<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997
REGISTRATION NO.333-
REGISTRATION NO.33-99338
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 ON FORM S-3
TO
REGISTRATION STATEMENT ON FORM SB-2
AND
REGISTRATION STATEMENT ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
------------------
FORWARD INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 13-1950672
(State or jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
(516) 564-1100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Theodore H. Schiffman, Chief Executive Officer
Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
(516) 564-1100 / (516) 564-1117 (Fax)
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Kenneth R. Koch, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
(212) 661-6500/(212) 697-6686 (Fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR
INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ] _____________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ] ________________.
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER UNIT PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 438,000 shares $2.50(2) $1,095,000 --(4)
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share 175,000 shares $1.00(2) $ 175,000 $51.63
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share 12,188,000 shares $1.13(3) $13,772,440 $4,062.87
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL 12,801,000 shares $15,150,920 $4,114.50
===============================================================================================================================
</TABLE>
(1) This Registration Statement covers, in addition, such indeterminable
number of shares of Common Stock as may be issued on the exercise or
conversion of the Convertible Securities by reason of adjustment of their
respective exercise or conversion prices upon certain contingencies. Since
such additional Common Stock, if issued, will be issued for no additional
consideration, no registration fee is required.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, on the
basis of the actual exercise or conversion price per share of the
convertible security held by the holder thereof.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, on the basis
of high ($ 1.156 per share) and low ($1.094 per share) prices of the
registrants Common Stock on the Nasdaq SmallCap Market on December 4,
1997.
(4) A registration fee with respect to these shares was paid upon the filing
of the Registrant's Registration Statement on Form SB-2 (Registration
Statement No. 33-99338).
-----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
PURSUANT TO RULE 429 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
THE PROSPECTUS INCLUDED HEREIN RELATES TO THE REGISTRANT'S REGISTRATION
STATEMENT ON FORM S-3 (REGISTRATION STATEMENT NO. 333-_____) AND REGISTRATION
STATEMENT ON FORM SB-2 (REGISTRATION STATEMENT NO. 33-99338).
===============================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1997
PROSPECTUS
FORWARD INDUSTRIES, INC.
12,801,000 Shares of Common Stock
This Prospectus relates to the offering that may be made from time to
time of up to 12,188,000 shares (the "Shares") of common stock, par value $.01
per share (the "Common Stock"), of Forward Industries, Inc., a New York
corporation (the "Company"), by, or for the accounts of, the holders thereof
(the "Selling Security Holders") (see "Selling Security Holders") and of up to
438,000 shares of Common Stock issuable upon the exercise of the Company's
outstanding publicly traded Class B Warrants (the "Class B Warrants") and of up
to 175,000 shares of Common Stock issuable upon the exercise of an outstanding
warrant (the "Consultant's Warrant") issued to a consultant of the Company in
September 1994. Of the 12,188,000 Shares being offered by the Selling Security
Holders, (i) 3,324,000 were issued by the Company in 1997 in a private offering
(the "Offering"); (ii) 3,324,000 are issuable upon the exercise of certain
outstanding warrants (the "Offering Warrants") issued by the Company in the
Offering; (iii) 2,216,000 are issuable upon the conversion of certain
outstanding convertible promissory notes (the "Offering Notes"), issued by the
Company in the Offering; and (iv) 3,324,000 are issuable upon the exercise of
certain warrants issuable upon conversion of the Offering Notes (the
"Conversion Warrants" and together with the Class B Warrants, the Consultant's
Warrant, the Offering Warrants and the Offering Notes, the "Convertible
Securities").
The Common Stock is quoted on the Nasdaq SmallCap Market(R) (the
"Nasdaq SmallCap Market") under the symbol "FORD." On December 4, 1997, the
last sale price of the Common Stock as reported by the Nasdaq SmallCap Market
was $1.13 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREIN FOR A DISCUSSION OF
CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Shares may be sold from time to time by the Selling Security
Holders or their transferees. No underwriting arrangements have been entered
into by the Selling Security Holders as of the date hereof. The distribution of
the Shares by the Selling Security Holders may be effected in one or more
transactions that may take place in the over-the-counter market, including
ordinary broker's transactions, privately negotiated transactions, or through
sales to one or more dealers for resale of such Shares as principals, at
prevailing market prices at the time of sale, prices related to such prevailing
market prices, or negotiated prices. Underwriting discounts and usual and
customary or specifically negotiated brokerage fees or commissions will be paid
by the Selling Security Holders in connection with sales of the Shares. To the
extent required, the number of Shares to be sold, the name of the Selling
Security Holder, the purchase price, the name of any agent or broker, and any
applicable commissions, discounts or otherwise constituting compensation to
such agents or brokers with respect to a particular offering will be set forth
in a supplement or supplements to this Prospectus (each, a "Prospectus
Supplement"). See "Plan of Distribution."
The Company will receive proceeds upon the exercise of the Class B
Warrants and the other warrants included in the Convertible Securities but will
not receive any proceeds from the sale of the Shares. By agreement with the
Selling Security Holders, the Company will pay all of the expenses incident to
the registration of the Shares under the Securities Act (other than agent's or
underwriter's commissions and discounts), estimated to be approximately
$71,514.50.
The Selling Security Holders, and any broker-dealers, agents, or
underwriters through whom the Shares are sold, may be deemed "underwriters"
within the meaning of the Securities Act with respect to securities offered by
them, and any profits realized or commissions received by them may be deemed
underwriting compensation.
The date of this Prospectus is December __, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement (the "Registration Statement") under the Securities Act with respect
to the offering and sale from time to time of the Shares. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto, as permitted by the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement and to
the exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed or incorporated
by reference as an exhibit to the Registration Statement are qualified in their
entirety by reference to such exhibits for a complete statement of their terms
and conditions. Additionally, the Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements, and other
information statements with the Commission. Copies of such materials may be
inspected without charge at the offices of the Commission, and copies of all or
any part thereof may be obtained from the Commission's public reference
facilities at 450 Fifth Street, N.W., Washington D.C. 20549 or at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon
payment of the fees prescribed by the Commission. In addition, the Commission
maintains a Web Site that contains reports, proxy and information statements
and other information regarding the Company (http://www.sec.gov). The Common
Stock is quoted on the Nasdaq SmallCap Market. Reports and other information
concerning the Company may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference and made a part of this Prospectus
are the following: (1) the Company's Annual Report on Form 10-KSB, for the
fiscal year ended September 30, 1996; (2) the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1996; (3) the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997; (4) the
description of the Common Stock, contained in the Company's Registration
Statement on Form SB-2 dated March 1, 1996 (Registration No. 33-99338); (5) the
Company's Current Report on Form 8-K dated April 25, 1997; (6) the Company's
Current Report on Form 8-K dated June 9, 1997; (7) the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997; and (8) the
Company's Current Report on Form 8-K, dated September 30, 1997. All documents
subsequently filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering made hereby will be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in any document incorporated by reference shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus. All information appearing in this Prospectus is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference, except
to the extent set forth in the immediately preceding statement.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of the
information that is incorporated by reference herein (not including exhibits to
the information that is incorporated by reference herein). Requests for such
information should be directed to: Forward Industries, Inc., 275 Hempstead
Turnpike, West Hempstead, New York 11552; Attention: Chief Executive Officer.
The Company's telephone number is: (516) 564-1100.
EXPLANATORY NOTE
Pursuant to Rule 429 under the Securities Act of 1933, as amended,
this Prospectus relates to two Registration Statements. The registration
statement of which this Prospectus forms a part constitutes the original filing
of Registration Statement on Form S-3 (Registration No. 33-_________) relating
to 12,363,000 Shares, and Post-Effective Amendment No. 1 to Registration
Statement on Form SB-2 (Registration No. 33-99338), relating to 438,000 shares
of Common Stock.
2
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference into this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; competitive factors in the industry, including
additional competition from existing competitors or future entrants to the
industry; social and economic conditions; local, state and federal regulations;
changes in business strategy or development plans; the Company's indebtedness;
availability, terms and deployment of capital (both debt and equity);
availability of qualified personnel; and other factors referenced in this
Prospectus and in the Company's filings with the Commission.
3
<PAGE>
THE COMPANY
The following summary is qualified in its entirety by reference to the
more detailed information and the financial statements and the related notes
appearing elsewhere in this Prospectus or incorporated herein by reference.
Except as otherwise indicated, information in this Prospectus does not reflect
a proposed reverse split, with a ratio of one-for-two, of the outstanding
shares of Common Stock for which the Company sought approval at its 1997 Annual
Meeting of Shareholders. As used in this Prospectus, the term "Company" means,
unless the context requires otherwise, the Company and its subsidiary, and
their respective predecessors. Each prospective investor is urged to read this
Prospectus in its entirety. Investment in the securities offered hereby
involves a high degree of risk. See "Risk Factors."
Forward Industries, Inc. (the "Company") is engaged in the design and
manufacture of 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 Company markets its custom carrying cases primarily 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 the Company's fiscal year ended September 30, 1996 ("Fiscal
1996") approximately 45% of the Company's sales were made through seven
independent sales representative organizations. The balance of such sales were
made by Company personnel. In Fiscal 1996, approximately 14% of such sales were
made to customers outside of the United States. The Company is increasing its
emphasis upon such foreign sales in Asia and Europe. Four of the Company's
customers, Motorola, Inc., Bayer Corporation (formerly Miles, Inc.), LifeScan,
Inc. (a Johnson & Johnson Company) and Boehringer Mannheim Corporation,
together with their respective affiliates, accounted for approximately 38% of
the Company's net sales from continuing operations 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 and Europe. As
of October 31, 1997, the Company had approximately 110 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(R) brand
name. These cases, which are manufactured in nylon, leather and hard shell
thermoformed materials, provide storage space for the computer and related
items and may be utilized as a "portable office" by the computer user. The
Company 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(R) 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.
The Company believes that the continuing growth of the personal
computer industry, in particular the increasing demand for portable computer
technology and computer accessories, provides a growing market for the
Company's products under the Terrapin(R) name. The Company also believes that
its carrying case business will benefit from the continued proliferation of
other types of personal and portable electronic and medical devices, such as
cellular telephones, electronic organizers, emergency medical equipment and
home medical units.
The Company's strategy for achieving its goal of becoming a world
leader in the carrying case business consists of (i) producing products of a
superior quality to its competitors, in terms of both durability and efficiency
of design, thus allowing the Company to charge a premium over its competitors'
products and raising the standards by which such products are judged; (ii)
tapping new international markets in Europe and Asia through an increased sales
presence and higher visibility while taking advantage of a growing market in
the United States; and (iii) seeking out additional original equipment
manufacturer relationships with portable device producers for the sale of the
Company's products in conjunction with such devices under the names of their
producers.
The Company has its principal executive offices at 275 Hempstead
Turnpike, West Hempstead, NY 11552, and its telephone number is 516-564-1100.
The Company's principal manufacturing facility is located at 702 South Chapin
4
<PAGE>
Street, South Bend, Indiana 46624. The Company also maintains additional office
and manufacturing facilities in Indiana and warehouse/quality control
facilities and an office in Hong Kong, as well as sales offices in Coppenhagen,
Denmark and Sidney, Australia.
RECENT DEVELOPMENTS
1997 PRIVATE PLACEMENT
On December 4, 1997 the Company consummated the Offering, consisting
of a private placement of an aggregate of 55.4 units, each unit consisting of
(i) 60,000 shares of Common Stock, (ii) one (1) Offering Warrant to purchase up
to 60,000 shares of Common Stock ("Warrant Shares"), exercisable at any time
from and after the later of (a) the Authorization Date (as defined below) or
(b) twelve (12) months from the declaration of effectiveness by the Commission
of a registration statement with respect to the Warrant Shares, in compliance
with the Securities Act of 1933, as amended, (the "Effective Date") and until
March 15, 1999, at an exercise price of $2.00 per Warrant Share, and (iii) one
(1) Offering Note in the principal amount of $10,000, bearing interest at a
rate of 10% per annum (the principal balance and accrued interest of which are
due and payable one (1) year from the final closing of the Offering), each
Offering Note convertible, at the sole option of the Company, into 40,000
shares of Common Stock and one (1) Conversion Warrant at any time from and
after the later of (i) Authorization Date, and (ii) one hundred (100) days
following the Effective Date, at $25,000 per unit for an aggregate of
$1,385,000. If the Company exercises its option to convert any outstanding
Offering Notes, it must simultaneously exercise its option to convert all of
the outstanding Offering Notes. The Authorization Date shall be August 7, 1997,
the date on which the shareholders of the Company authorized an amendment to
the Company's Certificate of Incorporation increasing the number of shares of
Common Stock the Company is authorized to issue to a number sufficient to
permit the exercise and conversion of all securities exercisable or convertible
into Common Stock (the "Authorization"). Certain executive officers and
directors of the Company have invested in the Offering, including William E.
Mooar who invested $100,000.
SALE OF BROOKLYN FACILITY
The Company has entered into an Agreement, dated as of July 31, 1997,
for the sale of its real property located in Brooklyn, New York, for an
aggregate purchase price of $830,000, subject to adjustment. This transaction
was consummated on December 4, 1997.
REVERSE STOCK SPLIT
On August 7, 1997, at their Annual Meeting, the Shareholders of the
Company authorized a one-for-two reverse stock split of the issued and
outstanding Common Stock of the Company. The Board of Directors and management
of the Company have exercised their discretion to not implement such reverse
stock split as of December 4, 1997, but reserve the right to do so in the
future.
SALE OF ADVERTISING SPECIALTIES BUSINESS
The Company entered into an Asset Purchase Agreement, dated as of
September 5, 1997, for the sale of substantially all of the assets associated
with the operation of its advertising specialities business for an aggregate
purchase price of $1,350,000, subject to adjustment. This transaction was
consummated on September 30, 1997.
5
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS
SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS,
BEFORE DECIDING TO INVEST IN THE SHARES OFFERED HEREBY.
LACK OF PROFITABILITY IN FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995.
The Company suffered a net loss from continuing operations of $277,485
for the fiscal year ended September 30, 1995 ("Fiscal 1995"), and of $1,058,272
for the fiscal year ended September 30, 1996 ("Fiscal 1996"). In Fiscal 1995,
the Company also suffered a loss of $756,217 from its discontinued operations
resulting in a net loss of $1,033,702. Although the Company had net income of
$40,809 for the fiscal quarter ended December 31, 1996, and net income of
$20,790 for the fiscal quarter ended March 31, 1997 and of $60,235 for the
fiscal quarter ended June 30, 1997, there is no assurance that the Company's
continuing operations thereafter will operate at a profit.
INADEQUACY OF CASH FLOW FROM OPERATIONS AND CREDIT LINES.
The Company's cash commitments for the 12 month period commencing
December 1, 1997 include aggregate minimum base compensation of approximately
$575,000 to officers of the Company and minimum rent of approximately $373,800
(aggregating approximately $948,800). The Company also incurs overhead and
other costs such as salaries, related benefits, office expenses, professional
fees and similar expenses. For the Company's fiscal year ended September 30,
1996, general and administrative expenses, which includes compensation and
rent, totaled $2,331,779. The Company also expends funds on the production and
development of projects. At September 30, 1997, the Company had cash and cash
equivalents of $1,069,654 and accounts receivable of $3,022,699. If the Company
continues to report losses and expends additional funds on development and
production of projects in excess of its current resources and future cash
receipts, the Company will be required to reduce its expenses to a level below
its revenues, raise additional capital and/or borrow funds to sustain its
operations. If other external sources of funds are not available to the Company
and future cash revenues are not sufficient to meet the Company's cash needs,
the Company plans to reduce the compensation of its officers, office staff and
other personnel and the number of development projects that it will fund. The
Company has not made any specific plans or entered into any agreements to
reduce the level of its expenditures in the event that such reductions become
necessary. The discontinuance of certain operations of the Company consumed
significant cash in the fiscal years ended September 30, 1994 ("Fiscal 1994")
and Fiscal 1995. The Company's bank line of credit is not adequate to support
the Company's current operations and cash flows from continuing operations from
time to time have been insufficient to meet the Company's cash needs. Since
September 1995, the Company borrowed $557,200 from a related party, which loan
subsequently was converted into 287,600 shares of the Company's Common Stock.
In September 1995, the Company borrowed an additional $100,000 from a related
party and, in February 1996, borrowed $250,000 from an unrelated party.
Additionally, the Offering Notes will remain outstanding debt obligations of
the Company until such time as they are converted. (See "Recent Developments --
1997 Private Placement") The Company anticipates continuing cash pressures,
due, among other things, to the timing of payments on its receivables, and
there is no assurance that the Company will be able to obtain additional
financing, on favorable terms, or at all, when needed. Failure to obtain such
financing could have a material adverse effect on the Company.
Any expansion of the Company's operations will require additional
financing through borrowing and/or the sale of additional securities. There is
no assurance that additional financing will be available or, if available, that
the terms thereof will not be unduly burdensome on the Company.
The Company's bank line of credit, which was scheduled to mature on
December 31, 1996, has been extended to December 31, 1997. Although the Company
has been in violation of certain of its financial ratio covenants with the
bank, such covenants have been waived through December 31, 1997. The line of
credit (under which $933,294 was outstanding as of October 31, 1997) is secured
by a lien on all of the Company's assets, and a portion of outstanding
indebtedness under the line is personally guaranteed by the Company's Chairman.
There is no assurance that the bank will offer to renew the line of credit upon
its maturity on December 31, 1997, and if an offer of renewal is made whether
the Company will be able to accept the offered terms. If the line of credit is
not renewed or a demand for payment is made on maturity, there is no assurance
that the Company could obtain replacement financing. While management has
sought alternative financing from other institutional lenders to replace its
existing line of credit, it has not received any commitment to date and there
can be no assurance that any alternative financing will be available or, if
available, will be on terms which are not unduly burdensome to the Company. The
6
<PAGE>
Company has, from time to time, been provided with letters of credit by a
corporation controlled by a party related to the Company's Chairman. The
Company pays a commission for the opening and collection of such letters of
credit and interest at 1.5% over the prime rate. There can be no assurance that
such letters of credit will be available in the future on terms acceptable to
the Company, or at all. Failure to obtain such letters of credit in the future
could have a material adverse effect on the Company.
POSSIBLE INABILITY TO REALIZE BENEFIT OF DEFERRED INCOME TAX ASSETS.
The Company's balance sheet at June 30, 1997 includes deferred tax
assets aggregating $2,152,272 or approximately 23% of the Company's total
assets, of which $6,080,200 are classified as current. To the extent that the
Company's operations are not profitable, the Company would not be able to
realize the benefit of its deferred tax assets. Without such deferred tax
assets, at June 30, 1997, the Company's shareholders' equity at such date of
4,068,984 would have been reduced by $2,152,272 to a shareholders' equity of
$1,916,712 and the Company's working capital at June 30, 1997 would have been
reduced from $2,114,511 to $1,715,511.
The Company's belief that its deferred tax assets will be realized is
based upon a number of factors. The Company has been in business for over 35
years. Although the Company sustained a loss from continuing operations during
Fiscal 1996 and Fiscal 1995, pretax income from continuing operations was
$473,000 in Fiscal 1994 and $337,000 in Fiscal 1993 and the Company had net
income in the nine months ended June 30, 1997 and expects to report a profit
for the year ended September 30, 1997. The loss in Fiscal 1995 was primarily a
result of discontinued operations, expenses incurred in the launch of the
Company's new Terrapin(TM) line of computer carrying cases and overseas quality
control problems, which quality control problems have been largely resolved.
Given the significance of the Company's deferred tax assets, the failure of the
Company to realize the benefit of its deferred tax assets would have a material
adverse effect on the Company's working capital and net worth.
DEPENDENCE ON FOREIGN MANUFACTURERS.
During Fiscal 1995, approximately 60% of the Company's carrying cases
were manufactured overseas (primarily in Asia) by various contractors, one of
whom accounted for approximately one-third of the Company's carrying case
production. During Fiscal 1996, the number of the Company's carrying cases
manufactured overseas increased to approximately 63%. In order to maintain
competitive pricing, it is anticipated that the use of overseas contractors
will increase. Any interruption in this source of supply would have a material
adverse effect on the Company. Utilizing foreign sources of supply requires
additional advanced planning and control and more rapid payment for
merchandise, and such sources are subject to special risks such as potential
political instability, unanticipated trade restrictions, war and shipping
delays.
DEPENDENCE ON SIGNIFICANT CUSTOMERS.
The Company currently has several customers for its carrying cases
that each account for a significant percentage of the Company's business. For
Fiscal 1995, three of the Company's customers accounted for approximately 19%,
11% and 10%, respectively, of the Company's sales. In Fiscal 1996, two
customers accounted for approximately 14% and 12%, respectively, of the
Company's sales. As of October 31, 1997, two customers accounted for
approximately 28.2% and 21.6%, respectively of the Company's sales. The loss of
any of these customers (whether as a result of such customer purchasing its
requirements from another manufacturer, deciding to manufacture its own
carrying cases or eliminating the inclusion of carrying cases with its product)
could have a material adverse effect on the Company.
CONCENTRATION OF CREDIT RISK.
While the Company has not experienced significant losses in extending
credit to customers, at September 30, 1995, three customers accounted for
approximately 60% of the Company's accounts receivable and at September 30,
1996, two customers accounted for approximately 47% of the Company's accounts
receivable. As of October 31, 1997, two customers accounted for approximately
51% of the Company's accounts receivable. The failure of any of such customers
to pay the Company such amounts when and as due would have a material adverse
effect on the Company.
7
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INTENSE COMPETITION AND EASE OF ENTRY.
There is intense competition in the sale of carrying cases and
advertising specialties. Since no significant proprietary technology is
involved in the production of the Company's products, others may enter the
business with relative ease to compete with the Company.
RELIANCE ON KEY PERSONNEL.
The Company is highly dependent on the personal efforts and services
of Theodore H. Schiffman, Chairman and Chief Executive Officer, William E.
Mooar, President, and Michael Schiffman, Executive Vice President. The Company
has an employment agreement with Theodore H. Schiffman for a term expiring
September 30, 2000, with William E. Mooar for a term expiring October 14, 1998,
and with Michael Schiffman for a term expiring October 31, 2000. The business
of the Company would be materially and adversely affected if the Company lost
the services of any of such executives. The Company does not have key person
life insurance as to any of such individuals.
ABSENCE OF CASH DIVIDENDS.
The Company has not paid any cash dividends in more than ten years.
The payment of future cash dividends by the Company, if any, will depend upon
the Company's short-term and long-term cash availability, working capital,
working capital needs and other factors, as determined by the Company's Board.
The Company does not anticipate that cash dividends will be paid in the
foreseeable future.
CONTROL BY INSIDERS.
Four members of the Board, including the Company's Chief Executive
Officer, President and Executive Vice President, together with its Secretary,
directly or indirectly, beneficially own 1,530,384 shares of Common Stock,
aggregating approximately 15.6% of the issued and outstanding capital stock of
the Company. By virtue of their ownership of such Common Stock, such executive
officers and directors or their affiliates may, collectively, be deemed to
control the Company through the exercise of sufficient voting power to
effectively control (or, at least, exercise a significant influence upon) the
election of the Company's Board, direct the appointment of the Company's
officers and, in general, significantly influence the outcome of any corporate
transaction or other matter submitted to the Company's shareholders for
approval, including mergers, consolidations and the sale of all or
substantially all of the Company's assets, and to prevent or cause a change in
control of the Company.
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND OTHER CONVERTIBLE SECURITIES.
For the respective terms of outstanding options, warrants and other
convertible securities granted by the Company, the holders thereof are given an
opportunity to profit from a rise in the market price of the Company's Common
Stock. Without giving effect to the reverse stock split described elsewhere in
this Prospectus, as of December 4, 1997, 11,219,500 shares of Common Stock (or
an additional 115% of the outstanding Common Stock) are issuable upon the
exercise or conversion of such securities at prices ranging from $0.25 to $2.00
per share. Of these, 8,864,000 Shares are issuable pursuant to Offering
Warrants (the "Offering Warrant Shares"), the Offering Notes (the "Offering
Note Shares") and the Conversion Warrants without giving effect to the proposed
reverse stock split. In November 1996, the Company's Board adopted, and in
August 1997, the Company's shareholders approved, the Company's 1996 Stock
Incentive Plan (the "Plan"), pursuant to which up to 8,000,000 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. Options to purchase
up to 1,742,500 shares of Common Stock have been granted under such Plan as of
December 4, 1997 (without giving effect to the proposed reverse stock split).
The terms on which the Company may obtain additional financing during the
respective terms of these stock options, warrants and other convertible
securities may be adversely affected by their existence. The holders of such
stock options, warrants and convertible promissory notes may exercise or
convert such securities, as the case may be, at a time when the Company might
be able to obtain additional capital through a new offering of securities or
other form of financing on terms more favorable than those provided by such
stock options and warrants.
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POTENTIAL ANTI-TAKEOVER MEASURES.
At the Company's Meeting of Shareholders in 1997 the Company obtained
shareholder approval of authorization to issue "blank check" preferred stock.
The Board has the authority, without shareholder approval, to issue preferred
stock in one or more series and to fix the relative rights and preferences
thereof including their redemption, dividend and conversion rights. The ability
of the Company to issue the authorized but unissued shares of preferred stock
could be utilized to impede potential take-overs of the Company.
RISKS OF LOW-PRICED STOCKS.
The Commission has adopted regulations which define a "penny stock" to
be any equity security that has a market price (as therein defined) of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. The foregoing
penny stock restrictions will not apply to the Company's securities if such
securities continue to be listed on the Nasdaq SmallCap Market, as to which
there can be no assurance, and have certain price and volume information
provided on a current and continuing basis or meet certain minimum net tangible
assets or average revenue criteria. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person engaged in unlawful conduct while participating in a
distribution of penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were to be removed from listing on the Nasdaq SmallCap Market or otherwise
become subject to the existing rules on penny stocks, the market liquidity for
the Company's securities could be severely adversely affected.
RISK OF LOSS OF LISTED STATUS OF COMMON STOCK ON THE NASDAQ SMALLCAP MARKET.
On August 25, 1997, the National Association of Securities Dealers
announced new listing requirements which require, among other things, that all
issuers of securities listed on the Nasdaq SmallCap Market maintain a continued
minimum bid price per share of such securities of $1.00. All such issuers have
been granted six months to comply with the new requirements. The per share
price of the Company's Common Stock as of December 4, 1997 was $1.13. There can
be no assurances that the per share price of the Company's Common Stock will
remain above $1.00 within the designated time-frame, or that such price can be
maintained. A consequence of the failure to maintain a bid price per share of
$1.00 may be the de-listing of the Common Stock from the Nasdaq SmallCap
Market, which may have a material adverse effect on the market value of the
Common Stock and on the ability of the Company to obtain additional financing.
FUTURE SALES OF COMMON STOCK.
Of the 9,791,062 shares of Common Stock currently outstanding,
approximately 41% of such shares are "restricted stock" as that term is defined
under Rule 144 promulgated under the Securities Act and under certain
circumstances may be sold without registration pursuant to such rule. The
Company is unable to predict the effect that sales made under Rule 144, or
otherwise, may have on the then prevailing market price of the Company's
securities although any future sales of substantial amounts of securities
pursuant to Rule 144 could adversely affect prevailing market prices.
HONG KONG - TRANSFER OF SOVEREIGNTY.
A portion of the operations of the Company are currently located in
Hong Kong. As a result, the Company's business, results of operations and
financial condition may be influenced by the political situation in Hong Kong
and by the general state of the Hong Kong economy. On July 1, 1997, sovereignty
over Hong Kong transferred from the United Kingdom to the People's Republic of
China, and Hong Kong became a Special Administrative Region of China (an
"SAR"). As provided in the Sino-British Joint Declaration on the Question of
Hong Kong and the Basic Law of the Hong Kong SAR of China (the "Basic Law"),
the Hong Kong SAR will have a high degree of autonomy except in foreign and
defense affairs. Under the Basic Law, the Hong Kong SAR is to have its own
legislature, legal and judicial system and full economic autonomy for 50 years.
However, there
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<PAGE>
can be no assurance that the transfer of sovereignty and changes in political
or other conditions will not result in an adverse impact on the Company's
business, results of operations or financial condition.
USE OF PROCEEDS
The net proceeds to the Company from the exercise of the Class B
Warrants, the Consultant's Warrant, the Offering Warrants and the Conversion
Warrants (collectively, the "Warrants") are estimated to be $15,270,000. The
Company is unable to predict the time, if ever, when the Warrants will be
exercised. Accordingly, it is expected that the net proceeds from the sale of
the Shares underlying the Convertible Securities will be used by the Company
for general corporate purposes. The Company will not receive any proceeds from
the sale of the Shares by the Selling Security Holders, nor from the conversion
of the Convertible Note or the Offering Notes.
SELLING SECURITY HOLDERS
The following table sets forth the ownership of the Common Stock by
the Selling Security Holders as of the date such information was provided to
the Company. Since the dates such information was provided to the Company, such
information may have changed. Any or all of the Shares listed below may be
offered for sale by the Selling Security Holders from time to time and
therefore no estimate can be given as to the number of Shares that will be held
by the Selling Security Holders upon termination of this offering. Except as
otherwise indicated, the Selling Security Holders listed in the table have sole
voting and investment powers with respect to the Shares indicated.
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<PAGE>
NUMBER OF
SHARES OF
NAME OF COMMON
SELLING STOCK OWNED NUMBER OF
SECURITY BEFORE THE SHARES
HOLDER OFFERING OFFERED
- -------------------------------------------------------------------------------
Elias Abrishami 383,000(1) 220,000(1)
Rafi Abrishami 352,000(1) 220,000(1)
Hedy Bagatelle 220,000(1)(21) 220,000(1)
Warren Bagatelle 220,000(1)(21) 220,000(1)
Karen Baker (2) 308,003(3) 308,000(3)
Jerome Ball 220,000(1) 220,000(1)
Clifford Berger 707,800(4)(23) 660,000(4)
Mark Berman(5) 573,533(4)(24)(28) 550,000(28)
Harvey Bibicoff 440,000(6)(25) 440,000(6)
Robert Ellin 707,000(7) 682,000(7)
Douglas Ellin 220,000(1) 220,000(1)
Howard Ellin 220,000(1) 220,000(1)
Benjamin Fishoff (8) 220,000(1) 220,000(1)
Cheryl Fishoff (9) 1,048,000(10) 968,000(10)
HSB Capital 220,000(1) 220,000(1)
Jay Krigsman 220,000(1) 220,000(1)
William E. Mooar (11) 1,180,000(12)(13)(26) 880,000(12)(13)
M.S.B. Research Inc. 220,000(1) 220,000(1)
Millworth Investments 1,760,000(14) 1,760,000(14)
Palmerston Securities Limited 434,300(15) 330,000(15)
Paul Raffin 220,000(1) 220,000(1)
Jeffrey Spiegel 220,000(1) 220,000(1)
Joseph Guccione as Custodian for
Richard Guccione 528,000(16) 528,000(16)
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<PAGE>
Joseph Guccione as Custodian for
Josepth Guccione, Jr. 528,000(16) 528,000(16)
Michael Philipps 220,000(1) 220,000(1)
Eaglehurst Corporation N.V. 352,000(17) 352,000(17)
Michael J. Sbuttoni 44,000(19) 44,000(19)
Philip & Anna Ciuffo 132,000(18) 132,000(18)
Martin Golden 44,000(19) 44,000(19)
Ralph Mesce 44,000(19) 44,000(19)
Salvatore Castiglione 44,000(19) 44,000(19)
Melvin Berfond 44,000(19) 44,000(19)
Cowen & Company as Custodian for
Robert Ellin
Profit Sharing Plan 659,000(27) 550,000(27)
Laurence Bank 143,300(20)(22) 110,000(20)
Jeffrey Tamis 110,000 110,000(20)
(1) Includes 60,000 Shares issuable upon the exercise of Offering Warrants,
40,000 Shares issuable upon the conversion of Offering Notes and 60,000
Shares issuable upon the exercise of Conversion Warrants.
(2) Ms. Baker is the daughter of the Company's Chief Executive Officer.
(3) Includes 84,000 Shares issuable upon the exercise of Offering Warrants,
56,000 Shares issuable upon the conversion of Offering Notes and 84,000
Shares issuable upon the exercise of Conversion Warrants.
(4) Includes 180,000 Shares issuable upon the exercise of Offering Warrants,
120,000 Shares issuable upon the conversion of Offering Notes and 180,000
Shares issuable upon the exercise of Conversion Warrants.
(5) Mr. Berman has provided financial consulting services to the Company.
(6) Includes 120,000 Shares issuable upon the exercise of Offering Warrants,
80,000 Shares issuable upon the conversion of Offering Notes and 120,000
Shares issuable upon the exercise of Conversion Warrants.
(7) Includes 186,000 Shares issuable upon the exercise of the Offering
Warrants, 124,000 Shares issuable upon the conversion of Offering Notes
and 186,000 Shares issuable upon the exercise of Conversion Warrants.
(8) Mr. Fishoff is married to Cheryl Fishoff, who is the sister of the
Company's Chief Executive Officer.
(9) Ms. Fishoff is the sister of the Company's Chief Executive Officer.
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<PAGE>
(10) Includes 264,000 Shares issuable upon the exercise of Offering Warrants,
176,000 Shares issuable upon the conversion of Offering Notes and 264,000
Shares issuable upon the exercise of Conversion Warrants.
(11) Mr. Mooar is the President of the Company.
(12) Includes 240,000 Shares issuable upon the exercise of Offering Warrants,
160,000 Shares issuable upon the conversion of Offering Notes and 240,000
Shares issuable upon the exercise of Conversion Warrants.
(13) Held beneficially on Mr. Mooar's behalf in a self-directed retirement
account.
(14) Includes 480,000 Shares issuable upon the exercise of Offering Warrants,
320,000 Shares issuable upon the conversion of Offering Notes and 480,000
Shares issuable upon the exercise of Conversion Warrants.
(15) Includes 90,000 Shares issuable upon the exercise of Offering Warrants,
60,000 Shares issuable upon the conversion of Offering Notes and 90,000
Shares issuable upon the exercise of Conversion Warrants.
(16) Includes 144,000 Shares issuable upon the exercise of Offering Warrants,
96,000 Shares issuable upon the conversion of Offering Notes and 144,000
Shares issuable upon the exercise of Conversion Warrants.
(17) Includes 96,000 Shares issuable upon the exercise of Offering Warrants,
64,000 Shares issuable upon the conversion of Offering Notes and 96,000
Shares issuable upon the exercise of Conversion Warrants.
(18) Includes 36,000 Shares issuable upon the exercise of Offering Warrants,
24,000 Shares issuable upon the conversion of Offering Notes and 36,000
Shares issuable upon the exercise of Conversion Warrants.
(19) Includes 12,000 Shares issuable upon the exercise of Offering Warrants,
8,000 Shares issuable upon the conversion of Offering Notes and 12,000
Shares issuable upon the exercise of Conversion Warrants.
(20) Includes 30,000 Shares issuable upon the exercise of the offering
Warrants, 20,000 Shares issuable upon the conversion of Offering Notes and
30,000 Shares issuable upon the exercise of Conversion Warrants
(21) Hedy Bagatelle and Warren Bagatelle are husband and wife. Excludes shares
owned by spouse.
(22) Includes 5,000 shares held beneficially by Mr. Bank's wife, and 13,300
held beneficially by Mr. Bank as custodian for his minor children.
(23) Includes 47,800 shares held in a KEOUGH.
(24) Includes 21,225 shares issuable upon the exercise of Class B Warrants.
(25) Includes 120,000 shares issuable upon the exercise of certain stock
options.
(26) Includes 300,000 shares issuable upon the exercise of certain stock
options.
(27) Includes 150,000 Shares issuable upon the exercise of Offering Warrants,
100,000 Shares issuable upon the conversion of Offering Notes and 150,000
Shares issuable upon the exercise of Conversion Warrants.
DESCRIPTION OF CAPITAL STOCK
A description of the Company's capital stock is contained in the
Company's Registration Statement on Form SB-2 dated March 1, 1996, which is
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
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<PAGE>
PLAN OF DISTRIBUTION
The Shares offered by this Prospectus may be sold from time to time by
the Selling Security Holders or by transferees thereof. No underwriting
arrangements have been entered into by the Selling Security Holders. The
distribution of the Shares by the Selling Security Holders may be effected in
one or more transactions that may take place in the over-the-counter market,
including ordinary broker's transactions, privately negotiated transactions, or
through sales to one or more dealers for resale of such shares as principals,
at prevailing market prices at the time of sale, prices related to prevailing
market prices, or negotiated prices. Underwriter's discounts and usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by a Selling Security Holder in connection with sales of the Shares. To the
extent required, the number of Shares to be sold, the name of the Selling
Security Holder, the purchase price, the name of any agent or broker, and any
applicable commissions, discounts or other compensation to such agents or
brokers with respect to a particular offering will be set forth in a Prospectus
Supplement.
In order to comply with certain state securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Shares may not be sold
unless such Shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may not simultaneously engage in
market-making activities with respect to such Shares for a period of one or
five business days prior to the commencement of such distribution. In addition
to, and without limiting, the foregoing, each of the Selling Security Holders
and any other person participating in a distribution will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Security Holders or any such other person. All of the foregoing may affect the
marketability of the Shares.
Pursuant to terms of the Convertible Securities and certain
Registration Rights Agreements, the Company will pay all the fees and expenses
incident to the registration of the Shares (other than underwriting discounts
and commissions, if any, and the Selling Security Holders' counsel fees and
expenses, if any).
In addition, the Company has agreed to indemnify the Selling Security
Holders against certain liabilities, including liabilities under the Securities
Act. In addition, each Selling Security Holder has agreed to indemnify the
Company against certain liabilities, including liabilities under the Securities
Act. Such agreements also provide for rights of contribution if such
indemnification is not available.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by New York law. New York law
provides that directors of a company will not be personally liable for damages
for breach of their fiduciary duties as directors, except for liability of any
director if a judgment or other final adjudication adverse to him establishes
that his acts or omissions were in bad faith or involved intentional misconduct
or a knowing violation of law or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or that his acts
violated section 719 of the New York Business Corporation Law.
The Company's Certificate of Incorporation provides that the Company
shall indemnify its officers, directors, employees and other agents to the
fullest extent permitted by New York law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of
14
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
LEGAL MATTERS
The validity of the Shares has been passed upon for the Company by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York 10176.
EXPERTS
The consolidated financial statements of the Company as of September
30, 1996 and for both of the years in the two year period then ended,
incorporated herein by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1996 have been so incorporated in
reliance on the report of Miller, Ellin & Company, independent auditors, given
upon the authority of said firm as experts in accounting and auditing.
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===============================================================================
No dealer, salesman, or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering made hereby, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to the dates as of which such information is furnished.
--------------------
TABLE OF CONTENTS
Page
----
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Explanatory Note......................................................... 2
Special Note Regarding Forward Looking Statements........................ 3
The Company.............................................................. 4
Recent Developments...................................................... 5
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 10
Selling Security Holders................................................. 10
Description of Capital Stock............................................. 13
Plan of Distribution..................................................... 14
Limitation of Liability and Indemnification of Directors and Officers.... 14
Legal Matters............................................................ 15
Experts.................................................................. 15
===============================================================================
===============================================================================
12,801,000 SHARES
-------------
FORWARD
INDUSTRIES, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
DECEMBER __, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby
(items marked with an asterisk (*) represent estimated expenses):
SEC Registration Fee ............................$ 4,114.50
Legal Fees and Expenses..........................$35,000
Accounting Fees and Expenses.....................$10,000
Transfer Agent and Registrar Fees................$ 4,400
Miscellaneous....................................$18,000
Total............................................$71,514.50
==========
* Estimate
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Reference is made to Sections 721 through 725 of the Business
Corporation Law of the State of New York, the Company's jurisdiction of
incorporation, which provides for indemnification of directors and officers
under certain circumstances.
Article IX of the Company's By-Laws provides as follows:
"Indemnification
(a) The Corporation shall, to the fullest extend now or hereafter
permitted by the New York Business Corporation Law, indemnify any director or
officer who is or was made, or threatened to be made, a party to an action or
proceeding, whether civil or criminal, whether involving any actual or alleged
breach of duty, neglect or error, any accountability, or any actual or alleged
misstatement, misleading statement or other act or omission and whether brought
or threatened in any court or administrative or legislative body or agency,
including an action by or in the right of the Corporation to procure a judgment
in its favor and an action by or in the right or any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
Corporation is serving or served in any capacity at the request of the
Corporation, or is serving or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such director or officer if a
judgment or other final adjudication adverse to the director or officer
establishes that (i) his acts were committed in bad faith or were the result of
active and deliberate dishonesty and, in either case, were material to the
cause of action so adjudicated, or (ii) he personally gained in fact a
financial profit or other advantage to which he was not legal entitled.
(b) The Corporation may indemnify any other person (including, without
limitation, corporate personnel other than directors or officers) to whom the
Corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
(c) The Corporation shall, from time to time, reimburse or advance to
any person referred to in Section (a) the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action or
proceeding referred to in Section (a), upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or
II-I
<PAGE>
other final adjudication adverse to the director or officer establishes that
(i) his acts were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the cause of action
so adjudicated, or (ii) he personally gained in fact a financial profit or
other advantage to which he was not legally entitled.
(d) The right to indemnification conferred by Section (a) shall not be
retroactive to events occurring prior to the adoption of this Article IX.
(e) This Article IX may be amended, modified or repealed either by
action of the Board of Directors of the Corporation or by the vote of
shareholders. Any repeal or modification of the foregoing provisions of this
Article IX shall not adversely affect any right or protection of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification."
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
*3.1 Certificate of Incorporation, as amended.
**3.2 By-Laws
***3.3 Amendment to By-Laws (Article I, Section 2)
3.4 Amendment to Certificate of Incorporation (Article Third) listed as
Exhibit 3.1 hereto.
4.1 Form of Convertible Promissory Note
4.2 Form of Warrant
4.3 Form of Registration Rights Agreement
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP
23.1 Consent of Miller, Ellin & Company
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in
Opinion filed as Exhibit 5.1)
- --------------
* Incorporated by reference to exhibit 2(a) to the Company's Registration
Statement on Form 10-SB.
** Incorporated by reference to exhibit 2(b) to the Company's Registration
Statement on Form 10-SB.
*** Incorporated by reference to exhibit 3(c) to the Company's Registration
Statement on Form SB-2 filed on November 13, 1995 (Registration Statement
No. 33-99338)
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
II-II
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) That, for purposes of determining any lability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a director, officer, or controlling person of Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-III
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Registration Statement on Form S-3
("Registration Statement") and authorized this Registration Statement to be
signed on its behalf by the undersigned, in the City of West Hempstead, State
of New York on December 9, 1997.
FORWARD INDUSTRIES, INC.
By: /s/ Theodore H. Schiffman
________________________________
Theodore H. Schiffman
Chairman, Chief Executive Officer
and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Theodore H. Schiffman and William E.
Mooar, or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign and file (I) any and all
pre- or post-effective amendments to this Registration Statement, and other
documents in connection therewith, and (ii) a Registration Statement, and any
and all amendments thereto, relating to the offering covered hereby filed
pursuant to Rule 462(b) under the Securities Act of 1933, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Theodore H. Schiffman Chairman of the Board, December 9, 1997
- -------------------------- Chief Executive Officer and
Theodore H. Schiffman Chief Financial Officer
(Principal Executive
Officer and Financial and
Accounting Officer)
/s/ William E. Mooar President and Director December 9, 1997
- --------------------------
William E. Mooar
/s/ Michael Schiffman Executive Vice President and December 9, 1997
- -------------------------- Director
Michael Schiffman
/s/ Noah Fleschner Director December 9, 1997
- --------------------------
Noah Fleschner
II-IV
<PAGE>
Index to Exhibits
-----------------
Page In
Sequential
Numbering
Exhibit No. System
- ----------- ------
*3.1 Certificate of Incorporation, as amended.
**3.2 By-Laws
***3.3 Amendment to By-Laws (Article I, Section 2)
3.4 Amendment to Certificate of Incorporation (Article
Third) listed as Exhibit 3.1 hereto.
4.1 Form of Convertible Promissory Note
4.2 Form of Warrant
4.3 Form of Registration Rights Agreement
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP
23.1 Consent of Miller, Ellin & Company
23.2 Consent of Squadron, Ellenoff, Plesent & Sheinfeld,
LLP (contained in Opinion filed as Exhibit 5.1)
- --------------
* Incorporated by reference to exhibit 2(a) to the Company's
Registration Statement on Form 10-SB.
** Incorporated by reference to exhibit 2(b) to the Company's
Registration Statement on Form 10-SB.
*** Incorporated by reference to exhibit 3(c) to the Company's
Registration Statement on Form SB-2 filed on November 13, 1995
(Registration Statement No. 33-99338).
II-V
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
FORWARD INDUSTRIES, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
-------------------
FIRST: The name of the corporation is Forward Industries, Inc. (the
"Company"). The name under which the Company was formed is "Progress Heat
Sealing Co., Inc."
SECOND: The Certificate of Incorporation of the Company was filed by the
Department of State on March 6, 1961.
THIRD: The Certificate of Incorporation, as heretofore amended, is hereby
amended or changed to (i) increase the authorized number of shares of common
stock, $.01 par value, which the Company shall have authority to issue from
10,000,000 shares to 40,000,000 shares, and (ii) create a series of preferred
stock, $.01 par value, of which the Company shall have authority to issue
4,000,000 shares.
FOURTH: To accomplish the foregoing, paragraph THIRD of the Certificate of
Incorporation of the Company, relating to the aggregate number of shares of
capital stock which the Company is authorized to issue, is hereby amended to
read as follows:
THIRD: The aggregate number of shares which the Corporation shall have
authority to issue is forty four million (44,000,000), $.01 par value
per share, of which four million (4,000,000) shall be designated
"preferred stock" and forty million (40,000,000) shall be designated
"common stock".
Authority is hereby expressly granted to the Board of Directors of the
Corporation from time to time to issue the preferred stock as
preferred stock of any series and, in connection with the creation of
each such series, to fix by the resolution or resolutions providing
for the issue of shares thereof, the number of shares of such series,
and the designations, relative rights, preferences, and limitations,
of such series, to the full extent now or hereafter permitted by the
laws of the State of New York.
III-VII
<PAGE>
FIFTH: The amendment to the Certificate of Incorporation of the Corporation
herein provided was authorized by the unanimous written consent of the Board of
Directors of the Company on January 13, 1997, followed by the vote of the
holders of at least a majority of all of the issued and outstanding shares of
capital stock of the Company entitled to vote at a duly called meeting thereof
held on August 7, 1997.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below, and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
Dated: August 8, 1997.
/s/ Theodore H. Schiffman
-----------------------------------
Theodore H. Schiffman,
Chairman of Board
Verified:
/s/ Stephen Schiffman
- -----------------------------
Stephen Schiffman,
Secretary
<PAGE>
THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
FORWARD INDUSTRIES, INC.
Convertible Promissory Note
$_______ __________, 1997
New York, New York
FORWARD INDUSTRIES, INC., a New York corporation (the "Company"), for
value received, hereby promises to pay to ___________________________, with an
address at ___________________________, or registered assigns (the "Holder"),
the principal amount of ___________________ dollars ($__________) (the
"Principal Amount") on the Maturity Date (as defined below), and to pay
interest on the unpaid principal balance hereof at the rate (calculated on the
basis of a 360-day year consisting of twelve 30-day months) of 10% per annum
from the date hereof until the Maturity Date. Accrued interest on the unpaid
principal balance hereof shall be payable on the Maturity Date. In no event
shall any interest to be paid hereunder exceed the maximum rate permitted by
law. In any such event, this Note shall automatically be deemed amended to
permit interest charges at an amount equal to, but no greater than, the maximum
rate permitted by law.
1. Offering, Subscription Agreement and Security.
This Note was issued by the Company in an offering (the "Offering") of
units (the "Units"), each Unit consisting of (i) 60,000 shares of Common Stock,
par value $.01 par share, of the Company (the "Common Stock") (ii) one 10%
Convertible Subordinated Promissory Note in the principal amount of $10,000
(collectively, the "Notes"), (ii) one Warrant to purchase 60,000 shares of
Common Stock at an initial exercise price per share equal to $2.00 per share
(subject to adjustment upon the occurrence of certain events and without giving
effect to a contemplated reverse stock split) (collectively the "Warrants"). In
connection with the Offering, each purchaser of Units (collectively, the
"Holders") has executed and delivered a Subscription Agreement (each a
"Subscription Agreement" and collectively, the "Subscription Agreements") to
the Company.
<PAGE>
2. Payments.
(a) Principal of, and any accrued and unpaid interest on, this
Note shall be due and payable in full on the Maturity Date. The "Maturity Date"
shall be one year from the final closing of the sale of Units in the Offering
(the "Final Closing"), which Final Closing date shall not be later than
December 4, 1997.
(b) Interest on this Note shall accrue from the date of issuance
hereof, to, but excluding the Maturity Date.
(c) If the Maturity Date would fall on a day that is not a
Business Day (as defined below), the payment due on the Maturity Date will be
made on the next succeeding Business Day with the same force and effect as if
made on the Maturity Date. "Business Day" means any day which is not a Saturday
or Sunday and is not a day on which banking institutions are generally
authorized or obligated to close in the City of New York, New York.
(d) The Company may, at its option, prepay all or any part of the
principal of this Note, without payment of any premium or penalty. All payments
on this Note shall be applied first to accrued interest hereon and the balance
to the payment of principal hereof.
(e) Payments of principal and interest on this Note shall be made
by check sent to the Holder's address set forth above or to such other address
as the Holder may designate for such purpose from time to time by written
notice to the Company, in such coin or currency of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts.
(f) The obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence, act or
omission with respect to the collection of any amount called for hereunder.
3. Ranking of Note.
(a) The Company, for itself, its successors and assigns,
covenants and agrees that the payment of the principal of and interest on this
Note is unsecured in all respects, and is expressly subordinated to all Senior
Indebtedness (as hereinafter defined) outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed by the Company, provided
however, the payment of the principal of and interest on this Note shall rank
pari passu with the Company's other unsecured indebtedness to the extent such
other unsecured indebtedness, by its terms, is not superior in right of payment
to this Note. "Senior Indebtedness" shall mean all indebtedness of the Company
created, incurred, assumed, or guaranteed by the Company for money borrowed
which
- 2 -
<PAGE>
is secured or which by its terms expressly provides that such debt is senior or
superior in right of payment to this Note. If any Senior Indebtedness of the
Company is due (whether on maturity, by acceleration or otherwise), the holders
of such Senior Indebtedness are entitled to receive payment in full before the
Holders of the Notes are entitled to receive any payments.
(b) Until the payment in full of all amounts of principal of and
interest on the Notes, and all other amounts owing under the Notes, all
payments to be made with respect to the principal of or interest on or other
amounts due with respect to indebtedness other than Senior Indebtedness shall
be made on a pari passu basis to the Notes.
4. Covenants.
The Company covenants and agrees with the Holder that, so long as
any amount remains unpaid on the Notes, unless the consent of the majority of
all of the Holders is obtained, the Company shall deliver to each Holder:
(a) at the same time and in the same manner delivered to the
Company's shareholder's, annual reports containing audited financial statements
of the Company and its subsidiaries and such other information as is
customarily made available to the Company's shareholder's;
(b) promptly after the Company shall obtain knowledge of such,
written notice of all legal or arbitral proceedings, and of all proceedings by
or before any governmental or regulatory authority or agency, and each material
development in respect of such legal or other proceedings, affecting the
Company and its subsidiaries, except proceedings which, if adversely
determined, would not have a material adverse effect on the Company and its
subsidiaries taken as a whole; and
(c) promptly after the Company shall obtain knowledge of the
occurrence of any Event of Default (as hereinafter defined) or any event which
with notice or lapse of time or both would become an Event of Default (an Event
of Default or such other event being a "Default"), a notice specifying that
such notice is a "Notice of Default" and describing such Default in reasonable
detail, and, in such Notice of Default or as soon thereafter as practicable, a
description of the action the Company has taken or proposes to take with
respect thereto.
5. Events of Default.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when
and as the same shall become due and payable.
- 3 -
<PAGE>
(b) A default in the payment of any interest on any Note, when
and as the same shall become due and payable, which default shall continue for
ten business days after the date fixed for the making of such interest payment.
(c) A default in the performance, or a breach, of any of the
covenants of the Company contained in Sections 2 or 4 of this Note.
(d) A default in the performance, or a breach, of any other
covenant or agreement of the Company in this Note and continuance of such
default or breach for a period of 30 days after receipt of notice from the
Holder as to such breach or after the Company had or should have had knowledge
of such breach.
(e) Any representation, warranty or certification made by the
Company pursuant to this Note or the Subscription Agreements shall prove to
have been false or misleading as of the date made in any material respect.
(f) A final judgment or judgments for the payment of money in
excess of $250,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company shall
not, within such 60-day period, or such longer period during which execution of
the same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal.
(g) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or
the consent by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company in furtherance of
any such action.
6. Remedies Upon Default.
(a) Upon the occurrence of an Event of Default referred to in
Section 5(g), the principal amount then outstanding of, and the accrued
interest on, this Note shall automatically become immediately due and payable
without presentment, demand, protest or other
- 4 -
<PAGE>
formalities of any kind, all of which are hereby expressly waived by the
Company. Upon the occurrence of an Event of Default referred to in Section 5(a)
or (b), the Holder, by notice in writing given to the Company, may declare the
entire principal amount then outstanding of, and the accrued interest on, this
Note to be due and payable immediately, and upon any such declaration the same
shall become and be due and payable immediately, without presentation, demand,
protest or other formalities of any kind, all of which are expressly waived by
the Company. Upon the occurrence of an Event of Default other than one referred
to in Sections 5(a), (b) or (g), the Holders of not less than 50% in principal
amount of then outstanding Notes (excluding any Notes held by or for the
account of the Company or any affiliate of the Company) may declare the
principal amount then outstanding of, and the accrued interest on, the Notes to
be due and payable immediately, and upon such declaration the same shall become
due and payable immediately, without presentation, demand, protest or other
formalities of any kind, all of which are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings in law
or equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
7. Transfer.
(a) Any Notes issued upon the transfer of this Note shall be
numbered and shall be registered in a Note Register as they are issued. The
Company shall be entitled to treat the registered holder of any Note on the
Note Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Note on
the part of any other person, and shall not be liable for any registration or
transfer of Notes which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Note shall be transferable
only on the books of the Company upon delivery thereof duly endorsed by the
Holder or by his duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment, or authority to transfer. In all
cases of transfer by an attorney, executor, administrator, guardian, or other
legal representative, duly authenticated evidence of his or its authority shall
be produced. Upon any registration of transfer, the Company shall deliver a new
Note or Notes to the person entitled thereto. This Note may be exchanged, at
the option of the Holder thereof, for another Note, or other Notes of different
denominations, of like tenor and representing in the aggregate a like principal
amount, upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Notes to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of
the Act and the rules and regulations thereunder.
- 5 -
<PAGE>
(b) The Holder acknowledges that he has been advised by the
Company that this Note has not been registered under the Act, that this Note is
being issued on the basis of the statutory exemption provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Act") or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering, and that the Company's reliance thereon is based
in part upon the representations made by the original Holder in the original
Holder's Subscription Agreement executed and delivered in accordance with the
terms of the Offering. The Holder acknowledges that such Holder has been
informed by the Company of, or is otherwise familiar with, the nature of the
limitations imposed by the Act and the rules and regulations thereunder on the
transfer of securities. In particular, the Holder agrees that no sale,
assignment or transfer of this Note shall be valid or effective, and the
Company shall not be required to give any effect to any such sale, assignment
or transfer, unless (i) the sale, assignment or transfer of this Note is
registered under the Act, it being understood that this Note is not currently
registered for sale and that the Company has no obligation or intention to so
register the Notes, or (ii) this Note is sold, assigned or transferred in
accordance with all the requirements and limitations of Rule 144 under the Act,
it being understood that Rule 144 is not available at the time of the original
issuance of this Note for the sale of this Note and that there can be no
assurance that Rule 144 sales will be available at any subsequent time, or
(iii) such sale, assignment, or transfer is otherwise exempt from registration
under the Act.
8. Conversion
(a) This Note shall be convertible at the sole option of the
Company at any time from and after one hundred (100) days following the
declaration by the Securities and Exchange Commission of the effectiveness of a
registration statement under the Securities Act of 1933, as amended, with
respect to the shares of Common Stock underlying the Units and its constituent
convertible securities (the "Conversion") into (i) shares of Common Stock (the
"Conversion Shares"), the number of which shall be determined by dividing the
Principal Amount of this Note by $0.25 (the initial "Conversion Price"), and
(ii) one (1) warrant to purchase a number of shares of Common Stock equal to
the number obtained by multiplying the Principal Amount of this Note by six (6)
(the "Conversion Warrants"). The number of Conversion Shares issuable upon
conversion of this Note and the terms of the Conversion Warrants are subject to
adjustment as provided herein. Upon Conversion, the Company shall pay all
accrued and unpaid interest (the "Interest") on the Principal Amount of the
Note to the Holder hereof in cash.
(b) Upon the delivery of written notice pursuant to Section 9(a)
hereof by the Company of its option to convert this Note pursuant to this
Section 8 and full payment of the Interest due hereunder the Holder shall be
deemed to be the holder of record of the shares of Common Stock and warrants
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Conversion
Shares and Conversion Warrants shall not then have been actually delivered to
the Holder, and this Note shall be deemed cancelled. As soon as practicable
after the Conversion, the Company shall issue and deliver to the Holder a
certificate or certificates for the Conversion Shares and Conversion Warrants
issuable upon such exercise registered in the name of the Holder or its
designee.
- 6 -
<PAGE>
(c) The issuance of any shares or other securities upon the
Conversion, and the delivery of certificates or other instruments representing
such shares or other securities, shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
(d) The Holder shall not have, solely on account of being the
holder of this Note, any rights of a shareholder of the Company, either at law
or in equity, or any rights to notice of meetings of shareholders or of any
other proceedings of the Company except as provided by this Note.
(e) The Company covenants that all shares of Common Stock
issuable upon the Conversion and the exercise of any Conversion Warrants shall
be duly authorized, validly issued, fully paid and nonassessable.
(f) The Company agrees that it will not exercise its right of
Conversion with respect to this Note, unless it simultaneously exercises its
rights of Conversion with respect to all outstanding Notes.
(g) In case the Company shall at any time after the date the
Notes were first issued (i) declare a dividend on the outstanding Common Stock
payable in shares of its capital stock, (ii) subdivide the outstanding Common
Stock, (iii) combine the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the number of shares of Common Stock issuable upon
conversion of this Note and exercise of the Conversion Warrant, and in the case
of the Conversion Warrant, the Conversion Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so that the
Holder after such time shall be entitled to receive the aggregate number and
kind of shares which, if such Note had been converted or the Conversion Warrant
had been exercised immediately prior to such time, it would have owned upon
such exercise or conversion and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. Such adjustment shall
be made successively whenever any event listed above shall occur.
(h) The number of shares of Common Stock underlying the
Conversion Warrants and the exercise price thereof shall be adjusted pursuant
to the anti-dilution provisions of such Conversion Warrants as if such
Conversion Warrants were outstanding from the date of issuance of the Note so
that upon the date of the Conversion, the Conversion Warrants shall be
identical to the Warrants.
- 7 -
<PAGE>
(i) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock (as
defined in Section 8(k) hereof) on such record date, then, in each case, the
Conversion Price shall be adjusted by multiplying the Conversion Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so to be offered (or the
aggregate initial conversion or exchange price of the convertible or
exchangeable securities so to be offered) would purchase at such Current Market
Price and the denominator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible or exchangeable securities so to be offered are initially
convertible or exchangeable). Such adjustment shall become effective at the
close of business on such record date; provided, however, that, to the extent
the shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) are not delivered, the Conversion Price shall be
readjusted after the expiration of such rights, options, or warrants (but only
with respect to Warrants exercised after such expiration), to the Conversion
Price which would then be in effect had the adjustments made upon the issuance
of such rights, options, or warrants been made upon the basis of delivery of
only the number of shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(j) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the shareholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any
cash dividend which, together with any cash dividends paid within the 12 months
prior to the record date for such distribution, does not exceed 5% of the
Current Market Price at the record date for such distribution) or assets (other
than distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock (excluding those
with respect to the issuance of which an adjustment of the Conversion Price is
provided pursuant to Section 8(i) hereof), then, in each case, the Conversion
Price shall be adjusted by multiplying the Conversion Price in effect
immediately prior to the record date for the determination of shareholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the Current Market Price per share of Common Stock on such record
date, less the fair market value (as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such rights, options, or warrants or convertible or
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<PAGE>
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such Current Market Price per share of
Common Stock. Such adjustment shall become effective at the close of business
on such record date.
(l) For the purpose of any computation under this Section 8, the
Current Market Price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange (including, for purposes hereof,
the NASDAQ SmallCap market system) on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported bid price for
the Common Stock as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If on any such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is not quoted by
NASDAQ or any similar organization, the fair value of a share of Common Stock
on such date, as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error, shall
be used; provided, that the fair value of a share of Common Stock shall not be
less than the Conversion Price in effect on such date.
(m) No adjustment in the Conversion Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments
which by reason of this Section 8 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 8 shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(n) Upon each adjustment of the Conversion Price as a result of
the calculations made in Sections 8(i) or 8(j) hereof, the Note shall
thereafter evidence the right to receive upon Conversion of this Note, that
number of Conversion Shares (calculated to the nearest thousandth) obtained by
dividing (A) the product obtained by multiplying the number of shares
purchasable upon exercise of the Conversion right prior to adjustment of the
number of shares by the Conversion Price in effect prior to adjustment of the
Conversion Price by (B) the Conversion Price in effect after such adjustment of
the Conversion Price.
9. Miscellaneous.
(a) 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 (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 275 Hempstead
Turnpike, West Hempstead, New York 11552, Attention: Theodore H. Schiffman,
Chief Executive Officer, (ii) if to the Holder, at its address set forth on the
first page hereof, or (iii) in either case, to such other address as the party
shall have furnished in writing in accordance with the provisions of this
Section
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<PAGE>
9(a). Notice to the estate of any party shall be sufficient if addressed to the
party as provided in this Section 9(a). 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 9(a) shall be deemed given at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Note (and upon surrender of this
Note if mutilated), the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination.
(c) No course of dealing and no delay or omission on the part of
the Holder in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice the Holder's rights, powers or remedies. No right, power
or remedy conferred by this Note upon the Holder 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.
(d) This Note may be amended only by a written instrument
executed by the Company and the Holder hereof. Any amendment shall be endorsed
upon this Note, and all future Holders shall be bound thereby.
(e) This Note 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 principles governing conflicts
of law.
(f) The Company 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
Note, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Note, or a breach of this Note or any such document or
instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 9(a). 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 Company shall
appear or answer such summons, complaint, or other process. Should the Company
fail to appear or answer within such 30-day period or such extended period, as
the case may be, the Company shall be deemed in default and judgment may be
entered against the Company for the amount as demanded in any summons,
complaint or other process so served.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and dated the day and year first above written.
FORWARD INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
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<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
FORWARD INDUSTRIES, INC.
Warrant for the Purchase of ______ Shares of Common Stock,
par value $.01 per share
No._______ _______ Shares
THIS CERTIFIES that, for value received ________________, with an
address at ____________________________ (including any transferee, the
"Holder"), is entitled to subscribe for and purchase from Forward Industries,
Inc. a New York corporation (the "Company"), upon the terms and conditions
set forth herein, at any time or from time to time after 5:00 P.M.,
New York City time, during the period commencing on the later of (i)
twelve (12) months from the declaration of effectiveness of a registration
statement with respect to the Warrant Shares (as defined herein), in compliance
with the Securities Act of 1933, as amended, by the Securities and Exchange
Commission and (ii) the date (the "Authorization Date") on which the
shareholders of the Company authorize an amendment to the Company's Certificate
of Incorporation increasing the amount of shares of Common Stock, $.01 par
value of the Company (the "Common Stock") which the Company is authorized to
issue to a number sufficient to permit the exercise and conversion of all
outstanding securities of the Company (including the Warrants (as defined
herein) and the Bridge Notes (as defined herein)) exercisable or convertible
into Common Stock and (unless the exercise period is terminated early pursuant
the terms hereof) before 5:00 P.M., New York City time, March 15, 1999 (the
"Exercise Period"), ( ) shares of the Company's Common Stock (the "Warrant
Shares"), at an exercise price equal to $2.00 per share (the "Exercise Price")
(subject to adjustment upon the occurrence of certain events and without giving
effect to a
<PAGE>
contemplated reverse stock split). This Warrant is one of the warrants issued
pursuant to an offering (the "Offering") by the Company of units (the "Units"),
each Unit consisting of (i) 60,000 shares of Common Stock, (ii) one 10%
Convertible Promissory Note in the principal amount of $10,000 (collectively,
the "Notes"), and (iii) one Warrant to purchase Sixty Thousand (60,000) shares
of Common Stock at the Exercise Price (collectively, the "Warrants"). As used
herein, the term "this Warrant" shall mean and include this Warrant and any
Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part.
The number of Warrant Shares and the Exercise Price may be adjusted
from time to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the election at the end hereof duly executed) to the Company at
its office at 275 Hempstead Turnpike, West Hempstead, New York 11552,
Attention: Theodore H. Schiffman, Chief Executive Officer or at such other
place as is designated in writing by the Company, together with a certified or
bank cashier's check payable to the order of the Company in an amount equal to
the Exercise Price multiplied by the number of Warrant Shares for which this
Warrant is being exercised. Upon any exercise of the Warrant, in lieu of any
fractional Warrant Shares to which the Holder shall be entitled, the Company
shall pay to the Holder cash in accordance with the provisions of Section 5(i)
hereof.
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. (a) Any Warrants issued upon the transfer or exercise in part of
this Warrant shall be numbered and shall be registered in a Warrant Register as
they are issued. The Company shall be entitled to treat the registered holder
of any Warrant on the Warrant Register as the owner in fact thereof for all
purposes and shall not be bound to recognize any equitable or other claim to or
interest in such Warrant on the part of any other person, and shall not be
liable for any registration or transfer of Warrants which are registered or to
be registered in the name of a fiduciary or the nominee of a fiduciary unless
made with the actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to bad faith.
This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder
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<PAGE>
or by his duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment, or authority to transfer. In all cases of
transfer by an attorney, executor, administrator, guardian, or other legal
representative, duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Warrant or Warrants to the person entitled thereto. This Warrant may be
exchanged, at the option of the Holder thereof, for another Warrant, or other
Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Warrant Shares (or portions
thereof), upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations thereunder.
(b) The Holder acknowledges that he has been advised by the Company
that neither this Warrant nor the Warrant Shares have been registered under the
Act, that this Warrant is being or has been issued and the Warrant Shares may
be issued on the basis of the statutory exemption provided by Section 4(2) of
the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by
the original Holder in the original Holder's Subscription Agreement executed
and delivered in accordance with the terms of the Offering (the "Subscription
Agreement"). The Holder acknowledges that he has been informed by the Company
of, or is otherwise familiar with, the nature of the limitations imposed by the
Act and the rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment or transfer of this
Warrant or the Warrant Shares issuable upon exercise hereof shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of
this Warrant or such Warrant Shares is registered under the Act, it being
understood that neither this Warrant nor such Warrant Shares are currently
registered for sale and that the Company has no obligation or intention to so
register this Warrant or such Warrant Shares except as specifically provided in
that certain registration rights agreement made by the Company for the benefit
of investors in the Offering, or (ii) this Warrant or such Warrant Shares are
sold, assigned or transferred in accordance with all the requirements and
limitations of Rule 144 under the Act, it being understood that Rule 144 is not
available at the time of the original issuance of this Warrant for the sale of
this Warrant or such Warrant Shares and that there can be no assurance that
Rule 144 sales will be available at any subsequent time, or (iii) such sale,
assignment, or transfer is otherwise exempt from registration under the Act.
4. The Company shall at all times from and after the Authorization
Date reserve and keep available out its authorized and unissued Common Stock,
solely for the purpose of providing for the exercise of the rights to purchase
all Warrant Shares granted pursuant to the Warrants, such number of shares of
Common Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of this
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<PAGE>
Warrant, upon receipt by the Company of the full Exercise Price therefor, shall
be validly issued, fully paid and nonassessable.
5. (a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number of Warrant Shares
issuable upon exercise of this Warrant, in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so that the
Holder after such time shall be entitled to receive the aggregate number and
kind of shares which, if such Warrant had been exercised immediately prior to
such time, he would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination, or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock (as
defined in Section 5(d) hereof) on such record date, then, in each case, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on such record date
plus the number of shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so to be offered (or the aggregate
initial conversion or exchange price of the convertible or exchangeable
securities so to be offered) would purchase at such Current Market Price and
the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
or exchangeable securities so to be offered are initially convertible or
exchangeable). Such adjustment shall become effective at the close of business
on such record date; provided, however, that, to the extent the shares of
Common Stock (or securities convertible into or exchangeable for shares of
Common Stock) are not delivered, the Exercise Price shall be readjusted after
the expiration of such rights, options, or warrants (but only with respect to
Warrants exercised after such expiration), to the Exercise Price which would
then be in effect had the adjustments made upon the issuance of such rights,
options, or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) actually issued. In case any subscription price may be
paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the board of directors of the Company, whose determination shall be conclusive
absent manifest error. Shares of Common Stock owned by or held for the account
of the Company or any
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<PAGE>
majority-owned subsidiary shall not be deemed outstanding for the purpose of
any such computation.
(c) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the shareholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any
cash dividend which, together with any cash dividends paid within the 12 months
prior to the record date for such distribution, does not exceed 5% of the
Current Market Price at the record date for such distribution) or assets (other
than distributions and dividends payable in shares of Common Stock), or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for shares of Common Stock (excluding those
with respect to the issuance of which an adjustment of the Exercise Price is
provided pursuant to Section 5(b) hereof), then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to the record date for the determination of shareholders entitled to
receive such distribution by a fraction, the numerator of which shall be the
Current Market Price per share of Common Stock on such record date, less the
fair market value (as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error) of the
portion of the evidences of indebtedness or assets so to be distributed, or of
such rights, options, or warrants or convertible or exchangeable securities, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustment
shall become effective at the close of business on such record date.
(d) For the purpose of any computation under this Section 5, the
Current Market Price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange (including, for purposes hereof,
the NASDAQ SmallCap market system) on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported bid price for
the Common Stock as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer
reporting such information. If on any such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is not quoted by
NASDAQ or any similar organization, the fair value of a share of Common Stock
on such date, as determined in good faith by the board of directors of the
Company, whose determination shall be conclusive absent manifest error, shall
be used; provided, that the fair value of a share of Common Stock shall not be
less than the Exercise Price in effect on such date.
(e) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any
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<PAGE>
subsequent adjustment. All calculations under this Section 5 shall be made to
the nearest cent or to the nearest one-thousandth of a share, as the case may
be.
(f) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(g) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 5(b) or 5(c) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing
(A) the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price by (B) the
Exercise Price in effect after such adjustment of the Exercise Price.
(h) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent
by registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(i) The Company shall not be required to issue fractions of shares
of Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share would be issuable on the exercise of this
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price of such share of Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
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<PAGE>
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance, and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as
nearly equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified
par value, or as a result of a subdivision or combination, but including any
change in the shares into two or more classes or series of shares), the Holder
shall have the right thereafter to receive upon exercise of this Warrant solely
the kind and amount of shares of stock and other securities, property, cash, or
any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of shares of Common Stock
for which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose to:
(a) pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common
Stock or any other rights, warrants, or other securities; or
(c) effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 6; or
(d) effect any liquidation, dissolution, or winding-up of the
Company; or
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<PAGE>
(e) take any other action which would cause an adjustment to the
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would
require an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the exercise of
this Warrant, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
9. The Warrant Shares issued upon exercise of this Warrant shall be
subject to a stop transfer order and the certificate or certificates evidencing
such Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN
- 8 -
<PAGE>
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS."
10. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have solely on account of such
status, any rights of a shareholder of the Company, either at law or in equity,
or to any notice of meetings of shareholders or of any other proceedings of the
Company, except as provided in this Warrant.
12. This Warrant has been negotiated and consummated in the State of
New York and shall be construed in accordance with the laws of the State of New
York applicable to contracts made and performed within such State, without
regard to principles governing conflicts of law.
- 9 -
<PAGE>
13. The Company 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
Warrant, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section E(3) of the Subscription
Agreement. 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 Company shall appear to answer such summons, complaint or
other process. Should the Company so served fail to appear or answer within
such 30-day period or such extended period, as the case may be, the Company
shall be deemed in default and judgment may be entered against the Company for
the amount as demanded in any summons, complaint or other process so served.
Dated: , 1997
FORWARD INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
[Seal]
- --------------------------------
Secretary
- 10 -
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, par value $.01 per share, of Forward Industries, Inc. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ______________________________
attorney to transfer such Warrant on the books of the Company, with full power
of substitution. Dated: _________________
Signature
--------------------------
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- 11 -
<PAGE>
To: Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
CASH EXERCISE FORM
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in
the amount of $________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
-----------------------------------------
-----------------------------------------
-----------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: Name:
----------------------- -----------------------------------
(Print)
Address:
---------------------------
---------------------------
---------------------------
-----------------------------------
(Signature)
- 12 -
<PAGE>
To: Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
The undersigned hereby irrevocably elects to surrender its Warrant for
the number of Warrant Shares as shall be issuable pursuant to the cashless
exercise provisions of Section 1 of the within Warrant, in respect of
___________________ Warrant Shares underlying the within Warrant, and requests
that certificates for such Warrant Shares be issued in the name of and
delivered to:
-----------------------------------------
-----------------------------------------
-----------------------------------------
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the shares exchangeable
or purchasable under the within Warrant, that a new Warrant for the balance of
the Warrant Shares covered by the within Warrant be registered in the name of,
and delivered to, the undersigned at the address stated below.
Dated: Name:
----------------------- -----------------------------------
(Print)
Address:
---------------------------
---------------------------
---------------------------
-----------------------------------
(Signature)
- 13 -
<PAGE>
FORWARD INDUSTRIES, INC.
REGISTRATION RIGHTS AGREEMENT
FOR 1997 PRIVATE PLACEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made by
Forward Industries, Inc., a New York corporation (the "Company"), for the
benefit of the investors listed on Schedule I hereto (collectively, the
"Investors" and, individually, an "Investor").
RECITALS
A. The Investors desire to purchase from the Company, and the Company
desires to issue and sell to the Investors in an offering (the
"Offering"), units (the "Units"), each Unit consisting of (i) 60,000
shares of Common Stock, par value $.01 par share, of the Company (the
"Common Stock"), (ii) one 10% Convertible Promissory Note in the
principal amount of $10,000 (collectively, the "Notes"), (ii) one
Warrant to purchase 60,000 shares of Common Stock at an initial
exercise price per share equal to $2.00 per share (subject to
adjustment upon the occurrence of certain events and without giving
effect to a contemplated reverse stock split) (collectively the
"Warrants").
B. As further inducement for the Investors to purchase the Units from the
Company, the Company desires to undertake to register the shares of
Common Stock included in the Units (the "Shares") and underlying the
Warrants (the "Warrant Shares"), the Notes (the "Note Shares") and the
Warrants which may be issued upon conversion at the Notes (the "Note
Warrant Shares") for resale or other transfer by the Investors under
the Securities Act in accordance with the terms hereof.
AGREEMENTS
The Company and the Investors covenant and agree as follows:
1. Definitions. For the purposes of this Agreement:
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
statements or similar documents in compliance with the Securities Act of 1933,
as amended (the "Securities Act"), and the declaration or ordering of
<PAGE>
effectiveness of such registration statement or document by the Securities and
Exchange Commission (the "SEC").
The term "Registrable Securities" means (i) the Shares, (ii) the
Warrant Shares, (iii) the Note Shares, (iv) the Note Warrant Shares and (v) any
Shares of Common Stock issued as (or issuable upon the conversion or exercise
of any convertible security, warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the Shares, Warrant Shares, Note Shares or Note Warrant Shares.
The term "Investor" includes (i) each Investor (as defined above) and
(ii) each person who is a transferee or assignee of the Registrable Securities
in accordance with Section 7 of this Agreement.
Other terms herein which are capitalized but not defined shall have
the same meanings as in the Subscription Agreement signed by each Investor with
respect to the Units.
2. Obligations of the Company. In connection with the registration of the
Registrable Securities pursuant to this Agreement, the Company shall, at its
sole cost and expense:
(a) Prepare and file with the SEC, within 120 days after the Final
Closing of the Offering, a registration statement or registration statements
under the Securities Act (the "Registration Statement") with respect to all
Registrable Securities not excluded pursuant to Section 2, and use its best
efforts to cause the Registration Statement to become effective as soon as
reasonably possible after such filing, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein), at
the time it becomes effective, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and
any prospectus constituting Part I of the Registration Statement as may be
necessary to keep the Registration Statement effective for at least two years
after the Final Closing of the Offering, or such shorter period as may be
prescribed by Rule 144(k) (or any successor thereto) under the Securities Act,
and during such period to comply with the provisions of the Securities Act with
respect to the Registration Statement.
(c) Furnish promptly to each Investor whose Registrable Securities are
included in the Registration Statement such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto,
and of such other documents as such Investor may reasonably request in order to
facilitate the disposition of Registrable Securities owned by such Investor.
2
<PAGE>
(d) Use its reasonable efforts to register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Investors who then hold of record a majority of the Registrable Securities
covered by the Registration Statement, and prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements and to take such other actions as may be necessary to maintain such
registration and qualification in effect at all times for a period of at least
two years after the Final Closing of the Offering, or such shorter period as
may be prescribed by Rule 144(k), and to take all other actions reasonably
necessary or advisable to enable the disposition of such securities in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business,
file a general consent to service of process or subject itself to general
taxation in any such states or jurisdictions or (ii) make any change in its
Certificate of Incorporation or bylaws.
(e) Notify the Investors who hold Registrable Securities being sold,
at any time when a prospectus relating to Registrable Securities covered by the
Registration Statement is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing. The Company shall use its best efforts promptly to
amend or supplement the Registration Statement to correct any such untrue
statement or omission.
(f) Notify the Investors who hold Registrable Securities being sold of
the issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose.
The Company will make every reasonable effort to prevent the issuance of any
stop order and, if any stop order is issued, to obtain the lifting thereof at
the earliest possible time.
(g) Make generally available to its security holders as soon as
practicable, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of Rule 158 under the Securities Act) covering a twelve-month period beginning
not later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement.
(h) Use its best efforts to facilitate the quotation of the Shares on
the Nasdaq SmallCap System, and use its best efforts to cause continued listing
of the Common Stock so long as the Registration Statement is in effect under
the Securities Act.
(i) Take all actions, after the Registration Statement is declared
effective, reasonably necessary to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be sold pursuant to the Registration Statement, in
such denominations and registered in such names as the Investors may reasonably
3
<PAGE>
request.
(j) Take all other actions reasonably necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
(k) Notwithstanding anything contained in this Section 2 to the
contrary, the Company shall have no obligation hereunder with respect to
Registrable Securities held by any Investor where such Investor would then be
entitled to sell under Rule 144(e) within any three-month period (or such other
unitary period prescribed under Rule 144 as may be provided by amendment
thereof) all of the Registrable Securities then held by such Investor.
3. Obligations of the Investors. In connection with the registration of
the Registrable Securities pursuant to this Agreement, the Investors shall have
the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to any
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended plan
of distribution of such securities as shall be reasonably required to effect
the registration of the Registrable Securities and shall execute such documents
in connection with such registration as the Company may reasonably request. At
least thirty (30) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") who elects to have any of his Registrable Securities included in
the Registration Statement. If within seven (7) business days of the filing
date the Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration
Statement without including Registrable Securities of such Non-Responsive
Investor.
(b) Each Investor by his acceptance of the Registrable Securities
agrees to cooperate with the Company in connection with the preparation and
filing of any Registration Statement hereunder, unless such Investor has
notified the Company in writing of its election to exclude all of its
Registrable Securities from the Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 2(e) or
(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement until such Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
2(e) or the stop order is lifted, and, if so desired by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of such destruction) all
copies, other than the permanent file copies then in such Investor's
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
4
<PAGE>
4. Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registration, filings or
qualifications pursuant to this Agreement, including, without limitation, all
registration, listing, filing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for the Company and the reasonable
fees and disbursements of one firm of counsel for the Investors shall be borne
by the Company.
5. Indemnification.
(a) To the extent permitted by law, the Company hereby indemnifies and
holds harmless each Investor, the directors and officers, if any, of such
Investor, each person, if any, who controls such Investor, any underwriter (as
defined in the Securities Act) for the Investors and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any
losses, claims, damages, expenses or liabilities, joint or several) to which
any of them may become subject under the Securities Act, the Exchange Act,
other federal or state law or otherwise, insofar as such losses, claims,
damages, expenses or liabilities (or actions or proceedings, whether commenced
or threatened, in respect thereof, arise out of or are based upon any of the
following statements, omissions or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law. Subject
to the restrictions set forth in Section 5(c) with respect to the number of
legal counsel, the Company will reimburse the Investors and each such
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding. Notwithstanding anything
contained in this Agreement to the contrary, the indemnity agreement contained
above in this Section 5(a): (I) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld, (II) shall not apply to any such case for any
such loss, claim, damage, liability or action arising out of or based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished for use in connection with such registration by the
Investors or any such underwriter or controlling person, as the case may be,
and (III) with respect to any preliminary prospectus, shall not inure to the
benefit of any person from whom the person asserting any such claim purchased
the Registrable Securities that are the subject thereof (or to the benefit of
any person controlling such person) if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Investors or any such underwriter
5
<PAGE>
or controlling person and shall survive the transfer of the Registrable
Securities by an Investor.
(b) To the extent permitted by law, each Investor, severally and not
jointly, hereby indemnifies and holds harmless, to the same extent and in the
same manner set forth in Section 5(a), the Company, each of its directors, each
of its officers who have signed the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter and any other Investor selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such holder or underwriter, against any losses, claims,
damages or liabilities, joint or several) to which any of them may become
subject, under the Securities Act, the Exchange Act, other federal or state law
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Investor for use in connection with such registration; and such Investor will
reimburse any legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Investor shall be liable under
this Section 5(b) for only that amount of losses, claims, damages and
liabilities as does not exceed the proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such registration. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such indemnified party and shall survive the transfer of the
Registrable Securities by the Investors.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 5, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
satisfactory to the indemnifying party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel for the indemnifying party, representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. In that event, the
Company shall pay for only one legal counsel for the Investors. Such legal
counsel shall be selected by the Investors holding a majority of the
Registrable Securities. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5 only to the extent prejudicial to its
ability to defend such action, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 5. To the extent
permitted by law, the indemnification required by this Section 5 shall be made
by periodic payments of the amount thereof during the course of the
6
<PAGE>
investigation or defense, promptly as such expense, loss, damage or liability
is incurred and is due and payable.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 5 to the extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
this Section 5, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Securities Act)
shall be entitled to contribution from any Investor who was not guilty of such
fraudulent misrepresentation, and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such Investor from the sale of Registrable Securities.
6. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Investors the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration, the Company
agrees to:
(a) Make and keep current public information available, as provided in
Rule 144(c).
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act.
(c) Furnish to each Investor, so long as such Investor owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the current public information requirements
of Rule 144(c), (ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing the
Investors of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
7. Assignments of Registration Rights. The rights of Investors under this
Agreement may be assigned by the Investors to transferees or assignees of their
Registrable Securities, provided that (i) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned, (ii) such transfer and assignment are
in accordance with and permitted by all other agreements between the Company
and the transferor or assignor, and (iii) immediately following such transfer,
such securities are not freely tradeable by virtue of the exemption from
registration under the Securities Act provided in Section 4(l) thereof. The
term "Investors" as used in this Agreement shall include permitted assignees.
7
<PAGE>
8. Miscellaneous.
(a) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, (i) if to the Company, to
275 Hempstead Turnpike, West Hempstead, New York, 11552, Attention: Theodore H.
Schiffman, Chief Executive Officer, and (ii) if to an Investor, at the address
set forth under his or her name in the subscription agreement executed by such
Investor in connection with its investment, or at such other address as each
such party furnishes by notice given in accordance with this Section 8(a).
(b) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
will not operate as a waiver thereof. No waiver will be effective unless and
until it is in writing and signed by the party giving the waiver.
(c) This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of New York, as such laws are
applied by New York courts to agreements entered into and to be performed in
New York by and between residents of New York. This Agreement shall be binding
upon each Investor and its heirs, estate, legal representatives, successors and
permitted assignees and shall inure to the benefit of the Company and its
successors and assigns. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other provision
hereof.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by a writing executed by the Company and Investors who
then hold of record a majority of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 8(d) shall be binding upon such
Investor and the Company.
(e) Any such person is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, then
the Company shall be entitled to act upon the basis of the instructions, notice
or election received from the registered owner of such Registrable Securities.
Dated this ___ day of ________ 1997.
8
<PAGE>
FORWARD INDUSTRIES, INC.
By:
--------------------------------
Name:
Title:
9
<PAGE>
December 9, 1997
Forward Industries, Inc.
275 Hempstead Turnpike
West Hempstead, New York 11552
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
You have requested our opinion, as counsel for Forward Industries,
Inc., a New York corporation (the "Company"), in connection with the
registration statement on Form S-3 (the "Registration Statement"), filed with
the Securities and Exchange Commission under the Securities Act of 1933 (the
"Act"). The Registration Statement relates to an offering by certain selling
shareholders named therein (the "Shareholders") from time to time of up to
12,188,000 shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") and 613,000 shares of Common Stock issuable upon the
exercise of certain outstanding warrants of the Company (the "Shares"). Of the
12,801,000 Shares being offered pursuant to the Registration Statement, (i)
438,000 are issuable upon the exercise of the Company's outstanding publicly
traded Class B Warrants (the "Class B Warrants"); (ii) 175,000 are issuable
upon the exercise of an outstanding warrant (the "Consultant's Warrant") issued
to a consultant of the Company in September 1994; (iii) 3,324,000 were issued
by the Company in 1997 in a private offering (the "Offering"); (iv) 3,324,000
are issuable upon the exercise of certain outstanding warrants (the "Offering
Warrants") issued by the Company in the Offering; (v) 2,216,000 are issuable
upon the conversion of certain outstanding convertible promissory notes (the
"Offering Notes"), issued by the Company in the Offering; and (viii) 3,324,000
are issuable upon the exercise of certain warrants issuable upon conversion of
the Offering Notes (the "Conversion Warrants" and together with the Class B
Warrants, the Consultant's Warrant, the Offering Warrants and the Offering
Notes, the "Convertible Securities").
We have examined such records and documents and made such examinations
of law as we have deemed relevant in connection with this opinion. We have
assumed that there will be no changes in applicable law between the date of
this opinion and the date the Shares proposed to be sold by the Shareholders
pursuant to the Registration Statement are actually sold. It is our opinion
that the Shares to be issued upon exercise or conversion of the Convertible
Securities have been duly authorized and, when issued and delivered upon
exercise or conversion of the Convertible Securities, in accordance with the
respective terms thereof, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In so doing, we do not admit
that we are in the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
Squadron, Ellenoff, Plesent
& Sheinfeld, LLP
<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 Notes 6
and 19 which are dated December 23, 1996, 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 9, 1997
