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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the transition period from to
Commission file number 0-6669
FORWARD INDUSTRIES, INC.
(Name of small business issuer in its charter)
New York 13-1950672
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
275 Hempstead Turnpike, West Hempstead, NY 11552
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(Address of principal executive offices) (Zip Code)
(516) 564-1100
(Issuer's Telephone Number, including Area Code)
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $12,736,329.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days:
Approximately $10,152,848.00, based on the average of the closing bid
price ($2.312) and closing asked price ($2.500) as reported on the
NASDAQ SmallCap Market on December 23, 1997.
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
As of December 23, 1997, 4,895,531 Shares of Common Stock, $.01 par
value
Transitional Small Business Disclosure Format: Yes ; No X
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PART I
This Annual Report on Form 10-KSB contains forward looking statements
that involve certain risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward looking
statements. All information in this Form 10-KSB has been retroactively
adjusted to give effect to a one- for-two reverse stock split (the "Split") of
the Company's issued and outstanding common stock, par value $.01 per share
("Common Stock") effected on December 23, 1997.
ITEM 1 - DESCRIPTION OF BUSINESS
GENERAL
Forward Industries, Inc. ("Forward" or the "Company") was incorporated
in 1961 under the laws of the State of New York. For several years prior to the
acquisition of its business of manufacturing soft-sided carrying cases (see
"Products") in 1989, the Company's sales were approximately equally divided
between those of vinyl advertising specialties and looseleaf ring and post
binders manufactured by the Company. During the past three years, the carrying
case business has progressively become the most significant of the Company's
operations. In September 1997, the Company sold its assets relating the
production of advertising specialities and ceased operating that portion of
its business. As used herein, the term "Company" includes Forward and its
wholly-owned subsidiaries.
Since a growing portion of the Company's production of carrying cases
is being made in the Asian market, and the Company desires to promote sales to
this market, a senior officer of the Company has been residing in Hong Kong
since July 1995 (see "Marketing and Distribution").
In December 1996, the Board of Directors of the Company (the "Board")
adopted, and in August 1997 the shareholders of the Company approved, the
Company's 1996 Stock Incentive Plan (the "Incentive Plan ") which authorizes
the issuance of up to 4,000,000 shares of the Company's common stock, $.01 par
value ("Common Stock"). The Company has issued options to purchase 871,250
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 and Executive Vice President; and options to
purchase 150,000 shares to the Company's President. The Company intends to
grant to the President of the Company options to purchase an additional
250,000 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.
The Company has its principal executive offices at 275 Hempstead
Turnpike, West Hempstead, New York 11552. The Company's principal
manufacturing facility is located at 702 South Chapin Street, South Bend,
Indiana 46624 (the "South Bend Facility"). The Company also maintains
additional office and manufacturing facilities in Indiana and
warehouse/quality control facilities and an office in Hong Kong. See Item 2
"Description of Property."
PRODUCTS
Carrying Cases. The Company designs and manufactures custom
soft-sided carrying cases and bags from leather, nylon, vinyl and other
synthetic fabrics (the "carrying case business"). These carrying cases and
bags are utilized for transporting portable products such as cellular
telephones, medical instruments, computers, and hand tools. The carrying case
business accounted for approximately 85% of the Company's net sales during its
fiscal year ended September 30, 1997 ("Fiscal 1997"), and approximately 82%
and 80% of such net sales during its fiscal year ended September 30, 1996
("Fiscal 1996") and its fiscal year ended September 30, 1995 ("Fiscal 1995"),
respectively. Since its acquisition of the carrying case business in 1989, the
Company has concentrated its marketing and development efforts on original
equipment manufacturers in the communications (principally cellular
telephones), computer and medical instrumentation industries. In April 1995,
the Company expanded its product line to include laptop/notebook computer
cases marketed for general retail distribution under the Terrapin(TM) brand
name. See "Marketing and Distribution."
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Advertising Specialties. Through Fiscal 1997, the Company also was
engaged in the design, manufacture and sale of advertising specialties
fabricated from vinyl (the "advertising specialties business"). Advertising
specialties are "intrinsically useful" articles which have imprinted on them
an advertiser's name and advertising message and are usually distributed by
the advertiser without cost to the recipients. Advertising specialties may
also be utilized as promotional gift items, in which event they generally do
not have advertising imprinted on them and are usually distributed to the
recipients as an incentive or in exchange for the performance by them of some
act, usually the purchase of a product. The principal categories of vinyl
advertising specialties manufactured by the Company included, but were not
limited to, billfolds, clipboards, correspondence folders, credit card
holders, diaries, document holders, key cases, memo books, phone indexes,
pocket and desk planners and portfolios. The advertising specialties line
accounted for approximately 5% of the Company's net sales during Fiscal 1997,
and approximately 18% and 20% of such sales during Fiscal 1996 and 1995,
respectively. The advertising specialties business was sold in September 1997
in consideration for $500,000 in cash and a secured promissory note in the
principal amount of $850,000, (an aggregate of $1,350,000, which is subject
to adjustment pending an inventory valuation). In addition, the buyer agreed
to assume certain liabilities of a subsidiary, including a portion of it's
lease obligations with respect to the South Bend Facility.
MARKETING AND DISTRIBUTION
Carrying Cases. The Company markets its custom carrying cases to
original equipment manufacturers, principally in the communications, medical,
computer and testing and measurement equipment industries. Such cases are
manufactured to customer specifications and usually bear the customer's
identifying logo imprint. During Fiscal 1997 approximately 40% of the
Company's sales were made through five independent sales representative
organizations who receive a commission equal to 5% of net sales made by them.
The balance of such sales were made by Company personnel. In Fiscal 1997,
approximately 15% of such sales were made to customers outside of the United
States (approximately 5% and 10% in Fiscal 1996 and 1995, respectively). The
Company is increasing its emphasis upon such foreign sales in Asia and Europe.
The Company has no long-term agreements with any of its customers. Two of the
Company's customers, Bayer Corporation (formerly Miles, Inc.) and Ericsson GE
Mobile Communications, Inc., together with their respective affiliates,
accounted for approximately 28% and 21%, respectively, of the Company's net
sales from continuing operations during Fiscal 1997, while four of the
Company's customers, Motorola, Inc., Bayer Corporation (formerly Miles, Inc.),
LifeScan, Inc. (a Johnson & Johnson Company), and Boehringer Manheim, together
with their respective affiliates, accounted for approximately 4%, 12%, 8% and
14% , respectively, of such net sales in Fiscal 1996. The loss of any of these
customers would have a material adverse effect on the Company. In order to
reduce its reliance upon major customers, whose orders may vary substantially
from period to period depending upon the success of their products utilizing
the Company's carrying cases, the Company is seeking to increase and diversify
its customer base, particularly in Asia (to which no sales were made in Fiscal
1995) and Europe. The Company presently has approximately 120 active carrying
case customers.
In April 1995, the Company commenced marketing a line of notebook
computer carrying cases to retailers and consumers under the Terrapin(TM)
brand name. These cases, which are manufactured in nylon, leather and
hardshell thermoformed materials, provide storage space for a computer and
related items and may be utilized as a "portable office" by the computer user.
Although sales of the Terrapin(TM) products did not meet expectations in
Fiscal 1995, sales improved substantially in Fiscal 1996. Management believes
that the growth of the notebook computer market offers it an opportunity to
diversify its product line, to sell to customers other than original equipment
manufacturers, and to establish a brand identity for its products under the
Terrapin(TM) name. The target sales areas for this line are large retail chain
computer outlets, large direct mail order houses and small computer equipment
manufacturers and resellers.
Advertising Specialties. Through Fiscal 1997, the Company sold
substantially all of its advertising specialties within the United States.
Most sales were to sales promotion and advertising distributors who placed
orders from a full-color product catalog prepared by the Company. These
distributors placed their orders with the Company for specific products
requested by their customers. The average order placed by a distributor was
approximately $300-500. The distributor was billed directly by the Company and
the distributor, in turn, billed its customers. The Company marketed its
advertising specialties under its registered trademark FORWARD(R). A small
percentage of sales were made directly to retailers. The Company sold its
assets related to this product
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line, together with its registered trademark FORWARD(R), in September 1997, at
which time it ceased producing and selling advertising specialities.
Backlog. At September 30, 1997, the Company's backlog of unfilled
orders was approximately $1,969,000, as compared to an order backlog of
approximately $3,230,000 at September 30, 1996 (of which approximately $230,000
was attributable to the discontinued advertising specialties business). The
Company anticipates that all of its backlog will be shipped during the current
fiscal year.
Credit Risk. The Company sells its products on credit terms customary
in the industry, and has not had significant credit problems with its
customers. At September 30, 1997, three of the Company's largest customers
accounted for approximately 46% of the Company's accounts receivable (three
customers accounting for 53% at September 30, 1996). Any failure of such
customers to pay the sums they owe to Company when due would have a material
adverse effect on the Company.
Certain Seasonal Sales. The Company's sales of advertising
specialties were seasonal. Historically, the largest portion of such sales
occurred during the quarter ending December 31. Such seasonal pattern is in
large measure due to increased demand for such products at Christmas time for
use as gifts and promotions.
PRODUCTION AND MATERIALS
The principal materials used by the Company in the manufacture of its
products are vinyl, nylon and other synthetic fabrics, leather, metal and
plastic parts (such as corners, clasps, buckles, loops, and hinges and other
hardware), foam padding, cardboard, pads and pencils, all of which are
obtained according to the Company's specifications from domestic and foreign
suppliers. The Company does not have any long-term agreements with any
supplier and there are adequate available alternative sources of supply for
all of its materials. The Company maintains an adequate inventory of all of
its materials to meet normal anticipated production needs for those products
to be manufactured by the Company.
Manufacturing of custom carrying cases generally consists of die
cutting fabrics, leather and vinyl from rolls, heat sealing, gluing, sewing,
and decorating (affixing logos) by means of silk screening, hot-stamping,
embroidering, or embossing.
Where costs and other factors permit, the Company manufactures its
carrying cases at the South Bend Facility. In order to achieve lower
production costs for its products and to enable the Company to increase its
production capacity without incurring significant capital costs for expanded
facilities and equipment, the Company has, since 1992, utilized foreign
contractors to manufacture its carrying cases to the extent practicable. Such
foreign contractors produced approximately 63% of the Company's carrying cases
in Fiscal 1997 and approximately 63% in Fiscal 1996. The Company does not have
any written agreements with any of such contractors to continue to supply the
Company with finished product. Management anticipates that a substantial
portion of its products will be manufactured by foreign contractors over the
next term.
During Fiscal 1997, one of such foreign contractors produced
approximately 44% of the Company's carrying cases and approximately 30% in
Fiscal 1996. The failure of such contractor to continue to supply the Company
with product would have a material adverse effect on the Company.
In order to assure that product manufacturing by foreign contractors
meets the Company's standards, the Company maintains a quality control
inspection facility in Hong Kong. The Company experienced quality control
problems with some of its product manufactured by foreign contractors in the
first quarter of Fiscal 1996. Such problems have been corrected and management
is working with suppliers and customers to assure no repetition of these
problems.
The Company's overseas contractors are located principally in Asia,
but the Company intends (if it has the funds available) to expand its
production capability in Europe as well as in Asia. Management believes that
such expansion will facilitate delivery of product to foreign customers and
provide for lower cost production of carrying cases for which there is
significant demand. Such expansion will require further financing, for which
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no arrangements have been made. In some instances, the Company may provide
equipment to overseas contractors or share in its cost.
Because of the growing importance of foreign production to the
business of the Company, management determined that it would be in the best
interests of the Company to assign Michael Schiffman, Executive Vice
President, to be resident in Hong Kong commencing in July 1995 for a period to
be determined. Mr. Schiffman's primary responsibilities in Hong Kong are to
identify foreign contractors which meet the Company's standards as to service,
price and quality, to diversify such production sources to minimize continued
dependence on a small group of suppliers, to enable the Company to allocate
production projects among the most efficient producers, and to supervise the
quality control operations. In addition, Mr. Schiffman is engaged in
establishing marketing and distribution arrangements for the Company's
Terrapin(TM) line in Asia. The Company intends to employ a successor to Mr.
Schiffman for such duties at the completion of his Hong Kong stay.
Manufacturing of advertising specialties (all of which was conducted
in the United States) generally consisted of die cutting vinyl from rolls,
heat sealing or sewing the vinyl trimming, fastening the metal findings,
imprinting the product by stamping, silk screening or embossing and inserting
any appropriate pads, calendars, pencils and identification labels.
Most of the advertising specialties were, and all of the custom
carrying cases are, manufactured to customer order. The balance of the
products are manufactured for inventory. Products are shipped to customers by
common carrier.
COMPETITION
The business in which the Company engages is highly competitive and
there are competitors which are substantially larger than the Company and have
greater financial and other resources. In the production of carrying cases for
original equipment manufacturers, the Company competes with approximately
1,500 United States and foreign producers. Management believes that the
Company maintains its competitive position through maintenance of an extensive
line of products, design capability, strategic pricing policies, reliable
product delivery and quality.
EMPLOYEES
At September 30, 1997, the Company had approximately 135 full-time
employees, of whom five are employed in executive capacities, 26 are employed
in administrative and clerical capacities, 18 are employed in sales capacities
and the balance in production and warehouse capacities. The number of the
Company's production and warehouse employees varies from approximately 75 to
100, depending on seasonal production requirements. From time to time, use is
made of full-time temporary workers (zero at September 30, 1997) employed by
personnel agencies which provide their services to the Company. The Company
employs approximately 10 quality control inspectors in its Hong Kong quality
control facility. The Company considers its employee relations to be
satisfactory.
ENVIRONMENTAL PROTECTION
Compliance with Federal, state and local laws and regulations
pertaining to the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had, and is not
anticipated to have, any material effect upon the capital expenditures,
earnings or competitive position of the Company.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company, through a subsidiary, leases manufacturing and office
space at 702 South Chapin Street, South Bend, Indiana on a net lease basis
through March 31, 1999 at an annual rental of $204,000 plus real estate taxes
thereon (which aggregated approximately $72,000 during Fiscal 1997 on an
accrual basis).
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These premises have a total floor area of approximately 80,000 square feet,
70,000 square feet of which are used for manufacturing and storage, and the
balance of which are used for offices. The Subsidiary sublets out a portion of
this leased premises, consisting of approximately 22,000 square feet, at a
monthly rental of $4,550. The Subsidiary also owns and utilizes, for
warehousing purposes, a building at 713 Scott Street, South Bend, Indiana,
which it purchased in 1990 for $125,000. The Company also leased approximately
5,300 square feet of additional office space in Mishawaka, Indiana at monthly
net rentals ranging from $2,500 to $5,000, plus taxes and utility charges.
Such lease was terminated in July 1997, at a cost to the Company of
approximately $129,000 consisting of termination expenses and abandonment of
leasehold improvements. The Company also leased a small manufacturing facility
in LaPorte, Indiana at a monthly rental of $1,080 through July 1997, which
lease was not renewed.
The Company, through a Hong Kong subsidiary, leases warehouse
facilities in Hong Kong (pursuant to a lease running through May 1999) at
which its quality control inspection facilities are also located, at a monthly
rental of approximately $4,700, and, in connection with the assignment of
Michael Schiff man to Hong Kong (see Item 1 - "Description of
Business-Production and Materials"), has leased an apartment in Hong Kong
through at a monthly rental of approximately $9,000.
The Company considers its properties in Indiana to be suitable and
adequate for its present and contemplated use thereof.
The Company leases office space for its executive offices at 275
Hempstead Turnpike, West Hempstead, New York, on a month-to-month basis at a
rental of approximately $1,500 per month.
The Company owned approximately one acre of land in Brooklyn, New
York on which a two story building containing approximately 45,500 square feet
of space is located. The building was originally utilized for Company
operations and then leased to others. The Company had granted a first mortgage
on this property as security for a loan to the Company in the original
principal amount of $1,200,000. On December 4, 1997 the Company consummated
the sale of this property in consideration for $830,000 in cash. The proceeds
from the sale were used to pay down a portion of the Company's outstanding
mortgage obligations with respect to the property, the balance of which was
paid by the Company. The Company paid a brokerage fee of $53,100 in connection
with this transaction.
Management believes that all of its properties are adequately covered
by insurance.
ITEM 3 - LEGAL PROCEEDINGS
By notice dated November 14, 1995, Metal Craft Union Local 238 (which
had represented certain employees of the Company commenced an arbitration
against the Company through the facilities of the New York State Employment
Relations Board to determine whether the Company was in violation of its
obligations to the Local 238 Pension Fund by its failure to pay withdrawal
liability thereto by reason of the Company's withdrawal from the pension fund
upon the closing of its Bindercraft and Republic Clear-Thru divisions in 1994
and 1995. In settlement of this claim, the Company agreed on December 27, 1995
to pay $125,000 to the pension fund ($35,000 within thirty days and the
balance in quarterly installments of $11,250 through January 1998 thereafter).
Payments under this settlement have been made on a timely basis and, at
September 30, 1997, payments aggregating $22,500 remained outstanding.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 7, 1997 the Company held its Annual Meeting of
Shareholders. The holders of 4,138,141 shares of Common Stock of the Company
were entitled to vote at the meeting and the holders of 3,949,758 shares of
Common Stock, or 95% of shares entitled to vote at the meeting, were
represented by proxy. No shareholders were present in person. The following
actions took place:
1. The holders of 3,899,769 shares of Common Stock voted for the election of
Theodore H. Schiffman to continue to serve as a director of the Company and
the holders of 49,990 shares of Common Stock abstained
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from voting. The holders of 3,891,069 shares of Common Stock voted for the
election of Michael Schiffman to continue to serve as a director of the
Company and the holders of 58,690 shares of Common Stock abstained from
voting. The holders of 3,891,069 shares of Common Stock voted for the election
of William E. Mooar to continue to serve as a director of the Company and the
holders of 48,690 shares of Common Stock abstained from voting. The holders of
3,901,426 shares of Common Stock voted for the election of Noah Fleschner to
continue to serve as a director of the Company and the holders of 48,690
shares of Common Stock abstained from voting. No shareholders voted against
any of the nominees.
2. The shareholders approved 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." The holders of 3,752,876 shares of Common Stock
voted for the proposal, the holders of 360,965 shares of Common Stock voted
against the proposal and the holders of 16,400 shares of Common Stock
abstained from voting.
3. The shareholders approved 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." The holders of
2,642,571 shares of Common Stock voted for the proposal, the holders of
185,022 shares of Common Stock voted against the proposal and the holders of
29,103 shares of Common Stock abstained from voting.
4. The shareholders approved a proposal to effectuate a one-for-two reverse
stock split of the Company's Common Stock. The holders of 3,703,628 shares of
Common Stock voted for the proposal, the holders of 446,575 shares of Common
Stock voted against the proposal and the holders of 22,843 shares of Common
Stock abstained from voting.
5. The shareholders approved a proposal to adopt the Company's Stock Incentive
Plan. The holders of 2,615,696 shares of Common Stock voted for the proposal,
the holders of 417,909 shares of Common Stock voted against the proposal and
the holders of 64,092 shares of Common Stock abstained from voting.
6. Finally, the shareholders ratified the appointment of Patrusky, Mintz &
Semel, as independent accountants of the Company for the fiscal year ending
September 30, 1997. The holders of 3,875,102 shares of Common Stock voted for
the ratification, the holders of 54,321 shares of Common Stock voted against
the ratification and the holders of 20,336 shares of Common Stock abstained
from voting.
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PART II
ITEM 5 - MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE COMMON STOCK. The principal market for the Company's
Common Stock is the NASDAQ SmallCap Market. The following table sets forth the
high bid and low bid quotations from the NASDAQ SmallCap Market, for the
fiscal quarters set forth below. These quotations (and those for the Class A
Warrants and Class B Warrants shown below) represent prices between dealers,
do not include retail markup, markdown or commission and do not necessarily
represent actual transactions.
Common Stock
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Period High Bid Low Bid
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Fiscal 1997
First Quarter $5.250 $0.876
Second Quarter 1.562 0.626
Third Quarter 2.126 1.250
Fourth Quarter 2.126 1.062
Fiscal 1996
First Quarter $20.500 $12.000
Second Quarter 20.750 9.500
Third Quarter 13.500 8.406
Fourth Quarter 13.500 4.250
On December 23, 1997, the closing bid quotation for the Common Stock
was $2.312 per share.
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MARKET FOR THE CLASS A WARRANTS AND THE CLASS B WARRANTS. The
Company's Class A Warrants and Class B Warrants have been traded in the
over-the-counter market since September 13, 1995. The Company's Class A
Warrants expired and ceased trading on December 31, 1996. The following table
sets forth the high and low bid prices for the warrants as reported by the
National Quotation Bureau from the Pink Sheets and the OTC Bulletin Board for
the fiscal quarters set forth below:
Class A Warrants Class B Warrants
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Period High Bid Low Bid High Bid Low Bid
------ -------- ------- -------- -------
Fiscal 1997
First Quarter $6.000 $1.000 $3.000 $1.000
Second Quarter --- --- 1.516 0.016
Third Quarter --- --- 1.250 0.016
Fourth Quarter --- --- 1.250 0.063
Fiscal 1996
First Quarter $2.500 $0.063 $2.000 $0.031
Second Quarter 6.000 1.000 5.000 1.000
Third Quarter 7.500 6.000 5.500 3.500
Fourth Quarter 6.500 3.000 4.500 1.000
On December 23, 1997, the closing bid quotation was $0.15 for the
Class B Warrants.
HOLDERS OF COMMON STOCK. On December 23, 1997, there were
approximately 230 holders of record of the Company's Common Stock.
HOLDERS OF CLASS B WARRANTS. On December 23, 1997, there were
three holders of record of the Class B Warrants.
DIVIDENDS. The Company has not paid any cash dividends since 1987 and
does not plan to pay cash dividends in the foreseeable future. The payment of
dividends will depend upon the Company's outstanding loan arrangements as well
as its short-term and long-term cash availability, working capital, working
capital needs and other factors, as determined by the Company's Board of
Directors. The Company's current credit arrangements preclude the Company from
paying dividends.
SALE OF UNREGISTERED SECURITIES. On December 4, 1997 the Company
consummated a private offering (the "1997 Private Placement") of securities
consisting of units ("Units"), each comprised of (i) 30,000 shares of Common
Stock, (ii) one warrant (a "Private Placement Warrant ") to purchase up to
30,000 shares of Common Stock at $4.00 per share and (iii) one unsecured
convertible promissory note in the principal amount of $10,000, bearing
interest at a rate of 10% per annum (convertible at the sole option of the
Company under certain circumstances, into 20,000 shares of Common Stock and
one Private Placement Warrant) maturing on December 4, 1998. 55.4 Units were
sold for $25,000 per unit, aggregating $1,385,000, including $554,000
aggregate principal amount of debt. A commission of $169,000 was paid by the
Company in connection with such sales. The sales were made to accredited
investors pursuant to Regulation D promulgated under the Securities Act of
1933, as amended.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
IN REVIEWING MANAGEMENT'S DISCUSSION AND ANALYSIS, REFERENCE SHOULD
BE MADE TO THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED AS ITEM 7
- -"FINANCIAL STATEMENTS" IN THIS ANNUAL REPORT ON FORM 10-KSB.
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The following discussion and analysis compares the results of the
Company's continuing operations for the years ended September 30, 1997 (the
"1997 Period"), 1996 (the "1996 Period") and 1995 (the "1995 Period"). The
information and comparative data presented herein reflects the elimination of
the Company's advertising specialties division (the "Advertising Specialties
division").
TWELVE MONTHS ENDED SEPTEMBER 30, 1997 (THE "1997 PERIOD") COMPARED WITH
TWELVE MONTHS ENDED SEPTEMBER 30, 1996 (THE "1996 PERIOD").
The profit in the 1997 Period of $139,434 is a significant
improvement from the ($1,183,563) loss in the 1996 Period. Earnings per share
increased from a loss of ($.54) in the 1996 Period to a profit of $.04 in the
1997 Period.
REVENUES.
Net sales decreased $1,943,459 (13.2%) to $12,736,329 in the 1997
Period, from $14,679,788 in the 1996 Period. The Company's retail Terrapin(R)
line accounted for a decrease of $220,764. The decrease reflects lower custom
case sales because of declined volume with three large customers.
OPERATING INCOME.
Consolidated income from continuing operations increased by
$2,320,377 to a profit of $1,003,487 in the 1997 Period, up significantly from
a ($1,226,890) loss in the 1996 Period.
Although net sales decreased in the 1997 Period, gross profits and
margin increased significantly. Gross profit increased $1,603,606 (57.4%) to
$4,395,959 in the 1997 Period up from $2,792,353 in the 1996 Period. The gross
margin improved 15.5 percentage points to 34.5% in the 1997 Period up from
19.0% in the 1996 Period. These operating improvements reflect the cumulative
impact of numerous management programs focused on increasing manufacturing
efficiencies, raising quality standards and eliminating unprofitable product
offerings.
Distribution expenses decreased $46,874 (56.2%) from $83,377 in the
1996 Period to $36,503 in the 1997 Period and from .6% of net sales in the
1996 Period to .3% in the 1997 Period, primarily as a result of better control
of import shipping expenses.
Selling expenses decreased $649,143 (32.1%) from $2,020,546 in the
1996 Period to $1,371,403 in the 1997 Period. In the 1997 Period, the ratio of
selling expenses to net sales was 10.8% down from 13.8% in the 1996 Period.
The decrease in selling expenses in the 1997 Period was primarily the result
of a 42.5% decrease in sales salaries and commissions reflecting a curtailed
level of sales staffing coupled with lower sales volume, and lower travel and
advertising expenses, all partially offset by increased samples expenditures
and trade show expenses.
General and administrative expenses increased as a percent of net
sales from 13.1% in the 1996 Period to 15.6% in the 1997 Period, while the
amount increased by $69,246 (3.6%) to $1,984,566 in the 1997 Period from
$1,915,320 in the 1996 Period. The increase in general and administrative
expenses consisted primarily of increases in salaries, reflecting key
management additions, higher Hong Kong operational expenses, and increased
travel related to cost containment efforts, all partially offset by lower
group insurance cost, costs associated with the opening of letters of credit
for overseas sourcing of carrying cases, and employment fees coupled with
workmen's compensation and group health insurance refunds (total refunds of
$87,842).
OTHER INCOME (DEDUCTIONS).
Total interest expenses decreased by $29,742 (13.0%) to $199,915 in
the 1997 Period from $229,657 in the 1996 Period due to lower borrowing levels
reflecting repayments of debt.
The Company's rental building in Brooklyn, New York, was partially
leased during both the 1997 and 1996 Periods. Rental income - net increased
from a loss of ($113,968) in the 1996 Period to a loss of ($170,461) in the
1997 Period as a result of lower rental receipts.
- 10 -
<PAGE>
Other income - net decreased $149,838 in the 1997 Period from the
1996 Period resulting primarily from the write-off of a receivable on the sale
of fixed assets ($30,000) and the closing of a sales office ($129,245).
Income from continuing operations increased significantly to a
$362,160 profit in the 1997 Period, up $1,214,846 from a ($852,686) loss in
the 1996 Period.
DISCONTINUED OPERATIONS
On September 30, 1997, the Company sold its Advertising Specialties
division. These discontinued operations showed a operating loss of ($547,055)
in the 1997 period partially offset by a $324,329 gain on the sale of those
operations, compared with a $330,877 operating loss related to those
operations in the 1996 Period.
INCOME TAXES
The effective tax rate for both continued and discontinued operations
in the 1997 Period was 41.9% compared to 40.7% rate in the 1996 Period. The
differential in rates occurred primarily due to the balance sheet approach
used to calculate deferred income taxes for the 1996 Period.
TWELVE MONTHS ENDED SEPTEMBER 30, 1996 (THE "1996 PERIOD") COMPARED WITH
TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (THE "1995 PERIOD")
The loss in the 1996 Period increased to $(1,183,563) from
$(1,033,702) in the 1995 Period. Loss per share decreased from a loss of
$(.64) in the 1995 Period to a loss of $(.54) in the 1996 Period.
REVENUES
Net sales increased $2,274,308 (18.3%) to $14,679,788 in the 1996
Period, from $12,405,480 in the 1995 Period. The Company's Terrapin(TM) line,
which was introduced in April 1995, accounted for $877,487 of the increase in
sales.
OPERATING INCOME
Consolidated income (loss) from operations before other income
increased to a loss of $(1,226,890) in the 1996 Period from $(314,306) loss in
the 1995 Period.
Gross profit increased from $2,365,729 in the 1995 Period to
$2,792,353, an increase of $426,624 (18.0%). The increase was due to the
sales increase as gross profit for both years was 19.0%.
Distribution expenses increased $32,736 (64.6%) from $50,641 in the
1995 Period to $83,377 in the 1996 Period, primarily as a result of increases
in import shipping expenses.
Selling expenses increased $745,575 (58.5%) from $1,274,971 in the
1995 Period to $2,020,546 in the 1996 Period. In the 1996 Period, the ratio of
selling expenses to net sales was 13.8%, compared to 10.3% in the 1995 Period.
The increase in selling expenses in the 1996 Period was primarily the result
of an increase in sales salaries and commissions due to the increased level of
sales and to the employment of additional sales staff for the Terrapin(TM)
line and an additional sales person in Europe, increased advertising
expenditures primarily directed toward the launching of the Terrapin(TM) line,
additional rent for a new sales office opened after the 1995 Period and an
increase in travel expenses primarily related to Terrapin(TM) and to European
sales efforts.
General and administrative expenses increased by $560,897 (41.4%) to
$1,915,320 from $1,354,423 in the 1995 Period, consisting primarily of
increases in professional fees, employment fees, costs attendant to the
opening of substantial letters of credit required for the increased overseas
production of carrying cases, and increases in managerial compensation
including associated taxes and fringe benefits.
- 11 -
<PAGE>
OTHER INCOME (DEDUCTIONS) AND TAXES
Total interest expenses increased by $112,961 (96.8%) to $229,657 in
the 1996 Period from $116,696 in the 1995 Period due to significantly higher
borrowing levels.
The Company's rental building in Brooklyn, New York, was unoccupied
during a portion of the 1995 Period and partially leased during the 1995
Period. Rental income - net was reduced from a loss of $(127,097) in the 1995
Period to a loss of $(113,968) in the 1996 Period as a result of rental income
received offset by increased real estate taxes and interest.
The effective tax credit rate in the 1996 Period was 40.7% compared
to a provision for income taxes of 39.6% in the 1995 Period. The differential
occurred primarily due to the balance sheet approach used to calculate
deferred income taxes.
DISCONTINUED OPERATIONS
The discontinued operations of the Advertising Specialties division
showed an operating loss of $(330,877) in the 1996 Period versus an operating
income of $41,469 for the 1995 Period.
LIQUIDITY AND CAPITAL RESOURCES.
In the 1997 Period, $336,361 of cash was provided by operating
activities. This increase in operational cash resulted from: net income in the
1997 Period of $139,434; an increase of accounts payable $368,789; decreased
deferred taxes of $94,234; lower prepaid and various other assets of $55,784
and lower inventories of $318,327. An increase of accounts receivable of
($113,933); and expenses and other accrued liabilities ($149,682) offset cash
provided from operations.
Net investing activities in the 1997 Period provided cash of $27,570.
The Company collected $25,000 on the sale of its Advertising Specialities
division, $69,996 of notes receivable, which arose from the sale of its
discontinued operations in 1994 and collected $70,231 of loans made to its
officers. In the 1997 Period, the Company purchased $137,657 of property,
plant and equipment.
Financing activities in the 1997 Period provided cash of $793,053. As
a result of the Company's private placement, the Company received $538,500 for
the issuance of common stock and $359,000 for the issuance of convertible
notes payable. The Company also received $185,000 for the units that did not
close by September 30, 1997. The Company incurred offering costs of $190,042
and debt costs of $111,664, which are being amortized over the term of the
notes (see below for a detailed explanation of the private placement). Funds
were used for payments of long-term notes payable of $177,720 and for the
mortgage of $15,164.
On February 14, 1996, the Company obtained a thirteen month loan of
$250,000 bearing interest at 10% per annum. The loan was convertible, under
certain conditions at the option of the lender, into shares of the Company's
Common Stock at a conversion of $2.00 per share. In October 1996, $100,000 of
such debt was converted into 100,000 shares of Common Stock. The balance of
the note has been paid in full in October 1997.
The Company's registration statement on Form SB-2 filed with the
Securities and Exchange Commission for the registration of 1,450,000 shares of
its Common Stock issuable upon exercise of certain outstanding warrants was
declared effective by the Commission on March 25, 1996. As of September 30,
1997, such warrants exercisable for 219,000 shares at $5.00 per share and
87,500 shares at $2.00 per share, remained outstanding. In the 1997 Period,
certain warrants were exercised and the Company issued 100,000 shares for a
total of $1,000. The Company's Common Stock is traded on the Nasdaq SmallCap
Market and, during the first days immediately preceding December 23, 1997, was
trading in the range of approximately $2.40 per share. The Company anticipates
that holders of its remaining outstanding warrants will continue to exercise
such warrants only if the Common Stock trades at a substantial premium over
the exercise price of the warrants, of which there can be no assurance.
- 12 -
<PAGE>
During Fiscal 1997 and in December 1997, the Company consummated the
1997 Private Placement of Units, each unit comprised of (i) 30,000 shares of
Common Stock, (ii) one Private Placement Warrant to purchase up to 30,000
shares of Common Stock at $4.00 per share and (iii) one unsecured convertible
promissory note in the principal amount of $10,000, bearing interest at a rate
of 10% per annum (convertible at the sole option of the Company under certain
circumstances, into 20,000 shares of Common Stock and one Private Placement
Warrant) maturing on December 4, 1998. 55.4 Units were sold for $25,000 per
unit, aggregating $1,385,000, including $554,000 aggregate principal amount
of debt. A commission in the amount of $169,000 was paid by the Company in
connection with such sales. The sales were made to accredited investors
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended.
Forward and Koszegi Industries, Inc., a wholly-owned subsidiary of
Forward ("Koszegi"), have a line of credit with their bank and are indebted to
such bank for short-term borrowings and acceptances. The total line is for
$1,100,000 of which $750,000 is reserved for letters of credit (acceptances).
The line of credit was scheduled to mature on August 15, 1996 but was
extended to February 28, 1998. In connection with such extension, the rate of
interest on outstanding borrowings was increased from 1% to 1-1/2% over prime.
The line of credit contains certain financial covenants, including maintaining
such ratios and the Bank has waived compliance through February 28, 1998. At
September 30, 1997, Foward and Koszegi owed the bank $1,083,037. The Company
also is seeking financing from other institutional lenders to replace its
existing bank line of credit, but has not received any commitments in this
regard and there can be no assurance that any commitments will be forthcoming
or will be on terms which will not be unduly burdensome to the Company.
In December 1997, the Company sold its building in Brooklyn, New York
for $830,000 and recognized a gain of approximately $600,000. The proceeds of
the sale were used to pay down the balance of the mortgage.
The Company did not incur any other long-term debt in the 1997
Period. At September 30, 1997, long-term debt amounted to $593,697 and all
installment note and capital lease payments were made on a timely basis. Long-
term debt is scheduled to mature as follows: $234,697 to be paid in Fiscal
1998 and $359,000 to be paid in fiscal 1999.
DEFERRED INCOME TAXES
The Company's balance sheet at September 30, 1997 includes $2,010,475
of deferred income taxes as an asset. The Company was profitable in the 1997
Period and fully anticipates being profitable during the entire 1998 Fiscal
Year and beyond. In addition, as described above, the Company sold its
building in Brooklyn, New York and received a gain of approximately $600,000.
However, to the extent that the Company's operation may not be profitable in
future periods, the Company would not be able to realize the benefit of its
deferred tax assets. Without such deferred tax assets, at September 30, 1997,
the Company's stockholder's equity at such date of $4,228,694 would have been
reduced by $2,010,475 to a stockholder's equity of $2,218,219 and the
Company's working capital at September 30, 1997 would have been reduced by
$690,000 from $2,718,003 to $2,028,003.
- 13 -
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
REPORT ON
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1997
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORTS F-2 - F-3
CONSOLIDATED BALANCE SHEETS F-4 - F-5
CONSOLIDATED STATEMENTS OF OPERATIONS F-6
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8 - F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-10 - F-26
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-27
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE F-28
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
FORWARD INDUSTRIES, INC.
WEST HEMPSTEAD, NEW YORK
We have audited the accompanying consolidated balance sheet of Forward
Industries, Inc. and Subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year ended September 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forward Industries,
Inc. and Subsidiaries as of September 30, 1997, and the results of their
operations and their cash flows for the year ended September 30, 1997 in
conformity with generally accepted accounting principles.
We have audited Schedule II an Exhibit 11 of the Company for the year ended
September 30, 1997 included in the 1997 annual report of the Company on Form
10-KSB. In our opinion, the schedule presents fairly the information required
to be set forth therein.
/s/ Patrusky, Mintz & Semel
----------------------------
PATRUSKY, MINTZ & SEMEL
CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK, NEW YORK
December 5, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
FORWARD INDUSTRIES, INC.
WEST HEMPSTEAD, NEW YORK
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity, and cash flows of Forward Industries, Inc. and
Subsidiaries for the year ended September 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and their
cash flows of Forward Industries, Inc. and Subsidiary for the year ended
September 30, 1996 in conformity with generally accep ed accounting principles.
As discussed in Note 21 of the consolidated financial statements, the Company's
1996 provision for income tax credits previously reported as $938,830 should
have been $813,539. This discovery was made subsequent to the issuance of the
consolidated financial statements. The consolidated financial statements have
been restated to reflect this correction.
We have also audited Schedule II and Exhibit 11 of the Company for the year
ended September 30, 1996 included in the 1997 annual report of the Company on
Form 10-KSB. In our opinion, the schedule presents fairly the information
required to be set forth therein.
/s/ Miller, Ellin & Company
------------------------------
MILLER, ELLIN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
NEW YORK, NEW YORK
December 5, 1996, except for Note 21
and Exhibit 11 which are dated
December 5, 1997
F-3
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
(NOTES 7 AND 8)
CURRENT ASSETS:
Cash and cash equivalents $ 1,365,198
Accounts receivable, less allowance for doubtful
accounts of $91,333 2,888,593
Due on sale of division (net of estimated expenses) (Note 14) 572,785
Inventories (Note 2) 935,012
Prepaid expenses and other current assets (Note 6) 161,402
Notes receivable - current portion (Note 3) 276,686
Notes and loans receivable - officers - current portion (Note 5) 63,821
Deferred income taxes (Note 11) 690,000
-----------
Total current assets 6,953,497
-----------
PROPERTY, PLANT AND EQUIPMENT - net (Note 4) 606,002
-----------
OTHER ASSETS:
Deferred income taxes (Note 11) 1,320,475
Building held for sale or lease (Note 15) 129,253
Note receivable - net of current portion (Note 3) 615,338
Notes and loans receivable - officers - net of
current portion (Note 5) 105,535
Deferred offering costs 66,942
Deferred debt costs 98,884
Other assets 112,248
-----------
2,448,675
-----------
$10,008,174
===========
The accompanying notes are an integral part of the
consolidated financial statements
F-4
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONTINUED)
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Acceptances and notes payable (Note 7) $ 1,375,105
Accounts payable 1,936,899
Current maturities of mortgage payable (Notes 9 and 15) 16,991
Current maturities of long-term debt (Note 8) 234,697
Private placement deposits (Note 17) 185,000
Accrued expenses and other current liabilities (Note 10) 486,802
-------------
Total current liabilities 4,235,494
-------------
LONG-TERM LIABILITIES:
Mortgage payable - net of current maturities (Notes 9 and 15) 1,096,286
Long-term debt - net of current maturities (Note 8) 359,000
Notes payable - related parties (Note 16) 88,700
-------------
1,543,986
-------------
Total liabilities 5,779,480
-------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Preferred stock, 4,000,000 authorized shares,
par value $.01; none issued
Common stock, 40,000,000 authorized shares,
par value $.01; issued 4,303,031 shares
(including 164,890 held in treasury)
(Note 17) 43,030
Paid-in capital 6,229,347
Accumulated deficit (1,805,570)
-------------
4,466,807
Less: Cost of shares in treasury 238,113
-------------
Total stockholders' equity 4,228,694
-------------
$ 10,008,174
=============
The accompanying notes are an integral part of the
consolidated financial statements
F-5
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1997 1996
------------- -------------
(Restated)
<S> <C> <C>
NET SALES $ 12,736,329 $ 14,679,788
COST OF GOODS SOLD 8,340,370 11,887,435
------------- -------------
GROSS PROFIT 4,395,959 2,792,353
------------- -------------
OPERATING EXPENSES:
Distribution 36,503 83,377
Selling 1,371,403 2,020,546
General and administrative 1,984,566 1,915,320
------------- -------------
3,392,472 4,019,243
------------- -------------
INCOME (LOSS) FROM OPERATIONS 1,003,487 (1,226,890)
------------- -------------
OTHER INCOME (DEDUCTIONS):
Interest expense (142,525) (160,591)
Interest expense - related parties (57,390) (69,066)
Interest income 42,009 49,665
Rental income - net (170,461) (113,968)
Other income (deductions) - net (68,407) 81,431
------------- -------------
(396,774) (212,529)
------------- -------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (TAX CREDITS) 606,713 (1,439,419)
PROVISION FOR INCOME TAXES
(TAX CREDITS) (Note 11) 244,553 (586,733)
------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 362,160 (852,686)
------------- -------------
DISCONTINUED OPERATIONS (Note 14):
Loss from discontinued operations, net of income tax
benefits of $(353,489) and $(226,806) (547,055) (330,877)
Gain on disposal of discontinued operations, net of
income taxes of $209,571 and $-0- 324,329 -
------------- -------------
(222,726) (330,877)
------------- -------------
NET INCOME (LOSS) $ 139,434 $ (1,183,563)
============= =============
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (Note 17):
Income (Loss) from continuing operations $ .10 $ (.39)
Discontinued operations (.06) (.15)
------------- -------------
$ .04 $ (.54)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
(Note 17) 3,809,090 2,178,987
========= =========
DIVIDENDS NONE NONE
==== ====
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
F-6
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 (RESTATED)
COMMON STOCK TREASURY STOCK
---------------------------- RETAINED ------------------------
NUMBER PAID-IN EARNINGS NUMBER
TOTAL OF SHARES AMOUNT CAPITAL (DEFICIT) OF SHARES AMOUNT
----------- ------------ ------------- ------------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - October 1, 1995 $ 1,235,337 1,869,731 $ 18,697 $ 2,216,194 $ (761,441) (164,890) $ (238,113)
Stock split (Note 17) - 1,869,731 18,697 (18,697) - (164,890) -
Reverse stock split (Note 17) - (1,869,731) (18,697) 18,697 - 164,890 -
Exercise of warrants 2,849,010 1,017,000 10,170 2,838,840 - - -
Conversion of debt
into equity 557,200 139,300 1,393 555,807 - - -
Issuance of warrants for
services rendered (Note 17) 88,876 - - 88,876 - - -
Net loss (Restated - see
Note 21) (1,183,563) - - - (1,183,563) - -
----------- ----------- --------- ------------ ------------- ---------- --------
BALANCE -
September 30, 1996 $ 3,546,860 3,026,031 $ 30,260 $ 5,699,717 $ (1,945,004) (164,890) $ (238,113)
=========== =========== ========= ============ ============= ========== ===========
YEAR ENDED SEPTEMBER 30, 1997
BALANCE - October 1, 1996 $ 3,546,860 3,026,031 $ 30,260 $ 5,699,717 $ (1,945,004) (164,890) $ (238,113)
Common stock issued in
connection with private
placement (Note 17) 538,500 1,077,000 10,770 527,730 - - -
Deferred offering costs (123,100) - - (123,100) - - -
Exercise of warrants 2,000 100,000 1,000 1,000 - - -
Conversion of debt
into equity (Note 8) 100,000 100,000 1,000 99,000 - - -
Issuance of warrants for
services rendered (Note 17) 25,000 - - 25,000 - - -
Net income 139,434 - - - 139,434 - -
----------- ----------- --------- ------------ ------------- ---------- --------
BALANCE -
September 30, 1997 $ 4,228,694 4,303,031 $ 43,030 $ 6,229,347 $ (1,805,570) (164,890) $ (238,113)
=========== =========== ========= ============ ============= ========== ===========
</TABLE>
Note- Preferred stock is not shown as no shares have been issued.
The accompanying notes are an integral part of
the consolidated financial statements
F-7
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996
--------------- ---------------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 139,434 $ (1,183,563)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) continuing operations:
Loss from discontinued operations 547,055 330,877
Gain on sale of division - gross (533,900) -
Depreciation and amortization 182,110 196,969
Deferred taxes 94,234 (811,709)
Non-cash compensation 25,000 88,876
Abandonment of leasehold improvements 93,812 -
Changes in assets and liabilities:
Accounts receivable (113,933) (492,670)
Inventories 318,327 (54,928)
Prepaid expenses and other current assets (55,784) 61,838
Other assets (58,435) 15,997
Accounts payable 368,798 (1,722,087)
Accrued expenses and other current liabilities (149,682) 214,963
Other liabilities (22,500) (58,000)
------------ -------------
Net cash provided by (used in) continuing operations 834,536 (3,413,437)
------------ -------------
Net cash provided by (used in) discontinued operations:
Loss from discontinued operations (547,055) (330,877)
Depreciation and amortization 33,130 34,564
Discontinued operations - net 15,750 327,077
------------ -------------
(498,175) 30,764
------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 336,361 (3,382,673)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 25,000 -
Proceeds from notes and loans receivable 69,996 301,496
Proceeds from collections from officers 70,231 63,075
Purchases of property, plant and equipment (137,657) (88,209)
------------ -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 27,570 276,362
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 205,393 59,396
Proceeds from long-term notes 359,000 250,000
Payments of long-term notes (177,720) (460,508)
Payments of mortgage (15,164) (10,307)
Proceeds from notes payable - related parties - 164,200
Payments of notes payable - related parties (2,250) (16,050)
Proceeds from issuance of stock 540,500 3,092,250
Deferred offering costs (190,042) (243,240)
Proceeds from private placement deposits 185,000 -
Deferred debt costs (111,664) -
------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 793,053 2,835,741
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,156,984 (270,570)
CASH AND CASH EQUIVALENTS - beginning 208,214 478,784
------------ -------------
CASH AND CASH EQUIVALENTS - ending $ 1,365,198 $ 208,214
============ =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-8
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
------------- --------------
(RESTATED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 296,421 $ 350,111
Income taxes 6,433 974
SCHEDULES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Sale of division, net of cash collected $ 1,278,535 $ -
Warrants issued for services rendered 25,000 -
Conversion of debt into equity 100,000 -
The accompanying notes are an integral part of
the consolidated financial statements
F-9
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Forward
Industries, Inc. ("Forward") and its wholly-owned subsidiaries (together
the "Company"). All significant intercompany transactions and balances
have been eliminated in consolidation.
BUSINESS
The Company is engaged in the business of designing, manufacturing and
selling custom soft-sided carrying cases and bags selling to customers in
the United States, Europe and Asia. For the years ended September 30, 1997
and 1996, approximately 15% and 14% of sales were to customers outside the
United States.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products.
CONCENTRATIONS OF CREDIT RISK
ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consist of open trade accounts with various
companies. The Company performs ongoing credit evaluations of its
customers and believes that adequate allowances for any uncollectible
receivables are maintained. The Company has not historically
experienced significant losses in extending credit to customers.
Three customers accounted for 46% and four customers accounted for 60%
of the Company's accounts receivable at September 30, 1997 and 1996,
respectively. These customers are substantial companies with good
credit worthiness. None of these customers are in default and payments
are received from them on a timely basis.
CASH
The Company maintains cash balances with financial institutions which
at times may be in excess of the FDIC insurance limit.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market accounts.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
F-10
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
assets. Expenditures for repairs and maintenance are charged to expense as
incurred.
DEFERRED OFFERING AND DEFERRED DEBT COSTS
Deferred offering costs represent costs incurred with the equity portion
of the Company's 1997 private placement (see Note 17). Such costs are
charged against paid-in capital when then respective sales of the units
are closed.
Deferred debt costs represent costs incurred with the debt portion of the
Company's 1997 private placement (see Note 17). The costs are amortized
over the term of the promissory notes issued. Amortization amounted to
$12,780 for the year ended September 30, 1997.
ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising
costs amounted to $284,508 and $491,824 for the years ended September 30,
1997 and 1996, respectively.
TRANSLATION OF FOREIGN CURRENCY
The foreign currency financial statements of divisions operating outside
the United States are translated in accordance with the requirements of
the Financial Accounting Standards Board. All income and expense accounts
are translated at average exchange rates; assets and liabilities, at
current exchange rates; and stockholders' equity and intercompany balances
at historical exchange rates. Translation adjustments were accumulated but
have not been included as a separate component of equity at September 30,
1997, because it has been deemed to be immaterial.
INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes," which
requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax assets or
liabilities are adjusted to reflect changes in tax laws as they occur.
F-11
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
outstanding during each year presented. Common stock equivalents have not
been included for the year ended September 30, 1996 as their effect would
be antidilutive. For the year ended September 30, 1997, the treasury stock
method was utilized to calculate the dilutive effect of those options and
warrants whose exercise prices were below the market price of the
underlying securities.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
NOTE 2 - INVENTORIES
Inventories at September 30, 1997 are comprised of the following:
Finished goods $ 682,545
Work-in-process 99,164
Raw materials and supplies 153,303
------------
$ 935,012
============
NOTE 3 - NOTES RECEIVABLE
Notes receivable consist of the following at September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Non-interest bearing promissory note received as part of the sale of the
Company's Advertising Specialties division ("ASI" - see Note 14)
payable in equal monthly installments of $23,611 commencing in October
1997 through September 2000. Interest on the note has been imputed at
a rate of 12 1/2% per annum. The note is
secured by the assets sold by the Company. $ 705,750
Subordinated note received as part of the sale of certain assets of its
Republic division in April 1994, payable in monthly installments of
$5,833 plus interest at prime
(not to exceed 9%) through May 2000. 186,274
------------
892,024
Less: current maturities 276,686
------------
$ 615,338
============
</TABLE>
F-12
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 3 - NOTES RECEIVABLE (CONTINUED)
Maturities of notes receivable are as follows:
FISCAL YEAR ENDING
SEPTEMBER 30, AMOUNT
------------------ ----------
1998 $ 276,686
1999 304,056
2000 311,282
----------
$ 892,024
==========
Interest income on the above notes receivable amounted to $19,314 and
$25,267 for the years ended September 30, 1997 and 1996, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1997 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIVES
----------------------
<S> <C> <C>
Machinery and equipment $ 1,136,122 5 - 10 years
Furniture, fixtures and computer 474,622 5 - 10 years
Land 25,000
Building and building improvements 365,316 10 - 20 years
Leasehold improvements 32,750 *
Transportation equipment 18,978 3 years
------------
2,052,788
Less: Accumulated depreciation
and amortization 1,446,786
------------
$ 606,002
============
</TABLE>
* Leasehold improvements are amortized on the straight-line method
over the terms of the leases or the estimated lives of the
improvements, if shorter.
Depreciation expense amounted to $134,837 and $155,447 for the years ended
September 30, 1997 and 1996, respectively.
F-13
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 5 - NOTES AND LOANS RECEIVABLE - OFFICERS
At September 30, 1997, notes and loans receivable - officers consist of
the following:
<TABLE>
<CAPTION>
<S> <C>
Note receivable in amounts of $10,000 per year, paid by the end of
each fiscal year from September 1996 through
September 2000 plus interest at 7% per annum * $ 30,000
Note receivable in amounts of $50,000 per year, paid by
the end of each fiscal year from September 1996 until
such balance is paid plus interest at 6% per annum 135,535
Loan receivable, due on demand with interest at 6% per annum 3,821
----------
169,356
Less: Current maturities 63,821
----------
$ 105,535
==========
</TABLE>
* Includes accrued interest receivable
Maturities of notes and loans receivable - officers are as follows:
FISCAL YEAR ENDING
SEPTEMBER 30,
------------------
1998 $ 63,821
1999 60,000
2000 45,535
-----------
$ 169,356
===========
Interest income on the above notes and loans amounted to $12,441 and
$23,254 for the years ended September 30, 1997 and 1996, respectively.
NOTE 6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at September 30, 1997 consist of
the following:
Prepaid expenses $ 140,002
Other receivables 1,900
Others 19,500
----------
$ 161,402
==========
F-14
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 7 - ACCEPTANCES AND NOTES PAYABLE
Forward and Koszegi Industries, Inc., a wholly-owned subsidiary
("Koszegi") have a line of credit with their bank and are indebted to such
bank for short-term borrowings and acceptances. The total line is for
$1,100,000 of which $750,000 is reserved for letters of credit
(acceptances). The line was scheduled to mature on August 15, 1996, but
has been extended through February 28, 1998. In connection with the
extension, the rate of interest was increased from 1% to 1 1/2% above the
prime lending rate. The line is secured by all of the assets of Forward
and Koszegi and is personally guaranteed by a stockholder up to a maximum
of $500,000. At September 30, 1997, the balance owed to the bank amounted
to $1,083,037.
The line of credit provides for various financial covenants, including the
maintenance of certain financial ratios. Forward and Koszegi were not in
compliance with some of these financial covenants at September 30, 1997.
The bank waived compliance with such covenants through February 28, 1998.
From time to time, the Company borrows on letters of credit (acceptances)
from a corporation controlled by a relative of the principal stockholders.
These borrowings occur on an "as needed" basis and bear interest at the
prevailing market rate. At September 30, 1997, the Balance owed
was $292,068.
Interest expense on the above debt amounted to $140,882 and $80,067 for
the years ended September 30, 1997 and 1996, respectively. Interest to the
controlled corporation amounted to $31,537 and $39,197 for the years ended
September 30, 1997 and 1996, respectively.
NOTE 8 - LONG-TERM DEBT
Long-term debt at September 30, 1997 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
10% convertible promissory notes issued in connection with the
Company's 1997 private placement, payable on December 4, 1998 (see
Note 17 for the details involving the terms of conversion, etc.) $ 359,000
10% note payable to a corporation on the tenth business
day after written demand on or after February 1, 1997.
Accrued interest is payable on a quarterly basis. The
note may be converted into common stock to a
conversion price of $.50 per share (a) 150,000
Note payable to bank in thirty-six equal monthly installments of
$8,333 through June 1998 with interest
at 1% above prime (b) 75,000
Equipment leases payable in monthly installments
secured by the respective equipment 9,697
----------
593,697
Less current maturities 234,697
----------
$ 359,000
==========
</TABLE>
(a) In October 1996, $100,000 of the debt, originally $250,000, was
converted into 100,000 shares of common stock. In October 1997,
the balance of the note was repaid.
(b) Secured by all assets of Koszegi. In October 1997, the balance of
the note was repaid.
F-15
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 8 - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
FISCAL YEAR ENDING
SEPTEMBER 30, AMOUNT
------------------ ------
1998 $ 234,697
1999 359,000
----------
$ 593,697
==========
Interest expense on the above debt amounted to $38,656 and $71,719 for the
years ended September 30, 1997 and 1996, respectively.
NOTE 9 - MORTGAGE PAYABLE
The mortgage note is secured by a building and is payable over a ten year
term ending in 1999. Repayment of principal is based upon a twenty-eight
year amortization schedule. The monthly payment is $11,545 including
interest at the rate of 11% per annum (see Note 15).
Aggregate annual principal payments under the mortgage are as follows:
FISCAL YEAR ENDING SEPTEMBER 30,
1998 $ 16,991
1999 1,096,286
------------
$ 1,113,277
============
In December 1997, the building was sold and the mortgage was repaid from
the proceeds of the sale and from working capital.
Interest expense on the mortgage amounted to $123,379 and $138,626 for the
years ended September 30, 1997 and 1996, respectively.
NOTE 10 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at September 30, 1997
consist of the following:
Accrued expenses $ 399,327
Union claim payable 22,500
Withholding taxes payable 7,173
Income taxes payable 681
Others 57,121
----------
$ 486,802
==========
F-16
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 11 - INCOME TAXES
The components of the deferred tax assets and liabilities at September 30,
1997 are as follows:
Current:
Accounts receivable $ 31,100
Inventory 105,500
Net operating losses 545,800
Union settlement 7,600
------------
690,000
------------
Non-current:
Net operating losses 1,289,375
Property, plant and equipment 41,000
Contribution carryover 72,200
Issuance of stock warrants 17,900
------------
1,420,475
Valuation allowance 100,000
------------
Net non-current asset 1,320,475
------------
Net deferred tax asset $ 2,010,475
============
Provision for income tax credits for the years ended September 30,
consists of the following:
1997 1996
------------ ------------
(Restated)
Current tax expense $ 6,401 $ (1,830)
Deferred tax expense 238,152 (584,903)
Change in valuation allowance - -
----------- -----------
244,553 (586,733)
Net benefit to discontinued operations (143,918) (226,806)
----------- -----------
$ 100,635 $ (813,539)
=========== ===========
F-17
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 11 - INCOME TAXES (CONTINUED)
Reconciliation of statutory rate to effective income tax rate is as
follows:
YEARS ENDED
SEPTEMBER 30,
------------------------
1997 1996
---------- -----------
(Restated)
Continuing operations:
At federal statutory rate 34.0 % (34.0)%
Effect of:
Temporary and permanent differences (28.8) (.9)
Net operating loss carryforwards (5.2) 34.9
Deferred income taxes 39.3 (40.6)
Miscellaneous 1.0 (.2)
------- -------
40.3 % (40.8)%
======= =======
Discontinued operations:
At federal statutory rate (34.0)% (34.0)%
Effect of:
Temporary and permanent differences 28.8 (.9)
Net operating loss 5.2 34.9
Deferred income taxes (39.3) (40.7)
------- -------
(39.3)% (40.7)%
======= =======
At September 30, 1997, the Company has unused net operating loss
carryforwards and contribution carryforwards of approximately $5,230,000
and $212,000 expiring through September 30, 2011 and 1999, respectively.
The Company expects income from its continuing operations in amounts
sufficient to enable it to realize the deferred tax assets.
F-18
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company rents its facilities under leases expiring at various dates
through April 2002. In addition, the Company is leasing two warehouse
facilities on a month-to-month basis. Total net rent expense for the years
ended September 30, 1997 and 1996 amounted to $350,893 and $352,142,
respectively.
Minimum rental commitments under such leases for future fiscal years
ending September 30, are summarized below:
1998 $ 206,000
1999 88,000
----------
$ 294,000
==========
LETTERS OF CREDIT
At September 30, 1997, the Company was contingently liable on unused
letters of credit in the amount of $150,576 ($133,595 to related parties).
EMPLOYMENT CONTRACTS
The Company has employment contracts with three principal officers
providing for annual salaries aggregating $575,000 and bonuses for two of
the officers based on income before taxes in excess of $1,000,000, and for
one of the officers based on profits but limited to $100,000. The
agreements for two officers were renewed on September 30 and October 31,
1997 until September 30 and October 31, 2000. The third officer has a two
year contract ending October 1998 which also provides for options on the
Company's common stock as follows: (1) 150,000 shares at an exercise price
equal to fair market value as of the date of approval; (2) 250,000 shares,
if income before taxes exceeds $1,000,000 in either fiscal 1997 or 1998 at
an exercise price equal to the fair market values on the date of grant and
vesting 25% each six months after grant providing there is continuing
employment. These options are exercisable for ten years from the date of
grant.
Compensation incurred under these agreements amounted to $609,170 and
$387,500 for the years ended September 30, 1997 and 1996, respectively.
F-19
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 13 - MAJOR CUSTOMERS
The Company's major customers are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
% OF % OF
NET NET
SALES SALES SALES SALES
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
Customer 1 $ 3,518,171 27.6 $ 2,405,820 16.4
Customer 2 2,734,790 21.5 2,143,222 14.6
Customer 3 - - 1,507,262 10.2
Customer 4 - - 1,491,388 10.2
------------ ------ ------------ ------
Sales to major customers $ 6,252,961 49.1 $ 7,547,692 51.4
============ ====== ============ ======
Net sales $ 12,736,329 100.0 $ 14,679,788 100.0
============ ====== ============ ======
</TABLE>
NOTE 14 - DISCONTINUED OPERATIONS
ADVERTISING SPECIALTIES DIVISION
On September 30, 1997, Koszegi sold certain of its assets,
consisting primarily of inventory and equipment relating to its
Advertising Specialties division ("ASI"), to Amplaco Group, Inc.
("Amplaco"). In addition, Amplaco will assume certain liabilities of
Koszegi, including a portion of Koszegi's lease obligations with respect
to its manufacturing facility in South Bend, Indiana.
The selling price was $1,350,000 (subject to adjustment as discussed
below) and is to be received as follows:
1. $500,000 in cash. (Received as follows: $25,000 in September and
$475,000 in October 1997).
2. The receipt of a non-interest bearing secured promissory note for
$850,000 (see Note 3).
The selling price is subject to the value of the inventory. If the value
of the inventory as of the closing date is less than or greater than
$400,000, then the purchase price will be adjusted on a dollar for dollar
basis (the "Inventory Adjustment"). Upon the final determination of the
Inventory Adjustment, such amount will be paid by Amplaco immediately
with accrued interest.
F-20
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 14 - DISCONTINUED OPERATIONS (CONTINUED)
Based on a physical count taken on the closing date, the inventory was
valued by Koszegi at $647,785. The amount in excess of $400,000 is to
be added to the selling price and paid for in cash (subject to
negotiation). Koszegi has recognized a gain of $533,900, net of
estimated expenses on this transaction.
The sale of the ASI division is being accounted for as a discontinued
operation and the consolidated statements of operations have been restated
accordingly. The assets sold at September 30, 1997 are as follows:
Inventory $ 647,785
Property, plant and equipment (net) 13,732
----------
$ 661,517
==========
Summarized results of ASI for the years ended September 30, are as
follows:
1997 1996
------------ -------------
(Restated)
Net sales $ 2,311,127 $ 3,191,909
============ ============
Loss from operations before
income tax benefit $ (900,544) $ (557,683)
Income tax benefit (353,489) (226,806)
------------ ------------
Loss from operations (547,055) (330,877)
------------ ------------
Gain on disposal before income taxes 533,900 -
Income taxes 209,571 -
------------ ------------
Gain on disposal 324,329 -
------------ ------------
Total loss on discontinued operations $ (222,726) $ (330,877)
============ ============
F-21
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 15 - BUILDING HELD FOR SALE OR LEASE
The Company is holding a building for sale or lease which is subject to a
mortgage (see Note 9). Depreciation expense on the building, which is
included in net rental income, amounted to $32,710 and $32,734 for the
years ended September 30, 1997 and 1996, respectively.
In December 1997, the Company sold the building for $830,000 and
recognized a profit of approximately $600,000. The proceeds were used in
the repayment of the mortgage note.
NOTE 16 - NOTES PAYABLE - RELATED PARTIES
At September 30, 1997, notes payable - related parties consists of the
following:
Note payable to a relative of a principal stockholder/
officer on September 1, 2000, bearing interest at
10% per annum $ 88,700
Less: Current maturities -
---------
$ 88,700
=========
Interest amounted to $10,020 and $29,869 for the years ended September 30,
1997 and 1996, respectively.
NOTE 17 - STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
On January 13, 1997, the Company increased the number of authorized shares
from ten million (10,000,000) to forty-four million (44,000,000), of which
four million have been designated as preferred stock.
STOCK SPLITS
On December 27, 1995, the Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend. All share data and per share
amounts have been adjusted to reflect the stock split on a retroactive
basis.
On January 13, 1997, the Board of Directors declared a one-for-two reverse
stock split which became effective as of December 23, 1997. All share data
and per share amounts have been adjusted to reflect the reverse stock
split on a retroactive basis.
F-22
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
PRIVATE PLACEMENT
In May 1997, the Company began offering for sale, through a private
placement, 56 units at a price of $25,000 per unit. Each unit consists of
the following:
1. 30,000 shares of common stock.
2. A warrant to purchase up to 30,000 shares of common stock at $4.00
per share through March 15, 1999.
3. An unsecured 10% convertible promissory note in the amount of $10,000
payable on December 4, 1998. The notes are convertible, at the sole
option of the Company, into 20,000 shares of common stock and one
warrant (same terms as described in #2). If the Company exercises its
option to convert any outstanding notes, then it must convert all of
the notes.
As of September 30, 1997, the Company had sold 35.9 units grossing
$897,500. Amounts received for units that did not close by September 30,
1997 have been classified as private placement deposits in the
consolidated balance sheet.
On December 4, 1997 the Company sold an additional 19.5 units grossing
$487,500.
WARRANTS
On September 26, 1994, the Company issued a warrant to purchase 350,000
shares of common stock at an exercise price of $.01 per share. The warrant
was issued pursuant to a two year consulting agreement and is exercisable
over a four year period. Based on a market valuation of $.375 per share,
the expense to be recognized over the life of the agreement is $127,750.
During the years ended September 30, 1997 and 1996, 100,000 shares and
250,000 shares were purchased, respectively.
In February 1995, the Company issued an additional warrant to a financial
consultant to purchase 100,000 shares at $2.00 per share pursuant to the
terms of a four year agreement. Based on a market valuation of $3.00 per
share, the expense to be recognized over the life of the agreement is
$100,000. During the year ended September 30, 1996, 12,500 shares were
purchased. In 1997, no shares were purchased.
For the years ended September 30, 1997 and 1996, the amount charged to
operations and credited to paid-in capital totalled $25,000 and $88,876,
respectively.
F-23
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
In December 1994, the Company issued 500,000 units which included one
Class A warrant and one Class B warrant under the terms of a private
placement. The terms of the warrants are as follows:
NUMBER OF SHARES EXERCISE
PER WARRANT PRICE EXPIRATION DATE
---------------- -------- -----------------
Class A 1 $ 3.50 December 31, 1996
Class B 1 $ 5.00 December 31, 1998
During the year ended September 30, 1996, 473,500 Class A warrants and
281,000 Class B warrants were exercised resulting in the purchase of
754,500 shares of common stock. No warrants were exercised in Fiscal 1997.
Outstanding warrants at September 30, 1997 are as follows:
OUTSTANDING EXERCISE
WARRANTS PRICE EXPIRATION DATE
----------- -------- ---------------
219,000 $ 5.00 December 31, 1998
87,500 2.00 January 31, 1999
1,077,000 4.00 March 15, 1999
OPTIONS
In October 1994, the Company granted options for two officers of the
Company to purchase 150,000 shares of common stock each at a price of
$1.50 per share, which was in excess of market value at that time. The
options are exercisable over a five year period commencing December 1,
1995. No options were exercised in the years ended September 30, 1997 and
1996.
On February 12, 1996, the Board of Directors adopted the 1996 Stock Option
Plan under which no options were exercised. The Plan was cancelled in
December 1996.
In December 1996, the Board of Directors adopted the 1996 Stock Incentive
Plan, pursuant to which up to four million (4,000,000) shares of common
stock may be issued to officers and employees of the Company upon the
exercise of incentive stock options and nonqualified stock options. The
exercise price of the incentive options may not be less than the fair
market value of the common stock at the date the option is granted. The
exercise price of the nonqualified options is established by the stock
option committee. All options expire ten years after the date of grant and
vest as follows; 37% after one year, 67% after two years and fully vest
after three years. In the year ended September 30, 1997, the Company
issued 721,250 options including 300,000 options each to the Company's
chief executive officer and executive vice president. None of the
options have been exercised as at September 30, 1997.
F-24
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 17 - STOCKHOLDERS' EQUITY (CONTINUED)
Outstanding options at September 30, 1997 are as follows:
OUTSTANDING EXERCISE
OPTIONS PRICE EXPIRATION DATE
----------- -------- -----------------
300,000 $ 1.50 November 30, 2000
37,500 1.62 October 14, 2006
NOTE 18 - 401(K) PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees who meet eligibility requirements.
Profit sharing expense amounted to $25,195 and $28,635 for the years ended
September 30, 1997 and 1996, respectively.
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts at which cash and cash equivalents, accounts receivable,
acceptances and notes payable, accounts payable and accrued expenses and
other current liabilities are presented in the balance sheet approximate
their fair value due to their short maturities. The amounts at which
mortgage payable and notes payable - related parties are presented in the
balance sheet approximate their fair value as their interest rates are
comparable to other similar types of debt.
F-25
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table presents the carrying amounts and fair values at
September 30, for the following:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Notes receivable $ 892,024 $ 872,249 $ 256,270 $ 216,875
Notes and loans receivable - officers 210,308 182,353 239,586 192,219
Long-term debt 1,795,675 1,795,675 1,714,394 1,663,892
</TABLE>
The fair values of the above items have been determined based on
discounted cash flow using a market rate of interest at the balance sheet
date as applicable to comparable items.
NOTE 20 - ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for the stock options granted. No expense was recognized in the year ended
September 30, 1997. If the Company had elected to recognize expense in the
year ended September 30, 1997 for the stock options granted based on the
fair value at the date of grant consistent with the method prescribed by
SFAS No. 123, net income and income per share would have been changed to
the pro forma amounts indicated below:
AS REPORTED PRO FORMA
----------- ----------
Net income $ 139,434 $ 32,131
Income per share .04 .01
The fair value of the stock options used to compute pro forma net loss and
loss per share disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing model with the following weighted
average assumptions: expected volatility of 39%; risk-free interest rate
of 6%; and an expected holding period of five years.
NOTE 21 - RESTATEMENT OF 1996 FINANCIAL STATEMENTS
The accompanying financial statements for the year ended September 30,
1996 have been restated to correct an error in the calculation of the
deferred income tax benefit for such year. The effect of the restatement
was to increase the net loss by $125,291 or $.06 per share.
F-26
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ------------------ ------------------ ----------------- ------------
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF YEAR OPERATIONS DEDUCTIONS YEAR
----------------- ------------------ ----------------- ------------
DESCRIPTION
-----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended September 30, 1996 $ 31,000 $ 19,000 $ - $ 50,000
Year ended September 30, 1997 50,000 41,333 - 91,333
</TABLE>
F-27
<PAGE>
FORWARD INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1997 1996
------------- -------------
(RESTATED)
<S> <C> <C>
PRIMARY EARNINGS
Income (loss) from continuing operations $ 362,160 $ (852,686)
Income (loss) from discontinued operations (222,726) (330,877)
------------- -------------
Net income (loss) applicable to common stock $ 139,434 $ (1,183,563)
============= =============
Shares:
Weighted average number of common shares
outstanding 3,314,295 2,178,987
Assuming conversion of notes payable 494,795 -
------------- -------------
Weighted average number of common shares
outstanding as adjusted 3,809,090 2,178,987
============= =============
Primary earnings (loss) per common share:
Continuing operations $ .10 $ (.39)
Discontinued operations (.06) (.15)
------- ------
Total $ .04 $ (.54)
======= ======
FULLY DILUTED EARNINGS (1)
Income (loss) from continuing operations $ 362,160 $ (852,686)
Income (loss) from discontinued operations (222,726) (330,877)
------------- -------------
Net income (loss) applicable to common stock $ 139,434 $ (1,183,563)
============= =============
Shares:
Weighted average number of common shares
outstanding 3,314,295 2,178,987
Assuming conversion of notes payable 510,897 -
------------- -------------
Weighted average number of common shares
outstanding as adjusted 3,825,192 2,178,987
============= =============
Fully diluted earnings (loss) per common share:
Continuing operations $ .10 $ (.39)
Discontinued operations (.06) (.15)
------- ------
Total $ .04 $ (.54)
======= ======
</TABLE>
(1) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less than 3%.
F-28
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT'S ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As of June 9, 1997, the Board of Directors of the Company approved
the resignation Miller, Ellin & Company ("Miller, Ellin") as the company's
independent accountants and the engagement of Patrusky, Mintz & Semel
("Patrusky") as the company's independent accountants. The reports of Miller,
Ellin on the Company's financial statements as of and for the two fiscal years
ended September 30, 1995 and September 30, 1996 did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the Company's two fiscal years ended September 30, 1995 and
September 30, 1996 and subsequent period through June 9, 1997 there were no
disagreements between the Company and Miller, Ellin concerning any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Miller, Ellin, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports.
The Company did not consult with Patrusky during the company's two
fiscal years ended September 30, 1995 and September 30, 1996 and subsequent
period through June 9, 1997 on the application of accounting principles to a
specified transaction; the type of opinion that might be rendered on the
Company's financial statements; any accounting, auditing or financial
reporting issue; or any item that was either the subject of a disagreement or
a reportable event as defined in Item 304 of Regulation S-B.
The Company provided Miller, Ellin with a copy of the disclosures
contained herein and has filed as an exhibit to the company's Current Report
on Form 8-K dated June 9, 1997 the response of Miller, Ellin to such
disclosure.
- 14 -
<PAGE>
PART III
ITEM 9 - DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officers of the Company as of December
23, 1997 are as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- ---- -------------------------
Theodore H. Schiffman 64 Chairman of the Board, Chief Executive Officer,
Chief Financial Officer
William E. Mooar 52 President and Director
Michael Schiffman 32 Executive Vice President and Director
Noah Fleschner 61 Director
Stephen Schiffman 29 Secretary and Vice President of Marketing
and Sales for Terrapin
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. He became Chief Financial Officer in July of 1996.
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 and the brother of Stephen
Schiffman. Michael Schiffman is presently on assignment in Hong Kong. See Item
1. "Description of Business-Production and Materials."
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.
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 and Secretary of the Company. Stephen Schiffman is the son
of Theodore H. Schiff man and the brother of Michael Schiffman.
Pursuant to their respective employment agreements with the Company,
(a) Theodore Schiffman is employed as Chief Executive Officer through
September 30, 2000; the Company has agreed to use its best
- 15 -
<PAGE>
efforts to elect him annually as Chairman of the Board; (b) Michael Schiffman
is employed as Executive Vice President through October 31, 2000 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, and the Company agreed to use its best efforts to elect him as a
director.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
During Fiscal 1996, there were no delinquent filings by any reporting
persons of the Company under Section 16(a) of the Securities Exchange Act of
1934.
ITEM 10 - EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN FISCAL 1997, 1996 AND 1995
The following table sets forth certain summary information regarding
all cash and non-cash compensation paid by the Company during Fiscal 1997,
Fiscal 1996 and Fiscal 1995 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, 1997 $275,000 -- 300,000 --
Chairman of the Board,
Chief Executive Officer
1996 $275,000 -- 150,000 shares(c) --
1995 $275,000 -- 150,000 --
Michael Schiffman, 1997 $150,000 -- 300,000 --
Executive Vice President
1996 $112,500 -- 150,000 shares(c) --
1995 $150,000 $76,500(a)(b) 150,000 shares --
William E. Mooar 1997 $150,000 $30,000(d) 150,000 (e) --
President
1996 -- -- -- --
1995 -- -- -- --
</TABLE>
(a) Fair market value of 204,000 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.
- 16 -
<PAGE>
(c) Canceled in December 1996.
(d) Signing bonus received upon entering into employment agreement
with the Company.
(e) 25% of such options vest every six months.
EMPLOYMENT AGREEMENTS
Effective October 1, 1997, the Company entered into an employment
agreement with Theodore H. Schiffman (the "THS Agreement") pursuant to which
Mr. Schiffman is employed as Chief Executive Officer of the Company through
September 30, 2000. The THS 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 THS 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 THS 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, 2000), 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. Schifman 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 THS 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 THS Agreement and the Company would continue to remain
obligated to compensate Mr. Schiffman as provided in the THS Agreement
(including payment of death benefits), which compensation would be reduced by
any compensation received by Mr. Schiffman from other employment.
Effective November 1, 1997, the Company entered into an employment
agreement with Michael Schiffman, employing Mr. Schiffman as Executive Vice
President of the Company through October 31, 2000 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. Schiff man 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 "WEM Agreement") with William E. 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 will receive incentive
compensation with respect to each fiscal year of the Company ending during the
term of the WEM Agreement equal to the product of (i) $100,000, and (ii) a
- 17 -
<PAGE>
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 WEM Agreement provides that Mr. Mooar will receive an
option to purchase 150,000 shares of the Company's common stock, par value
$.01 per share, at an exercise price equal to $1.62 per share. 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. The WEM Agreement also provides that the Company will grant Mr. Mooar an
additional option (the "Incentive Option") to purchase an additional 250,000
shares of Common Stock at $1.62 per share if the Company's audited pre-tax
operating income for its 1997 or 1998 fiscal year is at least $1,000,000. 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 WEM Agreement expires
October 13, 1998.
OPTION GRANTS
The following table indicates all option grants to each of the
executive officers named in the Summary Compensation table during Fiscal 1997.
OPTIONS GRANTS IN FISCAL 1997
<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 34.4% $2.00 11/15/2006
Michael Schiffman 300,000 34.4% $2.00 11/15/2006
William E. Mooar 150,000 17.2% $1.62 10/14/2006
</TABLE>
STOCK OPTIONS HELD AT END OF FISCAL 1997
The following table indicates the total number of exercisable and
unexercisable stock options held by each executive officer named in the
Summary Compensation table as of September 30, 1997. No options to purchase
Common Stock were exercised during Fiscal 1997 and no stock appreciation
rights were outstanding during Fiscal 1997. No options were in-the-money at
the end of Fiscal 1997.
Number of Securities
Underlying Unexercised
Options at September 30, 1997
----------------------------------
Name Exercisable Unexercisable
- ---- ----------- -------------
Theodore H. Schiffman 150,000 300,000
Michael Schiffman 150,000 300,000
William E. Mooar 37,500 112,500
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information, as of December 23, 1997, 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
- 18 -
<PAGE>
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 (five persons).
Number of Shares Percent
Identity of Beneficial Owners Of Common Stock of Class
- ----------------------------- --------------- --------
Theodore H. Schiffman 482,000 shares (a)(b)(c) 9.3%
275 Hempstead Turnpike
West Hempstead, New York 11552
William E. Mooar 195,000 shares (d)(e) 3.9%
541 Westover Road
Stamford, Connecticut 06902
Michael Schiffman 511,327 shares (b)(c) 9.7%
275 Hempstead Turnpike
West Hempstead, New York 11552
Noah Fleschner 330 shares *
275 Hempstead Turnpike
West Hempstead, New York 11552
All directors and executive 1,242,192 shares 23.1%
officers as a group (5 persons) (a)(b)(d)(e)(f)
(a) Includes 40,700 shares owned by Mr. Schiffman's wife, as to all of which
shares Mr. Schiffman disclaims beneficial ownership.
(b) Includes 150,000 shares subject to options granted by the Company on
October 12, 1994 to each of Theodore H. Schiffman and Michael Schiffman
at an exercise price of $1.50 per share and 111,000 shares subject to
options granted by the Company on November 15, 1996 to each of Theodore
H. Schiffman and Michael Schiffman at an exercise price of $2.00 per
share.
(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. Each of Theodore H. Schiffman,
Michael Schiffman and Stephen Schiffman disclaims beneficial ownership
of shares beneficially owned by the others.
(d) Includes options to purchase 75,000 shares at an exercise price of $1.62
per share. Does not include options to purchase up to 250,000 shares
which the Company has agreed to grant Mr. Mooar on achievement of certain
income levels.
(e) Includes 240,000 shares acquired in the 1997 Private Placement by a
self-directed retirement plan of Mr. Mooar.
(f) Includes 4,625 shares subject to options, in addition to those referred
to in notes (a)(b)(d) and (e).
*Less than 1.0%.
ITEM 12 - 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, 1997, (a) Theodore A Schiffman had 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, of which, the principal
amount of $135,535, plus interest, remains due, and (b) Michael Schiffman had
executed a similar
- 19 -
<PAGE>
note in the principal amount of $50,000 in principal amount, 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, of
which $30,000 in principal amount, plus interest, remains due. The balance of
the loan to Mrs. Schiffman at September 30, 1997, $3,821, is due on demand
with interest of 6% per annum.
Theodore H. Schiffman's son, Stephen Schiffman, is employed by the
Company at an annual salary of $32,000. Stephen Schiffman is the Company's
Secretary and an administrator of the Company's Terrapin(TM) line of notebook
computer carrying cases.
William E. Mooar, President of the Company, purchased four (4) Units
in the 1997 Private Placement, by way of a self-directed retirement fund, for
an aggregate of $100,000. Accordingly, the Company is indebted to Mr. Mooar in
the amount of $40,000, pursuant to the terms of the 1997 Private Placement.
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 139,300 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 Company's former property in
Brooklyn, New York of the Company's promissory note in the principal amount of
$170,000 given in connection with the termination of the lease for such
property. This note has been paid in full.
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, 1997, $292,068 of such indebtedness was
outstanding. During Fiscal 1997, the Company incurred interest on open letters
of credit in the amount of $31,537.
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LITIGATION OR SUCCESSION
(a) Agreement dated June 9, 1994, between the Company and Northeast
Looseleaf, Inc. and amendment thereto (incorporated herein by reference to
Exhibit 6(i) to the Company's Form 10-SB Registration Statement ("Form
10-SB"))
(a)(1) Settlement Agreement dated December 27, 1995, between the
Company and Northeast Looseleaf, Inc. et al. (Incorporated herein by reference
to Exhibit 2(a)(1) to the Company's Form 10-KSB for the fiscal year ended
September 30, 1995)
- 20 -
<PAGE>
(b) Agreement dated as of April 24, 1995 between the Company and
Republic Clear-Thru Acquisition Corp. (incorporated herein by reference to
Exhibit 1 to the Company's Form 8-K Report dated April 27, 1995)
3. ARTICLES OF INCORPORATION AND BY-LAWS
(a) Certificate of Incorporation of the Company as amended
(incorporated by reference to Exhibit 2(a) to the Form 10-SB)
(b) By-Laws (incorporated by reference to Exhibit 2(b) to the Form
10-SB)
(c) Amendment to By-Laws (Article I, Section 2) (incorporated by
reference to Exhibit 3(c) to the Company's Registration Statement on Form SB-2
filed November 13, 1995 (Reg. No. 33-99338) (the "1995 SB-2 Registration
Statement")
(d) Certificate of Amendment of Certificate of Incorporation filed by
the New York Department of State on August 22, 1997.*
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
(a) Form of Subscription Agreement executed in connection with 1997
Private Placement November - December, 1994 (transfer restriction)
(incorporated by reference to Exhibit 3(a) to the Form 10-SB)
(b) Warrant Agreement dated October 20, 1994 between the Company and
Mellon Securities Trust Company, including forms of Class A Warrant and Class
B Warrant (incorporated by reference to Exhibit 3(b) to the Form 10-SB)
(c) Consulting Agreement dated September 26, 1994 between the Company
and CWAI Consultants Corp., including form of Warrant; Amendment thereto dated
October 13, 1994 (incorporated by reference to Exhibit 3(c) to the Form 10-SB)
(c)(1) Amendment No. 2 to CWAI Consultants Corp. Warrant
(incorporated by reference to Exhibit 2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1995)
(c)(2) Restated and Amended CWAI Consultants Corp. Warrant dated
November 6, 1995 (incorporated by reference to Exhibit 4(c)(2) to the 1995
SB-2 Registration Statement)
(c)(3) CWAI Consultants Corp. Warrant dated December 11, 1995,
superseding the Restated and Amended Warrant filed as Exhibit (c)(2)
(Incorporated herein by reference to Exhibit 4(c)(3) to the Company's Annual
Report on Form 10-KSB for the fiscal year each September 30, 1995.)
(d) Business Loan Agreement dated November 9, 1989 between Koszegi
Industries, Inc. ("Koszegi") and 1st Source Bank ("Bank") (without exhibits)
(incorporated by reference to Exhibit 3(d) to the Form 10-SB)
(e) Security Agreement dated November 9, 1989 from Koszegi to
Bank (incorporated by reference to Exhibit 3(f) to the Form 10-SB)
(f) Letter from Bank to Koszegi dated November 9, 1989
(incorporated by reference to Exhibit 3(g) to the Form 10-SB)
- --------
* Filed herewith
- 21 -
<PAGE>
(g) Subordination of Liens Agreement dated October 30, 1989 between
Bank Leumi Trust Company of New York and Bank, with First, Second and Third
Amendments thereto (incorporated by reference to Exhibit 3(h) to the Form
10-SB)
(h) Real Estate Mortgage and Security Agreement dated September 7,
1990 between Koszegi and Bank (incorporated by reference to Exhibit 3(j) to
the Form 10-SB)
(i) General Loan Agreement dated August 30, 1991 between Koszegi and
Bank (incorporated by reference to Exhibit 3(k) to the Form 10-SB)
(j) Amendment thereto dated June 30, 1994 (incorporated by reference
to Exhibit 3(l) to the Form 10-SB)
(k) Term Promissory Note of Koszegi dated August 30, 1991 to Bank in
original principal amount of $400,000 (incorporated by reference to Exhibit
3(m) to the Form 10-SB)
(l) Subordination of Debt Agreement dated August 30, 1991 between
Koszegi and Bank (incorporated by reference to Exhibit 3(n) to the Form 10-SB)
(m) Security Agreement dated August 30, 1991, from Koszegi to Bank
(incorporated by reference to Exhibit 3(o) to the Form 10-SB)
(n) Continuing Guaranty of Payment dated August 30, 1991, from the
Company to Bank (incorporated by reference to Exhibit 3(p) to the Form 10-SB)
(o) Term Promissory Note of Koszegi dated June 30, 1994 in principal
amount of $200,000 (incorporated by reference to Exhibit 3(q) to the Form
10-SB)
(p) Letter of Understanding and Agreement to Pledge dates June 30,
1994 among Koszegi, the Company, Theodore Schiffman and Bank (incorporated by
reference to Exhibit 3(r) to the Form 10-SB)
(q) First Mortgage Note dated May 9, 1989 of the Company to the
Greater New York Savings Bank in the principal amount of $1.2 million
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1989)
(r) First Mortgage and Security Agreement dated May 9, 1989 of the
Company to the Greater New York Savings Bank (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989)
(s) Revolving Promissory Note of Koszegi dated May 23, 1995 to Bank
in principal amount of $750,000, maturing January 31, 1996 (incorporated by
reference to Exhibit l(a) to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1995)
(t) Revolving Promissory Note of Koszegi dated July 3, 1995 to Bank
in principal amount of $350,000, maturing January 31, 1996 (incorporated by
reference to Exhibit l(b) to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1995)
(u) Term Promissory Note of Koszegi dates June 14, 1995 to Bank in
principal amount of $300,000, maturing June 15, 1998 (incorporated by
reference to Exhibit l(c) to the Company's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1995)
- 22 -
<PAGE>
(v) Security Agreement dated June 14, 1995 between the Company and
1st Source Bank (incorporated by reference to Exhibit l(d) to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1995)
(w) Consulting Agreement dates as of February 21, 1995 between the
Company and Michael Klein, including form of Warrant (incorporated by
reference to Exhibit 3(bb) to the Form 10-SB)
(x) Convertible Note of the Company dated as of September 11, 1995,
to Cheryl Fenster Fishoff in the principal amount of $400,000 (incorporated by
reference to Exhibit 4(x) to the 1995 SB-2 Registration Statement)
(y) Convertible Note of the Company dated December 19, 1995, to
Cheryl Fenster Fishoff in the principal amount of $157,200 (incorporated by
reference to Exhibit 4(y) to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995)
(z) Revolving Promissory Note of Koszegi dated January 31, 1996 to
1st Source Bank in principal amount of $750,000 maturing March 30, 1996
(incorporated by reference to Exhibit 1(a) the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1995)
(aa) Revolving Promissory Note of Koszegi dated January 31, 1996 to
1st Source Bank in principal amount of $350,000 maturing March 30, 1996
(incorporated by reference to Exhibit 1(b) to the Company's Quarterly Report
on Form 10-QSB for the period ended December 31, 1995)
(bb) Convertible Note of the Company dated as of October 25, 1996, to
Cliveden Capital Offshore Fund, Ltd. In the principal amount of $150,000
(incorporated by reference to Exhibit 4(bb) to the Company's Annual Report on
Form 10-KSB for the period ended September 30, 1996)
(cc) Form of Registration Rights Agreement executed in connection
with 1997 Private Placement. (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3 as filed with the Commission on
December 9, 1997)
(dd) Form of Convertible Promissory Note executed in connection with
1997 Private Placement (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-3 as filed with the Commission on
December 9, 1997)
(ee) Form of Warrant executed in connection with 1997 Private
Placement. (incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 as filed with the Commission on December 9,
1997)
9. VOTING TRUST AGREEMENT - not applicable
10. MATERIAL CONTRACTS
(a) Lease, dated March 28, 1989 between Janice Corson as landlord,
and Koszegi Industries, Inc. (formerly KP Industries, Inc.) as tenant, with
Guarantee of the Company (incorporated by reference to the Company's Current
Report on Form 8-K filed with the Commission on April 11, 1989)
(b) Employment Agreement dated October 1, 1994 between the Company
and Theodore H. Schiffman (incorporated by reference to Exhibit 6(d) to the
Form 10-SB)
(c) Employment Agreement dated November 1, 1994 between the Company
and Michael Schiffman (incorporated by reference to Exhibit 6(e) to the Form
10-SB)
- 23 -
<PAGE>
(d) Stock Option Agreement dated October 12, 1994 between the Company
and Theodore H. Schiffman (incorporated by reference to Exhibit 6(f) to the
Form 10-SB)
(e) Stock Option Agreement dated October 12, 1994 between the Company
and Michael Schiffman (incorporated by reference to Exhibit 6(g) to the Form
10-SB)
(f) Agreement dated January 19, 1994 with Inter-Ocean Industries,
Inc. re: letters of credit (incorporated by reference to Exhibit 6(h) to the
Form 10-SB)
(g) Placement Agent Agreement dated October 20, 1994 between the
Company and Brookehill Equities, Inc. (incorporated by reference to Exhibit
6(j) to the Form 10-SB)
(h) Consulting Agreement dated October 31, 1989 between HSI
Acquisition, Inc. (a subsidiary of the Company since merged into the Company)
and Mentel Shemtov (incorporated by reference to Exhibit 6(k) to the Form
10-SB)
(i) Lease Termination Agreement dated August 14, 1995 between REA
Realty Co. and the Company (incorporated by reference to Exhibit 10(i) to the
1995 SB-2 Registration Statement)
(j)(1) Employment Agreement dated October 14, 1996 between the
Company and William E. Mooar (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K dated October 14, 1996)
(j)(2) Amendment No. 1 to the Employment Agreement between the
Company and William Mooar (incorporated by reference to Exhibit 10(j)(2) to
the Company's Annual Report on Form 10-KSB for the period ended September 30,
1996)
(k) Employment Agreement dated October 1, 1997 between the Company
and Theodore H. Schiffman*
(l) Employment Agreement dated November 1, 1997 between the Company
and Michael Schiffman*
(m) Security Agreement dated September 30, 1997 between Koszegi and
Amplaco Group, Inc., ("Amplaco")*
(n) Subordination Agreement and Assignment executed by Koszegi and
delivered to The Bank of New York for the benefit of Amplaco, dated September
30, 1997.*
(o) Agreement of Sublease between Koszegi and Amplaco dated September
30, 1997*
(p) License Agreement between Koszegi and Amplaco dated September 30,
1997*
(q) Asset Purchase Agreement between Koszegi and Amplaco, dated
September 30, 1997*
(r) Amendment, dated November 6, 1997 to Warrant Agreement dated as
of October 20, 1994 Between the Company and Chase Mellon Shareholder Services
(f/k/a Mellon Securities Trust Company)*
(s) Amendment, dated December 18, 1997 to Warrant Agreement dated as
of October 20, 1994 Between the Company and Chase Mellon Shareholder Services
(f/k/a Mellon Securities Trust Company)*
- --------
* Filed herewith
- 24 -
<PAGE>
11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS - Not required since such
computation can be clearly determined from the material contained in this
report on Form 10-KSB
13. ANNUAL REPORT TO SECURITY HOLDERS FOR THE LAST FISCAL YEAR, FORM 10-Q OR
10-QSB OR QUARTERLY REPORT TO SECURITY HOLDERS, IF INCORPORATED BY REFERENCE
IN THE FILING - Not applicable
16. LETTER ON CHANGE IN CERTIFYING ACCOUNTANT - Incorporated by reference to
Exhibit 16.1 to the Company's Current Report on Form 8-K dated June 9, 1997
18. LETTER ON CHANGE IN ACCOUNTING PRINCIPLES - Not applicable
21. SUBSIDIARIES OF THE SMALL BUSINESS ISSUER (incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1995)
22. PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS -
Not applicable
23. CONSENT OF EXPERTS AND COUNSEL - (a) Consent of Patrusky, Mintz & Semel*
(b) Consent of Miller, Ellin & Company*
24. POWER OF ATTORNEY - Not applicable
28. INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY
AUTHORITIES - Not applicable
99. ADDITIONAL EXHIBITS - Not applicable
(b)(1) The Company's Current Report on Form 8-K dated October 14, 1996
(2) The Company's Current Report on Form 8-K dated October 25, 1996
(3) The Company's Current Report on Form 8-K dated April 25, 1997
(4) The Company's Current Report on Form 8-K dated June 9, 1997
(5) The Company's Current Report on Form 8-K, as amended, dated
September 30, 1997
(6) The Company's Current Report on Form 8-K dated December 4, 1997
- 25 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
Dated: December 23, 1997 FORWARD INDUSTRIES, INC.
By: /s/ Theodore H. Schiffman
--------------------------
Theodore H. Schiffman
Chairman; Chief Executive Officer and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
December 23, 1997 /s/Theodore H. Schiffman
--------------------------------
Theodore H. Schiffman
Chief Executive Officer; Chief Financial
Officer; Director (Principal Executive Officer
and Financial and Accounting Officer)
December 23, 1997 /s/Michael Schiffman
--------------------------------
Michael Schiffman
Executive Vice President and Director
December 23, 1997 /s/Noah Fleschner
--------------------------------
Noah Fleschner
Director
December 23, 1997 /s/William E. Mooar
--------------------------------
William E. Mooar
President and Director
- 26 -
<PAGE>
EXHIBIT INDEX
Page No.
2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LITIGATION OR SUCCESSION
(a) Agreement dated June 9, 1994, between the Company and Northeast
Looseleaf, Inc. and amendment thereto (incorporated herein by
reference to Exhibit 6(i) to the Company's Form 10-SB Registration
Statement ("Form 10-SB"))
(a)(1) Settlement Agreement dated December 27, 1995, between the
Company and Northeast Looseleaf, Inc. et al. (Incorporated herein by
reference to Exhibit 2(a)(1) to the Company's Form 10-KSB for the
fiscal year ended September 30, 1995)
(b) Agreement dated as of April 24, 1995 between the Company and
Republic Clear- Thru Acquisition Corp. (incorporated herein by
reference to Exhibit 1 to the Company's Form 8-K Report dated April
27, 1995)
3. ARTICLES OF INCORPORATION AND BY-LAWS
(a) Certificate of Incorporation of the Company as amended
(incorporated by reference to Exhibit 2(a) to the Form 10-SB)
(b) By-Laws (incorporated by reference to Exhibit 2(b) to the Form
10-SB)
(c) Amendment to By-Laws (Article I, Section 2) (incorporated by
reference to Exhibit 3(c) to the Company's Registration Statement on
Form SB-2 filed November 13, 1995 (Reg. No. 33-99338) (the "1995
SB-2 Registration Statement")
(d) Certificate of Amendment of Certificate of Incorporation filed
by the New York Department of State on August 22, 1997.*
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
(a) Form of Subscription Agreement executed in connection with 1997
Private Placement November - December, 1994 (transfer restriction)
(incorporated by reference to Exhibit 3(a) to the Form 10-SB)
(b) Warrant Agreement dated October 20, 1994 between the Company and
Mellon Securities Trust Company, including forms of Class A Warrant
and Class B Warrant (incorporated by reference to Exhibit 3(b) to
the Form 10-SB)
(c) Consulting Agreement dated September 26, 1994 between the
Company and CWAI Consultants Corp., including form of Warrant;
Amendment thereto dated October 13, 1994 (incorporated by reference
to Exhibit 3(c) to the Form 10-SB)
(c)(1) Amendment No. 2 to CWAI Consultants Corp. Warrant
(incorporated by reference to Exhibit 2 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1995)
- ----------
* Filed herewith
- 27 -
<PAGE>
(c)(2) Restated and Amended CWAI Consultants Corp. Warrant dated
November 6, 1995 (incorporated by reference to Exhibit 4(c)(2) to
the 1995 SB-2 Registration Statement)
(c)(3) CWAI Consultants Corp. Warrant dated December 11, 1995,
superseding the Restated and Amended Warrant filed as Exhibit (c)(2)
(Incorporated herein by reference to Exhibit 4(c)(3) to the
Company's Annual Report on Form 10-KSB for the fiscal year each
September 30, 1995.)
(d) Business Loan Agreement dated November 9, 1989 between Koszegi
Industries, Inc. ("Koszegi") and 1st Source Bank ("Bank") (without
exhibits) (incorporated by reference to Exhibit 3(d) to the Form
10-SB)
(e) Security Agreement dated November 9, 1989 from Koszegi to Bank
(incorporated by reference to Exhibit 3(f) to the Form 10-SB)
(f) Letter from Bank to Koszegi dated November 9, 1989 (incorporated
by reference to Exhibit 3(g) to the Form 10-SB)
(g) Subordination of Liens Agreement dated October 30, 1989 between
Bank Leumi Trust Company of New York and Bank, with First, Second
and Third Amendments thereto (incorporated by reference to Exhibit
3(h) to the Form 10-SB)
(h) Real Estate Mortgage and Security Agreement dated September 7,
1990 between Koszegi and Bank (incorporated by reference to Exhibit
3(j) to the Form 10-SB)
(i) General Loan Agreement dated August 30, 1991 between Koszegi and
Bank (incorporated by reference to Exhibit 3(k) to the Form 10-SB)
(j) Amendment thereto dated June 30, 1994 (incorporated by reference
to Exhibit 3(l) to the Form 10-SB)
(k) Term Promissory Note of Koszegi dated August 30, 1991 to Bank in
original principal amount of $400,000 (incorporated by reference to
Exhibit 3(m) to the Form 10-SB)
(l) Subordination of Debt Agreement dated August 30, 1991 between
Koszegi and Bank (incorporated by reference to Exhibit 3(n) to the
Form 10-SB)
(m) Security Agreement dated August 30, 1991, from Koszegi to Bank
(incorporated by reference to Exhibit 3(o) to the Form 10-SB)
(n) Continuing Guaranty of Payment dated August 30, 1991, from the
Company to Bank (incorporated by reference to Exhibit 3(p) to the
Form 10-SB)
(o) Term Promissory Note of Koszegi dated June 30, 1994 in principal
amount of $200,000 (incorporated by reference to Exhibit 3(q) to the
Form 10-SB)
(p) Letter of Understanding and Agreement to Pledge dates June 30,
1994 among Koszegi, the Company, Theodore Schiff man and Bank
(incorporated by reference to Exhibit 3(r) to the Form 10-SB)
- 28 -
<PAGE>
(q) First Mortgage Note dated May 9, 1989 of the Company to the
Greater New York Savings Bank in the principal amount of $1.2
million (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1989)
(r) First Mortgage and Security Agreement dated May 9, 1989 of the
Company to the Greater New York Savings Bank (incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989)
(s) Revolving Promissory Note of Koszegi dated May 23, 1995 to
Bank in principal amount of $750,000, maturing January 31, 1996
(incorporated by reference to Exhibit l(a) to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30,
1995)
(t) Revolving Promissory Note of Koszegi dated July 3, 1995 to
Bank in principal amount of $350,000, maturing January 31, 1996
(incorporated by reference to Exhibit l(b) to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30,
1995)
(u) Term Promissory Note of Koszegi dates June 14, 1995 to Bank in
principal amount of $300,000, maturing June 15, 1998 (incorporated
by reference to Exhibit l(c) to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1995)
(v) Security Agreement dated June 14, 1995 between the Company and
1st Source Bank (incorporated by reference to Exhibit l(d) to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1995)
(w) Consulting Agreement dates as of February 21, 1995 between the
Company ant Michael Klein, including form of Warrant (incorporated
by reference to Exhibit 3(bb) to the Form 10-SB)
(x) Convertible Note of the Company dated as of September 11,
1995, to Cheryl Fenster Fishoff in the principal amount of
$400,000 (incorporated by reference to Exhibit 4(x) to the 1995
SB-2 Registration Statement)
(y) Convertible Note of the Company dated December 19, 1995, to
Cheryl Fenster Fishoff in the principal amount of $157,200
(incorporated by reference to Exhibit 4(y) to the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 30,
1995)
(z) Revolving Promissory Note of Koszegi dated January 31, 1996 to
1st Source Bank in principal amount of $750,000 maturing March 30,
1996 (incorporated by reference to Exhibit 1(a) the Company's
Quarterly Report on Form 10-QSB for the quarter ended December 31,
1995)
(aa) Revolving Promissory Note of Koszegi dated January 31, 1996
to 1st Source Bank in principal amount of $350,000 maturing March
30, 1996 (incorporated by reference to Exhibit 1(b) to the
Company's Quarterly Report on Form 10-QSB for the period ended
December 31, 1995)
(bb) Convertible Note of the Company dated as of October 25, 1996,
to Cliveden Capital Offshore Fund, Ltd. In the principal amount of
$150,000 (incorporated by reference to Exhibit 4(bb) to the
Company's Annual Report on Form 10-KSB for the period ended
September 30, 1996)
- 29 -
<PAGE>
(cc) Form of Registration Rights Agreement executed in connection
with 1997 Private Placement. (incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-3 as filed
with the Commission on December 9, 1997)
(dd) Form of Convertible Promissory Note executed in connection with
1997 Private Placement (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-3 as filed with the
Commission on December 9, 1997)
(ee) Form of Warrant executed in connection with 1997 Private
Placement. (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3 as filed with the
Commission on December 9, 1997)
9. VOTING TRUST AGREEMENT - not applicable
10. MATERIAL CONTRACTS
(a) Lease, dated March 28, 1989 between Janice Corson as landlord,
and Koszegi Industries, Inc. (formerly KP Industries, Inc.) as
tenant, with Guarantee of the Company (incorporated by reference to
the Company's Current Report on Form 8-K filed with the Commission
on April 11, 1989)
(b) Employment Agreement dated October 1, 1994 between the Company
and Theodore H. Schiffman (incorporated by reference to Exhibit
6(d) to the Form 10-SB)
(c) Employment Agreement dated November 1, 1994 between the Company
and Michael Schiffman (incorporated by reference to Exhibit 6(e) to
the Form 10-SB)
(d) Stock Option Agreement dated October 12, 1994 between the
Company and Theodore H. Schiffman (incorporated by reference to
Exhibit 6(f) to the Form 10-SB)
(e) Stock Option Agreement dated October 12, 1994 between the
Company and Michael Schiffman (incorporated by reference to Exhibit
6(g) to the Form 10-SB)
(f) Agreement dated January 19, 1994 with Inter-Ocean Industries,
Inc. re: letters of credit (incorporated by reference to Exhibit
6(h) to the Form 10-SB)
(g) Placement Agent Agreement dated October 20, 1994 between the
Company and Brookehill Equities, Inc. (incorporated by reference to
Exhibit 6(j) to the Form 10-SB)
(h) Consulting Agreement dated October 31, 1989 between HSI
Acquisition, Inc. (a subsidiary of the Company since merged into the
Company) and Mentel Shemtov (incorporated by reference to Exhibit
6(k) to the Form 10-SB)
(i) Lease Termination Agreement dated August 14, 1995 between REA
Realty Co. and the Company (incorporated by reference to Exhibit
10(i) to the 1995 SB-2 Registration Statement)
(j)(1) Employment Agreement dated October 14, 1996 between the
Company and William E. Mooar (incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated October 14, 1996)
- 30 -
<PAGE>
(j)(2) Amendment No. 1 to the Employment Agreement between the
Company and William Mooar (incorporated by reference to Exhibit
10(j)(2) to the Company's Annual Report on Form 10-KSB for the
period ended September 30, 1996)
(k) Employment Agreement dated October 1, 1997 between the Company
and Theodore H. Schiffman*
(l) Employment Agreement dated November 1, 1997 between the Company
and Michael Schiffman*
(m) Security Agreement dated September 30, 1997 between Koszegi and
Amplaco Group, Inc., ("Amplaco")*
(n) Subordination Agreement and Assignment executed by Koszegi and
delivered to The Bank of New York for the benefit of Amplaco, dated
September 30, 1997.*
(o) Agreement of Sublease between Koszegi and Amplaco dated
September 30, 1997*
(p) License Agreement between Koszegi and Amplaco dated September
30, 1997*
(q) Asset Purchase Agreement between Koszegi and Amplaco, dated
September 30, 1997*
(r) Amendment, dated November 6, 1997 to Warrent Agreement dated as
of October 20, 1994 Between the Company and Chase Mellon Shareholder
Services (f/k/a Mellon Securities Trust Company)*
(s) Amendment, dated December 18, 1997 to Warrent Agreement dated as
of October 20, 1994 Between the Company and Chase Mellon Shareholder
Services (f/k/a Mellon Securities Trust Company)*
11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS - Not required since such
computation can be clearly determined from the material contained in this
report on Form 10-KSB
13. ANNUAL REPORT TO SECURITY HOLDERS FOR THE LAST FISCAL YEAR, FORM 10-Q OR
10-QSB OR QUARTERLY REPORT TO SECURITY HOLDERS, IF INCORPORATED BY REFERENCE
IN THE FILING - Not applicable
16. LETTER ON CHANGE IN CERTIFYING ACCOUNTANT - Incorporated by reference to
Exhibit 16.1 to the Company's Current Report on Form 8-K dated June 9, 1997
18. LETTER ON CHANGE IN ACCOUNTING PRINCIPLES - Not applicable
21. SUBSIDIARIES OF THE SMALL BUSINESS ISSUER (incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1995)
22. PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF SECURITY HOLDERS -
Not applicable
23. CONSENT OF EXPERTS AND COUNSEL - (a) Consent of Patrusky, Mintz & Semel*
(b) Consent of Miller, Ellin & Company*
- --------
* Filed herewith
- 31 -
<PAGE>
24. POWER OF ATTORNEY - Not applicable
28. INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY
AUTHORITIES - Not applicable
99. ADDITIONAL EXHIBITS - Not applicable
- 32 -
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement"), dated as of September 30, 1997, by and
between FORWARD INDUSTRIES, INC., a New York corporation, having its offices at
275 Hempstead Turnpike, West Hempstead, New York 11552 (the "Company"), and
THEODORE H. SCHIFFMAN, residing at 124 Broadway, Lawrence, New York 11559 (the
"Executive").
RECITALS
A. The Executive has been continuously engaged as an employee, officer
and/or a director of the Company from the Company's inception, the Company has
prospered under the Executive's management, and the Executive has unique
knowledge of the Company's business, operations, affairs, requirements and
trade secrets.
B. By reason of the Executive's special knowledge and experience, his
services are uniquely valuable to the Company.
C. The Executive has been rendering services to the Company pursuant
to an employment agreement effective as of October 1, 1994 through September
30, 1997 (the "Prior Agreement").
D. It is the considered judgment of the Board of Directors of the
Company (the "Board") that it is in the Company's best interest to continue to
secure the Executive's services, and to enter this Employment Agreement.
E. The Company and the Executive have agreed upon all the terms of the
Executive's employment as reflected in this Agreement.
-1-
<PAGE>
Accordingly, in consideration of the mutual promises herein contained,
it is agreed as follows:
1. The Prior Agreement is hereby cancelled, and the terms and
conditions of this Agreement supersede the terms and conditions of the Prior
Agreement.
2. The Company hereby employs the Executive as Chief Executive Officer
and the Executive hereby accepts such employment with the Company, for a
three-year term (the "Employment Term") commencing October 1, 1997 and expiring
September 30, 2000, unless sooner terminated as hereinafter provided.
3. During the Employment Term, the Executive will faithfully perform
his duties to the best of his abilities and in accordance with the directions
of the Company as given through the Board. The Company will use its best
efforts to nominate and elect the Executive from year to year as a Director and
as Chairman of the Board. The services to be performed by the Executive will be
substantially of the same character of those performed by the Executive under
the Prior Agreement. The Executive will perform such additional executive
services as may, from time to time, be assigned by the Board. However, all
services required to be performed by the Executive hereunder must at all times
be of a type, nature and dignity as would normally be assigned to the Chief
Executive Officer of the Company or of similar companies. During the Employment
Term, the Executive will devote to the performance of such services
substantially all of his business time and attention. The Executive at all
times will have such executive powers and authority as may be required to
enable him to discharge his duties in an efficient manner.
4. If, during the Employment Term, the Executive is not serving as a
Director and as Chairman of the Board of the Company or the Executive's
authority and responsibility as Chief
-2-
<PAGE>
Executive Officer is curtailed or diminished through action of the Board, the
same will, at the Executive's option, constitute a material breach of this
Agreement by the Company, unless the Company cures such breach within 30 days
after receiving written notice from the Executive specifically setting forth
the claimed breach. If the Company fails to cure such breach within such 30 day
period, the Executive, by written notice to the Board of Directors, may
terminate his obligations hereunder, including, but not limited to, the
rendition of any services to the Company, but the Company will, nevertheless,
remain obligated to, and will, pay to the Executive, the Executive's widow (the
"Widow") or the estate of the Executive or the Widow, from the date of such
termination, all compensation which otherwise would have been payable to the
Executive, the Widow or the particular estate as provided in Paragraphs 5(a),
(b) and (c) hereof, but for such termination. However, if between the date of
such termination and September 30, 2000, the Executive accepts other
employment, the Company's obligation to pay salary and bonus as provided in
Paragraphs 5(a) and (b) hereof will be reduced by the amount of his
compensation from such outside employment. The Executive agrees that if he
accepts such other employment after the date of such termination, he will,
promptly after commencing such employment, notify the Company of the date such
other employment commenced, the anticipated expiration date of such other
employment, and the rates and/or amounts of compensation from such other
employment. Nothing herein contained will be deemed to impose any obligation
upon the Executive to seek or continue any such other employment. From and
after the date of any such termination by the Executive, the provisions of
Paragraph 5 hereof applicable to the Consulting Period (as defined in Paragraph
6) and of Paragraph 6 will have no further force or effect.
-3-
<PAGE>
5. As full compensation for all services to be rendered by Executive
pursuant to this Agreement, the Company agrees to pay to the Executive, and the
Executive agrees to accept the following:
(a) a salary at the annual rate of $275,000 payable to the
Executive in equal bi-weekly installments, or as may be the practice of the
Company in making salary payments. The Board may, if it deems it to be in the
Company's best interest, increase such salary rate from time to time. Such
annual salary may be adjusted upwards from time to time during the Employment
Term at the discretion of the Board.
(b) In addition to salary, the Company will pay to the Executive
for each fiscal year of the Company during the Employment Term, bonus
compensation equal to 5% of Pre-Tax Earnings (as hereinafter defined) in excess
of $1,000,000. Pre-Tax Earnings shall mean the Company's net income before
provision for U.S. income taxes as disclosed by the Company's certified
financial statements for such fiscal year without taking into consideration
bonus compensation paid or payable to any employee of the Company for such
fiscal year, including the bonus payable to the Executive for such fiscal year
pursuant to this Paragraph 5(b). The calculation of bonus compensation will be
made by the certified public accountants regularly engaged by the Company. If
the Executive's employment is terminated pursuant to Paragraph 6 or if the
Executive should die, in each case, prior to the end of the Employment Term,
the Board shall determine in good faith the bonus payable to the Executive
pursuant to this Paragraph 5(b) for the fiscal years commencing after September
30, 1997. Payment of any bonus due to the Executive will be made as soon as
possible after the end of each fiscal year. In the event of the Executive's
death, any bonus due will be paid to the Executive's estate.
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(c) If the Executive dies during the Employment Term or during the
Consulting Period, the salary provided for in Paragraph 5(a) or the
consultative compensation provided for in Paragraph 6, as applicable, will be
paid to the end of the month in which the death occurs. Thereafter, if the
Company is the recipient of at least $1,000,000 of insurance on the life of the
Executive, the Company will pay to the Widow or, if the Executive's spouse has
pre-deceased him, to the Executive's estate, a monthly death benefit of
$10,000, payable on the first day of each month during the 10 year period
following the date of the Executive's death, commencing with the first calendar
month following the month in which the Executive died; if the Widow dies prior
to the end of such 10 year period, then after the Widow's death, such monthly
payments will be made to the Widow's estate for the balance of such 10 year
period. If the Company is not the recipient of at least $1,000,000 of insurance
on the life of the Executive, such monthly death benefits will be paid for a
period of three years, followed by monthly death benefits of $5,000 for seven
years; if the Widow dies prior to the end of such 10-year period, then, upon
the Widow's death, such payments shall cease. Payments will be made by mail to
the recipient at such address as the recipient may designate in writing to the
Company from time to time.
(d) Both during the Employment Term and the Consulting Period, the
Company will provide the Executive with office space and facilities
commensurate with the Executive's position and adequate for the performance of
his duties and the Company will reimburse the Executive, in accordance with
past practices of the Company, for such items of travel, business entertainment
and miscellaneous expenses as may be reasonably incurred by him in the
performance of his duties hereunder.
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<PAGE>
(e) In recognition of the Executive's need for an automobile for
business purposes, the Company will provide the Executive during the Employment
Term, and if requested during the Consulting Period, with an automobile,
including maintenance, repairs, insurance and costs incident thereto, all
comparable to those presently provided to the Executive by the Company.
6. (a) If during the Employment Term, the Executive becomes
incapacitated so as to be unable to render the services required hereunder for
a period of 120 consecutive days or 150 days in any period of 365 days, the
Company may terminate the Executive's employment hereunder by giving the
Executive 30 days written notice of termination specifying the effective date
of termination (the "Effective Date"). Upon the Effective Date, the Executive
will be retained by the Company, for a period equal to the shorter of the
period of disability or five years (the "Consulting Period"), as a consultant
to render the consulting services described in Paragraph 6(c).
(b) Until the Effective Date, the Executive will continue to
receive his full salary and other compensation provided in Paragraph 5, and
from the commencement of the Consulting Period to the earlier to occur of (i)
the expiration of the Consulting Period, or (ii) the Employment Term, or (iii)
the death of the Executive, the Company will pay to the Executive consultative
compensation at the rate of 75% of the annual salary which the Executive was
receiving on the commencement date of the Consulting Period; and at the end of
the Employment Term, until the earlier to occur of (i) the expiration of the
Consulting Period, or (ii) the death of the Executive, the Company will pay to
the Executive consultative compensation at the rate of 60% of the annual salary
which the Executive was receiving on the commencement date of the Consulting
Period. Consultative compensation will be paid in equal monthly installments on
the first day of each month, commencing with the calendar month following the
month in which the Effective Date shall have
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occurred and the Company shall receive credit for any amounts paid to the
Executive during the immediately preceding month under any disability
insurance, the premiums for which have been paid by the Company.
(c) During the Consulting Period, the Executive will only be
required to render such consulting services as he is capable of rendering and
the Company determines to be appropriate, but the Executive's incapacity at any
time to render such consulting services or the Executive's inability to render
such services which might be detrimental to his health will not affect the
Company's obligation to pay consultative compensation pursuant to Paragraph
6(b). The Executive is not required to attend at the Company's offices in West
Hempstead, New York or at any other place designated by the Company in order to
be entitled to any consultative compensation, and the Executive may render any
such services from his residence.
7. In addition to the compensation provided for by this Employment
Agreement, the Company agrees that the Executive shall be entitled to
participate in any retirement, disability, medical, pension, profit sharing,
group insurance, or any other plan or arrangement, or in any other benefits now
or hereafter generally available to executives of the Company, in each case to
the extent that the Executive shall be eligible under the general provisions
thereof. The Executive shall be entitled to vacation periods consistent with
the past practices of the Company with regard to the Executive in such matters.
8. The Company, by notice to the Executive, may terminate the
Executive's employment hereunder for Proper Cause. As used herein, "Proper
Cause" shall mean that the Executive has (a) willfully or materially refused or
failed to carry out specific directions of the Board of Directors of the
Company, or (b) willfully refused or failed to perform a material part of his
duties hereunder, or
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<PAGE>
(c) materially breached the provisions of Section 9 of this Agreement, or (d)
acted fraudulently or dishonestly in his relations with the Company, or (e)
committed larceny, embezzlement, conversion or any other act involving the
misappropriation of Company funds or assets in the course of his employment, or
(f) been convicted of any crime involving an act of moral turpitude.
9. (a) In view of the fact that the Executive's work for the Company
has and will bring him into close contact with many confidential affairs of the
Company not readily available to the public, as well as plans for future
developments, the Executive agrees:
(1) To keep secret and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, trade
"know-how", secrets, customer lists, pricing policies, operational methods,
technical processes and other business affairs of the Company, learned by him
heretofore or hereafter and not to disclose them to anyone outside the Company,
either during or after his employment with the Company except (i) in the course
of performing his duties hereunder, (ii) with the Company's express written
consent, (iii) to the extent that any such information is in the public domain,
other than as a result of the Executive's breach of any of his obligations
hereunder, or (iv) when required to be disclosed by Court order, subpoena or
other governmental process.
(2) To deliver promptly to the Company on termination of his
employment by the Company, or at any other time the Company may so request, all
memoranda, notes, records, reports, and other documents (and all copies
thereof) relating to the Company's business and all property associated
therewith, which he may then possess or have under his control.
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<PAGE>
(b) During the term of this Agreement and for a period of one (1)
year following a Termination of Employment in Breach of Executive's Obligations
(as such term is defined in Paragraph 9(d) hereof):
(1) The Executive shall not, without the prior written consent
of the Company, directly or indirectly:
(i) enter into the employ of or render any services to any
person, firm or corporation engaged in any Competitive Business (as such term
is defined in Section 9(d) hereof) which competes directly with the Company;
(ii) engage in any Competitive Business which competes
directly with the Company for his own account; or
(iii) become interested in any Competitive Business which
competes directly with the Company as an individual, partner, shareholder,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity. However, nothing in this
Agreement shall preclude the Executive from investing his personal assets in
the securities of a corporation or other business entity which is engaged in a
Competitive Business with the Company if such securities are traded on a
national stock exchange or in the over-the-counter market and if such
investment does not result in his beneficially owning, at any time, more than
two (2%) percent of the publicly-traded equity securities of such competitor.
(2) The Executive shall not, without the prior written consent
of the Company, directly or indirectly employ or retain, or have or cause any
other person or entity to employ or retain, any person who was employed in any
executive, managerial or sales capacity by
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<PAGE>
the Company or any of its subsidiaries or affiliates while the Executive was
employed by the Company.
(c) If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Paragraphs 9(a) or 9(b) hereof, the Company
shall have the following rights and remedies:
(1) The right and remedy to have the provisions of this
Agreement specifically enforced pursuant to the provisions of Paragraphs 9(a)
and 9(b), it being acknowledged and agreed by the Executive that the services
being rendered hereunder to the Company are of a special, unique or
extraordinary character in that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and
(2) The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as a result of any transactions constituting a breach of any of
the provisions of Paragraphs 9(a) or 9(b), and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
(d) The following terms, as used in this Paragraph 9 or anywhere
else in this Agreement, shall have the same meaning as set forth below.
(1) The term "Termination of Employment in Breach of
Executive's Obligations" shall mean, with respect to the Executive, the
occurrence of any of the following events:
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<PAGE>
(i) the termination by the Company of this Agreement for
Proper Cause, as set forth in Paragraph 8 hereof;
(ii) the Executive's voluntary withdrawal from the
employment of the Company in breach of this Agreement.
(2) The term "Competitive Business" shall mean any line of
business engaged in or conducted by the Company, and any line of business that
is substantially the same as any line of business engaged in or conducted by
the Company (i) during the term of this Agreement, (ii) at the time the
Executive's employment hereunder was terminated as a result of a Termination of
Employment in Breach of Executive's Obligations; or (iii) which, to the
knowledge of the Executive, the Company definitively planned to engage in or
conduct at the earlier to occur of (i) or (ii). As of the date hereof, the
Company is currently engaged in the design, manufacture and sale of soft-sided
carrying cases, and advertising specialties fabricated from vinyl.
(e) Each of the rights and remedies enumerated above and elsewhere
in this Agreement shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under
law or in equity.
10. All notices, approvals, consents, acceptances, waivers, reports,
requests and other communications required or permitted to be given hereunder
(all of the foregoing hereinafter collectively referred to as "Communications")
shall be in writing and shall be deemed to have been duly given if delivered
personally with receipt acknowledged or sent by registered or certified mail or
equivalent, if available (airmail if out-of-town), postage prepaid, or by telex
or cablegram (which shall be confirmed by a writing sent by registered or
certified mail or equivalent on the same day that
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<PAGE>
such telex or cablegram is sent), addressed to the parties at the following
addresses or at such additional address as any party shall hereafter specify by
Communication to the other party:
(a) If to the Company:
Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
Attention: President
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfield, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Kenneth R. Koch, Esq.
(b) If to the Executive:
Theodore H. Schiffman
124 Broadway
Lawrence, New York 11559
Except as otherwise provided herein, all Communications shall be
deemed given, received and dated on the date when received personally, one (1)
day after being sent by cable or telex and three (3) business days after
mailing by first class mail, postage prepaid, whichever shall first occur.
11. This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements or understandings, written or oral, between the parties with respect
to the subject matter hereof. No interpretation, change, termination or waiver
of or extension of time for performance under any provision of this Agreement
shall be binding upon any party unless in writing and signed by the party
intended to be bound thereby. Except as otherwise provided in this Agreement,
no waiver of or other failure to exercise any right
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<PAGE>
under or default or extension of time for performance under any provision of
this Agreement shall affect the right of any party to exercise any subsequent
right under or otherwise enforce said provision or any-other provision hereof
or to exercise any right or remedy in the event of any other default, whether
or not similar.
12. If any one or more of the provisions contained in this Agreement,
or any part thereof, is hereafter construed to be invalid and unenforceable,
the same shall not affect the remainder of such provisions, which shall be
given full effect regardless of the invalid portions, and the parties will
attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the tenor of this Agreement and, upon so agreeing, shall incorporate such
substitute provision in this Agreement. If the courts of any one or more
jurisdictions shall hold all or any part of the provisions contained in this
Agreement wholly unenforceable by reason of the breadth or scope thereof or
otherwise, it is the intention of the parties that such determination shall not
bar or in any way affect their right to relief in the courts of any other
jurisdictions as to failure to observe such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent provisions. If any of
the provisions contained in this Agreement is held to be unenforceable because
of the duration of such provision or the geographical area or the nature of the
business of the Company covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration,
geographical area and/or nature of business of the Company covered by such
provision and in its reduced form said provision shall then be enforceable.
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<PAGE>
13. This Agreement shall be binding upon and shall inure to the
benefit of the undersigned parties and their respective legal representatives,
heirs, successors and assigns. This Agreement may not be assigned by the
Executive.
14. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in entirely in the State of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement the date and year first above written.
FORWARD INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
THEODORE H. SCHIFFMAN
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EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement"), dated as of November 1, 1997, by and
between FORWARD INDUSTRIES, INC., a New York corporation, having its offices at
275 Hempstead Turnpike, West Hempstead, New York 11552 (the "Company"), and
MICHAEL SCHIFFMAN, residing at 270 Narragansett Avenue, Lawrence, New York
11559 (the "Executive").
RECITALS
A. The Executive has been engaged prior to the date hereof as an
employee, officer and/or a director of the Company, and the Executive has
unique knowledge of the Company's business, operations, affairs, requirements
and trade secrets.
B. By reason of the Executive's special knowledge and experience, his
services are uniquely valuable to the Company.
C. Prior to the date hereof, the Executive has been rendering services
to the Company on an at will oral basis.
D. It is the considered judgment of the Board of Directors of the
Company (the "Board") that it is in the Company's best interest to secure the
Executive's services, and to enter this Agreement.
E. The Company and the Executive have agreed upon all the terms of the
Executive's employment as reflected in this Agreement.
Accordingly, in consideration of the mutual promises herein contained,
it is agreed as follows:
1. The Company hereby employs the Executive as Executive Vice
President and the Executive hereby accepts such employment with the Company,
for a three-year term (the
<PAGE>
"Employment Term") commencing November 1, 1997 and expiring October 31, 2000,
unless sooner terminated as hereinafter provided.
2. During the Employment Term, the Executive will faithfully perform
his duties to the best of his abilities and in accordance with the directions
of the Company as given through the Board and Chairman of the Board. The
Company will use its best efforts to nominate and elect the Executive from year
to year as a Director. The services to be performed by the Executive will be
substantially of the same character as those presently being performed by the
Executive for the Company and for its wholly-owned subsidiary, Koszegi
Industries, Inc. The Executive will perform such additional executive services
as may, from time to time, be assigned by the Board. However, all services
required to be performed by the Executive hereunder must at all times be of a
type, nature and dignity as would normally be assigned to the Executive Vice
President of the Company or of similar companies. During the Employment Term,
the Executive will devote to the performance of such services substantially all
of his business time and attention. The Executive at all times will have such
executive powers and authority as may be required to enable him to discharge
his duties in an efficient manner.
3. If, during the Employment Term, the Executive is not serving as a
Director and as Executive Vice President of the Company (or in a more senior
capacity) or the Executive's authority and responsibility is curtailed or
diminished through action of the Board of Directors, the same will, at the
Executive's option, constitute a material breach of this Agreement by the
Company, unless the Company cures such breach within 30 days after receiving
written notice from the Executive specifically setting forth the claimed
breach. If the Company fails to cure such breach within such 30 day period, the
Executive, by written notice to the Board of Directors, may terminate his
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<PAGE>
obligations hereunder, including, but not limited to, the rendition of any
services to the Company, but the Company will, nevertheless, remain obligated
to, and will, pay to the Executive, the Executive's widow (the "Widow") or the
estate of the Executive or the Widow, from the date of such termination, all
compensation which otherwise would have been payable to the Executive, the
Widow or the particular estate as provided in Paragraphs 4(a), (b) and (c)
hereof, but for such termination. However, if between the date of such
termination and November 1, 2000, the Executive accepts other employment, the
Company's obligation to pay salary and bonus as provided in Paragraphs 4(a) and
(b) hereof will be reduced by the amount of his compensation from such outside
employment. The Executive agrees that if he accepts such other employment after
the date of such termination, he will, promptly after commencing such
employment, notify the Company of the date such other employment commenced, the
anticipated expiration date of such other employment, and the rates and/or
amounts of compensation from such other employment. Nothing herein contained
will be deemed to impose any obligation upon the Executive to seek or continue
any such other employment. From and after the date of any such termination by
the Executive, the provisions of Paragraph 4 hereof applicable to the
Consulting Period (as defined in Paragraph 5) and of Paragraph 5 will have no
further force or effect.
4. As full compensation for all services to be rendered by Executive
pursuant to this Agreement, the Company agrees to pay to the Executive, and the
Executive agrees to accept the following:
(a) a salary at the annual rate of $150,000 payable to the Executive
in equal bi-weekly installments, or as may be the practice of the Company in
making salary payments. The Board may, if it deems it to be in the Company's
best interest, increase such salary rate from time to time.
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<PAGE>
(b) In addition to salary, the Company will pay to the Executive for
each fiscal year of the Company during the Employment Term, bonus compensation
equal to 7.5% of Pre-Tax Earnings (as hereinafter defined) in excess of
$1,000,000. Pre-Tax Earnings shall mean the Company's net income before
provision for U.S. income taxes as disclosed by the Company's certified
financial statements for such fiscal year without taking into consideration
bonus compensation paid or payable to any employee of the Company for such
fiscal year, including the bonus payable to the Executive for such fiscal year
pursuant to this Paragraph 4(b). The calculation of bonus compensation will be
made by the certified public accountants regularly engaged by the Company. If
the Executive's employment is terminated pursuant to Paragraph 5 or if the
Executive should die, in each case, prior to the end of the Employment Term,
the Board shall determine in good faith the bonus payable to the Executive
pursuant to this Paragraph 4(b) for the fiscal years commencing after September
30, 1997. Payment of any bonus due to the Executive will be made as soon as
possible after the end of each fiscal year. In the event of the Executive's
death, any bonus due will be paid to the Executive's estate. Without limitation
to the foregoing provisions of this subparagraph (b), the Board may, if it
deems it to be in the Company's best interest, award a bonus to Executive in an
amount and on such terms (which are different than the provisions of this
subparagraph (b)) as the Board may from time to time determine.
(c) If the Executive dies during the Employment Term or during the
Consulting Period, the salary provided for in Paragraph 4(a) or the
consultative compensation provided for in Paragraph 5, as applicable, will be
paid to the end of the month in which the death occurs. Thereafter, if the
Company is the recipient of at least $1,000,000 of insurance on the life of the
Executive, the Company will pay to the Widow or, if the Executive's spouse has
pre-deceased him, to the
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<PAGE>
Executive's estate, a monthly death benefit of $5,500, payable on the first day
of each month during the 10 year period following the date of the Executive's
death, commencing with the first calendar month following the month in which
the Executive died; if the Widow dies prior to the end of such 10 year period,
then after the Widow's death, such monthly payments will be made to the Widow's
estate for the balance of such 10 year period. If the Company is not the
recipient of at least $1,000,000 of insurance on the life of the Executive,
such monthly death benefits will be paid for a period of three years, followed
by monthly death benefits of $2,750 for seven years; if the Widow dies prior to
the end of such 10-year period, then, upon the Widow's death, such payments
shall cease. Payments will be made by mail to the recipient at such address as
the recipient may designate in writing to the Company from time to time.
(d) Both during the Employment Term and the Consulting Period, the
Company will provide the Executive with office space and facilities
commensurate with the Executive's position and adequate for the performance of
his duties and the Company will reimburse the Executive, in accordance with
past practices of the Company, for such items of travel, business entertainment
and miscellaneous expenses as may be reasonably incurred by him in the
performance of his duties hereunder.
(e) In recognition of the Executive's need for an automobile for
business purposes, the Company will provide the Executive during the Employment
Term, and if requested during the Consulting Period, with an automobile,
including maintenance, repairs, insurance and costs incident thereto, all
comparable to those presently provided to the Executive by the Company.
5.
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(a) If during the Employment Term, the Executive becomes incapacitated
so as to be unable to render the services required hereunder for a period of
120 consecutive days or 150 days in any period of 365 days, the Company may
terminate the Executive's employment hereunder by giving the Executive 30 days
written notice of termination specifying the effective date of termination (the
"Effective Date"). Upon the Effective Date,the Executive will be retained by
the Company, for a period equal to the shorter of the period of disability or
five years (the "Consulting Period"), as a consultant to render the consulting
services described in Paragraph 5(c).
(b) Until the Effective Date, the Executive will continue to receive
his full salary and other compensation provided in Paragraph 4, and from the
commencement of the Consulting Period to the earlier to occur of (i) the
expiration of the Consulting Period, or (ii) the Employment Term, or (iii) the
death of the Executive, the Company will pay to the Executive consultative
compensation at the rate of 75% of the annual salary which the Executive was
receiving on the commencement date of the Consulting Period; and at the end of
the Employment Term, until the earlier to occur of (i) the expiration of the
Consulting Period, or (ii) the death of the Executive, the Company will pay to
the Executive consultative compensation at the rate of 60% of the annual salary
which the Executive was receiving on the commencement date of the Consulting
Period. Consultative compensation will be paid in equal monthly installments on
the first day of each month, commencing with the calendar month following the
month in which the Effective Date shall have occurred and the Company shall
receive credit for any amounts paid to the Executive during the immediately
preceding month under any disability insurance, the premiums for which have
been paid by the Company.
(c) During the Consulting Period, the Executive will only be required
to render such consulting services as he is capable of rendering and the
Company determines to be appropriate, but
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<PAGE>
the Executive's incapacity at any-time to render such consulting services or
the Executive's inability to render such services which might be detrimental to
his health will not affect the Company's obligation to pay consultative
compensation pursuant to Paragraph 5(b). The Executive is not required to
attend at the Company's offices in Brooklyn, New York or at any other place
designated by the Company in order to be entitled to any consultative
compensation, and the Executive may render any such services from his
residence.
6. In addition to the compensation provided for by this Agreement, the
Company agrees that the Executive shall be entitled to participate in any
retirement, disability, medical, pension, profit sharing, group insurance, or
any other plan or arrangement, or in any other benefits now or hereafter
generally available to executives of the Company, in each case to the extent
that the Executive shall be eligible under the general provisions thereof. The
Executive shall be entitled to vacation periods consistent with the past
practices of the Company with regard to the Executive in such matters.
7. The Company, by notice to the Executive, may terminate the
Executive's employment hereunder for Proper Cause. As used herein, "Proper
Cause" shall mean that the Executive has (a) willfully or materially refused or
failed to carry out specific directions of the Board of Directors of the
Company, or (b) willfully refused or failed to perform a material part of his
duties hereunder, or (c) materially breached the provisions of Section 8 of
this Agreement, or (d) acted fraudulently or dishonestly in his relations with
the Company, or (e) committed larceny, embezzlement, conversion or any other
act involving the misappropriation of Company funds or assets in the course of
his employment, or (f) been convicted of any crime involving an act of moral
turpitude.
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<PAGE>
8. (a) In view of the fact that the Executive's work for the Company
has and will bring him into close contact with many confidential affairs of the
Company not readily available to the public, as well as plans for future
developments, the Executive agrees:
(1) To keep secret and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, trade
"know-how", secrets, customer lists, pricing policies, operational methods,
technical processes and other business affairs of the Company, learned by him
heretofore or hereafter and not to disclose them to anyone outside the Company,
either during or after his employment with the Company except (i) in the course
of performing his duties hereunder, (ii) with the Company's express written
consent, (iii) to the extent that any such information is in the public domain,
other than as a result of the Executive's breach of any of his obligations
hereunder, or (iv) when required to be disclosed by Court order, subpoena or
other governmental process.
(2) To deliver promptly to the Company on termination of his
employment by the Company, or at any other time the Company may so request, all
memoranda, notes, records, reports, and other documents (and all copies
thereof) relating to the Company's business and all property associated
therewith, which he may then possess or have under his control.
(b) During the term of this Agreement and for a period of one (1) year
following a Termination of Employment in Breach of Executive's Obligations (as
such term is defined in Paragraph 8(d) hereof):
(1) The Executive shall not, without the prior written consent of the
Company, directly or indirectly:
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<PAGE>
(i) enter into the employ of or render any services to any person,
firm or corporation engaged in any Competitive Business (as such term is
defined in Section 8(d) hereof) which competes directly with the Company;
(ii) engage in any Competitive Business which competes directly
with the Company for his own account; or
(iii) become interested in any Competitive Business which competes
directly with the Company as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity. However, nothing in this Agreement shall
preclude the Executive from investing his personal assets in the securities of
a corporation or other business entity which is engaged in a Competitive
Business with the Company if such securities are traded on a national stock
exchange or in the over-the-counter market and if such investment does not
result in his beneficially owning, at any time, more than two (2%) percent of
the publicly-traded equity securities of such competitor.
(2) The Executive shall not, without the prior written consent of the
Company, directly or indirectly employ or retain, or have or cause any other
person or entity to employ or retain, any person who was employed in any
executive, managerial or sales capacity by the Company or any of its
subsidiaries or affiliates while the Executive was employed by the Company.
(c) If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Paragraphs 8(a) or 8(b) hereof, the Company
shall have the following rights and remedies:
(1) The right and remedy to have the provisions of this Agreement
specifically enforced pursuant to the provisions of Paragraphs 8(a) and 8(b),
it being acknowledged and agreed by the
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Executive that the services being rendered hereunder to the Company are of a
special, unique or extraordinary character in that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
(2) The right and remedy to require the Executive to account for and
pay over to the Company all compensation, profits, monies, accruals, increments
or other benefits (collectively "Benefits") derived or received by the
Executive as a result of any transactions constituting a breach of any of the
provisions of Paragraphs 8(a) or 8(b), and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
(d) The following terms, as used in this Paragraph 8 or anywhere else
in this Agreement, shall have the same meaning as set forth below.
(1) The term "Termination of Employment in Breach of Executive's
Obligations" shall mean, with respect to the Executive, the occurrence of any
of the following events:
(i) the termination by the Company of this Agreement for Proper
Cause, as set forth in Paragraph 7 hereof;
(ii) the Executive's voluntary withdrawal from the employment of
the Company in breach of this Agreement.
(2) The term "Competitive Business" shall mean any line of business
engaged in or conducted by the Company, and any line of business that is
substantially the same as any line of business engaged in or conducted by the
Company (i) during the term of this Agreement, (ii) at the time the Executive's
employment hereunder was terminated as a result of a Termination of Employment
in Breach of Executive's Obligations; or (iii) which, to the knowledge of the
Executive, the Company definitively planned to engage in or conduct at the
earlier to occur of (i) or (ii). As of
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the date hereof, the Company is currently engaged in the design, manufacture
and sale of advertising specialties and looseleaf ring and post binders.
(e) Each of the rights and remedies enumerated above and elsewhere in
this Agreement shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under
law or in equity.
9. All notices, approvals, consents, acceptances, waivers, reports,
requests and other communications required or permitted to be given hereunder
(all of the foregoing hereinafter collectively referred to as "Communications")
shall be in writing and shall be deemed to have been duly given if delivered
personally with receipt acknowledged or sent by registered or certified mail or
equivalent, if available (airmail if out-of-town), postage prepaid, or by telex
or cablegram (which shall be confirmed by a writing sent by registered or
certified mail or equivalent on the same day that such telex or cablegram is
sent), addressed to the parties at the following addresses or at such
additional address as any party shall hereafter specify by Communication to the
other party:
(a) If to the Company:
FORWARD INDUSTRIES, INC.
275 Hempstead Turnpike
West Hempstead, New York 11552
Attention: President
with a copy to
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Kenneth R. Koch, Esq.
(b) If to the Executive:
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Michael Schiffman
270 Narragansett Avenue
Lawrence, New York 11559
Except as otherwise provided herein, all Communications shall be
deemed given, received and dated on the date when received personally, one (1)
day after being sent by cable or telex and three (3) business days after
mailing by first class mail, postage prepaid, whichever shall first occur.
10. This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements or understandings, written or oral, between the parties with respect
to the subject matter hereof. No interpretation, change, termination or waiver
of or extension of time for performance under any provision of this Agreement
shall be binding upon any party unless in writing and signed by the party
intended to be bound thereby. Except as otherwise provided in this Agreement,
no waiver of or other failure to exercise any right under or default or
extension of time for performance under any provision of this Agreement shall
affect the right of any party to exercise any subsequent right under or
otherwise enforce said provision or any other provision hereof or to exercise
any right or remedy in the event of any other default, whether or not similar.
11. If any one or more of the provisions contained in this Agreement,
or any part thereof, is hereafter construed to be invalid and unenforceable,
the same shall not affect the remainder of such provisions, which shall be
given full effect regardless of the invalid portions, and the parties will
attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the tenor of this Agreement and, upon so agreeing, shall incorporate such
substitute provision in this Agreement. If the courts of any one or
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<PAGE>
more jurisdictions shall hold all or any part of the provisions contained in
this Agreement wholly unenforceable by reason of the breadth or scope thereof
or otherwise, it is the intention of the parties that such determination shall
not bar or in any way affect their right to relief in the courts of any other
jurisdictions as to failure to observe such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent provisions. If any of
the provisions contained in this Agreement is held to be unenforceable because
of the duration of such provision or the geographical area or the nature of the
business of the Company covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration,
geographical area and/or nature of business of the Company by such provision
and in its reduced form said provision shall then be enforceable.
12. This Agreement shall be binding upon and shall inure to the
benefit of the undersigned parties and their respective legal representatives,
heirs, successors and assigns. This Agreement may not be assigned by the
Executive.
13. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in entirety in the State of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed this
agreement the date and year first above written.
FORWARD INDUSTRIES, INC.
By:
--------------------------------
-----------------------------------
MICHAEL SCHIFFMAN
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<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September 30, 1997, between KOSZEGI
INDUSTRIES, INC., an Indiana corporation, with an address at 702 South Chapin
St., South Bend, Indiana 46624 (the "Secured Party"), and AMPLACO GROUP, INC.,
a New York corporation, with an address at 810 East 152nd St., Bronx, New York
10455 (the "Debtor").
WHEREAS, the Debtor has executed a note (the "Note") in favor of the
Secured Party in the original principal amount of $850,000, which was executed
by the Debtor in favor of the Secured Party pursuant to an asset purchase
agreement, dated as of September 5, 1997, between the Debtor and the Secured
Party (the "Asset Purchase Agreement"); and
WHEREAS, as an inducement to the Secured Party to accept the Note, the
Debtor wishes to grant a security interest in certain collateral to the Secured
Party;
NOW, THEREFORE, the parties hereby agree as follows (terms used and
not defined herein shall have the meanings as defined in the Uniform Commercial
Code as in effect in the State of New York (the "UCC")):
1. Grant of a Security Interest. Debtor hereby grants to Secured Party
a security interest (the "Security Interest") in the Collateral (as defined in
Section 2). Such Security Interest shall be a first lien on the Collateral,
subject only to the rights therein held by The Bank of New York taken in
connection with its financing of the Debtor's obligations pursuant to the Asset
Purchase Agreement (the "BNY Lien").
2. Collateral. The collateral covered by this Agreement consists of
all property of the Debtor, wherever located, whether or not affixed to realty,
and all Proceeds and Products thereof in any form, and all parts, accessories,
attachments, special tools, additions, replacements, substitutions and
accessions thereto or therefor, and all increases or profits received therefrom
(all of the foregoing, including such proceeds, being collectively referred to
as the "Collateral").
3. Debtor's Obligations Secured Hereby. Debtor's obligations (the
"Obligations") to Secured Party secured hereby are the payment of the principal
sum and interest evidenced by the Note, and performance and discharge of each
and every obligation of Debtor under this Agreement, the Note and the Asset
Purchase Agreement.
4. Debtor's Representations and Warranties. Debtor represents and
warrants and, so long as this Security Agreement is in effect, shall be deemed
continuously to represent
<PAGE>
and warrant, that:
(a) Debtor owns the Collateral free and clear of any liens, except
the BNY Lien.
(b) Debtor has all necessary power and authority and has taken all
action necessary to execute, deliver and perform this Agreement and the Note
and to encumber and grant a security interest in the Collateral.
(c) There is no effective financing statement or other instrument
similar in effect covering all or any part of the Collateral on file in any
recording office except as may have been filed in favor of Secured Party or in
connection with the BNY Lien.
(d) This Agreement creates a valid security interest of Secured
Party in the Collateral securing payment of the Obligations. On the filing of
the financing statements or the other similar instruments in effect under
Section 5(b), the Secured Party will have valid first and prior perfected liens
on and security interests in the Collateral, subject only to the BNY Lien.
(e) No consent, authorization, approval or other action by, and no
notice to or filing with, any governmental authority, regulatory body, lessor,
franchise or other person or entity is required for the grant by Debtor of the
security interest granted hereby or for the execution, delivery or performance
of this Agreement by Debtor or for the perfection or exercise by Secured Party
of its rights and remedies hereunder, except filings of financing documents.
(f) Debtor does not transact any part of its business under any
tradenames, division names, assumed names or other name, except for its name
set forth in the preamble hereto; Debtor's business address and chief executive
office is as set forth in the preamble hereto; and Debtor's records concerning
the Collateral are kept at such address.
(g) Each Account, General Intangible and Chattel Paper constituting
Collateral is genuine and to the best of Debtor's knowledge enforceable in
accordance with its terms against the party obligated to pay it (the "Account
Debtor"), and to the best of Debtor's knowledge no Account Debtor has any
defense, setoff, claim or counterclaim against Debtor which can be asserted
against Secured Party, whether in any proceeding to enforce the Collateral or
otherwise.
(h) Each Instrument and each Document constituting Collateral is
genuine and in all respects what it purports to be.
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<PAGE>
5. Debtor's Covenants. Debtor agrees and covenants that:
(a) The Collateral will be used solely for business purposes of
Debtor and will remain in the possession or under the control of Debtor (sale
or replacement in the ordinary course excepted) and will not be used for any
unlawful purpose. The Collateral will not be misused, abused, wasted or allowed
to deteriorate, ordinary wear and tear excepted. Debtor will keep the
Collateral, as appropriate and applicable, in good condition and repair
(ordinary wear and tear excepted), and will clean, shelter, and otherwise deal
with the Collateral in all such ways as are considered good practice by owners
of like property.
(b) Debtor has executed and will promptly file with the appropriate
governmental authorities, or deliver to Secured Party for filing, UCC-1
Financing Statements with respect to the Collateral. Debtor shall, at no cost
to Secured Party, execute, acknowledge and deliver all such other documents as
Secured Party reasonably deems necessary to create, perfect and continue the
security interest in the Collateral contemplated hereby. Debtor will pay all
costs of title searches and filing of financing statements, assignments and
other documents in all public offices reasonably requested by Secured Party,
and will not, without the prior written consent of Secured Party, file or
authorize or permit to be filed in any public office any financing statement
naming Debtor as debtor and not naming Secured Party as secured party.
(c) Debtor will defend the Collateral against the claims and
demands of all other parties, including, without limitation, defenses, setoffs,
claims and counterclaims asserted by any Account Debtor against Debtor or
Secured Party, except, as to Inventory, purchasers and lessees in the ordinary
course of Debtor's business; will keep the Collateral free from all security
interests or other encumbrances, except the Security Interest; and will not
sell, transfer, lease, assign, deliver or otherwise dispose of any Collateral
or any interest therein without the prior written consent of Secured Party,
except that Debtor may sell or lease Inventory in the ordinary course of
Debtor's business.
(d) Debtor will, at Secured Party's request, mark any and all books
and records to indicate the Security Interest so long as it will not interfere
with the ordinary conduct of Debtor's business.
(e) Debtor will notify Secured Party promptly in writing of any
change in Debtor's business address or chief executive office, any change in
the address at which records concerning the Collateral are kept and any change
in Debtor's name, identity or corporate or other structure.
(f) Debtor will prevent the Collateral or any part thereof from
being or becoming an accession to other goods not covered by this Security
Agreement.
(g) Debtor shall pay all expenses, including reasonable attorneys'
fees
3
<PAGE>
and costs, incurred by Secured Party in the preservation, realization,
enforcement or exercise of any of Secured Party's rights under this Agreement.
6. Certain Provisions Concerning Collateral. After the occurrence of
an Event of Default (as defined below), Secured Party may notify all or any
Account Debtors of the security interest created hereby and may also direct
such Account Debtors to make all payments on Collateral to Secured Party. All
payments on and from Collateral received by Secured Party directly or from
Debtor shall be applied to the Obligations in accordance with Section 9.
Secured Party may demand of Debtor in writing, before or after notification to
Account Debtors and without waiving in any manner the security interest created
hereby, that any payments on and from the Collateral received by Debtor: (i)
shall be held by Debtor in trust for Secured Party in the same medium in which
received; (ii) shall not be commingled with any assets of Debtor; and (iii)
shall be delivered to Secured Party in the form received, properly indorsed to
permit collection, not later than the next business day following the day of
their receipt; and Debtor shall comply with such demand. Debtor shall also
promptly notify Secured Party of the return to or repossession by Debtor of
Goods underlying any Collateral, and Debtor shall hold the same in trust for
Secured Party and shall dispose of the same as Secured Party directs.
7. Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Security Agreement:
(a) Debtor shall fail to make any payment of principal of, or
interest on, the Note when due after the expiration of any grace period
specified in the Note.
(b) Any representation or warranty made by Debtor in this Agreement
or the Asset Purchase Agreement shall prove to have been incorrect in any
material respect when made.
(c) Debtor shall fail to perform or observe any other term,
covenant or agreement of Debtor contained in this Agreement or the Asset
Purchase Agreement to be performed or observed, if such failure shall continue
for 10 days after written notice thereof to Debtor, unless such failure
reasonably cannot be cured within such 10-day period and the Debtor is
diligently attempting to cure such failure and cures such failure within a
reasonable period not to exceed 45 days.
(d) Any other event which is an "Event of Default" under the Note
(as such term is defined therein) shall occur and be continuing.
8. Remedies on Default. (a) Upon the occurrence of an Event of Default
and, if required, the written notice to the Secured Party, the Secured Party
may, by notice to the Debtor, declare the aggregate unpaid principal balance of
the Note, together with all unpaid accrued interest thereon, to be immediately
due and payable and thereupon such amount shall be
4
<PAGE>
and become immediately due and payable to the Secured Party. Upon such
acceleration, the Secured Party shall have all rights, privileges, powers and
remedies provided a secured party under the UCC and any other applicable law.
Upon the existence or occurrence of an Event of Default, Secured Party may
require Debtor to assemble the Collateral and make it available to Secured
Party at a place or places designated by Secured Party, and Secured Party may
use and operate the Collateral.
(b) Without in any way requiring notice to be given in the
following time and manner, Debtor agrees that any notice by Secured Party of
sale, disposition or other intended action hereunder or in connection herewith,
whether required by the UCC or otherwise, shall constitute reasonable notice to
Debtor if such notice is mailed by regular or certified mail postage prepaid,
at least five days prior to such action, to Debtor's address specified above or
to any other address which Debtor has specified in writing to Secured Party as
the address to which notices hereunder shall be given to Debtor.
(c) After an Event of Default, Secured Party may demand, collect
and sue on any of the Accounts, Chattel Paper, Instruments and General
Intangibles (in either Debtor's or Secured Party's name at the latter's
option); may enforce, compromise, settle or discharge such Collateral without
discharging the Obligations or any part thereof; and may indorse Debtor's name
on any and all checks, commercial paper, and any other Instruments pertaining
to or constituting Collateral.
9. Payments After an Event of Default. All payments received and
amounts realized by the Secured Party pursuant to Section 8, including all such
payments and amounts received after the entire unpaid principal and interest
amount of the Note has been declared due and payable, as well as all payments
or amounts then held or thereafter received by the Secured Party as part of the
Collateral while an Event of Default shall be continuing, shall be promptly
applied and distributed by the Secured Party in the following order of
priority:
i. first, to the payment of all costs and expenses, including
reasonable legal expenses and attorneys' fees, incurred or made
hereunder by the Secured Party, including any such costs and
expenses of foreclosure or suit, if any, and of any sale or the
exercise of any other remedy under Section 8, and of all taxes,
assessments or liens superior to the lien granted under this
Security Agreement, except any taxes, assessments or other
superior lien subject to which any said sale under Section 8
hereof may have been made; and
ii. second, to the payment to the Secured Party of the amount then
owing or unpaid on the Note or any other obligations, and in case
the payments received and amounts realized by the Secured Party
shall be insufficient to pay in full the whole amount so due,
owing or unpaid upon the Note or
5
<PAGE>
any other obligations, then, with application thereof on the Note
to be made first to the unpaid interest thereon, and second, to
the unpaid principal thereof, such application to be made upon
presentation of the Note and the notation thereon of the payment,
if partially paid, or the surrender and cancellation thereof, if
fully paid; and
iii. third, to the payment of the balance or surplus, if any, to the
Debtor, its successors and assigns, or to whomsoever may be
lawfully entitled to receive the same.
10. Power of Attorney. Debtor hereby appoints Secured Party the
attorney-in-fact of Debtor to prepare, sign and file or record, for Debtor in
Debtor's name, any financing statement and to take any other action reasonably
deemed by Secured Party necessary or desirable to perfect and continue the
security interest of Secured Party hereunder, and to perform any obligations of
Debtor hereunder, at Debtor's expense, but without obligation to do so. Such
power of attorney is coupled with an interest and is irrevocable so long as
this Agreement is in effect.
11. Secured Party's Right to Cure; Reimbursement. In the event Debtor
should fail to do any act as herein provided, Secured Party may, but without
obligation to do so, without notice to Debtor, and without releasing Debtor
from any obligation hereof, make or do the same in such manner and to such
extent as Secured Party may deem necessary to protect the Collateral,
including, without limitation, the defense of any action purporting to affect
the Collateral or the rights or powers of Secured Party hereunder, at Debtor's
expense. Debtor shall reimburse Secured Party for expenses reasonably incurred
under this Section 11.
12. Miscellaneous. (a) This Agreement, together with the
representations, warranties, covenants and agreements contained in it, shall
inure to the benefit of Secured Party and its successors and assigns, and shall
be binding upon Debtor, its successors and assigns.
(b) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered against receipt to the party
to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 12(b)).
Any notice given to the Debtor shall be to the attention of its Chief Executive
Officer. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
Any notice given by other means permitted by this Section 12(b) shall be deemed
given at the time of receipt thereof.
6
<PAGE>
(c) This Agreement shall terminate on the satisfaction in full of
all Obligations and, on such termination, Secured Party shall release to Debtor
the security interest granted in the Collateral hereunder; provided, that if,
after receipt of any payment of all or any part of the Obligations, Secured
Party is for any reason compelled to surrender such payment to any person or
entity, because such payment is determined to be void or voidable as a
preference, impermissible setoff, or a diversion of trust funds, or for any
other reason, this Agreement shall continue in full force notwithstanding any
contrary action which may have been taken by Secured Party in reliance upon
such payment, and any such contrary action so taken shall be without prejudice
to Secured Party's rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
(d) If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
(e) The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
(f) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(g) This Agreement has been negotiated and consummated in the
State of New York and shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to conflict of laws.
(h) No course of dealing and no delay or omission on the part of
the Secured Party in exercising any right or remedy shall operate as a waiver
thereof or otherwise prejudice the Secured Party's rights, powers or remedies.
No right, power or remedy conferred by this Agreement upon the Secured Party
shall be exclusive of any other right, power or remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise, and all
such remedies may be exercised singly or concurrently.
(i) This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all existing
agreements among them concerning such subject matter, and may be modified only
by a written instrument duly executed by each party.
(j) The Debtor irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Agreement, any document or instrument
7
<PAGE>
delivered pursuant to, in connection with or simultaneously with this
Agreement, or a breach of this Agreement or any such document or instrument. In
any such action or proceeding, the Debtor waives personal service of any
summons, complaint or other process and agrees that service thereof may be made
in accordance with Section 12(b). Within 30 days after such service, or such
other time as may be mutually agreed upon in writing by the attorneys for the
parties to such action or proceeding, the Debtor shall appear or answer such
summons, complaint, or other process. Should the Debtor so served fail to
appear or answer within such 30-day period or such extended period, as the case
may be, the Debtor shall be deemed in default and judgment may be entered
against the Debtor for the amount as demanded in any summons, complaint or
other process so served.
IN WITNESS WHEREOF, the parties have executed this Security Agreement
on the date set forth above.
AMPLACO GROUP, INC., as Debtor
By:
-------------------------------------
Name:
Title:
KOSZEGI INDUSTRIES, INC., as Secured Party
By:
-------------------------------------
Name:
Title:
8
<PAGE>
SUBORDINATION AGREEMENT AND ASSIGNMENT
In order to induce THE BANK OF NEW YORK (hereinafter called the
"Bank") at its discretion, to extend or to continue to extend financial
accommodations from time to time to AMPLACO GROUP, INC., a New York corporation
(hereinafter called the "Borrower") or to the aggregate principal amount or
$1,000,000 outstanding at any time, plus interest accrued thereon, fees in
respect thereof, and costs and expenses of the Bank in respect thereof, with
such maturity or maturities, to bear such rate or rates of interest, to be
unsecured or to be secured by such collateral security, and to contain such
other terms and provisions as may be agreed by such collateral security, and to
contain such other terms and provisions as may be agreed upon between the Bank
and the Borrower (all such credit and extensions thereof and all other
indebtedness, liabilities and obligations of every kind and nature of the
Borrower to the Bank, whether joint, several, or joint and several, direct or
indirect or acquired by assignment or otherwise, absolute or contingent,
secured or unsecured, now or hereafter existing or incurred, due or to become
due, including any indebtedness, liability or obligation arising after payment
in full or any prior indebtedness of the Borrower, together with all
extensions, renewals or modifications thereof, up to the aggregate principal
amount of $1,000,000.00 outstanding at any time, plus interest accrued thereon,
fees in respect thereof, and costs and expenses of the Bank in respect thereof,
all of which being hereinafter collectively referred to as the "Superior
Indebtedness"), the undersigned, to whom the Borrower is indebted, (hereinafter
called the "Creditor" whether one or more creditors executes this instrument)
hereby warrants and represents to and agrees with the Bank as follows:
As of the date hereof, the Borrower was indebted to the Creditor in
the amount of $850,000.00, represented by the following instruments or
agreements:
Secured Promissory Note dated as of September 30, 1997 made by Amplaco
Group, Inc. to Koszegt Industries, Inc. in the principal sum of $850,000.00
(the "Subordinated Note").
None of the above is subject to any counter claim, defense or offset
of any kind, and no part thereof has previously been assigned, encumbered or
disposed of by Creditor.
The Creditor hereby subordinates the payment of the principal and
interest on all indebtedness, liabilities and obligations of every nature of
the Borrower to the Creditor, whether now existing or hereafter created, with
all extensions and renewals thereof or of any part thereof (all such
indebtedness, liabilities, and obligations whether now existing or hereafter
created, being hereinafter collectively referred to as the "Subordinated
Indebtedness"), to the prior payment of the principal and interest on the
Superior Indebtedness. Notwithstanding the foregoing, Borrower may make, and
Credit may receive, only regularly scheduled mandatory payments of principal of
and interest on the Subordinated Indebtedness under the Subordinated Note when
the same shall be due and payable as long as (i) no amount in respect of
Superior Indebtedness (whether principal interest, fees, commissions or
otherwise) shall be due and payable (whether a regularly scheduled payment at
stated maturity upon demand, acceleration or otherwise) and (ii) there has
occurred no default in respect of any Superior Indebtedness which default shall
be continuing ("Permitted Subordinated Debt Payments").
<PAGE>
In order to bring about and accomplish the intent and purpose of this
Subordinated Agreement and Assignment (hereinafter referred to as the
"Agreement") the Creditor hereby grants to the Bank a security interest in and
irrevocably assigns to the Bank all the Creditors' right, title and interest in
and to the Subordinated Indebtedness and any collateral security at any time
held therefor, and at the Bank's request will assign over and deliver to it any
and all writings (endorsed without recourse in the case of negotiable
instruments) evidencing such Subordinated Indebtedness, or will cause any and
all writings to indicate by a notation thereon that they are subject to this
Agreement. If any Subordinated Indebtedness is not evidenced by a negotiable
instrument, the Creditor hereby agrees, upon request, to obtain a writing from
the Borrower evidencing such Subordinated Indebtedness, and to assign over and
deliver such writing to the Bank or to make such notation as the Bank shall
direct. The Creditor further agrees that if the Borrower shall at any time
hereafter become otherwise indebted to the Creditor directly, contingently or
otherwise, the Creditor will, if requested, require such indebtedness to be
evidenced by a writing signed by the Borrower which the Creditor will
immediately assign over to and deliver to the Bank (endorsed without recourse
in the case of a negotiable instrument) or at the Bank's request, in the
alternative, will cause any such writing to indicate that it is subject to this
Agreement.
In furtherance of the foregoing, the Creditor hereby grants to the
Bank irrevocable authority in the name, place and stead of the Creditor or in
the Bank's name but for its use, at any time or times after any default in the
payment of any amounts due on account of the Superior Indebtedness, in the
Bank's absolute discretion to demand, collect, compromise, file proofs or claim
with respect to, receive (by way of dividends or otherwise) and take any and
all legal proceedings for the recovery of any and all moneys due or to become
due on account or the Subordinated Indebtedness, and to vote, give consents and
take any other action with respect thereto). Any and all moneys collected,
received and retained by the Bank after first deducting the expenses
hereinafter authorized, shall be applied on account of the principal and
interest then outstanding on the Superior Indebtedness provided, however, that
upon the payment to the Bank of moneys collected, received and retained on
account of Subordinated Indebtedness and on account of Superior Indebtedness
aggregating an amount equivalent to all Superior Indebtedness, including both
principal, interest and the expenses hereinafter authorized, the Bank shall pay
over to the Creditor the excess, if any, of all moneys so received, collected
and retained on the Subordinated Indebtedness and on the Superior Indebtedness
which is still unpaid, and deliver to the Creditor any and all writings,
without any warranties of any nature or type whatsoever with respect thereto
(endorsed to the Creditor without recourse in the case of negotiable
instruments) evidencing such Subordinated Indebtedness and Superior
Indebtedness which is still unpaid, and deliver to the Creditor any and all
writings, without any warranties of any nature or type whatsoever with respect
thereto (endorsed to the Creditor without recourse in the case of negotiable
instruments) evidencing such Subordinated Indebtedness and Superior
Indebtedness. If the Bank receives oral or written notice of any claim or
demand, whether reasonable or unreasonable, adverse to the rights or interests,
as hereinabove set forth, of the Creditor in and to the Subordinated
Indebtedness, or any moneys held by the Bank in respect thereof, the Bank shall
be entitled to retain any and all such moneys, and writings evidencing such
Subordinated Indebtedness and Superior Indebtedness without incurring any
liability or debt to the Creditors, until the adjudication or final settlement
of the rights of such claimant, and the Creditor hereby agrees to pay to the
Bank on demand, all expenses of every kind, including reasonable counsel fees,
which the Bank may incur in enforcing any of its rights hereunder.
-2-
<PAGE>
The Creditor further agrees that so long as any Superior Indebtedness
remains unpaid, the Creditor will not accept any payment on account of, or any
collateral security for any Subordinated Indebtedness, other than Permitted
Subordinated Debt Payments, whether from the Borrower or any other person
liable with respect to the Subordinated Indebtedness. In the event that the
Borrower or any other person liable with respect to the Subordinated
Indebtedness shall offer any payment, other than Permitted Subordinated Debt
Payments, on account of, or any collateral security for, any Subordinated
Indebtedness, the Creditor will direct that the same be made or delivered to
the Bank, and if any moneys and/or collateral security, other than Permitted
Subordinated Debt Payments, shall come into the hands of the Creditor on
account of any Subordinated Indebtedness from any source whatsoever, the
Creditor will receive the same solely as the Bank's agent and will immediately
turn the same, in the form received, except for the endorsement of the
Creditor when appropriate, over to the Bank for application on account of the
Superior Indebtedness, and that until so delivered, the Creditor will hold the
same in trust as the Bank's property. If the Creditor shall fail or refuse
to endorse any writing for the payment of money, other than Permitted
Subordinated Debt Payments, payable to the Creditor or to the order of the
Creditor, which has been delivered to the Bank, the Bank is hereby irrevocably
constituted and appointed attorney-in-fact for the Creditor with full power
to make such endorsement.
If requested by the Bank, the Creditor shall (a) make notations on the
books of the Creditor beside all accounts or on other statements evidencing or
recording any Subordinated Indebtedness to the effect that such Subordinated
Indebtedness is subject to the provisions of this Agreement, (b) give the Bank
upon request from time to time, full and free access to the Creditors' books
pertaining to such accounts, with the right to make copies thereof, and (c)
furnish the Bank upon request from time to time, a statement of the account
between the Creditor and the Borrower.
Creditor hereby consents to the granting by Borrower to the Bank of
security interests in all fixtures and personal property of the Borrower now
owned or hereafter acquired and wherever located, and all proceeds
(collectively, the "Collateral") as security for the payment of the Superior
Indebtedness. The Bank's security interest in the Collateral, to the extent
perfected and enforceable, shall be deemed to have a priority senior to any
security interest of the Creditor in such Collateral. The Bank's priority in
respect of the Collateral shall be irrespective of the time, order or method of
attachment or perfection of security interests, or the time or order of the
filing of financing statements, or the giving of or failure to give notice of
purchase money security interests.
Until such time as all Superior Indebtedness shall have been paid in
full and the Bank's obligations to advance other sums to Borrower shall have
been terminated, the Creditor agrees that it will not commence or continue any
default foreclosure or liquidation proceedings or remedies in respect of any of
the Collateral. In the event any Collateral, or any collections or other
proceeds thereof, shall be received by the Creditor at any time or for any
reasons, such Collateral and proceeds shall be held in trust for the benefit
of, and promptly remitted to, the Bank, so long as there shall be any
outstanding Superior Indebtedness.
The Creditor authorizes the Bank to file, without the signature of the
Creditor or the Borrower, a financing statement and any amendments thereto,
with respect to any Subordinated
-3-
<PAGE>
Indebtedness if the Bank deems such a filing is advisable to protect the rights
granted to it hereunder.
This Agreement is a continuing agreement and, unless the Bank shall
have specifically consented in writin to its revocation, shall remain in full
force in all respects whether or not the Borrower shall at any time be indebted
to the Bank. If after the payment of both prinicpal and interest on all
Superior Indebtedness and any expenses hereinafter authorized and provided for,
the Borrower shall thereafter become liable to the Bank on account of any new
Superior Indebtedness, this Agreement shall thereupon be applicable in all
respects to any such new Superior Indebtedness without the necessity of any
further action, notice, understanding or writing by, between or among the Bank,
the Creditor and/or the Borrower.
If the Creditor receives any payment on account of or any collateral
security for any Subordinated Indebtedness at a time when there is no
outstanding Superior Indebtedness, the Creditor shall immediately notify the
Bank in writing of the receipt thereof. If the Creditor fails to notify the
Bank, and a new Superior Indebtedness is thereafter created, and if the
Borrower defaults with respect to the payment of such new Superior
Indebtedness, in addition to and not in limitation of any other rights or
remedies available to the Bank hereunder, the Bank shall have the right to
receive and the Creditor will immediately pay to the Bank an amount equal to
any such payment or the value of any such security received by the Creditor and
not reported to the Bank.
With or without notice to or further asset from the Creditor, the Bank
may at any time or times, in its absolute discretion, either prior to or after
any default on the part of the Borrower with respect to either the Subordinated
Indebtedness or the Superior Indebtedness, (i) extend, renew or change, refuse
to extend, renew or change any of the Superior Indebtedness, waive any default,
modify, rescind or waive any provision of any related agreement or collateral
undertaking including, but not by way of limitation, any provision relating to
acceleration of maturity, (ii) fail to set off any deposit balances or any
part thereof on its books in favor of the Borrower and release the same,
(iii) release, exchange, fail to resort to, or realize upon, or apply, any
collateral security or any part thereof held by or available to it for the
Superior Indebtedness, and (iv) generally deal with the Borrower in such
manner as the Bank may see fit, all without impairing or affecting its rights
and remedies under this Agreement. The Creditor hereby waives any and all
notice of the receipt and acceptance of this Agreement by the Bank and of the
creation, renewal, extension or accrual of any of the Superior Indebtedness,
present or future, in whole or in part by the Bank or of the reliance by the
Bank on this Agreement at any time or times, and further waives notice of any
default at any time on the part of the Borrower. The Creditor waives any
right to interpose any defense, counterclaim or offset with respects to the
Superior Indebtedness or the Subordinated Indebtedness.
The Creator agrees to pay to the Bank on demand all expense of every
kind, including reasonable counsel fees, which it may incur in enforcing its
rights hereunder.
If this Agreement is executed by more than one Creditor, the liability
and obligations of the Creditors hereunder shall be joint and several.
-4-
<PAGE>
Any notice to the Bank shall be effective only if directed to and
received by it at the office making the loan or Superior Indebtedness to the
Borrower.
The Creditor waives trial by jury, and the right to interpose any
defense, counterclaim or offset of any nature or description in any litigation
arising out of or in any way connected with the Subordinated Indebtedness of
this Agreement, and agrees that the venue of any such litigation shall be the
county in which is located the Bank's office making the loan or Superior
Indebtedness to the Borrower.
No delay on the Bank's part in exercising any right or rights
hereunder or in failing to exercise the same shall operate as a waiver of such
right or rights; and no notice to or demand on the Borrower or the Creditor
shall be deemed a waiver of the Bank's right to take further action without
notice or demand; nor in any event shall any modification, alteration or waiver
of any of the provisions hereof be effective unless in writing and signed for
or on behalf of the Bank and then only in the specific instance for which
given.
This Agreement shall be deemed to be a contract made in the State of
New York and entered into under and pursuant to the laws of said State and
shall be governed, construed and enforced and all rights and obligations
hereunder shall be determined in accordance with the laws of the said State.
This Agreement may be executed in one or more counterparts and copies
of this Agreement delivered by facsimile transmission shall be enforceable as
originals.
IN WITNESS WHEREOF, this Agreement has been executed by the creditor
on this 30 day of September, 1997.
Name of Creditor: KOSZEGI INDUSTRIES, INC.
Address of Creditor: 702 South Chapin Street
South Bend, Indiana
Signature of Creditor:
--------------------------
-5-
<PAGE>
AGREEMENT OF SUBLEASE, dated as of September 30, 1997 between KOSZEGI
INDUSTRIES, INC., an Indiana Corporation, having an office at 702 South Chapin
Street, South Bend, Indiana ("SUBLESSOR") and AMPLACO GROUP, INC., a New York
Corporation, having an office at 810 East 152nd Street, Bronx, New York
("SUBLESSEE").
W I T N E S S E T H:
WHEREAS, pursuant to an Agreement of Lease dated as of February 28,
1989, between JANICE F. CORSON ("LANDLORD"), as landlord, and KOSZEGI PRODUCTS,
INC., as tenant, (the "LEASE") a copy of which has heretofore been delivered to
Sublessee, Sublessor leases space comprised of approximately 74,450 square feet
at the facility located in the County of St. Joseph, City of South Bend,
Indiana, as more particularly described in the Lease (the "PREMISES");
WHEREAS, Sublessor and Sublessee are parties to an Asset Purchase
Agreement dated September 5, 1997, which agreement provided for, among other
things, Sublessee's use of a portion of the Premises for conducting the
business being conveyed under the Asset Purchase Agreement; and
WHEREAS, Sublessee wants to sublet from Sublessor and Sublessor wants
to sublet to Sublessee a portion of the space covered by the Lease, consisting
of approximately _________ square feet, which is designated by cross hatching
on the floor
<PAGE>
plan annexed hereto (the "SUBLET PREMISES"), on the terms and conditions
hereinafter set forth.
NOW THEREFORE, Sublessor, for and in consideration of the rents,
covenants and agreements hereinafter reserved and contained on the part of
Sublessee to be paid, kept and performed, does hereby sublet and demise unto
Sublessee, and Sublessee does hereby take and hire from Sublessor upon and
subject to the terms, covenants and conditions hereinafter expressed, which
Sublessee agrees to keep and perform, the Sublet Premises.
TO HAVE AND TO HOLD the same unto Sublessee and its successors and
permitted assigns, for a term to commence as of the date hereof (the "TERM
COMMENCEMENT DATE"), and to expire at 12:00 noon on January 31, 1999 (the
"EXPIRATION DATE"), subject to the Lease and all ground or underlying leases
and mortgages to which the Lease is or may hereafter be subject and subordinate
pursuant to the terms thereof, and upon the rentals, terms, covenants,
conditions and provisions herein set forth.
AND the parties hereto hereby agree to the foregoing and as follows:
1. MONTHLY PAYMENTS. The parties agree that the Sublet Premises
constitutes 26.76% of the Premises (the "SUBLESSEE'S SHARE"). Sublessee shall
be responsible for Sublessee's Share of all costs payable by Sublessor under
the Lease, including without limitation rent, property taxes, electricity and
insurance ("SUBLESSEE'S CHARGES"). Each
- 2 -
<PAGE>
month Sublessor will give a written statement of Sublessee's Charges, which
must be paid in full within three (3) days of delivery of the statement, either
by certified bank check or, at Sublessor's request, by wire transfer.
2. CANCELLATION. The term shall commence on the Term Commencement
Date, and shall expire on the Expiration Date. The foregoing notwithstanding,
Sublessee shall have the right to terminate this Sublease by giving notice to
Sublessor at the address written above. Such right shall be exercisable only
upon the date which is thirty (30) days from the date notice is given;
provided, however, that Sublessee shall hold harmless and indemnify Sublessor
and its parent company from and against liabilities, claims, suits, demands,
judgments, actions and expenses, inclusive of attorneys' fees, disbursements
and court costs in connection with the early termination of any employees or
the violation of any applicable local, state, county or federal regulations, as
a result of or in connection with such termination.
3. CONDITION OF PREMISES. Sublessee acknowledges that it has inspected
the Sublet Premises and is satisfied with the condition of the Sublet Premises
and agrees to accept the Sublet Premises in its present condition.
4. USE; COMPLIANCE WITH LAWS. Sublessee shall use the Sublet Premises
for manufacturing purposes in accordance with the Lease for the conduct of its
business and for no other purpose. Sublessee shall comply with all building,
zoning, fire and other governmental laws, ordinances, regulations or rules
applicable to the Sublet Premises.
- 3 -
<PAGE>
Sublessee shall not do or permit anything to be done in or about the Sublet
Premises, or bring or keep anything in the Sublet Premises that may increase
Sublessor's or Landlord's fire and extended coverage insurance premium, damage
the Premises, constitute waste, or be a nuisance, public or private, or a
menace or other disturbance to neighbors or other occupants of the Premises.
5. ALTERATIONS. Sublessee shall not make any alterations in or to the
Sublet Premises of any nature except in accordance with the relevant articles
of the Lease and with the consent and approval of Landlord and Sublessor and as
otherwise required therein. Any expense incurred by Sublessee in connection
with any such alterations or consent thereto shall be borne solely by
Sublessee.
6. REPAIRS. Sublessee agrees to maintain the Sublet Premises in a
neat, clean and sanitary condition, and keep same in good repair, in accordance
with the terms of the Lease.
7. INDEMNIFICATION. Sublessee shall hold harmless and indemnify
Landlord, Sublessor their parent companies and subsidiaries of whatever tier
and their agents and employees, from and against any and all liability, claims,
suits, demands, judgments, actions and expenses, inclusive of attorneys' fees,
disbursements and court costs, as a result of injury, including death, to all
persons whether employees of Sublessee or otherwise, or property damage,
arising out of, or in connection with Sublessee's use of the Sublet Premises
and shall maintain at all times Comprehensive General Liability Insurance,
- 4 -
<PAGE>
including Personal Injury Liability, in such amount as may reasonably be
required by Sublessor or Landlord from time to time but not less than
$1,000,000.00 per occurrence, and $1,000,000.00 aggregate in respect of bodily
injury or death, and $100,000 per occurrence for property damage, such policy
to name Sublessor and Landlord as additional insureds, and to provide that in
the event of cancellation or material change in the policy, 30 days' notice
will be given to such parties, at the address hereinabove stated or at such
other address as they shall hereafter designate by notice to Sublessee. Such
insurance shall be effected under a valid and enforceable policy issued by
insurers of recognized responsibility, licensed to do business in the state of
Indiana and reasonably acceptable to Sublessor. The original or duplicate
counterpart of such policy or a certificate of insurance issued by the carrier
shall be delivered to Sublessor, provided that any certificate must be
accompanied by an endorsement to the original policy which names Landlord and
Sublessor as additional insureds and provides for 30 days' notice of
cancellation or material change to Sublessor.
8. INCORPORATION OF LEASES' TERMS. To the extent not otherwise
inconsistent with the agreements and understandings expressed in this Sublease
or applicable to the original parties to the Lease, all of the terms, covenants
and conditions of the Lease, including all amendments thereto, (excluding,
however, Paragraphs 1, 3 (C)-(F), and 28) are hereby incorporated herein by
reference on the following understandings:
- 5 -
<PAGE>
(a) The term "LANDLORD" as used therein shall refer to
Sublessor, its successors and assigns, and the term "TENANT" as used
therein shall refer to Sublessee, its successors and permitted
assigns.
(b) In any article referring to a period of time in which
"TENANT" must act or respond, such time period shall automatically be
reduced by three (3) days.
(c) In any case where "LANDLORD" reserves the right to enter
the Sublet Premises such right shall inure to the benefit of Landlord
and Sublessor.
(d) With respect to any work, services or repairs, or the
performance of other obligations required of Landlord under the Lease,
Sublessor's sole obligation shall be to request the same from
Landlord. Sublessee at its option may, in its own name conduct such
proceedings as may be required to obtain from Landlord any such work,
services, repairs or other obligations, and Sublessor shall cooperate
with Sublessee in connection therewith, including execution of such
documents as may be required.
(e) Sublessee hereby agrees to assume the obligations of
"TENANT" under the Lease insofar as they relate to the Sublet
Premises, shall perform and comply with the terms, covenants and
conditions of the Lease as incorporated herein and shall not do or
suffer or permit anything to be done which would result in a default
under or cause the Lease to be terminated or forfeited.
- 6 -
<PAGE>
9. ASSIGNMENT AND/OR SUBLETTING. (a) Sublessee shall have neither the
right to assign this Sublease nor the right to sublet the Sublet Premises or
any part thereof without the prior consent of Sublessor and Landlord. A
transfer of more than a 50% beneficial interest in Sublessee, whether such
transfer occurs at one time or in a series of related transactions, shall be
deemed an assignment of this Sublease requiring the consent of Sublessor and
the Landlord.
10. BROKERS. Sublessee represents that it has not negotiated with or
consulted with any real estate brokers or agents in connection with this
Sublease. Sublessee shall indemnify and hold Sublessor harmless from and
against any loss, cost or expense, including attorneys' fees, disbursements,
and court costs, incurred by Sublessor arising out of facts contrary to the
foregoing representation. The provisions of this paragraph shall survive the
expiration or earlier termination of this Sublease.
11. DEFAULT. In the event that Sublessee shall default in any of its
obligations hereunder, including without limitation, its obligations to pay
Sublessee's Charges, and Sublessee has not cured or is not proceeding to cure
such default in accordance with the provisions of the Leases, as modified by
Paragraph 8 of this Sublease, Sublessee shall reimburse Sublessor for all
expenses, including without limitation, reasonable attorneys' fees incurred by
Sublessor in asserting its rights hereunder against Sublessee or any other
party.
- 7 -
<PAGE>
12. WAIVER OF SUBROGATION. Sublessee and Sublessor release each other
and waive any right of recovery against each other for loss or damage to their
respective property, which occurs in or about the Sublet Premises (whether due
to the negligence of either party, their agents, employees, officers,
contractors, licensees, invitees or otherwise), to the extent that such loss or
damage is reimbursed by insurance proceeds. Sublessee agrees that all policies
of insurance obtained in connection with the Sublet Premises shall contain
appropriate waiver of subrogation clauses.
13. LIMITATION OF LIABILITY. The obligations of Sublessor under this
Sublease do not constitute personal obligations of Sublessor or the individual
partners, shareholders, directors, officers, employees or agents of Sublessor,
and Sublessee shall look solely to Sublessor's interest in the Sublet Premises,
and to no other assets of Sublessor, for satisfaction of any liability in
respect of this Sublease, and will not seek recourse against the individual
partners, shareholders, directors, officers, employees or agents of Sublessor
or any of their personal assets for such satisfaction.
14. CASUALTY. If the Sublet Premises shall be partially or totally
damaged or destroyed by fire, casualty or other causes as a consequence of
which Sublessor shall, pursuant to the Lease, become entitled to receive an
abatement of rent with respect to the Sublet Premises, there shall be an
abatement of the rent portion of Sublessee's Charges hereunder in the same
manner. This Sublease shall not be terminated as a consequence of any such
damage or destruction except in the event that the Lease is terminated by
- 8 -
<PAGE>
Landlord pursuant to the provisions of the Lease. Sublessor shall consult with
Sublessee prior to exercising its right to terminate the Lease.
15. NOTICES. All notices, demands, consents, requests or other
communication under this Sublease (a "NOTICE") which may be or are required to
be given hereunder shall be in writing and shall be given by personal delivery,
by telecopy or by mailing the same by registered or certified mail, return
receipt requested, addressed, if to the Sublessor, at the address set forth
above and if to the Sublessee, at the address set forth above or at the address
of the Sublet Premises. Either party may by notice to the other change the
address to which notices to such party shall thereafter be given. Sublessor
shall promptly, upon receipt of any notice from Landlord, deliver a copy of
such notice to Sublessee. All notices shall be deemed given when personally
delivered or telecopied, or 48 hours after having been duly deposited in the
mails.
16. ENTIRE AGREEMENT. This Sublease contains the entire agreement
between the parties and may not be modified except by a written agreement
signed by the party to be charged.
17. LANDLORD'S CONSENT. If Landlord does not consent to this Sublease
within thirty (30) days of the date hereof, the Sublease shall be deemed null
and void, neither party shall have any further rights or obligations hereunder
and Sublessor shall return to Sublessee any Sublessee's Charges paid by
Sublessee.
- 9 -
<PAGE>
18. BINDING EFFECT. The covenants and agreements herein contained
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
19. COUNTERPARTS. This Sublease may be signed in one or more
counterparts, each when taken together shall constitute but one and the same
original.
- 10 -
<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this
Sublease as of the day and year first above written.
KOSZEGI INDUSTRIES, INC.
By:
---------------------------
Name:
Title:
AMPLACO GROUP, INC.
By:
---------------------------
Name:
Title:
- 11 -
<PAGE>
LICENSE AGREEMENT
AGREEMENT, made this 30th day of September, 1997, between AMPLACO
GROUP, INC. ("Licensee"), a New York corporation with offices at 810 East 152nd
Street, Bronx, New York, and KOSZEGI INDUSTRIES, INC., an Indiana corporation
with offices at 702 South Chapin Street, South Bend, Indiana ("Licensor").
RECITALS
A. Licensor is the owner of certain real property in South Bend,
Indiana located at ____ Scott Street, South Bend,
Indiana("Licensor's Property").
B. Licensor and Licensee are parties to an Asset Purchase Agreement
dated September 5, 1997, which agreement provides for the use by
Licensee of certain of Licensor's property for the conduct of the
business covered by such Asset Purchase Agreement (the "Business
Use").
C. Licensee wants Licensor to gant Licensee a license for the
Business Use of the Licensor's Property.
D. Licensor is willing to grant such license on the terms and
conditions below stated.
- 1 -
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties agree as follows:
AGREEMENTS
1. Licensor, in consideration of $10.00 and other good and valuable
consideration hereby grants Licensee permission to use the
Licensor's Property non-exclusively for the Business Use.
2. Licensee understands and agrees that such permission is a license
and shall in no way be construed as granting Licensee or any
other person or entity any interest in Licensor's Property.
3. The license created by this agreement may be unilaterally
terminated upon three (3) months prior written notice by either
party to the other informing of such termination.
4. Should the reasonable needs of Licensee as they may develop in
the course of conducting the Business Use require the subleasing
of additional space in the building adjacent to Licensor's
Property where Licensee has simultaneously herewith sublet from
Licensor certain space, the parties shall in good faith negotiate
the terms of such additional subleasing. The aforesaid right of
either party to terminate this license, however, is not
conditioned upon such negotiations or the execution and delivery
of an agreement with respect to such additional space.
- 2 -
<PAGE>
5. Licensee hereby covenants and agrees to indemnify, defend and
hold Licensor harmless from and against any and all claims,
losses, damages, liabilities, costs and expenses, including
attorneys' fees, arising by reason of the use of the Licensor's
Property by Licensee, its agents, contractors, licensees,
invitees, visitors and/or customers, or the termination of this
license.
6. All notices and other communications under this agreement shall
be in writing and shall be deemed given when delivered
personally, mailed by registered mail, return receipt requested,
or sent by documented overnight delivery service to the parties
at the following addresses (or to such other addresses as such
party may have specified by notice given to the other party
pursuant to this provision):
if to Licensor, at
c/o Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
Attention: Theodore H. Schiffman
with a copy to
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Kenneth R. Koch, Esq.
- 3 -
<PAGE>
if to Licensee, at
Amplaco Group, Inc.
810 East 152nd Street
Bronx, New York 10455
Attention: Daryl Wills
with a copy to
Novick, Edelstein, Lubell, et. al.
733 Yonkers Avenue
Yonkers, New York 10704
Attention: Craig Zimm, Esq.
7. This agreement shall bind and inure to the benefit of Licensee,
Licensor and only Licensor's successors and assigns.
8. This agreement contains the entire agreement between the parties
and may not be modified except by a written agreement signed by
the party to be charged.
9. This agreement may be signed in one or more counterparts, each
when taken together shall constitute but one and the same
original.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the
date and year first above written.
AMPLACO GROUP INC.
---------------------------------
by
-------------------------------
its
------------------------------
KOSZEGI INDUSTRIES, INC.
---------------------------------
by
-------------------------------
its
------------------------------
- 5 -
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
KOSZEGI INDUSTRIES, INC.
AND
AMPLACO GROUP, INC.
---------------
SEPTEMBER 5, 1997
---------------
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made as of the 5th day of September 1997 by
and between Koszegi Industries, Inc., an Indiana corporation ("Seller"), and
Amplaco Group, Inc., a New York corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller operates a division (the "Division") engaged in the
design, manufacture and sale of advertising specialties fabricated from vinyl
(the "Division's Business"); and
WHEREAS, upon the terms and conditions set forth herein, Seller
desires to sell, and Buyer desires to purchase, certain of the assets, and to
assume certain of the liabilities, of Seller relating to the Division, as
specified herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Purchase and Sale of Assets.
1.1 Purchase and Sale of Assets. Upon the terms and subject to the
conditions set forth in this Agreement, at the closing (the "Closing") of the
transactions contemplated hereby, Seller shall sell, transfer, convey, assign
and deliver to Buyer, and Buyer shall purchase and acquire from Seller, the
Division's Business as a going concern, consisting of the assets of Seller used
exclusively in the Division's Business, as set forth below, as the same shall
exist on September 15, 1997, or such other date as the parties hereto may agree
(the "Closing Date") (collectively, the "Acquired Assets"). The Acquired Assets
shall include all of Seller's right, title and interest in and to the following
items:
<PAGE>
(a) Contracts and Agreements, etc. The contracts, commitments,
agreements or arrangements, leases, licenses and notes (whether any of the
foregoing shall be written, oral, express or implied) to which Seller is a
party, which are set forth on Schedule 1.1(a) (the foregoing, collectively, the
"Assumed Contracts").
(b) Copyrights, Patents and Trademarks. All of the United States,
state, and foreign registered and unregistered trademarks, trademark rights,
trade names, trade name rights, patents, patent rights, corporate names,
service marks, service mark rights, brand names, brand marks, logos, package
designs and colorings and copyrights, copyright rights (and any applications
therefor) and all of the goodwill attendant thereon, owned by, or registered in
the name of Seller set forth on Schedule 1.1(b).
(c) Inventory. All work in process and finished products, and all
other inventory, whether on hand, on order or in transit, wherever located,
relating exclusively to the Division's Business (the "Inventory").
(d) Fixed Assets. The fixed assets listed on Schedule 1.1(d) (the
"Fixed Assets").
(e) Other Assets. All other intangible and tangible assets of
Seller set forth on Schedule 1.1(e)
1.2 Excluded Assets. Notwithstanding any other provision of this
Agreement, Seller shall not sell, assign or transfer to Buyer, and Buyer shall
not purchase from Seller, any of the following assets (collectively, the
"Excluded Assets"):
(a) Real Property. All rights under the lease for the premises
located at 702 South Chapin Street, South Bend, Indiana (the "Indiana
Facility").
(b) Accounts Receivable. All of Seller's accounts and notes
receivable, including any chargeback receivables and credit card receivables,
arising from operation of the Division's Business prior to the Closing Date.
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(c) Third Party Claims. All claims against third parties arising
from or in connection with the Division's Business or the Acquired Assets prior
to the Closing Date.
(d) Tax Refunds. All federal and local income tax refunds due
Seller for all periods up to but not including the Closing Date.
(e) Prepaid Expenses, etc. All prepaid expenses and rentals
relating to the Excluded Assets.
(f) Corporate Records. (i) All books, records and other assets
relating primarily to corporate activities of Seller, including, without
limitation, those relating to accounting and tax functions, (ii) any corporate
minute books, stock ledgers and other corporate books and records of Seller,
and (iii) all books and records relating to the Excluded Assets and the
Excluded Liabilities.
2. Assumption of Liabilities by Buyer. As of the Closing
Date, Buyer shall assume and thereafter pay, perform, satisfy and discharge the
following obligations and liabilities of Seller (collectively, the "Assumed
Liabilities"):
(a) Obligations Under Certain Agreements. The liabilities and
obligations of Seller under the Assumed Contracts.
(b) Liabilities Following Closing Date. All liabilities and
obligations arising from or in connection with the Division's Business or the
Acquired Assets on or after the Closing Date as a result of the conduct of the
business of the Division's Business after the Closing Date.
3. Consideration. As consideration for the Acquired Assets, Buyer agrees to pay
the following amounts to Seller and perform the following acts:
3.1 Purchase Price. The purchase price for the Acquired Assets shall
be $1,350,000 (the "Purchase Price") payable in the following manner (subject
to adjustment as set forth herein): (i) $25,000 upon the execution hereof by
certified bank check or, at Seller's request, by wire transfer, (ii) $475,000
on the Closing Date by certified bank check or, at Seller's request, by wire
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transfer and (iii) a secured promissory note (the "Note") in the principal
amount of $850,000 in the form of Exhibit 3.1 attached hereto.
3.2 Security Interest. From and after the Closing Date and until all
obligations accruing pursuant to or in respect of this Agreement and the Note
have been fully satisfied, Buyer hereby unconditionally and irrevocably
pledges, grants and hypothecates to Seller a security interest in, a lien upon,
and a right of set-off against all of the tangible and intangible assets of
Buyer, wherever located, whether currently in Buyer's possession or hereafter
acquired, including, without limitation, the Acquired Assets and all products
and proceeds thereof (the "Secured Assets"), which security interest shall take
priority over any other liens upon the Secured Assets except those of The Bank
of New York taken in connection with its financing of the transactions
contemplated hereby. At the Closing, Buyer shall deliver to Seller a security
agreement in a form to be agreed upon by the parties (the "Security Agreement")
and Uniform Commercial Code financing statements, or their equivalents,
evidencing Buyer's granting to Seller a security interest in the Secured Assets
(together with the Security Agreement, the "Security Documents"). Buyer also
authorizes Seller to file such statements without the Buyer's signature. Buyer
agrees that at any time and from time to time, at its expense, it will promptly
execute and deliver such further instruments and documents, and take such
further action, as may be reasonably necessary or desirable, or that Seller may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable Seller to exercise and
enforce its respective rights and remedies pursuant hereto with respect to any
of the Secured Assets. Buyer agrees to defend the title to the Secured Assets
and the lien thereon and security interest therein of Seller created hereby
against the claim of any person and to maintain and preserve such lien and
security interest until all obligations accruing pursuant to or in respect of
this Agreement and the Note have been fully satisfied. Buyer hereby irrevocably
appoints Seller and its authorized representatives as Buyer's
attorneys-in-fact, with full authority in
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the place and stead of Buyer and in the name of Buyer or otherwise, at any time
following the occurrence and during the continuation of any default under this
Agreement or the Note, to take any action and to execute any instrument which
Seller may deem necessary or advisable to accomplish the purposes of this
Agreement and the Note. Buyer hereby also agrees that Seller also shall have
all the rights with respect to the Secured Assets as are granted to a secured
party under the applicable Uniform Commercial Code including rights against the
Secured Assets following default. Buyer shall, upon demand, be responsible to
pay to Seller the amount of any and all expenses, including the reasonable fees
and expenses of counsel and of any experts and agents, which Seller may
reasonably incur in connection with (a) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Secured Assets,
(b) the exercise or enforcement of any of the rights of Seller and pursuant
hereto, or (c) the failure by Buyer to perform or observe any of the provisions
of this Section 3.2.
3.3 Adjustment to and Allocation of Purchase Price.
(a) Purchase Price Adjustment. If the value of the Inventory, as
determined in accordance with Sections 3.3(b) and (c) hereof, as of the Closing
Date is greater than $400,000, then the Purchase Price shall be increased
dollar for dollar by the amount of such excess. If the value of the Inventory
as of the Closing Date is less than $400,000, the Purchase Price shall be
decreased dollar for dollar by the amount of such difference (such adjustment
shall hereinafter be referred to as the "Inventory Adjustment").
(b) Closing Date Valuation Statement. On or prior to sixty (60)
days following the Closing Date, Seller, or the representative of Seller,
shall, with the assistance and cooperation of Buyer, prepare and deliver to
Buyer a statement which shall set forth the value of the Inventory as of the
close of business on the Closing Date (the "Closing Date Valuation Statement")
based upon and from the results of a physical inventory and the books and
records of the Division
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as of the Closing Date. The values on the Closing Date Valuation Statement
shall be computed in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis with the Division's past practices.
(c) Determination of Final Adjustments. Buyer shall have ten (10)
days following delivery thereof by Buyer to review the Closing Date Valuation
Statement. Within five (5) days after such ten-day period (unless Buyer does
not concur with such statement as set forth below), Buyer shall pay to Seller,
or Seller shall pay to Buyer, as the case may be, the amounts due as the
Inventory Adjustment. If Buyer does not concur in Seller's determination of the
Inventory Adjustment, Seller and Buyer shall confer with regard to the matter
and shall use their best efforts to attempt, in good faith, to resolve such
dispute by negotiations. If Buyer and Seller fail to resolve any disagreement
within ten (10) days after the delivery to Seller of the Closing Date Valuation
Statement, the dispute shall be submitted immediately to Arthur Andersen, LLP
(the "Independent Accountant") which shall decide such dispute. The resolution
by the Independent Accountant shall be conclusive, final and binding on the
parties. The fees and expenses of the Independent Accountant shall be borne by
Buyer. Upon final determination of the Inventory Adjustment, payment of such
adjustments, along with accrued interest thereon as set forth above shall be
made immediately by Buyer or Seller, as the case may be, by certified bank
check or, at the other party's request, by wire transfer.
(d) Allocation of Purchase Price. It is expressly understood and
agreed by the parties that the Purchase Price shall be allocable to the
Acquired Assets in such a manner as Seller and Buyer shall agree to prior to
the Closing Date. Each of the parties agrees that it will report the
transactions contemplated hereunder on all of its income tax returns and
reports in accordance with the foregoing.
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4. Representations and Warranties of Seller. Seller hereby represents and
warrants to Buyer as follows:
4.1 Organization and Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Indiana.
4.2 Authorization. Seller has all requisite corporate power and
authority to execute and deliver this Agreement, the Security Agreement and the
Sublease Agreement (as hereinafter defined), to consummate the transactions
contemplated hereby and to perform fully its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement, the
Security Agreement and the Sublease Agreement by Seller and the consummation by
Seller of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action of Seller. This Agreement, the
Security Agreement and the Sublease Agreement constitute, and each document and
instrument contemplated by this Agreement, the Security Agreement and the
Sublease Agreement to be executed by Seller when executed and delivered in
accordance with the provisions hereof and thereof, shall constitute the valid
and legally binding obligations of Seller, enforceable against it in accordance
with its terms, subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting
creditors' rights generally; and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding at law or in
equity).
4.3 Freedom to Contract. The execution, delivery and performance of
this Agreement, the Security Agreement and the Sublease Agreement by Seller and
the consummation by Seller of the transactions contemplated hereby and thereby
will not (i) violate or conflict with any provisions of the charter documents
or by-laws, as amended, of Seller, (ii) violate any of the terms, conditions or
provisions of any law, rule, statute, regulation, order, writ, injunction,
judgment or decree of any court, governmental authority or regulatory agency,
or (iii) conflict with or result in a violation or
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breach of, or constitute (with or without due notice or lapse of time or both)
a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement, lien,
mortgage, lease, agreement, license, franchise, permit, guaranty, joint venture
agreement or other agreement, instrument or obligation, oral or written, to
which Seller is a party (whether as an original party or as an assignee or
successor) or by which it or any of its properties is bound, except as provided
for herein. To the knowledge of Seller, no authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration or
filing with any court or governmental authority is required in connection with
the execution, delivery and performance of this Agreement, the Security
Agreement or the Sublease Agreement and the consummation of the transactions
contemplated hereby and thereby by Seller, except as provided for herein.
4.4 Title to Assets; Encumbrances, etc. Seller has, and is conveying
to Buyer, good and marketable title to all of the Acquired Assets, free and
clear of any mortgage, pledge, security interest, title defect or objection,
lien, charge, claim, restriction, option, commitment or encumbrance of any
kind, except as otherwise provided herein. No third party has any rights to
purchase any of the Acquired Assets, or any interest therein or portion hereof,
including rights of first offer or first refusal.
5. Representations and Warranties of Buyer. Buyer represents and warrants to,
and covenants and agrees with, Seller as follows:
5.1 Organization and Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of New York
and has the full corporate power and lawful authority to execute and deliver
this Agreement, to consummate the transactions contemplated hereby and to
perform its obligations under this Agreement.
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5.2 Authorization of Agreement. Buyer has all requisite corporate
power and authority to execute and deliver this Agreement, the Note, the
Security Documents and the Sublease Agreement, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement, the
Note, the Security Documents and the Sublease Agreement by Buyer and the
consummation by Buyer of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action by or on behalf of
Buyer. This Agreement, the Note, the Security Documents and the Sublease
Agreement constitute, and each document and instrument contemplated by this
Agreement, the Note, the Security Documents and the Sublease Agreement to be
executed by Buyer, when executed and delivered in accordance with the
provisions hereof and thereof shall be, the valid and legally binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms, subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting
creditors' rights generally; and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding at law or in
equity).
5.3 Freedom to Contract. The execution, delivery and performance of
this Agreement, the Note, the Security Documents and the Sublease Agreement by
Buyer and the consummation by Buyer of the transactions contemplated hereby and
thereby will not (i) violate or conflict with any provisions of the charter
documents or by-laws, as amended, of Buyer, (ii) violate any of the terms,
conditions or provisions of any law, rule, statute, regulation, order, writ,
injunction, judgment or decree of any court, governmental authority or
regulatory agency, or (iii) conflict with or result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, indenture, debenture, security agreement, trust agreement,
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lien, mortgage, lease, agreement, license, franchise, permit, guaranty, joint
venture agreement or other agreement, instrument or obligation, oral or
written, to which Buyer is a party (whether as an original party or as an
assignee or successor) or by which it or any of its properties is bound. To
Buyer's knowledge, no authorization, approval, order, license, permit,
franchise or consent, and no registration, declaration or filing with any court
or governmental authority is required in connection with Buyer's execution,
delivery and performance of this Agreement, the Note, the Security Documents or
the Sublease Agreement and the consummation of the transactions contemplated
hereby and thereby by Buyer.
6. Further Agreements of the Parties.
6.1 Consent to Jurisdiction and Service of Process. Any legal action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be instituted in any court located in the
county of New York in the state of New York, and each party agrees not to
assert, by way of motion, as a defense, or otherwise, in any such action, suit
or proceeding, any claim that it is not subject personally to the jurisdiction
of such courts, that its property is exempt or immune from attachment or
execution, that the action, suit or proceeding is brought in an inconvenient
forum and that the venue of the action, suit or proceeding is improper or that
this Agreement or the subject matter hereof may not be enforced in or by such
court. Each party further irrevocably submits to the jurisdiction of any such
court in any such action, suit or proceeding. Any and all service of process
and any other notice in any such action, suit or proceeding shall be effective
against any party if given personally or by registered or certified mail,
return receipt requested, or by any other means of mail that requires a signed
receipt, postage prepaid, mailed to such party as herein provided, or by
personal service on such party with a copy of such process mailed to such party
by first class mail or registered or certified mail, return receipt requested,
postage prepaid. Nothing herein contained shall be deemed to affect the right
of any party to serve
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process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any jurisdiction other than New
York, in connection with actions initiated by third parties in such other
jurisdictions.
6.2 Expenses. The parties to this Agreement shall bear their
respective expenses incurred in connection with the preparation, execution and
performance of this Agreement and the transactions contemplated hereby,
including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants.
6.3 Further Assurances. From and after the date hereof, Seller, on the
one hand, and Buyer, on the other hand, agree to execute and deliver such
further documents and instruments and to do such other acts and things as Buyer
or Seller, as the case may be, may reasonably request in order to effectuate
the transactions contemplated by this Agreement. In the event either party
shall be involved in litigation, threatened litigation or government inquiries
with respect to a matter involving the Division's Business or the Acquired
Assets, the other party shall also make available to such first party, at
reasonable times and subject to the reasonable requirements of its own
business, such of its information relevant to the matters, provided such first
party shall reimburse the providing party for its reasonable costs for employee
time incurred in connection therewith if more than one business day is
required. Following the date hereof, the parties will cooperate with each other
in connection with tax audits and in the defense of any legal proceedings,
consistent with the other provisions for defense of claims provided in Article
7 to the extent such cooperation does not cause unreasonable expense, unless
such expense is borne by the requesting party.
6.4 Nondisclosure. Neither Seller nor Buyer nor any of their
respective officers, directors, employees or agents shall, at any time after
the date of this Agreement, divulge, furnish or make accessible to anyone the
following information ("Proprietary Information"): any knowledge or information
with respect to confidential plans, ideas or know-how of the Division's
Business or
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any other confidential or secret aspects of the Division's Business (including,
without limitation, customer lists, lists of suppliers, or any pricing or
commission arrangements); provided, however, that the foregoing provision shall
not apply to any information which is or becomes generally available to the
public through no breach of this Agreement or which, in the opinion of counsel,
is required by law, rule or regulation to be disclosed.
6.5 Access to Records. After the Closing Date, Buyer, on the one hand,
and Seller, on the other hand, shall give, or cause to be given, to the other
party, during normal business hours at their premises, reasonable access to the
personnel, properties, contracts, books, records, files and documents of or
relating exclusively to the Division's Business and shall allow the other party
(at the expense of the other party) to make copies of all titles, contracts,
books, records (including sales records), files and documents as is necessary
for the other party's legitimate business purposes.
6.6 Correspondence. Seller covenants and agrees that, subsequent to
the Closing Date, Seller will deliver to Buyer, promptly after the receipt
thereof and in the form received, all inquiries, correspondence and other items
and materials received by Seller from any person or entity relating to any of
the Acquired Assets. Without limiting the generality of the foregoing,
subsequent to the Closing Date, Seller covenants and agrees to mail promptly
any funds and any checks, notes, drafts and other instruments for the payment
of money, duly endorsed to Buyer, received by Seller constituting part of the
Acquired Assets.
6.7 Sales Taxes. Any taxes resulting from the transactions
contemplated hereby shall be borne by Buyer, including, without limitation,
goods and services tax, under federal or state law.
6.8 Bulk Sales Laws. Buyer waives compliance by Seller with the
provisions of any and all bulk sales and similar laws applicable to this
transaction.
6.9 Investigation. Buyer acknowledges and agrees that, subject to the
terms and conditions herein provided, it (a) has made its own inquiry and
investigation into, and, based thereon,
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has formed an independent judgment concerning the Division and the Acquired
Assets; (b) has been furnished with or given adequate access to such
information about the Division's Business as it has requested; and (c) will not
assert any claim against Seller or any of their directors, officers, employees,
agents, stockholders or affiliates or hold Seller or any such other persons
liable, for any inaccuracies, misstatements or omissions with respect to
information (other than, with respect to Seller and the Division's Business,
the representations and warranties contained in this Agreement) furnished by
Seller or any such other person concerning Seller or the Division's Business.
6.10 Employee Matters.
(a) Offers of Employment. Schedule 6.10 hereof sets forth a list
of all employees of the Division including their names, titles and current
salaries ("Employees"). After the date hereof, Buyer shall offer employment,
for a period of not less than ninety (90) days, commencing on the Closing Date,
at the respective salaries set forth in Schedule 6.10 to all Employees. Those
Employees of Seller accepting an offer and commencing employment with Buyer are
herein referred to as "Transferred Employees."
(b) Seller's Indemnification of Severance Payments. Seller shall
indemnify and hold Buyer harmless with respect to any amounts to which any
Transferred Employee becomes entitled under any severance policy, plan,
agreement, arrangement or program and any pension or other employee benefit
plan, program or arrangement (whether or not covered by ERISA) maintained by
Seller which exists or arises or may be deemed to exist or arise under the
terms thereof or any applicable law, in respect of the period prior to the
Closing Date except in the event that Buyer terminates any Transferred Employee
prior to the termination of the ninety (90)-day period set forth in Section
6.10(a) above, in which event Buyer shall be liable for all such amounts.
(c) Buyer's Indemnification of Severance Payments. Buyer shall
indemnify and hold Seller harmless with respect to any amounts to which any
Transferred Employee becomes
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entitled under any severance policy, plan, agreement, arrangement or program
and any pension or other employee benefit plan, program or arrangement (whether
or not covered by ERISA) maintained by Buyer which exists or arises or may be
deemed to exist or arise under the terms thereof or any applicable law,
including, without limitation, the Worker Adjustment and Restraining Act, as
amended, in respect of the period commencing on and as of the Closing Date.
6.11 Use of Facilities. Subject to the approval of Janice F. Corson
("Landlord"), and pursuant to a sublease agreement to be entered into between
Buyer and Seller in a form to be agreed upon by the parties (the "Sublease
Agreement"), for a period commencing on the Closing Date and ending sixty (60)
following the date on which Buyer delivers written notice of its intention to
terminate to Seller, the Division's Business will be conducted by Buyer at the
Indiana Facility with the Acquired Assets by Transferred Employees, at Buyer's
expense in an amount equal to Seller's monthly rent and tax obligations
multiplied by the number of square feet allocated to Buyer divided by the total
number of square feet in the building containing the Indiana Facility, per
month (subject to a dollar for dollar increase in the cost to Seller of
maintaining such facility on a monthly basis), to be paid by Buyer to Seller by
certified bank check, or, at Seller's request, by wire transfer, on the first
of each month. In connection with the operation of the Division at the Indiana
Facility following the Closing Date, Buyer shall, effective on and as of the
Closing Date, (i) comply with all applicable federal and state laws, rules and
regulations, including, but not limited to, those relating to environmental,
safety, labor and employment matters, (ii) provide all packaging, labeling,
shipping and billing supplies and (iii) implement all payroll and other
employment procedures with respect to the Transferred Employees in a manner
consistent with Buyer's past practices.
6.12 Insurance. Buyer shall maintain, at its expense, for so long as
the Division's Business continues to be conducted at the Indiana Facility: (i)
product liability insurance in customary form with respect to any products
manufactured or sold by Buyer in connection with the
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Division's Business and (ii) workers compensation insurance with respect to
Transferred Employees, with independent sound and reputable insurance carriers
with coverage at least equal to amounts currently maintained by Buyer. Buyer
shall cause such underwriters of such insurance to name Seller as an additional
insured and Buyer shall provide Seller with proof of the maintenance of such
insurance in the form of certificates from such insurance carriers (the
"Insurance Certificates"), at the Closing and at any time upon request, and in
any event, no less often than annually.
6.13. Use of Name. Notwithstanding anything to the contrary contained
herein, Seller's parent corporation, Forward Industries, Inc., shall be
permitted to do business as "Forward Industries, Inc." for all corporate
purposes, including, sales and marketing efforts (except, for a period of ten
(10) years from the Closing Date, in connection with the design, manufacture
and sale of advertising specialties fabricated from vinyl). Buyer is permitted
to use the name "Forward HSI" from and after the Closing Date in connection
with the design, manufacture and sale of advertising specialties fabricated
from vinyl.
6.14 Non-Competition. Seller shall not, for a period of ten (10) years
from the Closing Date, conduct any business involving the design, manufacture
and sale of advertising specialties fabricated from vinyl. Seller acknowledges
that if it does enter into such line of business upon the conclusion of such
ten (10) year period, it will not use the name "Forward", in any form, in
connection therewith.
7. Indemnification.
7.1 Indemnification by Seller. Seller shall, jointly and severally,
indemnify Buyer and hold it harmless at all times from and after the date
hereof against and in respect of any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs, damages, losses, liabilities,
taxes and deficiencies and penalties and interest thereon and costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements (collectively, "Losses")
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incurred by Buyer in any action or proceeding between Seller and Buyer or
between Buyer and any third party or otherwise resulting from (a) any
misrepresentation, breach of warranty, or nonfulfillment of any covenant or
agreement of Seller in this Agreement, the Security Agreement or the Sublease
Agreement or (b) the operation of the Division's Business prior to the Closing
Date.
7.2 Indemnification by Buyer. Buyer shall indemnify Seller and hold it
harmless at all times from and after the date hereof against and in respect of
any and all Losses incurred by Seller in any action or proceeding between Buyer
and Seller or between Seller and any third party or otherwise resulting from
(a) any misrepresentation or, breach of warranty or nonfulfillment of any
covenant or agreement of Buyer in this Agreement, the Note, the Security
Agreement or the Sublease Agreement, (b) the Assumed Liabilities, (c) the
operation of the Division's Business following the Closing Date, including any
Losses relating to the operation of the Division at the Indiana Facility after
the Closing Date, or (d) any conduct, act or omission of a Transferred
Employee, whether or not acting within the scope of his or her employment, on
or after the Closing Date.
7.3 Period of Indemnity. The indemnification obligations set forth in
Sections 7.1 and 7.2 shall continue in full force and effect for three (3)
years from the Closing Date, except as to Sections 7.2 (c) and (d) which shall
continue in full force and effect until three (3) years after the Division's
Business ceases to be conducted at the Indiana Facility, and thereafter shall
terminate; provided, however, that if at the expiration of the appropriate
period any claim for indemnification has been asserted but not fully
determined, such period will be extended as to such claim until it is finally
determined.
7.4 Notice to the Indemnitor. Promptly after the assertion of any
claim by a third party or occurrence of any event which may give rise to a
claim for indemnification from an indemnitor (the "Indemnitor") under this
Section, an indemnified party (the "Indemnified Party") shall notify the
Indemnitor in writing of such claim (the "Claims Notice"). The Claims Notice
shall describe the
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asserted liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnified Party. Failure by the Indemnified Party
to give a Claims Notice to the Indemnitor in accordance with the provisions of
this Section 7.4 shall not relieve the Indemnitor of its obligations hereunder
except to the extent that the Indemnitor has been actually prejudiced by such
failure.
7.5 Rights of Parties to Settle or Defend. The Indemnitor may elect to
compromise or defend any asserted liability, at its own expense, by its own
counsel and to the extent an election with respect to such compromise or
defense is available to the Indemnified Party. If the Indemnitor elects to
compromise or defend such asserted liability, it shall within 30 calendar days
(or sooner, if the nature of the asserted liability so requires) notify the
Indemnified Party of its intent to do so, and the Indemnified Party shall
cooperate, at the expense of the Indemnitor, in the compromise of, or defense
against, such asserted liability. If the Indemnitor elects to defend any claim,
the Indemnified Party shall make available to the Indemnitor any books, records
or other documents within its control that are necessary or appropriate for
such defense. If the Indemnitor elects not to compromise or defend the asserted
liability, fails to notify the Indemnified Party of its election as herein
provided or contests its obligation to indemnify under this Agreement, the
Indemnified Party may pay, compromise or defend (at the expense of the
Indemnitor) such asserted liability as the Indemnified Party considers
appropriate. The parties agree to cooperate fully with one another in the
defense, settlement or comprise of any asserted liability. Notwithstanding the
foregoing, neither the Indemnitor nor the Indemnified Party may settle or
compromise any claim over the objection of the other; provided that consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnified Party and the Indemnitor may participate, at their own expense, in
the defense of such asserted liability.
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7.6 Exclusive Remedies. The parties hereto acknowledge that the
indemnity rights set forth in Article 7 hereof are intended to be their
exclusive monetary remedies in connection with this Agreement and the
transactions contemplated hereby; provided that nothing in this Section 7.6
shall limit in any way the availability of specific performance, injunctive
relief or other equitable remedies to which a party may otherwise be entitled.
7.7 Restrictions. Notwithstanding anything to the contrary set forth
herein, in the event that an Indemnified Party is deemed to have contributed in
any way to the Losses for which such Indemnified Party is being indemnified due
to such Indemnified Party's misconduct or negligence, the amount of
indemnification to which the Indemnified Party would otherwise be entitled to
shall be reduced by that portion of the Losses which is deemed to be related to
or have resulted from the Indemnified Party's misconduct or gross negligence.
8. Conditions to Closing.
8.1 Conditions Precedent to Obligations of Buyer. The obligations of
Buyer to consummate the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived by Buyer):
(a) all representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date with the same effect as though those representations and
warranties had been made at and as of that time;
(b) Seller shall have performed, and complied in all material
respects with, all obligations and covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing;
(c) Buyer shall have been furnished with a certificate dated the
Closing Date and executed by an officer of Seller certifying to the fulfillment
of the conditions specified in Sections 8.1(a) and 8.1(b) hereof;
- 18 -
<PAGE>
(d) there shall be no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding which prohibits, restricts or delays consummation of the
transactions contemplated by this Agreement;
(e) there shall be no pending lawsuit, claim or legal action
relating to the transactions contemplated by this Agreement which would
materially adversely affect such transactions;
(f) Seller shall have executed and delivered to Buyer a Bill of
Sale, dated the Closing Date, in form and substance acceptable to Buyer;
(g) Seller shall have executed and delivered to Buyer an
Assignment of Contracts, dated the Closing Date, in form and substance
acceptable to Buyer;
(h) Seller shall have executed and delivered to Buyer the Security
Agreement, dated the Closing Date;
(i) Seller shall have executed and delivered to Buyer the Sublease
Agreement, dated the Closing Date;
(j) Buyer shall have received a copy of resolutions adopted by the
Board of Directors and, if required, the shareholders, of Seller authorizing
the execution, delivery and performance of this Agreement by Seller, and a
certificate of the Secretary or an Assistant Secretary of Seller, dated the
Closing Date, (i) stating that such resolutions, a copy of which shall be
attached thereto, were duly adopted and are in full force and effect at such
date, (ii) setting forth the incumbency of each person executing this Agreement
or any other document delivered pursuant to this Agreement on behalf of Seller,
and (iii) certifying as to the charter documents and By-Laws of Seller in
effect as of the Closing Date, copies of which shall be attached thereto; and
(k) Buyer shall have received the schedules contemplated by
Sections 1.1 (a), (b), (d), (e) and 6.10 hereof (the "Schedules").
- 19 -
<PAGE>
8.2 Conditions Precedent to Obligations of Seller. The obligations of
Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, prior to or at the Closing, of each of the
following conditions (any or all of which may be waived by Seller):
(a) all representations and warranties of Buyer to Seller shall be
true and correct in all material respects at and as of the Closing Date with
the same effect as though those representations and warranties had been made at
and as of that time;
(b) Buyer shall have performed, and complied in all material
respects with, all obligations and covenants required by this Agreement to be
performed or complied with by them, respectively, prior to or at the Closing;
(c) Seller shall have been furnished with a certificate, dated the
Closing Date, executed by an officer of Buyer certifying to the fulfillment of
the conditions specified in Sections 8.2(a) and 8.2(b) hereof;
(d) there shall be no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding which prohibits, restricts or delays consummation of the
transactions contemplated by this Agreement;
(e) there shall be no pending lawsuit, claim or legal action
relating to the transactions contemplated by this Agreement which would
materially adversely affect such transactions;
(f) Seller shall have received a copy of resolutions adopted by
the Board of Directors of Buyer authorizing the execution, delivery and
performance of this Agreement by Buyer, and a certificate of the Secretary or
an Assistant Secretary of Buyer, dated the Closing Date, (i) stating that such
resolutions were duly adopted and are in full force and effect at such date,
(ii) setting forth the incumbency of each person executing this Agreement, or
any other documents
- 20 -
<PAGE>
delivered pursuant to this Agreement on behalf of Buyer, and (iii) certifying
as to the charter documents and By-Laws of Buyer, in effect as of the Closing
Date, copies of which shall be attached thereto;
(g) Buyer shall have executed and delivered to Seller an
Assumption Agreement, dated the Closing Date, in form and substance acceptable
to Seller;
(h) Buyer shall have executed and delivered to Seller the Note,
dated the Closing Date;
(i) Buyer shall have executed and delivered to Seller the Security
Documents, dated the Closing Date;
(j) Buyer shall have executed and delivered to Seller the Sublease
Agreement, dated the Closing Date; and
(k) Buyer shall have delivered to Seller the Insurance
Certificates.
8.3 Closing. Upon the terms and conditions set forth herein, the
Closing shall take place at the offices of Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176, at 10:00 a.m. local
time on September 15, 1997 or such later date or different time or place as the
parties mutually agree.
9. Miscellaneous.
9.1 Entire Agreement. This Agreement (together with the Exhibits and
Schedules hereto) contains, and is intended as, a complete statement of all of
the terms of the arrangements between the parties with respect to the matters
provided for, and supersedes any previous agreements and understandings between
the parties with respect to those matters.
9.2 Governing Law. This Agreement and all actions and transactions
performed in connection therewith shall be governed by the laws of the state of
New York.
- 21 -
<PAGE>
9.3 Headings. The section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
9.4 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally, mailed
by registered mail, return receipt requested, sent by recognized overnight
delivery service or, to the extent receipt is confirmed, by telecopy, telefax,
or other electronic transmission service to the parties at the following
addresses (or to such other address as a party may have specified by notice
given to the other party pursuant to this provision):
If to Seller, to such party in care of:
Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
Attention: Theodore H. Schiffman
Telecopy No.: (516) 564-1117
Confirmation No.: (516) 564-1100
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Kenneth R. Koch, Esq.
Telecopy No.: (212) 697-6686
Confirmation No.: (212) 661-6500
- 22 -
<PAGE>
If to Buyer, to:
Amplaco Group, Inc.
810 East 152nd Street
Bronx, New York 10455
Attention: Daryl Wills
Telecopy No.: (718) 402-1769
Confirmation No.: (718) 585-4111
with a copy to:
Novick, Edelstein, Lubell, et. al.
733 Yonkers Avenue
Yonkers, New York 10704
Attention: Craig Zimm, Esq.
Telecopy No.: (914) 375-0699
Confirmation No.: (914) 375-0100
9.5 Separability. If at any time any of the covenants or the
provisions contained herein shall be deemed invalid or unenforceable by the
laws of the jurisdiction wherein it is to be enforced, by reason of being vague
or unreasonable as to duration, geographic scope, scope of activities
restricted or for any other reason, such covenants or provisions shall be
considered divisible as to such portion and such covenants or provisions shall
become and be immediately amended and reformed to include only such covenants
or provisions as are enforceable by the court or other body having jurisdiction
of this Agreement; and the parties agree that such covenants or provisions, as
so amended and reformed, shall be valid and binding as though the invalid or
unenforceable portion had not been included herein.
9.6 Amendment; Waiver. No provision of this Agreement may be amended
or modified except by an instrument or instruments in writing signed by the
parties hereto. Any party may waive compliance by another with any of the
provisions of this Agreement. No waiver of any provision hereof shall be
construed as a waiver of any other provision. Any waiver must be in writing.
9.7 Assignment and Binding Effect. None of the parties hereto may
assign any of its or his rights or delegate any of its or his duties under this
Agreement without the prior written consent
- 23 -
<PAGE>
of the others; provided, that Buyer may assign any of its rights or delegate
any of its duties to any entity controlled by Buyer. Any such delegation shall
not relieve Buyer of its obligations under this Agreement. All of the terms and
provisions of this Agreement shall be binding on, and shall inure to the
benefit of, the respective successors and permitted assigns of the parties.
9.8 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective successors and assigns and they shall not
be construed as conferring and are not intended to confer any rights on any
other persons.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and each party thereto
may become a party hereto by executing a counterpart hereof. This Agreement and
any counterpart so executed shall be deemed to be one and the same instrument.
9.10 Schedules. Any information, data or other disclosure given or
made pursuant to a particular schedule to this Agreement shall be deemed given
and made in each and every other schedule to this Agreement.
9.11 Survival. The representations, warranties and agreements of
Seller, on the one hand, and Buyer, on the other hand, contained in this
Agreement, shall not survive the Closing; provided, however, that all covenants
and agreements which by their terms are to be performed after the Closing Date
shall survive until fully discharged.
9.12 Termination.
(a) This Agreement may be terminated prior to the Closing only by
mutual agreement of the parties.
(b) In the event that Buyer terminates this Agreement or
otherwise fails to close the transactions contemplated hereby, other than
pursuant to Sections 9.12 (a) or (c) hereof, Seller
- 24 -
<PAGE>
shall retain the $25,000 paid by Buyer to Seller upon the execution hereof as
liquidated damages, Buyer shall reimburse Seller for all legal, accounting and
other expenses incurred by Seller in connection with the preparation and
negotiation of this Agreement and the transactions contemplated hereby. The
foregoing shall not be deemed a limitation on the rights and remedies of Seller
upon such a breach by Buyer.
(c) Notwithstanding the foregoing, this Agreement may be
terminated by Buyer at any time prior to September 15, 1997 if the due
diligence review of Seller conducted by Buyer, or the Schedules delivered to
Buyer, shall have revealed matters which will have a material adverse effect on
the business and operations of the Division and will require the Buyer to incur
obligations which are materially and substantially in excess of the costs of
operating the Division immediately prior to the consummation of the
transactions contemplated hereby.
IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase
Agreement as of the date first above written.
KOSZEGI INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
AMPLACO GROUP, INC.
By:
--------------------------------
Name:
Title:
- 25 -
<PAGE>
EXHIBIT 3.1
<PAGE>
SECURED PROMISSORY NOTE
$850,000 New York, New York
Dated: As of September 30, 1997
FOR VALUE RECEIVED, the undersigned, Amplaco Group, Inc. ("Maker"),
having an address at 810 East 152nd Street, Bronx, New York 14055, hereby
promises to pay to the order of Koszegi Industries, Inc. ("Payee"), having an
address at 702 South Chapin Street, South Bend, Indiana 46624, the principal
amount of EIGHT HUNDRED AND FIFTY THOUSAND DOLLARS ($850,000.00), which
principal amount shall be payable without interest (except as provided in
Sections 2 and 5 below), in monthly installments of $23,611.11 commencing on
November 1, 1997, upon the terms and conditions set forth below.
Maker further covenants to and agrees with Payee as follows:
1. This Note is that secured promissory note referred to in Section
3.1 of that certain Asset Purchase Agreement between Maker and Payee dated
September 5, 1997 (the "Asset Purchase Agreement").
2. If this Note is not paid in full on or prior to November 1, 2000
the principal amount hereof shall bear interest, commencing from the date
hereof, at the rate of 10% per annum and all sums payable hereunder shall be
due and payable upon demand.
3. Maker at its option may make prepayments of principal on this Note
in whole or in part on any date without premium or penalty. All payments
hereunder shall be applied first, to any amounts due pursuant to paragraph 5
hereof, second, to any accrued interest hereunder and third, to principal.
Payments hereunder are to be made in lawful money of the United States of
America to Payee at the address first above written or at such other address as
Payee may designate by notice to Maker.
4. An event of default (an "Event of Default") shall occur pursuant to
this Note: (a) upon notice from Payee, if Maker defaults in making any payment
hereunder when due; (b) if Maker, pursuant to or within the meaning of any
Federal or state bankruptcy law (i) commences a voluntary case, (ii) consents
to the entry of an order for relief against it in an involuntary case, (iii)
consents to the appointment of a custodian of it or for all or substantially
all of its property, (iv) makes a general assignment for the benefit of its
creditors, or (v) generally is unable to pay its debts as the same become due;
or (c) if a court of competent jurisdiction enters an order or decree under any
Federal or state bankruptcy law that (i) is for relief against Maker in an
involuntary case, (ii) appoints a custodian of Maker for all or substantially
all of its property, or (iii) orders the liquidation of Maker, and the order or
decree remains unstayed and in effect for 60 days.
<PAGE>
5. If an Event of Default shall occur, then the outstanding balance
then due hereunder shall accelerate and become due and payable on demand and
the principal amount hereof shall bear interest at the rate of 10% per annum,
commencing from the date hereof.
6. To secure payment of this Note, Maker has granted to Payee a
security interest under the Uniform Commercial Code, and under the terms of the
Asset Purchase Agreement and certain security agreements in all the Secured
Assets described therein. This security interest covers any and all proceeds
and products of the Secured Assets.
7. Maker hereby waives presentment, demand, protest and notice of any
kind, except as provided herein. No failure on the part of Payee to exercise,
and no delay in exercising, and no course of dealing with respect to, any right
hereunder shall operate as a waiver hereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise hereof
or the exercise of any other right. Maker agrees to pay all costs and expenses
of collection when incurred, including, without limitation, attorneys' fees and
expenses.
8. This Note shall be binding upon Maker and its successors and may
not be assigned by Maker and shall inure to the benefit of Payee and its
successors and assigns. This Note shall be construed and enforced in accordance
with the laws of the State of New York, without regard to its principles of
conflicts of laws. Any legal action, suit or proceeding arising out of or
relating to this Note or the transactions contemplated hereby may be instituted
in any court located in the county of New York in the state of New York, and
each party agrees not to assert, by way of motion, as a defense, or otherwise,
in any such action, suit or proceeding, any claim that it is not subject
personally to the jurisdiction of such courts, that its property is exempt or
immune from attachment or execution, that the action, suit or proceeding is
brought in an inconvenient forum and that the venue of the action, suit or
proceeding is improper or that this Note or the subject matter hereof may not
be enforced in or by such court. Each party further irrevocably submits to the
jurisdiction of any such court in any such action, suit or proceeding. Any and
all service of process and any other notice in any such action, suit or
proceeding shall be effective against any party if given in the method
specified herein as appropriate for any notice hereunder. Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against any other party in any jurisdiction other than New York, in
connection with actions initiated by third parties in such other jurisdictions.
This Note may not be amended, waived or terminated orally. This Note represents
the entire agreement between the parties with respect to the subject matter
hereof and supersedes any and all other agreements, whether oral or written,
with respect thereto.
9. Any notice hereunder shall be sent via certified or registered
mail, return receipt requested, by hand or by recognized overnight courier
service to Maker or Payee at the address set forth above or at such other
address as Maker or Payee may designate to the other by notice pursuant to this
Section. Notice shall be deemed effective upon receipt.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed, issued and delivered
this Note on the day and year first above written.
AMPLACO GROUP, INC.
By:
--------------------------------
Name:
Title:
- 3 -
<PAGE>
FORWARD INDUSTRIES, INC.
275 Hempstead Turnpike
West Hempstead, New York 11552
November 6, 1997
Chase Mellon Shareholder Services
450 West 33rd Street
15th Floor
New York, New York 10001
Attn: Joan Carrington
RE: WARRANT AGREEMENT, DATED AS OF OCTOBER 20, 1994,
BETWEEN FORWARD INDUSTRIES, INC. AND
CHASE MELLON SHAREHOLDER SERVICES
------------------------------------------------
Ladies and Gentlemen:
Reference is hereby made to that certain Warrant Agreement (the
"Warrant Agreement"), dated as of October 20, 1994 between Forward Industries,
Inc. (the "Company") and Chase Mellon Shareholder Services (f/k/a Mellon
Securities Trust Company) (the "Warrant Agent"). Any capitalized term used in
this letter without definition shall have the same meaning in this letter as in
the Warrant Agreement, unless the context otherwise requires.
The Board of Directors of the Company has determined that it would be
in the best interest of the Company to extend the exercise period of the Class
B Warrants to December 31, 1998.
In order to effectuate the foregoing, would you kindly confirm, by
signing this letter below, that the provisions of the Warrant Agreement shall
be amended in the following respects:
1. The second sentence of paragraph 5(b) of the Warrant Agreement
shall be amended in its entirety to read as follows:
"Unless exercised prior thereto the Warrants will expire on December
31, 1996, in the case of the Class A Warrants, and December 31, 1998,
in the case of the Class B Warrants."
2. In all other respects, the Warrant Agreement shall continue in full
force and effect.
<PAGE>
Chase Mellon Shareholder Services
November ___, 1997.
2
3. The provisions of this letter may not be changed or modified except
in a writing signed by both of the parties hereto.
4. This letter may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument.
If the foregoing correctly sets forth our understanding and agreement,
would you kindly indicate your agreement thereto by executing a copy of this
letter below and returning it to the undersigned.
Very truly yours,
FORWARD INDUSTRIES, INC.
By:
------------------------------
Theodore H. Schiffman,
Chairman
AGREED:
CHASE MELLON SHAREHOLDER SERVICES,
Warrant Agent
By:
-------------------------------
<PAGE>
FORWARD INDUSTRIES, INC.
275 Hempstead Turnpike
West Hempstead, New York 11552
December 18, 1997
Chase Mellon Shareholder Services
450 West 33rd Street
15th Floor
New York, New York 10001
Attn: Joan Carrington
RE: WARRANT AGREEMENT, DATED AS OF OCTOBER 20, 1994,
BETWEEN FORWARD INDUSTRIES, INC. AND
CHASE MELLON SHAREHOLDER SERVICES
------------------------------------------------
Ladies and Gentlemen:
Reference is hereby made to that certain Warrant Agreement (the
"Warrant Agreement"), dated as of October 20, 1994, as amended, between Forward
Industries, Inc. (the "Company") and Chase Mellon Shareholder Services (f/k/a
Mellon Securities Trust Company) (the "Warrant Agent"). Any capitalized term
used in this letter without definition shall have the same meaning in this
letter as in the Warrant Agreement, unless the context otherwise requires.
The Company intends to declare a two-for-one reverse stock split on
its authorized and outstanding shares of Common Stock, $.01 par value effective
as of December 23, 1997 (the "Effective Date"). Should the Effective Date
change, you will be informed. Pursuant to the Warrant Agreement, upon
effectiveness of the referenced reverse stock split, each Class B Warrant shall
entitle the registered holder thereof to purchase one share of Common Stock at
$5.00 per share.
In order to effectuate the foregoing, would you kindly confirm, by
signing this letter below, that the provisions of the Warrant Agreement shall
be amended, effective as of the Effective Date, in the following respects:
1. As a result of the reverse stock split and reduction in Warrant
Price referenced above, each Class B Warrant shall entitle the registered
holder thereof to purchase one share of Common Stock at $5.00 per share.
<PAGE>
Chase Mellon Shareholder Services
December 18, 1997.
2
2. The references in the sixth sentence of paragrapgh 5(b) of the
Warrant Agreement, as amended, to "$3.00" and to "$2.75" are amended to "$6.00"
and to $5.50", respectively.
3. In all other respects, the Warrant Agreement shall continue in full
force and effect.
4. The provisions of this letter may not be changed or modified except
in a writing signed by both of the parties hereto.
5. This letter may be executed in two or more counterparts, each of
which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument.
If the foregoing correctly sets forth our understanding and agreement,
would you kindly indicate your agreement thereto by executing a copy of this
letter below and returning it to the undersigned.
Very truly yours,
FORWARD INDUSTRIES, INC.
By:
--------------------------------
William E. Mooar
President
AGREED:
CHASE MELLON SHAREHOLDER SERVICES,
Warrant Agent
By:
--------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,365,198
<SECURITIES> 0
<RECEIVABLES> 2,979,926
<ALLOWANCES> 91,333
<INVENTORY> 935,012
<CURRENT-ASSETS> 6,953,497
<PP&E> 2,052,788
<DEPRECIATION> 1,446,786
<TOTAL-ASSETS> 10,008,174
<CURRENT-LIABILITIES> 4,235,494
<BONDS> 0
0
0
<COMMON> 43,030
<OTHER-SE> 4,185,664
<TOTAL-LIABILITY-AND-EQUITY> 10,008,174
<SALES> 12,736,329
<TOTAL-REVENUES> 12,736,329
<CGS> 8,340,370
<TOTAL-COSTS> 8,340,370
<OTHER-EXPENSES> 3,392,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,915
<INCOME-PRETAX> 606,713
<INCOME-TAX> 244,553
<INCOME-CONTINUING> 362,160
<DISCONTINUED> (222,726)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,434
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post-Effective Amendment No. 1 on Form S-3 to
Registration Statement on Form SB-2 and Registration Statement on Form S-3 of
Forward Industries, Inc. of our report dated December 5, 1996, except for
Note 21 and Exhibit 11 which are dated December 5, 1997, relating to the
financial statements of the Company for the years ended September 30, 1996
and 1995.
We also consent to the reference to us under the heading "Experts".
/s/ Miller Ellin & Company
CERTIFIED PUBLIC ACCOUNTANTS
December 29, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Post-Effective Amendment No. 1 on Form S-3 to
Registration Statement on Form SB-2 and Registration Statement on Form S-3 of
Forward Industries, Inc. of our report dated December 5, 1997, relating to the
financial statements of the Company for the year ended September 30, 1997.
We also consent to the reference to us under the heading "Experts".
/s/ Patrusky Mintz & Semel
CERTIFIED PUBLIC ACCOUNTANTS
December 29, 1997
