sale of
shares of Common Stock and to take advantage of possible future opportunities
for which the issuance of additional shares of Common Stock may be deemed
advisable without the delay and expense incident to calling a special meeting
of the Company's shareholders in any case in which such a meeting would not
otherwise be required.
The issuance of additional shares of Common Stock may be deemed to
have an anti-takeover effect since such shares may be used, under certain
circumstances, to create voting impediments to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company. The increase in
authorized Common Stock may also be viewed as having the effect of discouraging
an attempt by another person or entity, through the acquisition of a
substantial number of shares of the Common Stock, to acquire control of the
Company, since the issuance of additional shares may be used to dilute such
person's ownership of shares of the Company's voting stock.
The Authorized Stock Proposal has not been proposed as an
anti-takeover measure nor is the Board of Directors aware of any offers to
acquire control of the Company. It should be noted that any action taken by the
Company to discourage an attempt to acquire control of the Company may result
in shareholders not being able to participate in any possible premiums which
may be obtained in the absence of anti-takeover provisions. Any transaction
which may be so discouraged or avoided could be a transaction that the
Company's shareholders might consider to be in their best interests. However,
the Board of Directors has a fiduciary duty to act in the best interests of the
Company's shareholders at all times.
BOARD OF DIRECTORS RESERVATION OF RIGHTS
If the amendment proposed in this Proposal 2 to amend the Company's
Certificate of Incorporation is approved by the shareholders, such amendment
will become effective upon the filing of a Certificate of Amendment of the
Certificate of Incorporation of the Company, with the Department of State of
the state of New York. The Board of Directors reserves the right,
notwithstanding shareholder approval and without further action by the
shareholders, to elect not to proceed with the Amendment, if at any time prior
to filing a Certificate of Amendment with the Department of State of the State
of New York the Board of Directors, in its sole discretion, determines that
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the Amendment is no longer in the best interests of the Company and its
shareholders. In addition, the Board of Directors reserves the right to delay
filing the Certificate of Amendment for up to twelve months following
shareholder approval of the Amendment at the Annual Meeting. However, at the
present time, the Board of Directors intends to proceed with the Amendment as
presented herein without delay.
SHAREHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding
Common Stock entitled to vote at the Annual Meeting is required to adopt
Proposal 2. Accordingly, abstentions and broker non-votes could have a
significant effect on the outcome of this proposal. Proxies solicited by the
Board of Directors will be voted in favor of the adoption of Proposal 2 to
amend Paragraph THIRD of the Certificate of Incorporation unless otherwise
indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
PARAGRAPH THIRD OF THE COMPANY'S CERTIFICATE OF INCORPORATION, WHICH IS
DESIGNATED AS PROPOSAL 2 ON THE ENCLOSED PROXY CARD.
PROPOSAL 3
APPROVAL OF AMENDMENT
OF CERTIFICATE OF INCORPORATION TO
CREATE A CLASS OF "BLANK CHECK" PREFERRED STOCK
GENERAL
The Board of Directors has determined that it would be advisable to
amend Paragraph THIRD of the Company's Certificate of Incorporation to increase
the authorized capital stock of the Company such that the aggregate number of
shares which the Company shall have the authority to issue shall be increased
by 4,000,000 shares which shall be designated "Preferred Stock";
The Board of Directors has unanimously adopted and declared it
advisable and unanimously recommends to the Company's shareholders that
Paragraph THIRD of the Company's Certificate of Incorporation be amended as
described. A copy of Paragraph THIRD of the Company's Certificate of
Incorporation, as proposed to be amended by Proposals 2 and 3 hereof, is
attached as Annex B.
CREATION OF A CLASS OF BLANK CHECK PREFERRED STOCK
The Board of Directors has approved, subject to shareholder approval
at the 1996 Annual Meeting of Shareholders, the authorization of 4,000,000
shares of Preferred Stock, which may be issued in one or more series and as to
which the Board of Directors is authorized to determine the voting powers,
designations, preferences, and rights and the qualifications, limitations, and
restrictions thereof, of each such series, including dividend rates, conversion
prices, redemption prices, liquidation preferences and voting and other rights
("Authorized Preferred Stock Proposal"). The Company's Certificate of
Incorporation currently authorizes the issuance of 10,000,000 shares of Common
Stock and no shares of Preferred Stock.
The Board of Directors considers the proposed authorization of
4,000,000 shares of Preferred Stock desirable because it would provide the
Company with the ability to take advantage of future opportunities for the
issuance of equity in connection with financings, possible future acquisitions,
other programs to facilitate expansion and growth and for other general
corporate purposes, including stock dividends, stock splits and employee
benefit plans, without the delay and expense incident to the holding of a
special meeting of shareholders to consider any specific issuance. Such
additional shares could also be issued in a public offering or privately placed
in order to raise capital for various purposes. Authorized but unissued shares
may be issued at such time or times, to such person or persons and for such
consideration as the Board of Directors determines to be in the best interests
of the Company, without further authorization from the shareholders except as
may be required by the rules of NASDAQ or any stock exchange on which the
Preferred Stock is then listed.
To the extent that any shares of Preferred Stock may be issued, such
Preferred Stock may (a) have priority over the Company's Common Stock with
respect to dividends and the assets of the Company upon liquidation; (b) have
significant voting power; (c) provide for representation of the holders of the
Preferred Stock on the Company's Board of Directors upon the occurrence of
certain events; and (d) require the approval of the Preferred Stock for the
taking of certain corporate actions, such as mergers. To the extent that any
shares of Preferred Stock (including preferred stock convertible into Common
Stock) may be issued on other than a pro rata basis to current shareholders,
the present ownership position of current shareholders may be diluted. Such
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company, and thereby defeat a possible takeover attempt
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which (if shareholders were offered a premium over the market value of their
shares) might be viewed as being beneficial to shareholders of the Company.
Management of the Company is not aware of any possible takeover attempts at
this time.
Currently, the Company is not engaged in any negotiations concerning
the issuance of any shares of Preferred Stock, nor are there any plans,
commitments, agreements or understandings relating to the issuance of any
shares of Preferred Stock. The timing of the actual issuance of shares of
Preferred Stock will depend upon market conditions, the specific purpose for
which the stock is to be issued and other similar factors.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED PREFERRED STOCK PROPOSAL
The primary purpose of the Authorized Preferred Stock Proposal is to
provide the Company with the flexibility to raise additional capital from the
sale of shares of Preferred Stock and to take advantage of possible future
opportunities for which the issuance of shares of Preferred Stock may be deemed
advisable without the delay and expense incident to calling a special meeting
of the Company's shareholders in any case in which such a meeting would not
otherwise be required.
The issuance of shares of Preferred Stock may be deemed to have an
anti-takeover effect since such shares may be used, under certain
circumstances, to create voting impediments to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company. The Preferred Stock
may also be viewed as having the effect of discouraging an attempt by another
person or entity, through the acquisition of a substantial number of shares of
the Common Stock, to acquire control of the Company, since the issuance of
"blank check" preferred stock may be used for adoption of a shareholder rights
plan or "poison pill."
The Authorized Preferred Stock Proposal has not been proposed as an
anti-takeover measure nor is the Board of Directors aware of any offers to
acquire control of the Company. It should be noted that any action taken by the
Company to discourage an attempt to acquire control of the Company may result
in shareholders not being able to participate in any possible premiums which
may be obtained in the absence of anti-takeover provisions. Any transaction
which may be so discouraged or avoided could be a transaction that the
Company's shareholders might consider to be in their best interests. However,
the Board of Directors has a fiduciary duty to act in the best interests of the
Company's shareholders at all times.
The possible anti-takeover effects of this Proposal 3 should be
considered together with those discussed above in Proposal 2, which relate to
Proposal 2 itself and the provisions currently in place in the Company's
Certificate of Incorporation, By-Laws and other contracts to which the Company
is a party.
BOARD OF DIRECTORS RESERVATION OF RIGHTS
If the amendment proposed in this Proposal 3 to amend the Company's
Certificate of Incorporation (the "Preferred Stock Amendment") is approved by
the shareholders, such amendment will become effective upon the filing of a
Certificate of Amendment of the Certificate of Incorporation of the Company,
with the Department of State of the state of New York. The Board of Directors
reserves the right, notwithstanding shareholder approval and without further
action by the shareholders, to elect not to proceed with the Preferred Stock
Amendment, if at any time prior to filing a Certificate of Amendment with the
Department of State of the State of New York the Board of Directors, in its
sole discretion, determines that the Preferred Stock Amendment is no longer in
the best interests of the Company and its shareholders. In addition, the Board
of Directors reserves the right to delay filing the Certificate of Amendment
for up to twelve months following shareholder approval of the Preferred Stock
Amendment at the Annual Meeting. However, at the present time, the Board of
Directors intends to proceed with the Amendment as presented herein without
delay.
SHAREHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding
Common Stock entitled to vote at the Annual Meeting is required to adopt
Proposal 3. Accordingly, abstentions and broker non-votes could have a
significant effect on the outcome of this proposal. Proxies solicited by the
Board of Directors will be voted in favor of the adoption of Proposal 3 to
amend Paragraph THIRD of the Certificate of Incorporation unless otherwise
indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
PARAGRAPH THIRD OF THE COMPANY'S CERTIFICATE OF INCORPORATION, WHICH IS
DESIGNATED AS PROPOSAL 3 ON THE ENCLOSED PROXY CARD.
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PROPOSAL 4
APPROVAL OF A ONE FOR TWO
REVERSE STOCK SPLIT
GENERAL
The Board of Directors has adopted a proposal declaring advisable an
amendment to the Certificate of Incorporation of the Company to effect a
one-for-two reverse stock split of all of the authorized and outstanding Common
Stock of the Company. Upon the approval of Proposal 2 hereof, and the filing of
the Amendment as described therein, the Company shall have authorized
40,000,000 shares of Common Stock, $.01 par value. Adoption of the proposed
reverse stock split will reduce the number of outstanding shares of Common
Stock of the Company as of the Record Date from [5,922,282] to approximately
[2,961,141]. As the amendment will effect a reduction in the number of shares
of Common Stock outstanding without a commensurate increase in the par value of
the Common Stock, it will result in a reduction in the Company's stated
capital.
Except for changes resulting from the reverse stock split the rights
and privileges of holders of shares of Common Stock will remain the same, both
before and after the proposed reverse stock split.
It is expected that if the shareholders authorize this amendment that
the filing of a Certificate of Amendment (the "Reverse Stock Split Amendment")
will occur as soon as practical after the date of the Annual Meeting. The
proposed reverse stock split will become effective on the effective date of
that filing (the "Effective Date"). Commencing on the Effective Date, each
currently outstanding certificate will be deemed for all corporate purposes to
evidence ownership of the reduced number of shares resulting from the proposed
reverse stock split. New stock certificates reflecting the number of shares
resulting from the stock split will be issued only as currently outstanding
certificates are transferred. However, the Company will provide shareholders
with instructions as to how to exchange their certificates and encourage them
to do so.
The Company currently has outstanding a convertible promissory note
owned by one entity exercisable to purchase 300,000 shares of Common Stock. In
addition, there are stock options outstanding under the Company's stock
incentive plan, to purchase approximately 1,175,000 shares of Common Stock,
subject to approval by the shareholders of Proposal 5 herein. After approval of
the proposed reverse stock split, the number of shares of Common Stock to be
issued upon exercise of the outstanding note and options will be reduced to one
half of the previous amount.
REASONS FOR THE REVERSE STOCK SPLIT
Management believes that the decrease in the number of shares of
Common Stock outstanding as a consequence of the proposed reverse stock split
should increase the per share price of the Common Stock, which may encourage
greater interest in the Common Stock and possibly promote greater liquidity for
the Company's shareholders. Additionally, a decrease in the number of
outstanding shares of the Company's Common Stock will result in an increase in
the number of shares available for issuance, allowing the Company greater
flexibility to conduct financings through the issuance of additional equity.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences of the proposed reverse stock split. This summary does not purport
to be complete and does not address the tax consequences to holders that are
subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations and proposed regulations, court decisions and current
administrative rulings and pronouncements of the Internal Revenue Service
("IRS"), all of which are subject to change, possibly with retroactive effect,
and assumes that the post-split common stock will be held as a "capital asset"
(generally, property held for investment) as defined in the Code. Holders of
Common Stock are advised to consult their own tax advisers regarding the
federal income tax consequences of the proposed reverse stock split in light of
their personal circumstances and the consequences under state, local and
foreign tax laws.
1 The proposed reverse stock split will qualify as a
recapitalization described in Section 368(a)(1)(E) of the Code.
2. No gain or loss will be recognized by the Company in connection
with the proposed reverse stock split.
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3. No gain or loss will be recognized by a shareholder who exchanges
all of his shares of Common Stock solely for shares of post-split common stock.
4. The aggregate basis of the shares of post-split common stock to
be received in the proposed reverse stock split will be the same as the
aggregate basis of the shares of Common Stock surrendered in exchange therefor.
5. The holding period of the shares of post-split common stock to be
received in the proposed reverse stock split will include the holding period of
the shares of Common Stock surrendered in exchange therefor.
BOARD OF DIRECTORS RESERVATION OF RIGHTS.
The Board of Directors reserves the right, notwithstanding shareholder
approval and without further action by the shareholders, to elect not to
proceed with the Reverse Stock Split Amendment, if at any time prior to filing
such Reverse Stock Split Amendment with the Department of State of the State of
New York, the Board of Directors, in its sole discretion, determines that it is
no longer in the best interests of the Company and its shareholders. In
addition, the Board of Directors reserves the right to delay of the Reverse
Stock Split Amendment for up to twelve months following shareholder approval
thereof at the Annual Meeting. However, at the present time, the Board of
Directors intends to proceed with the Reverse Stock Split Amendment as
presented herein without delay.
SHAREHOLDER VOTE REQUIRED
An affirmative vote of the holders of a majority of the outstanding
Common Stock entitled to vote at the Annual Meeting is required to adopt
Proposal 4. Accordingly, abstentions and broker non-votes could have a
significant effect on the outcome of this proposal. Proxies solicited by the
Board of Directors will be voted in favor of the adoption of Proposal 4 to
effect a one-for-two reverse stock split unless otherwise indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ONE FOR TWO
REVERSE STOCK SPLIT, WHICH IS DESIGNATED AS PROPOSAL 4 ON THE ENCLOSED PROXY
CARD.
PROPOSAL 5
INTRODUCTION OF THE
1996 STOCK INCENTIVE PLAN
The Company's Board of Directors has recommended, and at the meeting
the shareholders will be asked to approve, the adoption of the 1996 Stock
Incentive Plan (the "Incentive Plan"). A description of the Incentive Plan,
which Incentive Plan is attached hereto as Annex C, appears below.
1996 STOCK OPTION PLAN
In February 1996 the Company's Board of Directors adopted, subject to
shareholder approval, the 1996 Stock Option Plan (the "Option Plan"). Options
to purchase an aggregate of 1,235,000 shares of Common Stock were granted,
subject to shareholder approval within one year of the date of adoption by the
Company's Board of Directors, under the Option Plan. In December 1996, the
Board of Directors resolved to cancel the Option Plan and not to submit it for
shareholder approval, as a consequence, all options granted under the Option
Plan have been cancelled, with the intention that new options shall be granted
upon approval of the Incentive Plan.
1996 STOCK INCENTIVE PLAN
The Incentive Plan provides for the grant of options to purchase up to
4,000,000 shares of Common Stock to employees, officers, directors and
consultants of the Company. Options may be either "incentive stock options"
within the meaning of Section 422 of the Code, or non-qualified options.
Incentive stock options may be granted only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to employees of the Company.
The Incentive Plan will be administered by a Stock Option Committee,
or, in its absence, the Company's Board of Directors, which determines, among
other things, those individuals who receive options, the time period during
which the options may be partially or fully exercised, the number of shares of
Common Stock issuable upon the exercise of each option and the option exercise
price. The Incentive Plan also provides for an automatic grant of non-qualified
stock options to purchase 300,000 shares of Common Stock to each of Messrs.
Theodore H. Schiffman, Michael Schiffman and William E. Mooar. The Incentive
Plan further provides for an automatic grant
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to Mr. Mooar of non-qualified stock options to purchase 500,000 shares of
Common Stock if the Company's pre-tax operating income for the fiscal year
ending September 30, 1997 or the fiscal year ending September 30, 1998 is at
least $1,000,000. All of Mr. Mooar's options will vest in four equal
installments over a two year period, while those of Messrs. Schiffman will
vest in accordance with the standard terms of the Incentive Plan.
The exercise price per share of Common Stock subject to an incentive
stock option may not be less than the fair market value per share of Common
Stock on the date the option is granted. The per share exercise price of the
Common Stock subject to a non-qualified option may be established by the Stock
Option Committee. The aggregate fair market value (determined as of the date
the option is granted) of Common Stock for which any person may be granted
incentive stock options which first become exercisable in any calendar year may
not exceed $100,000. No person who owns, directly or indirectly, at the time of
the granting of an incentive stock option to such person, 10% or more of the
total combined voting power of all classes of stock of the Company (a "10%
Shareholder") shall be eligible to receive any incentive stock options under
the Incentive Plan unless the exercise price is at least 110% of the fair
market value of the shares of Common Stock subject to the option, determined on
the date of grant. Non-qualified options are not subject to such limitation.
No stock option may be transferred by an optionee other than by will
or the laws of descent and distribution, and, during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option, unless otherwise determined by the
Stock Option Committee. Upon termination of employment of an optionee by reason
of death or permanent disability, such optionee's options remain exercisable
for one year thereafter to the extent such options were exercisable on the date
of such termination.
Options under the Incentive Plan must be issued within 10 years from
the effective date of the Incentive Plan which will be November 15, 1996 if the
shareholders of the Company approve the adoption of the Incentive Plan.
Incentive stock options granted under the Incentive Plan cannot be exercised
more than 10 years from the date of grant. Incentive stock options issued to a
10% Shareholder are limited to five-year terms. All options granted under the
Incentive Plan provide for the payment of the exercise price in cash or by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods. Therefore, an optionee may be
able to tender shares of Common Stock to purchase additional shares of Common
Stock and may theoretically exercise all of such optionee's stock options with
no additional investment other than the purchase of the original shares.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed by the Company become available again for
issuance under the Incentive Plan.
The Incentive Plan may be terminated or amended at any time by the
Board of Directors except that shareholder approval is required if the
amendment is within 12 months before or after adoption of the Plan and such
approval is necessary to comply with any applicable tax or regulatory
requirement, including any such approval as may be necessary to satisfy the
requirements for exemptive relief under Rule 16b-3 of the Exchange Act or any
successor provision. The Incentive Plan shall terminate November 15, 2006,
unless terminated prior thereto by action of the Board. No further grants shall
be made from the Incentive Plan after termination; provided, however, that
termination shall not affect the right of any optionee with respect to grants
made prior to termination.
The vesting of outstanding options under the Incentive Plan will be
subject to acceleration upon certain changes in the ownership or control of the
Company. The acceleration of the vesting of options in the event of such
changes in control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts
to gain control of the Company.
It is estimated that approximately 280 individuals are currently
eligible to participate in the Incentive Plan.
REGISTRATION OF SHARES ISSUED UNDER INCENTIVE PLAN
The Company intends that the 4,000,000 shares to be reserved for and
issued under the Incentive Plan, for which approval is now sought, may be
registered under the Securities Act of 1933, as amended. Such registration, if
completed, would in most cases permit the unrestricted resale in the public
market of shares issued pursuant to the Incentive Plan.
NEW PLAN BENEFITS - 1996 STOCK INCENTIVE PLAN
Subject to shareholder approval of the Incentive Plan, the Company has
issued options to purchase 1,175,000 shares of Common Stock under the Incentive
Plan, including options to purchase 300,000 shares of Common Stock to each of
Company's Chief Executive Officer and Chairman of the Board, President and
Executive
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Vice President. Except as disclosed above, the Company has not yet issued any
options under the Incentive Plan to any current executive officer or any
current director who is not an executive officer. Subject to shareholder
approval of the Incentive Plan, the Company intends to grant to the President
of the Company options to purchase an additional 500,000 shares of Common
Stock, if the Company's pre-tax operating income for the fiscal year ending
September 30, 1997 or the fiscal year ending September 30, 1998 is at least
$1,000,000. Except as disclosed above, the Company does not currently know nor
is it determinable the number of additional options that the Company will grant
under the Incentive Plan to any of the aforementioned persons.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE INCENTIVE PLAN UNDER CURRENT LAW
An optionee will recognize no taxable income at the time an option is
granted.
An optionee will recognize no taxable income at the time of exercise
of an incentive stock option. If the optionee makes no disposition of the
acquired shares within two years after the date of grant of the incentive stock
option, or within one year after the exercise of such option, the employee will
recognize no taxable income and any gain or loss that is realized on a
subsequent disposition of such shares will be treated as long-term capital gain
or loss. As to options exercised, the excess, if any, of the fair market value
of the shares on the date of exercise over the option price will be an item of
tax preference for purposes of computing the alternative minimum tax.
If the foregoing holding period requirements are not satisfied, the
optionee will realize (i) ordinary income for federal income tax purposes in
the year of disposition in an amount equal to the lesser of (a) the excess, if
any, of the fair market value of the shares on the date of exercise over the
option price thereof, or (b) the excess, if any, of the selling price over the
optionee's adjusted basis of such shares (provided that the disposition is a
sale or exchange with respect to which a loss (if sustained) would be
recognized by such individual) and (ii) capital gain equal to the excess, if
any, of the amount realized upon the disposition of shares over the fair market
value of such shares on the date of exercise.
Employees, directors, officers, consultants, agents and independent
contractors of the Company will be required to include in their gross income in
the year of exercise of a non-qualified stock option the difference between the
fair market value on the exercise date of the shares transferred and the option
price.
The Company will be entitled (provided it complies with certain
reporting requirements with respect to the income received by the employee) to
a deduction for federal income tax purposes at the same time and in the same
amount as the optionee is considered to be in receipt of compensation income in
connection with the exercise of non-qualified stock options or, in the case of
an incentive stock option, a disqualifying disposition of shares received upon
exercise thereof. If the holding period requirements outlined above are met, no
deduction will be available to the Company in connection with an incentive
stock option. Under the Revenue Reconciliation Act of 1993, the Company may not
be able to deduct compensation to certain employees to the extent compensation
exceeds one million dollars per tax year. Covered employees include the chief
executive officer and the four other highest compensated officers of the
Company for that tax year. Certain performance-based compensation including
stock options are exempt provided that, among other things, the stock options
are granted by a compensation committee of the Board of Directors which is
comprised solely of two or more outside directors and the plan under which the
options are granted is approved by shareholders. The Incentive Plan will not
qualify as performance-based compensation.
SHAREHOLDER VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of the
Company's voting Common Stock entitled to vote thereon is required for approval
of the Incentive Plan. If such shareholder approval is not obtained, then the
Incentive Plan will not be adopted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE COMPANY'S 1996
STOCK INCENTIVE PLAN, WHICH IS DESIGNATED AS PROPOSAL 5 ON THE ENCLOSED PROXY
CARD.
PROPOSAL 6
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has appointed Miller, Ellin &
Company as independent accountants for the fiscal year ended September 30, 1997
and to render other professional services as required.
The appointment of Miller, Ellin & Company is being submitted to
shareholders for ratification.
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<PAGE>
Representatives of Miller, Ellin & Company will be present at the
Annual Meeting, where they will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to
appropriate questions.
SHAREHOLDER VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of the
Company's voting Common Stock is required to ratify the appointment of public
accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
MILLER, ELLIN & COMPANY AS INDEPENDENT AUDITORS OF THE COMPANY, WHICH IS
DESIGNATED AS PROPOSAL 6 ON THE ENCLOSED PROXY CARD.
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<PAGE>
DEADLINE FOR SHAREHOLDER PROPOSALS FOR 1997
Shareholder proposals intended to be considered for inclusion in the
proxy statement for presentation at the Company's 1997 Annual Meeting of
Shareholders must be received at the Company's offices at 275 Hempstead
Turnpike, West Hempstead, New York 11552, no later than 120 days prior to the
Company's next Annual Meeting, for inclusion in the Company's proxy statement
and form of proxy relating to such meeting. All proposals must comply with
applicable Securities and Exchange Commission rules and regulations.
OTHER MATTERS
The Board of Directors is not aware of any other matter other than
those set forth in this proxy statement that will be presented for action at
the meeting. If other matters properly come before the meeting, the persons
named as proxies intend to vote the shares they represent in accordance with
their best judgment in the interest of the Company.
THE COMPANY UNDERTAKES TO PROVIDE ITS SHAREHOLDERS WITHOUT CHARGE A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES FILED THEREWITH. WRITTEN REQUESTS FOR SUCH REPORT SHOULD BE ADDRESSED
TO THE OFFICE OF THE SECRETARY, FORWARD INDUSTRIES, INC., 275 HEMPSTEAD
TURNPIKE, WEST HEMPSTEAD, NEW YORK 11552.
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<PAGE>
ANNEX A
THIRD: The aggregate number of shares which the Corporation shall have
authority to issue is forty million (40,000,000), $.01 par value per share, all
of which shall be designated "common stock".*
* NOTE: If Proposal 3 is also adopted, the amendment would be as set forth
in Annex B.
<PAGE>
ANNEX B
THIRD: The aggregate number of shares which the Corporation shall have
authority to issue is forty four million (44,000,000), $.01 par value per
share, of which four million (4,000,000) shall be designated "preferred stock"
and forty million (40,000,000) shall be designated "common stock".*
Authority is hereby expressly granted to the Board of Directors of the
Corporation from time to time to issue the preferred stock as preferred stock
of any series and, in connection with the creation of each such series, to fix
by the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series, and the designations, relative rights,
preferences, and limitations, of such series, to the full extent now or
hereafter permitted by the laws of the State of New York.
* NOTE: If Proposal 2 is not also adopted, the reference herein to forty four
million (44,000,000) would be changed to fourteen million (14,000,000)
and the reference to forty million (40,000,000) would be changed to
ten million (10,000,000).
<PAGE>
ANNEX C
FORWARD INDUSTRIES, INC.
1996 STOCK INCENTIVE PLAN
APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS ON NOVEMBER 15, 1996
SECTION 1. PURPOSE. The purpose of the Forward Industries, Inc. 1996
Stock Incentive Plan (the "Plan") is to provide a means whereby directors and
selected employees, officers, agents, consultants, and independent contractors
of Forward Industries, Inc., a New York corporation (the "Company"), or of any
parent or subsidiary (as defined in subsection 5.7 hereof and referred to
hereinafter as "Affiliates") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase shares of common stock, $.01 par
value ("Common Stock") in order to attract and retain the services or advice of
such directors, employees, officers, agents, consultants, and independent
contractors and to provide additional incentive for such persons to exert
maximum efforts for the success of the Company and its Affiliates by
encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION. Subject to Section 2.3 hereof, the Plan
shall be administered by the Board of Directors of the Company (the "Board")
or, in the event the Board shall appoint and/or authorize a committee of two or
more members of the Board to administer the Plan, by such committee. The
administrator of the Plan shall hereinafter be referred to as the "Plan
Administrator".
The foregoing notwithstanding, with respect to grants to be made to
directors: (a) the Plan Administrator shall be constituted so as to meet the
requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder,
each as amended from time to time, or (b) if the Plan Administrator cannot be
so constituted, no options shall be granted under the Plan to any directors.
2.1 PROCEDURES. The Board shall designate one of the members of
the Plan Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts approved in writing by all Plan Administrator members, shall be valid
acts of the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions
explicitly set forth herein, the Plan Administrator shall have the authority,
in its discretion, to determine all matters relating to the options to be
granted under the Plan, including, without limitation, selection of whether an
option will be an incentive stock option or a nonqualified stock option,
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price per share, the timing of grants and
all other terms and conditions of the options. Grants under the Plan need not
be identical in any respect, even when made simultaneously. The Plan
Administrator may also establish, amend, and revoke rules and regulations for
the administration of the Plan. The interpretation and construction by the Plan
Administrator of any terms or provisions of the Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
corresponds to the requirements of Internal Revenue Code of 1986, as amended
(the "Code") Section 422, the regulations thereunder, and any amendments
thereto. The Plan Administrator shall not be personally liable for any action
made in good faith with respect to the Plan or any option granted thereunder.
2.3 RULE 16B-3 AND SECTION 16(B) COMPLIANCE; BIFURCATION OF PLAN.
It is the intention of the Company that the Plan comply in all respects with
Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") to
the extent applicable, and in all events the Plan shall be construed in favor
of its meeting the requirements of Rule 16b-3. If any Plan provision is later
found not to be in compliance with such Rule, such provision shall be deemed
null and void. The Board may act under the Plan only if all members thereof are
"disinterested persons" as defined in Rule 16b-3 and further described in
Section 4 hereof; and no director or officer or other Company "insider" subject
to Section 16 of the Exchange Act may sell shares received upon the exercise of
an option during the six month period immediately following the grant of the
option. Notwithstanding anything in the Plan to the contrary, the Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit, or
condition the use of any provision of the Plan to participants who are officers
and directors or other persons subject to Section 16(b) of the Exchange Act
without so restricting, limiting, or conditioning the Plan with respect to
other participants.
SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan
shall be the Common Stock, presently authorized but unissued or subsequently
acquired by the Company. Subject to adjustment as provided in Section 7 hereof,
the aggregate amount of Common Stock to be delivered upon the exercise of all
options granted
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<PAGE>
under the Plan shall not exceed in the aggregate 4,000,000 shares as such
Common Stock was constituted on the effective date of the Plan. If any option
granted under the Plan shall expire, be surrendered, exchanged for another
option, canceled, or terminated for any reason without having been exercised in
full, the unpurchased shares subject thereto shall thereupon again be available
for purposes of the Plan, including for replacement options which may be
granted in exchange for such surrendered, canceled, or terminated options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only
to any individual who, at the time the option is granted, is an employee of the
Company or any Affiliate thereof. A nonqualified stock option may be granted to
any director, employee, officer, agent, consultant, or independent contractor
of the Company or any Affiliate thereof, whether an individual or an entity.
Any party to whom an option is granted under the Plan shall be referred to
hereinafter as an "Optionee".
A director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of a director
as a person to whom options may be granted, or in the determination of the
number of shares which may be covered by options granted to the director, the
Plan complies with the requirements of Rule 16b-3 under the Exchange Act.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under the
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations, and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with the Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following
terms and conditions:
5.1 NUMBER OF SHARES AND PRICE.
(a) Each of Messrs. Theodore Schiffman and Michael Schiffman shall
receive, effective as of the date of approval of the Plan by the Board, and
subject to the approval by the shareholders of the Company of the Plan (the
"Approval"), options to purchase an aggregate of 300,000 shares of Common
Stock, at an exercise price equal to the fair market value per share of such
shares as of the date of Approval, exercisable for ten (10) years from the date
of grant in accordance with Section 5.2 hereof. Mr. William Mooar shall
receive, effective as of October 14, 1996, subject to the Approval, options to
purchase 300,000 shares of Common Stock at an exercise price equal to the fair
market value per share of such shares as of the date of Approval, exercisable
for ten (10) years from the date of grant and shall vest 25% every six months
from October 14, 1996, provided Mr. Mooar is still employed by the Company.
Additionally, subject to the Approval, Mr. Mooar shall be granted options to
purchase an additional 500,000 shares of Common Stock, if the Company's pre-tax
income for the fiscal year ending September 30, 1997 or the fiscal year ending
September 30, 1998 is at least $1,000,000. For purposes of this section 5.1(a),
net income shall be derived from the audited financial statements of the
Company for each such fiscal year and any options earned by Mr. Mooar will be
granted as of the date such financial statements are signed by the Company's
independent certified accountants. Notwithstanding anything to the contrary
contained herein, the exercise price of such options shall be equal to the fair
market value on the date of the grant and such options shall vest 25% every six
months after the date of grant, provided Mr. Mooar is still employed by the
Company, and be exercisable for ten (10) years from the date of grant; and
(b) Except as otherwise provided in subsection (a) hereof, the maximum
number of shares that may be purchased pursuant to the exercise of each option,
and the price per share at which such option is exercisable (the "exercise
price"), shall be as established by the Plan Administrator; provided, that the
Plan Administrator shall act in good faith to establish the exercise price
which shall be not less than 100% of the fair market value per share of the
Common Stock at the time of grant of the option with respect to incentive stock
options; and provided, further, that, with respect to incentive stock options
granted to greater than ten percent shareholders, the exercise price shall be
as required by Section 6 hereof.
5.2 TERM AND MATURITY. Subject to the restrictions contained in
Section 6 hereof with respect to granting stock options to greater than ten
percent shareholders, and the restrictions contained in Section 5.1(a) hereof,
respecting grants of stock options to certain individuals, the term of each
stock option shall be as established by the Plan Administrator and, if not so
established, shall be ten years from the date of its grant, but in no event
shall the term of any incentive stock option exceed a ten year period. To
ensure that the Company or Affiliate will achieve the purpose and receive the
benefits contemplated in the Plan, any option granted to any Optionee hereunder
shall, unless the condition of this sentence is waived or modified in the
agreement evidencing the option or by resolution adopted by the Plan
Administrator, be exercisable according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or
Affiliate From the Date Portion of Total Option
the Option is Granted Which is Exercisable
---------------------------------------------------------------
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<PAGE>
1 year 37%
2 years 67%
3 years 100%
5.3 EXERCISE. Subject to the vesting schedule described in
subsection 5.2 hereof, each option may be exercised in whole or in part;
provided, that only whole shares may be issued pursuant to the exercise of any
option. Subject to any other terms and conditions herein, the Plan
Administrator may provide that an option may not be exercised in whole or in
part for a stated period or periods of time during which such option is
outstanding; provided, that the Plan Administrator may rescind, modify, or
waive any such limitation (including by the acceleration of the vesting
schedule upon a change in control of the Company) at any time and from time to
time after the grant date thereof. During an Optionee's lifetime, any incentive
stock options granted under the Plan are personal to such Optionee and are
exercisable solely by such Optionee. Options shall be exercised by delivery to
the Company of notice of the number of shares with respect to which the option
is exercised, together with payment of the exercise price in accordance with
Section 5.4 hereof.
5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise
price shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's
check, or personal check (unless at the time of exercise the Plan Administrator
in a particular case determines not to accept a personal check) for shares of
Common Stock being purchased.
The Plan Administrator can determine at the time the option is
granted in the case of incentive stock options, or at any time before exercise
in the case of nonqualified stock options, that additional forms of payment
will be permitted. To the extent permitted by the Plan Administrator and
applicable laws and regulations (including, without limitation, federal tax and
securities laws and regulations and state corporate law), an option may be
exercised by:
(a) delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator;
(b) delivery of a properly executed Notice of Exercise, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the Company
the amount of sale or loan proceeds to pay the exercise price and any federal,
state, or local withholding tax obligations that may arise in connection with
the exercise;
(c) delivery of a properly executed Notice of Exercise, together
with instructions to the Company to withhold from the shares of Common Stock
that would otherwise be issued upon exercise that number of shares of Common
Stock having a fair market value equal to the option exercise price.
5.5 WITHHOLDING TAX REQUIREMENT. The Company or any Affiliate
thereof shall have the right to retain and withhold from any payment of cash or
Common Stock under the Plan the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. No
option may be exercised unless and until arrangements satisfactory to the
Company, in its sole discretion, to pay such withholding taxes are made. At its
discretion, the Company may require an Optionee to reimburse the Company for
any such taxes required to be withheld by the Company and withhold any
distribution in whole or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any other cash
amounts due or to become due from the Company to the Optionee an amount equal
to such taxes or retain and withhold a number of shares having a market value
not less than the amount of such taxes required to be withheld by the Company
to reimburse the Company for any such taxes and cancel (in whole or in part)
any such shares of Common Stock so withheld. If required by Section 16(b) of
the Exchange Act, the election to pay withholding taxes by delivery of shares
of Common Stock held by any person who at the time of exercise is subject to
Section 16(b) of the Exchange Act shall be made either six months prior to the
date the option exercise becomes taxable or at such other times as the Company
may determine as necessary to comply with Section 16(b) of the Exchange Act.
Although the Company may, in its discretion, accept Common Stock as payment of
withholding taxes, the Company shall not be obligated to do so.
5.6 NONTRANSFERABILITY.
5.6.1 OPTION. Options granted under the Plan and the rights
and privileges conferred hereby may not be transferred, assigned, pledged, or
hypothecated in any manner (whether by operation of law or otherwise) other
than by will or by the applicable laws of descent and distribution or pursuant
to a qualified domestic relations order as defined in Section 414(p) of the
Code, or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder, and shall not be subject to execution,
attachment, or similar process. Any attempt to transfer, assign, pledge,
hypothecate, or otherwise dispose of any option under the Plan or of any
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<PAGE>
right or privilege conferred hereby, contrary to the Code or to the provisions
of the Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby shall be null and void ab initio. The
designation by an Optionee of a beneficiary does not, in and of itself,
constitute an impermissible transfer under this subsection 5.6.1.
5.6.2 STOCK. The Plan Administrator may provide in the
agreement granting the option that (a) the Optionee may not transfer or
otherwise dispose of shares acquired upon exercise of an option without first
offering such shares to the Company for purchase on the same terms and
conditions as those offered to the proposed transferee or (b) upon termination
of employment of an Optionee the Company shall have a six month right of
repurchase as to the shares acquired upon exercise, which right of repurchase
shall allow for a maximum purchase price equal to the fair market value of the
shares on the termination date. The foregoing rights of the Company shall be
assignable by the Company upon reasonable written notice to the Optionee.
5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship
with the Company or any Affiliate thereof ceases for any reason other than
termination for cause, death, or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a
three month period, that portion of the Optionee's option which is exercisable
at the time of such cessation, but the Optionee's option shall terminate at the
end of the three month period following such cessation as to all shares for
which it has not theretofore been exercised, unless, in the case of a
nonqualified stock option, such provision is waived in the agreement evidencing
the option or by resolution adopted by the Plan Administrator within 90 days of
such cessation. If, in the case of an incentive stock option, an Optionee's
relationship with the Company or Affiliate thereof changes from employee to
nonemployee (i.e., from employee to a position such as a consultant), such
change shall constitute a termination of an Optionee's employment with the
Company or Affiliate and the Optionee's incentive stock option shall terminate
in accordance with this subsection 5.7.
If an Optionee is terminated for cause, any option granted
hereunder shall automatically terminate as of the first discovery by the
Company of any reason for termination for cause, and such Optionee shall
thereupon have no right to purchase any shares pursuant to such option.
"Termination for cause" shall mean dismissal for dishonesty, conviction or
confession of a crime punishable by law (except minor violations), fraud,
misconduct, or disclosure of confidential information. If an Optionee's
relationship with the Company or any Affiliate thereof is suspended pending an
investigation of whether or not the Optionee shall be terminated for cause, all
Optionee's rights under any option granted hereunder likewise shall be
suspended during the period of investigation.
If an Optionee's relationship with the Company or any Affiliate
thereof ceases because of a total disability, the Optionee's option shall not
terminate or, in the case of an incentive stock option, cease to be treated as
an incentive stock option until the end of the 12 month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
the Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is,
in the opinion of the Company and two independent physicians, expected to last
for a continuous period of 12 months or more and which causes or is, in such
opinion, expected to cause the Optionee to be unable to perform his or her
duties for the Company and to be engaged in any substantial gainful activity.
Total disability shall be deemed to have occurred on the first day after the
Company and the two independent physicians have furnished their opinion of
total disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship
between or among the Company and/or any Affiliate thereof shall not be deemed
to constitute a cessation of relationship with the Company or any of its
Affiliates. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave, or other bona fide leave of absence (as determined
by the Plan Administrator). The foregoing notwithstanding, employment shall not
be deemed to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
As used herein, the term "Affiliate" shall be defined as follows:
(a) when referring to a subsidiary corporation, "Affiliate" shall mean any
corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if, at the time of the granting of the option, the
stock possessing 50% or more of the total combined voting power of all classes
of stock of each of the corporations other than the Company is owned by one of
the other corporations in such chain; and (b) when referring to a parent
corporation, "Affiliate" shall mean any corporation in an unbroken chain of
corporations ending with the Company if, at the time of the granting of the
option, each of the corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
relationship with the Company or any Affiliate thereof or within the three
month period (or 12 month period in the case of totally disabled Optionees)
following cessation of such relationship, any option held by such Optionee, to
the extent that the
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<PAGE>
Optionee would have been entitled to exercise such option, may be exercised
within one year after his or her death by the personal representative of his or
her estate or by the person or persons to whom the Optionee's rights under the
option shall pass by will or by the applicable laws of descent and
distribution.
5.9 STATUS OF SHAREHOLDER. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall be,
or have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under the Plan unless and until such option has been exercised.
5.10 CONTINUATION OF EMPLOYMENT. Nothing in the Plan or in any
option granted pursuant to the Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of an Affiliate thereof, or to
interfere in any way with the right of the Company or of any such Affiliate to
terminate his or her employment or other relationship with the Company at any
time.
5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the
requirements of Section 422 of the Code with respect to incentive stock options
and to the terms and conditions and within the limitations of the Plan,
including, without limitation, Section 10.1 hereof, the Plan Administrator may
modify or amend outstanding options granted under the Plan. The modification or
amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the obligations
of the Company under such option. Except as otherwise provided herein, no
outstanding option shall be terminated without the consent of the Optionee.
Unless the Optionee agrees otherwise, any changes or adjustments made to
outstanding incentive stock options granted under the Plan shall be made in
such a manner so as not to constitute a "modification" as defined in Section
424(h) of the Code and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as
defined in Section 422(b) of the Code.
5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all
incentive stock options granted under the terms of the Plan, to the extent that
the aggregate fair market value (determined at the time of the grant of the
incentive stock option) of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, an Affiliate thereof or a predecessor corporation)
exceeds $100,000, such options shall be treated as nonqualified stock options.
The foregoing sentence shall not apply, and the limitation shall be that
provided by the Code or the Internal Revenue Service, as the case may be, if
such annual limit is changed or eliminated by (a) amendment of the Code or (b)
issuance by the Internal Revenue Service of (i) a Revenue ruling, (ii) a
Private Letter ruling to any of the Company, any Optionee, or any legatee,
personal representative, or distributee of any Optionee, or (iii) regulations.
5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.
5.13.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.4(A) AND (C).
The value of Common Stock received by the Optionee from an exercise under
Sections 5.4(a) and 5.4(c) hereof shall be the fair market value as determined
by the Plan Administrator, provided, that if the Common Stock is traded in a
public market, such valuation shall be the average of the high and low trading
prices or bid and asked prices, as applicable, of the Common Stock for the date
of receipt by the Company of the Optionee's delivery of shares under Section
5.4(a) hereof or delivery of the Notice of Exercise under Section 5.4(c)
hereof, determined as of the trading day immediately preceding such date (or,
if no sale of shares is reported for such trading day, on the next preceding
day on which any sale shall have been reported).
5.13.2 EXERCISE OF OPTION UNDER SECTION 5.4(B). The value of
Common Stock received by the Optionee from an exercise under Section 5.4(b)
hereof shall equal the sales price received for such shares.
SECTION 6. GREATER THAN TEN PERCENT SHAREHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If
incentive stock options are granted under the Plan to employees who, at the
time of such grant, own greater than ten percent of the total combined voting
power of all classes of stock of the Company or any Affiliate thereof, the term
of such incentive stock options shall not exceed five years and the exercise
price shall be not less than 110% of the fair market value of the Common Stock
at the time of grant of the incentive stock option. This provision shall
control notwithstanding any contrary terms contained in an option agreement or
any other document. The term and exercise price limitations of this provision
shall be amended to conform to any change required by a change in the Code or
by ruling or pronouncement of the Internal Revenue Service.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in
determining stock ownership, an employee shall be deemed to own the stock
owned, directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors, and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership
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<PAGE>
estate, or trust shall be deemed to be owned proportionately by or for its
shareholders, partners, or beneficiaries. If an employee or a person related to
the employee owns an unexercised option or warrant to purchase stock of the
Company, the stock subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock owned by
him or her which is actually issued and outstanding immediately before the
grant of the incentive stock option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options may be granted under the Plan, the
number and class of shares covered by each outstanding option, and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK. Except as
provided in subsection 7.1.2 hereof, upon a merger (other than a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than mere reincorporation
or creation of a holding company), or liquidation of the Company (each, an
"event"), as a result of which the shareholders of the Company receive cash,
stock, or other property in exchange for, or in connection with, their shares
of Common Stock, any option granted hereunder shall terminate, but the time
during which such options may be exercised shall be accelerated as follows: the
Optionee shall have the right immediately prior to any such event to exercise
such Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK. If
the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, or reorganization (other than mere reincorporation or creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and corporation issuing
the Exchange Stock, in their sole discretion, determine that any or all such
options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1 hereof. The amount and price of converted
options shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the number of
shares of Exchange Stock the holders of the Common Stock receive in such
merger, consolidation, acquisition, separation, or reorganization. Unless the
Board determines otherwise, the converted options shall be fully vested whether
or not the vesting requirements set forth in the option agreement have been
satisfied.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the
number of shares covered by an option, any fractional shares resulting from
such adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. Except as otherwise
required for the Plan to qualify for the exemption afforded by Rule 16b-3 under
the Exchange Act, all adjustments under this Section 7 shall be made by the
Board, and its determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding, and conclusive. Unless an Optionee
agrees otherwise, any change or adjustment to an incentive stock option shall
be made in such a manner so as not to constitute a "modification" as defined in
Section 424(h) of the Code and so as not to cause the incentive stock option
issued hereunder to fail to continue to qualify as an incentive stock option as
defined in Section 422(b) of the Code.
SECTION 8. SECURITIES LAW COMPLIANCE. Shares shall not be issued with
respect to an option granted under the Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of 1933, as amended (the "Act"), the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance, including, without limitation, the availability of
an exemption from registration for the issuance and sale of any shares
hereunder. Inability of the Company to obtain from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of
an exemption from
- 6 -
<PAGE>
registration for the issuance and sale of any shares hereunder shall relieve
the Company of any liability in respect of the nonissuance or sale of such
shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an option, if, in the opinion of
counsel for the Company, assurances are required by any relevant provision of
the aforementioned laws, the Company may require the Optionee to give written
assurances satisfactory to the Company at the time of any such exercise (a) as
to the Optionee's knowledge and experience in financial and business matters
(and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters)
and that such Optionee is capable of evaluating, either alone or with the
purchaser representative, the merits and risks of exercising the option or (b)
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares. The foregoing requirements shall
be inoperative if the issuance of the shares upon the exercise of the option
has been registered under a then currently effective registration statement
under the Act.
At the option of the Company, a stop-transfer order against any shares
may be placed on the official stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold, or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require
such other action or agreement by the Optionees as may from time to time be
necessary to comply with the federal and state securities laws. NONE OF THE
ABOVE SHALL BE CONSTRUED TO IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the
stock subject to options granted hereunder be listed on a national securities
exchange or on the NASDAQ National Market, all stock issued hereunder if not
previously listed on such exchange or market shall, if required by the rules of
such exchange or market, be authorized by that exchange or market for listing
thereon prior to the issuance thereof.
SECTION 9. USE OF PROCEEDS. The proceeds received by the Company from
the sale of shares pursuant to the exercise of options granted hereunder shall
constitute general funds of the Company.
SECTION 10. AMENDMENT AND TERMINATION.
10.1 BOARD ACTION. The Board may at any time suspend, amend, or
terminate the Plan, provided, that no amendment shall be made without
shareholder approval within 12 months before or after adoption of the Plan if
such approval is necessary to comply with any applicable tax or regulatory
requirement, including any such approval as may be necessary to satisfy the
requirements for exemptive relief under Rule 16b-3 of the Exchange Act or any
successor provision. Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless the Company requests the consent of the person to whom the option
was granted and such person consents in writing thereto.
10.2 AUTOMATIC TERMINATION. Unless sooner terminated by the
Board, the Plan shall terminate ten years from the earlier of (a) the date on
which the Plan is adopted by the Board or (b) the date on which the Plan is
approved by the shareholders of the Company. No option may be granted after
such termination or during any suspension of the Plan. The amendment or
termination of the Plan shall not, without the consent of the option holder,
alter or impair any rights or obligations under any option theretofore granted
under the Plan.
SECTION 11. EFFECTIVENESS OF THE PLAN. The Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any
time within 12 months before or after the adoption of the Plan by the Board.
- 7 -
<PAGE>
FORWARD INDUSTRIES, INC.
[INCENTIVE][NONQUALIFIED] STOCK OPTION LETTER AGREEMENT
TO: ______________________
We are pleased to inform you that you have been selected by the Plan
Administrator of the Forward Industries, Inc. (the "Company") 1996 Stock
Incentive Plan (the "Plan") to receive a(n) [INCENTIVE] [NONQUALIFIED] option
for the purchase of ________ shares of the Company's common stock, $.01 par
value, at an exercise price of ________ per share (the "exercise price"). A
copy of the Plan is attached and the provisions thereof, including, without
limitation, those relating to withholding taxes, are incorporated into this
Agreement by reference.
The terms of the option are as set forth in the Plan and in this
Agreement. The most important of the terms set forth in the Plan are summarized
as follows:
Term. The term of the option is ten years from date of grant, unless
sooner terminated.
Exercise. During your lifetime only you can exercise the option. The
Plan also provides for exercise of the option by the personal representative of
your estate or the beneficiary thereof following your death. You may use the
Notice of Exercise in the form attached to this Agreement when you exercise the
option.
Payment for Shares. The option may be exercised by the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or bank certified or cashier's checks;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, shares of the capital stock of the Company held by you having a fair
market value at the time of exercise, as determined in good faith by the Plan
Administrator, equal to the exercise price;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with instructions
to the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the option
exercise price; or
(d) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price.
Acceleration. Notwithstanding the vesting schedule for the option set
forth below, the option will be automatically exercisable for the total number
of shares the subject of the option upon a "Change in Control,"(as defined
below), or if advised by the Plan Administrator in writing, upon any
actually-anticipated "Change in Control," unless otherwise advised in writing
by the Plan Administrator, who has complete discretion in determining the
specific conditions upon which the option is to accelerate in connection with a
Change in Control.
Termination. The option will terminate: (i) immediately upon
termination for cause, as defined in the Plan, or three months after cessation
of your relationship as a director of the Company, unless cessation is due to
death or total disability, in which case the option shall terminate 12 months
after cessation of such relationship; (ii) three months after a "Change in
Control", unless otherwise advised in writing by the Plan Administrator, who
has complete discretion in determining the specific conditions upon which the
option is to terminate in connection with a Change in Control, if at all.
Transfer of Option. The option is not transferable except by will or
by the applicable laws of descent and distribution or pursuant to a qualified
domestic relations order.
Vesting. The option is vested according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or
Affiliate From the Date Portion of Total Option
the Option is Granted Which is Exercisable
----------------------------------------------------------
1 year 37%
2 years 67%
3 years 100%
Date of Grant. The date of grant of the option is _______________.
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<PAGE>
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION.
CONSEQUENTLY, YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO
RECEIVE SHARES UPON SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR
TAX ADVISOR CONCERNING THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR
OPTIONS OR HOLDING OR SELLING THE SHARES UNDERLYING SUCH OPTIONS.
IN ADDITION TO THE FOREGOING, (I) IF YOU WERE A DIRECTOR, OFFICER OR
SHAREHOLDER OF THE COMPANY ON __________________________, YOU MAY NOT, PRIOR TO
________________________, NOTWITHSTANDING ANY REGISTRATION OR OTHER RIGHTS THAT
YOU MAY HAVE, DIRECTLY OR INDIRECTLY, OFFER, SELL, CONTRACT TO SELL, GRANT ANY
OPTION WITH RESPECT TO, TRANSFER, ASSIGN, PLEDGE OR OTHERWISE DISPOSE OF
(EITHER PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
OTHERWISE) ANY SHARES WHICH YOU RECEIVE UPON THE EXERCISE OF ANY OPTIONS
HEREUNDER, UNLESS YOU RECEIVE THE WRITTEN CONSENT OF [UNDERWRITERS] AND (II) IF
YOU WERE A DIRECTOR, OFFICER OR HOLDER OF 5% OR MORE OF THE COMPANY'S CAPITAL
STOCK ON ______________________, YOU MAY NOT, PRIOR TO _____________________,
NOTWITHSTANDING ANY REGISTRATION OR OTHER RIGHTS THAT YOU MAY HAVE, DIRECTLY OR
INDIRECTLY, OFFER, SELL, CONTRACT TO SELL, GRANT ANY OPTION WITH RESPECT TO,
TRANSFER, ASSIGN, PLEDGE OR OTHERWISE DISPOSE OF (EITHER PURSUANT TO RULE 144
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR OTHERWISE) ANY SHARES WHICH
YOU RECEIVE UPON THE EXERCISE OF ANY OPTIONS HEREUNDER, UNLESS YOU RECEIVE THE
WRITTEN CONSENT OF_______________________________________________.
You understand that, during any period in which the shares which may
be acquired pursuant to your option are subject to the provisions of Section 16
of the Securities Exchange Act of 1934, as amended (and you yourself are also
so subject), in order for your transactions under the Plan to qualify for the
exemption from Section 16(b) provided by Rule 16b-3, a total of six months must
elapse between the grant of the option and the sale of shares underlying the
option.
Please execute the Acceptance and Acknowledgment set forth below on
the enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
FORWARD INDUSTRIES, INC.
BY:_____________________________
NAME:
TITLE:
- 2 -
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
-----------------------------
I, a resident of the State of __________, accept the stock option
described above granted under the Forward Industries, Inc. 1996 Stock Incentive
Plan, and acknowledge receipt of a copy of this Agreement, including a copy of
the Plan. I have read and understand the Plan, including the provisions of
Section 8 thereof.
Dated: _____________________
_______________________________________ ___________________________________
Taxpayer I.D. Number Signature
By his or her signature below, the spouse of the Optionee, if such
Optionee is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by
all the terms and conditions of this Agreement and the Plan.
Dated: _____________________
______________________________
Spouse's Signature
______________________________
Printed Name
- 3 -
<PAGE>
NOTICE OF EXERCISE
------------------
The undersigned, pursuant to a [incentive] [nonqualified] Stock Option
Letter Agreement (the "Agreement") between the undersigned and Forward
Industries, Inc. (the "Company"), hereby irrevocably elects to exercise
purchase rights represented by the Agreement, and to purchase thereunder
_______ shares (the "Shares") of the Company's common stock, $.01 par value
("Common Stock"), covered by the Agreement and herewith makes payment in full
therefor.
1. If the sale of the Shares and the resale thereof has not, prior to
the date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"),
the undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own
account (and not for the account of others), for investment and not with a view
to the distribution or resale thereof;
(b) By virtue of his or her position, the undersigned has access
to the same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) The certificates representing the Shares may contain a legend
to the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been
registered pursuant to a registration statement filed and declared effective
under the Act, the undersigned hereby represents and warrants that he or she
has received the applicable prospectus and a copy of the most recent annual
report, as well as all other material sent to shareholders generally.
3. The undersigned acknowledges that the number of shares of Common
Stock subject to the Agreement is hereafter reduced by the number of shares of
Common Stock represented by the Shares.
Very truly yours,
------------------------------------
(type name under signature line)
Social Security No.
----------------
Address:
---------------------------
------------------------------------
<PAGE>
FORWARD INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS - _______, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder in Forward Industries, Inc. ("Company") hereby
constitutes and appoints Theodore H. Schiffman, William Mooar and Stephen
Schiffman, and each them, his true and lawful attorneys and proxies, with full
power of substitution in and for each of them, to vote all shares of the
Company which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held at the ___________________, __________, New York, on
________, _________, 1997 [10:00] a.m., Eastern Standard Time, or at any
postponement or adjournment thereof, on any and all of the proposals contained
in the Notice of the Annual Meeting of Shareholders, with all the powers the
undersigned would possess if present personally at said meeting, or at any
postponement or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR THE APPROVAL OF
PROPOSALS 2, 3, 4, 5 AND 6.
(Continued and to be signed and dated on the other side)
<PAGE>
THE DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 2, 3, 4, 5 AND 6.
Please mark
[X] your votes
as this
example
--------
COMMON
1. Election of Directors FOR All WITHHOLD
[ ] [ ]
nominees listed AUTHORITY
(except as to vote for all
marked in the nominees
contrary, see listed at left
instruction
below)
Theodore H. Schiffman, William E.
Mooar, Michael Schiffman and Noah
Fleschner
INSTRUCTION: To withhold authority to vote for any individual nominee,
line through the name of the nominee above.
FOR AGAINST ABSTAIN
2. Proposal to approve an amendment to [ ] [ ] [ ]
the Company's Certificate of
Incorporation, to increase the
authorized shares of common stock
to 40,000,000.
FOR AGAINST ABSTAIN
3. Proposal to approve an amendment to [ ] [ ] [ ]
the Company's Certificate of
Incorporation, to create a series
of "blank check" preferred stock.
4. Proposal to approve reverse stock [ ] [ ] [ ]
split of the Company's Common
Stock.
5. Proposal to approve the Forward [ ] [ ] [ ]
Industries, Inc. 1996 Stock
Incentive Plan.
6. Proposal to ratify Miller, Ellin [ ] [ ] [ ]
& Company as independent auditors.
The above named proxies are granted the authority, in their discretion, to
act upon such other matters as may properly come before the meeting or any
postponement or adjournment thereof.
Dated , 1996
--------------------------------------
Signature(s)
-------------------------------------
Signatures
---------------------------------------
Please sign exactly as your name appears and return this proxy immediately
in the enclosed stamped self-addressed envelope.
