-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LEIX046AuuamQ1jvChyuikWMiaECD8RZ3jQO6DX2fffiZSCuPk/JlNllkL5yBoLV WoQvLfa6L0mIMWVaqlxo2w== 0000912057-01-511385.txt : 20010501 0000912057-01-511385.hdr.sgml : 20010501 ACCESSION NUMBER: 0000912057-01-511385 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FORWARD INDUSTRIES INC CENTRAL INDEX KEY: 0000038264 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 131950672 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-06669 FILM NUMBER: 1616110 BUSINESS ADDRESS: STREET 1: 400 POST AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163380700 MAIL ADDRESS: STREET 1: 400 POST AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 10QSB 1 a2047275z10qsb.txt 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended MARCH 31, 2001. Or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____ to ____ Commission file number 0-6669 ------ FORWARD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) NEW YORK 13-1950672 - ----------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1801 GREEN RD., SUITE E, POMPANO BEACH, FL 33064 - -------------------------------------------- --------------------- (Address of principal executive offices) (Zip Code) (954) 360-6420 -------------------------------------------- (Issuer's Telephone Number, including Area Code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. As of April 30, 2001, 5,825,641 Shares of the issuer's Common Stock were outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] 1 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-QSB SIX MONTHS ENDED MARCH 31, 2001 CONTENTS
PAGE PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2001 (Unaudited) and September 30, 2000.................... 3 Consolidated Statements of Income (Unaudited) for the Three and Six months ended March 31, 2001 and 2000.... 4 Consolidated Statements of Cash Flows (Unaudited) for the Six months ended March 31, 2001 and 2000.......... 6 Item 2. Management's Discussion and Analysis...................... 11 PART II OTHER INFORMATION Item 1. Legal Proceedings......................................... 15 Item 2. Changes in Securities and Use of Proceeds................. 15 Item 3. Defaults upon Senior Securities........................... 15 Item 4. Submission of Matters to a Vote of Security Holders....... 15 Item 5. Other Information......................................... 15 Item 6. Exhibits and Reports on Form 8-K.......................... 16
PART I. ITEM 1. FINANCIAL STATEMENTS ----------------------------- FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, September 30, 2001 2000 -------------- --------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents....................................................... $ 1,277,086 $ 840,532 Accounts receivable less allowance for doubtful accounts of $57,074 and $67,675. 1,734,367 2,062,415 Inventories - net............................................................... 848,227 857,082 Notes and loans receivable - current portion.................................... --- 143,235 Notes and loans receivable - officers - current portion......................... 247,495 319,603 Prepaid expenses and other current assets....................................... 507,669 459,697 Deferred income taxes - current................................................. 135,000 135,000 -------------- --------------- Total current assets............................................................ 4,749,844 4,817,564 PROPERTY PLANT AND EQUIPMENT - net.............................................. 544,919 572,177 -------------- --------------- ASSETS HELD FOR SALE............................................................ 179,475 179,475 -------------- --------------- OTHER ASSETS Notes and loans receivable - officers - net of current portion.................. 95,132 99,040 Deferred income taxes........................................................... 925,250 1,209,000 Other assets.................................................................... 39,369 60,071 -------------- --------------- Total other assets.............................................................. 1,059,751 1,368,111 -------------- --------------- TOTAL ASSETS.................................................................... $ 6,533,989 $ 6,937,327 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable................................................................ $ 901,131 $ 784,950 Notes and acceptances payable under credit line................................. --- 350,000 Current portion of capital lease obligations.................................... 24,360 24,360 Accrued payables and other current liabilities.................................. 254,996 503,170 -------------- --------------- Total current liabilities....................................................... 1,180,487 1,662,480 CAPITAL LEASE OBLIGATIONS - net of current portion.............................. 100,605 112,595 -------------- --------------- TOTAL LIABILITIES............................................................... 1,281,092 1,775,075 -------------- --------------- STOCKHOLDERS' EQUITY Preferred stock, 4,000,000 authorized shares, par value $.01; none issued Common stock, 40,000,00 authorized shares, par value $.01; 6,286,531 shares issued (including 460,890 and 202,390 held in treasury)............. 62,865 62,865 Paid-in-capital................................................................. 7,679,768 7,679,768 Accumulated deficit............................................................. (2,233,479) (1,807,849) Foreign currency adjustment..................................................... --- 8,799 -------------- --------------- 5,934,784 5,517,953 Less: Cost of shares in treasury................................................ (681,887) (355,701) -------------- --------------- Total stockholders' equity...................................................... 5,252,897 5,162,252 -------------- --------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................... $ 6,533,989 $ 6,937,327 ============== ===============
3 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, Six Months Ended March 31, ------------------------------ ------------------------------- 2001 2000 2001 2000 -------------- --------------- -------------- --------------- NET SALES................................... $ 3,247,424 $ 3,177,877 $ 7,557,774 $ 9,040,651 COST OF GOODS SOLD.......................... 2,228,291 2,165,905 4,821,200 5,956,987 -------------- --------------- -------------- --------------- GROSS PROFIT................................ 1,019,133 1,011,972 2,736,574 3,083,664 -------------- --------------- -------------- --------------- OPERATING EXPENSES: Selling................................. 532,479 498,634 1,041,855 1,034,057 General and administrative.............. 477,607 500,625 1,023,404 1,212,767 -------------- --------------- -------------- --------------- Total operating expenses.............. 1,010,086 999,259 2,065,259 2,246,824 -------------- --------------- -------------- --------------- INCOME FROM OPERATIONS...................... 9,047 12,713 671,315 836,840 -------------- --------------- -------------- --------------- OTHER INCOME (EXPENSES) Interest expense........................ (3,082) (26,788) (13,063) (63,865) Interest income......................... 16,881 24,575 29,820 47,149 Other income (expense).................. 48,137 (2,340) 21,309 (7,014) -------------- --------------- -------------- --------------- Total other income (expense).......... 61,936 (4,553) 38,066 (23,730) INCOME BEFORE PROVISION FOR INCOME TAXES.... 70,983 8,160 709,381 813,110 -------------- --------------- -------------- --------------- PROVISION FOR INCOME TAXES.................. 28,390 3,264 283,750 225,244 -------------- --------------- -------------- --------------- NET INCOME.................................. $ 42,593 $ 4,896 $ 425,631 $ 587,866 ============== =============== ============== =============== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Basic................................. $0.01 $0.00 $0.07 $0.10 ============== =============== ============== =============== Diluted............................... $0.01 $0.00 $0.07 $0.08 ============== =============== ============== =============== WEIGHTED AVERAGE NUMER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Basic................................. 5,931,308 6,087,474 5,991,058 6,092,891 ============== =============== ============== =============== Diluted............................... 5,973,496 7,103,797 6,011,397 7,411,585 ============== =============== ============== =============== DIVIDENDS NONE NONE NONE NONE
The accompanying notes are an integral part of the consolidated financial statements. 4 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Six Months Ended March 31, 2001 2000 --------- ---------- NET INCOME....................................... $425,631 $587,866 COMPREHENSIVE INCOME ADJUSTMENTS: Foreign currency translation................ --- 9,880 --------- ---------- COMPREHENSIVE INCOME............................. $425,631 $597,746 ========= ==========
5 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, --------------------------- 2001 2000 ------------ ----------- CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 425,631 $ 587,866 Adjustments to reconcile net income to net cash provided by (used in) continuing operations Amortization of deferred debt costs 3,054 27,295 Depreciation and amortization 65,464 50,513 Deferred taxes 283,750 225,244 Changes in assets and liabilities; Accounts Receivable 328,048 574,005 Inventories 8,855 (564,083) Prepaid expenses and other current assets (29,738) 135,261 Other assets 17,648 (18,760) Accounts Payable 116,181 (1,289,731) Accrued expenses and other current liabilities (248,174) (560,733) Accrued severance to officer -- (59,556) ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 970,719 (892,679) ----------- ----------- CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from notes and loans receivable 125,000 98,248 (Advances to) Proceeds from officer's loans - net 76,016 (93,486) Purchases of property, plant and equipment (38,206) (166,144) ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 162,810 (161,382) ----------- ----------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from (payments of) short term borrowings (350,000) 784,143 Principal payments on capital lease obligations (11,990) -- Purchase of treasury shares (326,186) (54,532) Deferred debt cost -- (9,161) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (688,176) 720,450 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES (8,799) 9,880 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 436,554 (323,731) CASH AND CASH EQUIVALENTS - beginning 840,532 1,210,762 ----------- ----------- CASH AND CASH EQUIVALENTS - ending $ 1,277,086 $ 887,031 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 10,009 $ 33,041 Income taxes $ 9,625 $ 30,937
The accompanying notes are an integral part of the consolidated financial statements. 6 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO FORM 10-QSB SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) 1. BASIS OF PRESENTATION The information in this Form 10-QSB includes the results of operations of Forward Industries, Inc. ("the Company") and its wholly-owned subsidiary, Koszegi Industries, Inc. ("Koszegi"), for the three and six month periods ended March 31, 2001 and 2000. The data is unaudited, but includes all adjustments including the elimination of intercompany accounts and transactions, which are, in the opinion of management, necessary for a fair presentation of the interim periods presented. The accounting policies utilized in the preparation of this Form 10-QSB are the same as those set forth in the Company's annual report on Form 10-KSB for the fiscal year ended September 30, 2000 and should be read in conjunction with the disclosures presented therein. Certain prior period balances have been reclassified to conform to the current period classification. This Quarterly Report contains forward-looking statements which involve certain risks and uncertainties. Important factors could arise, including those discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in this quarterly report on Form 10-QSB and those idenditified in "Risk Factors" in the Company's annual report on Form 10-KSB for the year ended September 30, 2000, which could cause the Company's future operating results to differ materially from those contained in any forward looking statement. 2. BORROWINGS UNDER CREDIT LINE The Company renewed its credit facility with a bank on March 31, 2001 for a period of one year. The credit facility, which provides for a maximum line of credit of $5.0 million including letters of credit, is renewable annually at the discretion of the bank and is securred by the Company's assets. There are no formulas or restrictive covenants associated with the credit facility. The Company is, however, required to eliminate borrowings for thirty (30) consecutive days each 12 month period and is required to maintain operating performance which is acceptable to the bank. The credit facility bears interest at the prime rate in effect from time-to-time plus one quarter of one percent per year. At March 31, 2001, there were no outstanding borrowings or other obligations under the credit facility. 3. INVENTORIES Inventories consist of the following:
MARCH 31, 2001 SEPTEMBER 30, 2000 -------------- ------------------ (Unaudited) Finished goods $ 836,215 $ 844,710 Raw materials and supplies 12,012 12,372 ----------- ----------- $ 848,227 $ 857,082 =========== ===========
7 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO FORM 10-QSB SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) 4. COMMITMENTS EMPLOYMENT CONTRACTS: Effective January 1, 2001 the Company entered into employment agrreements with three executive officers expiring at different times through December 31, 2004. Such agreements provide for minimum salary levels, incentive bonuses that are payable if specified management goals are attained and other benefits. The aggregate commitment for future salaries at March 31, 2001, excluding bonuses and other benefits, was approximately $1,400,000. Under certain conditions, as specified in the agreements, the executives may be permitted to terminate their respective agreements and receive a lump sum payment equivalent to their remaining base salary plus their prior year's bonus. ROYALTY PAYMENTS: The Company has licensed the use of certain trademarks of Motorola, Inc. ("Motorola") for products to be sold throughout Europe, the Middle East and Africa (the "EMEA Region") effective January 1, 2001. Under the terms of the license agreement, the Company is required to pay Motorola a royalty based upon a percentage of the Company's net sales to third parties of licensed products within the EMEA Region. The license requires the Company to make minimum royalty payments over three contract periods to Motorola as follows: o $2.4 million for the contract period of April 1, 2001 to June 30, 2002 o $3.0 million for the contract period of July 1, 2002 to June 30, 2003 o $4.5 million for the contract period of July 1, 2003 to June 30, 2004 If the Company elects to terminate the license prior to June 30, 2004, the Company would be required to pay the royalty due for the contract period in effect at the date of cancellation. As of March 31, 2001, the Company has not completed any sales of the licensed products within the EMEA region and therefore has not recognized any expense associated with the royalty. 8 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO FORM 10-QSB SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) 5. BUSINESS SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information" which establishes standards for reporting information about operating segments, and requires disclosures about products, geographic areas and major customers. The Company operates in a single segment providing carrying cases, clips and other carrying solutions for portable electronic devices. The Company designs and markets its products primarily to manufacturers of electronic devices such as wireless telecommunications, medical equipment and computer manufacturers. The Company's principal decision maker monitors Company performance by geographic locations. Geographic segments are determined based primarily on the location of the customer. Segment information is as follows:
(All amounts in thousands of dollars) Unaudited Unaudited ----------------------------------------------- Three Months Ended Six Months Ended March 31, March 31, ----------------------------------------------- SALES 2001 2000 2001 2000 ------------ ---------- --------- ---------- United States........ $ 1,205 $ 2,052 $ 2,815 $ 3,727 Europe............... 2,027 1,083 4,722 5,248 Other................ 15 43 21 66 ------------ -------- -------- --------- Total Sales......... $ 3,247 $ 3,178 $ 7,558 $ 9,041 ============ ======== ======== ========= OPERATING INCOME (LOSS) United States........ $ (115) $ 251 $ 101 $ 299 Europe............... 598 271 1,587 1,770 Other................ 4 9 3 10 Corporate Unallocated (478) (518) (1,020) (1,242) ------------ ------- -------- --------- Total operating income (loss) $ 9 $ 13 $ 671 $ 837 ============ ======= ======== ========= IDENTIFIABLE ASSETS: Identifiable assets by segment are as follows: (All amounts in thousands of dollars) March 31, September 30, --------------- ------------- 2001 2000 --------------- ------------- Unaudited United States............. $ 1,965 $ 1,805 Europe.................... 1,239 1,787 Other..................... 101 156 Unallocated Corporate..... 3,229 3,189 --------------- ------------- Total Assets............ $ 6,534 $ 6,937 =============== =============
9 FORWARD INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
Three Months Ended March 31, Six Months Ended March 31, --------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Numerator: Net income ................................................ $ 42,593 $ 4,896 $ 425,631 $ 587,866 Denominator: Denominator for basic earnings per share - weighted average shares .................................................... 5,931,308 6,087,474 5,991,058 6,092,891 Dilutive stock options and warrants - treasury stock method . 42,188 1,016,323 20,339 1,318,694 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share - weighted average 5,973,496 7,103,797 6,011,397 7,411,585 shares ========== ========== ========== ========== Net income per common share Basic ..................................................... $ 0.01 $ 0.00 $ 0.07 $ 0.10 ========== ========== ========== ========== Diluted ................................................... $ 0.01 $ 0.00 $ 0.07 $ 0.08 ========== ========== ========== ==========
10 PART I. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis should be read in conjunction with the Company's Financial Statements and the notes thereto appearing elsewhere in this Report. This Report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, (including those identified in "Risk Factors" in the Company's Form 10-KSB for the year ended September 30, 2000) and that actual results may differ materially from the statements that constitute forward-looking statements as a result of various factors. The following discussion and analysis compares the results of the Company's continuing operations for the Three and Six Months ended March 31, 2001, and the Three and Six Months ended March 31, 2000. OVERVIEW. The Company is a leading designer and supplier of carrying cases, clips and other carrying solutions for portable electronics, telecommunications and medical devices. As reported in its most recent annual report filed on Form 10-KSB, two customers accounted for approximately 65% of the Company's sales, and approximately 52% of the Company's total sales were derived from the European segment. The Company has adopted a strategy to diversify its customer base and expand its sales capabilities in Europe. Effective January 1, 2001, the Company entered into a licensing agreement with Motorola to distribute the Company's products throughout Europe, the Middle East and Africa (the "EMEA" region) using certain trademarks of Motorola. The Company believes that such agreement will increase sales, further diversify its customer base, expand its marketing capabilities, solidify its relationship with Motorola and develop a more complete distribution infrastructure to continue the Company's growth in the European segment. In addition to the royalty payments described herein, the Company expects that other operating expenses in future quarters will increase as the Company provides resources in support of the licensing agreement and further expands its European sales capabilities. To the extent such expenditures occur before the Company recognizes significant revenues from the sale of its licensed products, they may have an adverse material effect on the Company's results of operations. THREE MONTHS ENDED MARCH 31, 2001 (THE "2001 QUARTER") COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 (THE "2000 QUARTER") The 2001 Quarter produced net income of $42,600 compared to net income of $4,900 in the 2000 Quarter, an increase of $37,700. Basic and diluted earnings per share from continuing operations increased to $0.01 in the 2001 Quarter from $0.00 in the 2000 Quarter. REVENUES. Net sales increased by $69,500 (2%) to $3,247,400 in the 2001 Quarter, from $3,177,900 in the 2000 Quarter. European sales comprised the majority (62%) of overall sales and are expected to continue to be a majority of the Company's overall sales. OPERATING INCOME. Consolidated pretax income from continuing operations increased by $62,800, to a profit of $71,000 in the 2001 Quarter from $8,200 in the 2000 Quarter. Selling expenses increased $33,900 (7%) from $498,600 in the 2000 Quarter to $532,500 in the 2001 Quarter due primarily to increased salaries, and travel expenses, which were partially offset by lower bonus expenses. The ratio of selling expenses to net sales remained the same at 16%. Management expects selling expenses to increase significantly in future quarters due to royalty fees and other expenses related to the Company's plan to expand its European sales capabilities. Beginning with the Company's third fiscal quarter (April-June 2001), the Company expects to incur royalty fees of at least $480,000 per quarter, and plans to increase other expenditures to expand its European sales capabilities. General and administrative expenses decreased as a percentage of net sales to 15% in the 2001 Quarter from 16% in the 2000 Quarter and the dollar amount of expenses decreased $23,000 (4%) to $477,600 in the 2001 Quarter from $500,625 in the 2000 Quarter. The decrease is primarily related to lower personnel costs. Management expects that recurring general and administrative 11 expenses will increase in future quarters. The Company also expects to incur certain start-up costs in the third and fourth quarters of Fiscal 2001 associated with expanding its European operations. OTHER INCOME (DEDUCTIONS). Total interest expense decreased $23,700 to $3,100 in the 2001 Quarter from $26,800 in the 2000 Quarter. The lower interest expense was a result of decreased borrowings by the Company under its credit line. Interest income and other income-net increased $42,800 to $65,000 in the 2000 Quarter from the $22,200 in the 2000 Quarter. The increase is primarily related to the recovery of a receivable that had previously been written off. INCOME TAXES. The provision for income taxes increased by $25,100 to $28,400 due to the increase in pretax profits in the 2001 Quarter from the comparable period in the 2000 Quarter. The effective tax rates for the 2001 and 2000 Quarters were 40%. SIX MONTHS ENDED MARCH 31, 2001 (THE "2001 PERIOD") COMPARED TO SIX MONTHS ENDED MARCH 31, 2000 (THE "2000 PERIOD") Net income declined by $162,300 to $425,600 in the 2001 Period as compared to net income of $587,900 in the 2000 Period. Basic earnings per share from continued operations decreased to $.07 in the 2001 Period from $0.10 in the 2000 Period, while diluted earnings per share decreased to $.07 in the 2001 Period from $0.08 in the 2000 Period. REVENUES. Net sales fell $1,482,900 (16%) to $7,557,800 in the 2001 Period, from $9,040,700 in the 2000 Period. U.S. sales decreased approximately $912,000 and reflects an overall softening of demand for the Company's products while certain key U.S. customers balance their inventory levels. European sales declined approximately $526,000 due to a large order placed by the Company's largest customer in Europe in connection with a product launch in the first quarter of the 2000 Period. OPERATING INCOME. Consolidated pretax income from operations decreased by $103,800 to a profit of $709,400 in the 2001 Period from $813,100 in the 2000 Period. The decrease in absolute pretax income relates to decreases in revenues, described above, which was partially offset by improved gross margin percentage. The gross profit decreased $347,100 to $2,736,600 in the 2001 Period form $3,083,700 in the 2000 Period, while the gross margin percentage increased to 36% in the 2001 Period from 34% in the 2000 Period. The higher gross margin percentage is largely a result of reduced expenses because the Company closed its South Bend facilities and paid lower freight costs in the first quarter of 2001. Selling expenses increased $7,800 (2%) to $1,041,900 in the 2001 from $1,034,100 in the 2000 Period. The ratio of selling expenses to net sales increased to 11% from 14% due to the lower sales volume. General and administrative expenses decreased $189,400 (16%) to $1,023,400 in the 2001 period from $1,212,800 in the 2000 Period. The decrease is primarily related to bonuses that were accrued in the 2000 Period based on the Company's higher net income in accordance with its employment agreements. No such accrual has been made in the 2001 period as no bonuses have been earned. As a percentage of net sales general and administrative expenses remained at approximately 13% of sales due to the lower sales volume. OTHER INCOME (DEDUCTIONS). Total interest expense decreased by $50,800 to $13,100 in the 2001 Period from $63,900 in the 2000 Period. The decrease is a result of lower borrowings under the Company's credit line. Interest and other income-net increased $91,200 to $51,100 of income in the 2001 Period from a $40,100 expense in the 2000 Period. The increase is primarily related to the recovery of a receivable that had been previously written off as uncollectable. 12 INCOME TAXES. The provision for income taxes increased by $58,600 to $283,800 in the 2001 Period from $225,200 in the 2000 Period despite lower pre-tax profits in 2001 Period. The effective tax rates for the 2000 and 2001 Periods were 28% and 40%, respectively. The lower rate in the 2000 Period is the result of a reduction in the valuation allowance established for deferred taxes in the 2000 Period. LIQUIDITY AND CAPITAL RESOURCES. In the 2001 Period, $970,700 of cash was generated by operating activities. This source in operating funds resulted primarily from net income of $425,600, decreases in accounts receivable of $328,000 and increases in accounts payable of $116,200 and the add back of non-cash charges in the deferred tax account $238,800. Those increases were partially offset by payment of accrued expenses in the amount of $248,200. Net investing activities in the 2001 Period provided cash of $162,800. The Company collected $125,000 of notes receivable, which arose from the sale of its discontinued operations in 1997 and 76,000 in loans to officers. The Company expended $38,200 for new assets. Financing activities in the 2001 Period used cash of $688,200. Funds were used to pay off the Company's credit line in the amount of $350,000 and make $12,000 in payments on capital lease obligations. Additionally, the Company completed its previously announced stock buyback program and purchased 258,500 shares of its common stock in open market transactions for $326,200. The Company renewed its credit facility with its bank on March 31, 2001 for a period of one year. The credit facility, which provides for a maximum line of credit of $5.0 million including letters of credit, is renewable annually at the discretion of the bank and is securred by substantially all of the Company's assets. There are no formulas or restrictive covenants associated with the credit facility. The Company is, however, required to eliminate borrowings for thirty (30) consecutive days and is required to maintain normal operating performance which is acceptable to the bank. The credit facility bears interest at the prime rate in effect from time-to-time plus one quarter of one percent. At March 31, 2001, there were no outstanding borrowings or other obligations under the credit facitily. In connection with the Company's consolidation of its offices from New York and South Bend, Indiana, to Pompano Beach, Florida in July of 2000, land and a building owned by the Company in South Bend, became available for sale. Current market comparisons indicate that the fair market value is equal to, or greater than, the net book value of $179,500. In connection with its restructuring during fiscal 1998, the Company hired a new Chief Executive Officer and received the resignation of Mr. Theodore H. Schiffman, its co-founder and former Chief Executive Officer. Mr. Schiffman received a five-year consulting arrangement with annual consulting payments of $200,000 per year and a severance package totaling $350,000, of which $200,000 was paid on January 1, 1999, and the remainder paid in varying amounts and dates through April 15, 2000. Such amounts were paid out of the Company's existing cash position or from internally generated funds. Effective January, 1, 2001, the Company entered into employment agreements with three of its executive officers expiring at different times through December 31, 2004. Such agreements provide for minimum salary levels, incentive bonuses that are payable if specified management goals are attained and other benefits. The aggregate commitment for future salaries at March 31, 2001, excluding bonuses and other benefits, was approximately $1,400,000. Under certain conditions, as defined in the agreements, the executives may be permitted to terminate their respective agreements and receive a lump sum payment equivelent to their remaining base salary plus their prior year's bonus. Effective January 1, 2001, the Company entered into a license agreement whereby the Company may use certain trademarks of Motorola on its products for sale to third parties in the Europe, Middle East and Africa ("EMEA") regions. The license requires the Company to pay Motorola a royalty based upon a percentage of its net sales of the licensed products to third parties within the EMEA Region. The license further stipulates that the minimum levels of royalty payments are as follows: o $2.4 million during the period of April 1, 2001 to June 30, 2002 (5 quarters) o $3.0 million during the period of July 1, 2002 to June 30, 2003 o $4.5 million during the period of July 1, 2003 to June 30, 2004. 13 If the Company elects to terminate the license prior to June 30, 2004 then the Company would be required to pay the royalty due for that contract period. Motorola has not guaranteed a minimum amount of revenues the Company will receive from the sale of the licensed products, and the Company can not guarantee that it will generate sufficient revenues to recoup the minimum royalty payments that the Company is obligated to pay to Motorola. The failure to do so could have a material adverse affect on the Company's results of operations. The Company did not incur any other long-term debt in the 2001 Quarter. At March 31, 2001, there was no long-term debt other than capital lease obligations and all installment notes and capital lease payments were made on a timely basis. DEFERRED INCOME TAXES. The Company's balance sheet at March 31, 2001 includes $1,060,300 of deferred income taxes as an asset. The Company was profitable in the 2000 Period and, in fiscal year 1999 and in fiscal year 1998 before restructuring charges associated with the non-recurring costs of the shutdown of its South Bend plant. However, to the extent that the Company's operations may not be profitable in future periods, the Company would not be able to realize the benefit of its deferred tax assets. Without such deferred tax assets, at March 31, 2001, the Company's stockholder's equity at such date of $5,252,900 would have been reduced by $1,060,300 to a stockholder's equity of $4,192,600 and the Company's working capital at March 31, 2001 would have been reduced by $135,000 from $3,569,400 to $3,434,400. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION EXECUTIVE EMPLOYMENT AGREEMENTS Effective January 1, 2001, the Company entered into a new employment agreement with Mr. Jerome Ball, pursuant to which Mr. Ball is employed as the Chairman and Chief Executive Officer for a period of two years. At the end of the initial two-year period, the agreement may be renewed for an additional two years at Mr. Ball's discretion provided he is in compliance with the terms of the agreement. The agreement provides for an annual salary of $162,000 plus an annual bonus equal to ten percent (10%) of the Company's consolidated pre-tax operating profit (before other bonuses and certain other stock related compensation expenses) in excess of $675,000. In view of the Mr. Ball's relocation from New York to Florida, as a result of the Company's move, the Company has agreed to assume Mr. Ball's lease with respect to an apartment in New York City with annual lease payments totaling approximately $63,000. In conjunction with entering into the agreement, Mr. Ball was awarded options to acquire 250,000 shares of the Company's common stock at an exercise price of $2.00 per share which vest on January 1, 2005. Such options are subject to immediate vesting in the event the Company's stock price averages $3.50 per share for 180 consecutive days. Effective January 1, 2001, the Company entered into a new employment agreement with Mr. Michael Schiffman, pursuant to which Mr. Schiffman is employed as the President and Chief Operating Officer for a period of three years. The agreement is thereafter automatically renewed annually for sucessive one-year terms unless either party provides 120 days prior notice of its intent to cancel the agreement. The agreement provides for an annual salary of $300,000 plus an annual bonus equal to ten percent (10%) of the pre-tax operating profit (before other bonuses and certain other stock related compensation expenses) in excess of $675,000. In conjunction with entering into the new agreement the Company replaced or issued the following options to purchase the Company's common stock: A. cancelled 300,000 options at $2.00 expiring 11/15/01 and reissued them at $2.00 with a new expiration date of 1/1/06; B. cancelled 300,000 options at $3.25 expiring 9/2/04 and reissued them at $3.25 vesting on 1/1/05 but subject to immediate vesting in the event the Company's stock price exceeds $3.50 per share for 180 consectuive days; C. issued 200,000 options at $2.50 per share vesting on 1/1/05 but subject to immediate vesting in the event the Company's stock price exceeds $5.00 per share for 180 consectuive days; and D. reissued 150,000 options at $1.50 which previously expired on 11/30/00 with a new expiration date of 1/1/06. 15 ITEM 5. OTHER INFORMATION EXECUTIVE EMPLOYMENT AGREEMENTS (CONTINUED) If Mr. Schiffman dies during the term of his agreement and if the Company is the recipient of at least $1,000,000 of proceeds of insurance on his life, the Company will pay to his widow, or if his wife predeceases him, his estate, a monthly death benefit of $5,500 for a ten-year period. If the Company is not the recipient of at least $1,000,000 of insurance, the monthly death benefit of $5,500 will be paid for a period of three years, followed by a monthly death benefit of $2,750 for seven years; if his widow dies prior to the end of such ten year period, such payments will be made to the widow's estate. The Company is presently not the beneficiary of any life insurance with respect to Mr. Schiffman. Effective January 1, 2001, the Company entered into an employment agreement with Mr. Douglas Sabra pursuant to which Mr. Sabra is employed as the Company's Chief Financial Officer for a period of three years. The agreement is thereafter automatically renewed annually for sucessive one-year terms unless either party provides 120 days prior notice of its intent to cancel the agreement. The agreement provides for an annual salary of $120,000 subject to annual increases as agreed to by the Company's compensation committee. Aditionally, Mr. Sabra is entitled for a bonus of up to 50 percent of his annual salary as determined by the Chief Executive Officer. In conjunction with the agreement Mr. Sabra was awarded options to acquire 75,000 shares of the Company's commmon stock at an exercise price of $2.00 which vest on January 1, 2005. Such options are subject to immediate vesting in the event the Company's stock price averages $3.50 per share for 180 consecutive days. Each of the executive employment agreements of Mssrs. Ball, Schiffman and Sabra contain provisions that permit them to terminate their agreements for "good reason" including, but not limited to; a change-in-control as defined in the agreements, diminishment of duties or transfer of substantially all of the company assets. Upon such termination the executive may be entitled to be paid a lump sum severance equal to their base salary through the remainder of their contract plus an amount equal to the executive's last annual bonus. MOTOROLA LICENSE AGREEMENT The Company has licensed the use of certain trademarks of Motorola, Inc. ("Motorola") for products to be sold throughout Europe, the Middle East and Africa (the "EMEA Region") effective January 1, 2001. Under the terms of the license agreement, the Company is required to pay Motorola a royalty based upon a percentage of the Company's net sales to third parties of licensed products within the EMEA Region. The license requires minimum royalty payments over three contract periods as follows: o $2.4 million during the period of April 1, 2001 to June 30, 2002 (5 quarters) o $3.0 million during the period of July 1, 2002 to June 30, 2003 o $4.5 million during the period of July 1, 2003 to June 30, 2004. If the Company elects to terminate the license prior to June 30, 2004, the Company would be required to pay the royalty due for the contract period in effect at the date of cancellation. Motorola has not guaranteed a minimum amount of revenues the Company will receive from the sale of the licensed products and the Company can not guarantee that it will generate sufficient revenues to recover the minimum royalty payments that the Company is obliged to pay to Motorola. The failure to do so could have a material adverse effect on the Company's results of operations. ITEM 6. EXHIBITS AND REPORTS (a) Exhibits filed herewith: 10.1 Employment Agreement between Forward Industries Inc. and Jerome E. Ball effective January 1, 2001. 10.2 Letter agreement dated January 30, 2001 between Forward Industries Inc. and Jerome E. Ball; with respect to an apartment located at 300 East 56th Street New York, NY. 10.3 Employment Agreement between Forward Industries Inc. and Michael M. Schiffman effective January 1, 2001. 10.4 Exhibit A to Employment Agreement between Forward Industries Inc. and Michael M. Schiffman. 16 10.5 Employment Agreement between Forward Industries Inc. and Douglas W. Sabra effective January 1, 2001. 11.0 Computation of Earnings Per Share (b) Reports on Form 8-K None. SIGNATURE In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: April 30, 2001 FORWARD INDUSTRIES, INC. (Registrant) By: /s/ Douglas W. Sabra ----------------------------- Douglas W. Sabra Chief Financial Officer 17 EX-10.1 2 a2047275zex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 EMPLOYMENT AGREEMENT AGREEMENT effective as of January 1, 2001 between Forward Industries, Inc., a New York corporation with offices at 1801 Green Road, Suite E, Pompano Beach, Florida 33064 (the "Company"), and Jerome E. Ball residing at 20583 Links Circle, Boca Raton, Florida 33434 ("Executive"). W I T N E S S E T H: WHEREAS, Executive has been rendering services to the Company pursuant to an employment agreement effective as of October1, 1998 (the "Prior Agreement"). WHEREAS, Executive has been performing services under the terms and conditions of the Prior Agreement through the Effective Date as requested by the Company's Board of Directors. WHEREAS, the Company desires to terminate the Prior Agreement and employ Executive to perform senior executive and other services for the Company, and Executive desires to accept such employment, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which the parties acknowledge, the parties agree as follows: TERMINATION OF PRIOR AGREEMENT The Prior Agreement is hereby terminated and shall be of no further force and effect, and the terms and conditions of this Agreement supersede the terms and conditions of the Prior Agreement. The Company has no remaining obligations under the Prior Agreement. 1. EMPLOYMENT TERM Unless terminated at an earlier date pursuant to the terms of this Agreement, the term of employment hereunder (the "Employment Term") shall be two (2) years, commencing on the date hereof (the "Commencement Date"). Executive shall have the option to renew the Employment Term for an additional two (2) year term provided that at such time, Executive is in compliance with the terms hereof. 2. SERVICES a. The Company hereby employs Executive for the term of this Agreement and Executive hereby accepts such employment as the Chairman and Chief Executive Officer of the Company on the terms and conditions set forth in this Agreement. Executive shall perform such duties of a senior executive nature for the Company, as shall be consistent with the provisions of the Company's By-laws in effect on the date hereof, subject to the direction of the Board of Directors of the Company (the "Board"). Executive shall serve the Company faithfully and to the best of his ability and shall devote his full business time and attention to the affairs of the Company, subject to reasonable absences for vacation and illness as determined by the Board. b. The headquarters for the performance of Executive's services during the term of this Agreement shall be the principal executive offices of the Company in Pompano Beach, Florida, unless otherwise agreed by the Company and Executive and subject to such reasonable travel in the performance of Executive's duties as the business of the Company may require. 3. COMPENSATION AND EXPENSE REIMBURSEMENT a. SALARY. Executive shall be entitled to receive for all services rendered by Executive in any capacity, an annual salary at the rate of $162,000 (payable in equal installments -2- in accordance with the then prevailing practices of the Company, but in no event less frequently than monthly), subject to adjustment upon terms agreed upon by the Company and Executive. b. BONUS. The Executive shall receive a bonus with respect to each full fiscal year ended during the Employment Term equal to ten percent (10%) of the Pre-Tax Operating Profit (if any) of the Company above $675,000 (before bonuses paid to all sales and administrative executives and without deduction for any compensation expense incurred by the Company in connection with any stock option grants) as shown in or derived from its audited financial statements for each such fiscal year. For purposes hereof, "Pre-Tax Operating Profit" shall mean net profit before taxes and bonuses and after the payment of corporate interest. c. Expenses. Executive will be reimbursed for all reasonable and necessary expenses incurred by Executive in carrying out the duties contemplated under this Agreement, in accordance with then prevailing Company procedure, as such practices may be changed from time to time by the Board. Executive shall be reimbursed for such expenses upon submission of appropriate documentation. In addition, the Company shall reimburse the Executive for, or pay for, the expenses for leasing an automobile and parking not to exceed $1,000 per month. d. STOCK OPTIONS. The Company hereby grants Executive options under the Plan to purchase 250,000 shares of the Company's Common Stock at an exercise price of $2.00 per share with a date of grant of January 1, 2001. Such options shall vest upon the four-year anniversary of the date of grant; provided, however, that all such options shall immediately vest in the event that the Company's Common Stock price averages $3.50 per share for 180 consecutive days (not less than 90 days of which shall be during the Employment Term), based upon the average reported closing sale prices for the Company's Common Stock on the Nasdaq Smallcap Market. Such options shall expire five (5) years following the date of grant. If this -3- Agreement is terminated prior to the end of the Employment Term, such options shall expire one year after the date of such termination. Nothing contained herein shall affect the stock options granted to Executive under Section 3.B of the Prior Agreement. Executive acknowledges that Section 3.D of the Prior Agreement is hereby superseded in its entirety. e. BENEFITS. Executive shall be entitled to participate in all group health and other insurance programs and all other fringe benefit or retirement plans (including any 401(k) plan) or other compensatory plans which the Company may hereafter elect to make available to its executives generally on terms no less favorable than those provided to other executives generally, provided Executive meets the qualifications therefor, but the Company shall not be required to establish any such program or plan. In addition, the Board of Directors may, from time to time, pay or provide for Executive such other benefits as it may, in its sole discretion, determine. f. BOARD OF DIRECTORS. The Executive shall serve on the Company's Board of Directors as Chairman for the Employment Term. 4. TERMINATION FOR CAUSE In the event of: (a) fraud against the Company, conviction of a felony, the intentional disclosure of confidential information (unless required by applicable law or court or other order), aiding a competitor to the detriment of the Company, its subsidiaries or affiliates, intentionally engaging in conduct which brings disrepute or otherwise is materially damaging to the reputation of the Company, its subsidiaries or affiliates, performing competitive services or acting in a competitive capacity for any other person, firm or corporation without the prior written consent of the Company; or (b) willful misconduct, gross negligence, prolonged and unexcused absenteeism by Executive in connection with Executive's employment hereunder, or -4- Executive's willful or intentional failure to implement the reasonable business requests or directions of the Board, the Company shall have the right to give Executive a termination notice, specifying the nature of the breach or failure. If such termination notice is given pursuant to clause (a) above, the Employment Term shall terminate upon the giving of such notice. If such termination notice is given pursuant to clause (b) above, the Employment Term shall terminate thirty (30) days after the giving of such notice if the circumstances described in such notice have not been remedied by Executive within such thirty (30)-day period. Upon the termination of the Employment Term pursuant to this Paragraph 4, all provisions of this Agreement shall terminate except for the provisions of Paragraphs 8 and 9. Upon the effective date of termination of the Employment Term, the Company shall have no further obligation to Executive hereunder, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans including any stock options vested through the date of termination. 5. TERMINATION BY EXECUTIVE FOR GOOD REASON a. In the event of a Change of Control (as hereinafter defined), Executive shall have the right to terminate his employment under this Agreement for Good Reason (as hereinafter defined) upon prior written notice to the Company, in which case this Agreement shall terminate on the date specified in such notice; provided that in the case of paragraph (i) of this Section 5, the date of termination specified in such notice shall be at least thirty (30) days after the delivery of such notice, subject to the Company's right as provided below to remedy the event giving rise to the termination prior to the date of termination specified in such notice. In the event of any termination of employment by the Executive for Good Reason, the Executive shall have no further obligations under this Agreement other than the obligations provided for in -5- Section 8 and 9 hereof, and the Company shall have no further obligations under this Agreement, except to pay to Executive all unreimbursed business-related expenses and lump sum severance within thirty (30) days following termination under this Section 5 in an amount equal to his base salary under Section 3a. hereof through September 30, 2002 and the last annual bonus paid to Executive under Section 3b. hereof. For purposes of this Agreement, the term "Good Reason" shall mean: (i) the assignment to Executive of any duties inconsistent in any material respect with Executive's positions (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2 of this Agreement or any other action by the Company which results in a material diminishment in such positions, authority, duties or responsibilities, other than action or inaction which is remedied by the Company prior to the date of termination specified in the written notice from Executive; or (ii) transfer by the Company of all or substantially all of its assets to a Successor (as defined in Section 11b. hereof) without such Successor having expressly assumed this Agreement as provided in Section 11b. hereof. b. For purposes of this Agreement, a "Change in Control" means the occurrence of any one of the following events: (a) any person or other entity, including any person as defined in Section 13(d)(3) of the Exchange Act, becoming the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of more than fifty (50%) of the total combined voting power of all classes of capital stock of the Company ordinarily entitled to vote for the election of directors of the Company, (b) the Board of Directors of the Company approving the sale of all or substantially all of the property or assets of the Company, (c) the Board of Directors of the Company approving a consolidation or merger of the Company with -6- another corporation (other than in which the Company is the surviving corporation), the consummation of which would result in the occurrence of an event described in clause (a) above, or (d) a change in the Board of Directors of the Company occurring with the result that the members of the Board of Directors of the Company on the date hereof no longer constitute a majority of such Board of Directors. 6. ILLNESS OR INCAPACITY In the event of any disability, illness or other incapacity which prevents Executive from performing services as contemplated herein, the obligation of the Company to pay compensation to Executive shall be reduced to the extent of any amount received by Executive pursuant to any disability insurance policy maintained and paid for by the Company. If Executive shall be incapacitated for more than 120 consecutive days or 180 days in any consecutive 12-month period, the Company shall have the right to terminate this Agreement upon 10 days' prior written notice with no further liability, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans including any stock options vested through the date of such termination, provided that such termination shall not prejudice any rights of Executive under any disability policies being maintained by the Company for Executive under the terms of this Agreement. Notwithstanding any such termination, the provisions of Paragraphs 8 and 9 will continue to apply. 7. DEATH This Agreement shall terminate automatically upon the death of Executive. In such event, the Company shall pay the estate of Executive, in addition to any amounts to which Executive's estate would otherwise be entitled under the Company's retirement plans and group -7- life insurance policy, within 30 (thirty) days after the date of death, all compensation earned under Paragraph 3 through the date of death. 8. NON-COMPETITION AND TRADE SECRETS a. CONFIDENTIALITY AND WORK PRODUCT. During the term of this Agreement and thereafter without limitation of time, Executive shall not knowingly divulge, furnish, or make available to any third person, company, corporation or other organization (including but not limited to customers, competitors or government officials), except in the course of performing his duties as an Executive hereunder or with the Company's prior written consent, trade secrets or other confidential information concerning the Company, its subsidiaries or affiliates or the business of any of the foregoing, including without limitation, confidential methods of operation and organization and confidential sources of supply and customer lists, but Executive may make disclosures as required by applicable law or orders without prior written notice to the Company. For purposes of this Paragraph 8, information shall not be deemed confidential if it (i) is within the public domain, or (ii) becomes publicly known other than through disclosure by Executive in violation of this provision. b. NON-COMPETITION. During the Employment Term and for a period of one (1) year thereafter, Executive agrees not to directly or indirectly, own, control, manage, operate, participate or invest in, including, but not limited to, as an officer, director, shareholder, employee, consultant, agent, or otherwise be connected with, in any manner, any business, enterprise or venture which is engaged in the business of manufacturing and/or distributing of carrying cases supplied to the cellular telephone, home medical equipment, laptop computer, photography, video or audio industries and any other business engaged in by the Company during the Employment Term, except that nothing in this subparagraph shall be deemed to -8- prohibit Executive from the acquisition or holding of, solely as a passive stockholder, not more than one percent (1%) of the shares or other securities of a publicly-owned corporation if such securities are traded on a national securities exchange or over the counter. c. SOLICITATION. During the Employment Term and for a period of one (1) year thereafter, Executive agrees not to directly or indirectly solicit, employ or retain or arrange to have any other person, firm or other entity solicit, employ, retain, or otherwise participate in the employment or retention of, any person who is then, or who has been, within the preceding six (6) months, an employee, technician or engineer of the Company, its subsidiaries or affiliates. d. In the event Executive shall violate any provisions of this Paragraph 8 (which provisions Executive hereby acknowledges are reasonable and equitable), Executive shall no longer be entitled to and hereby waives any and all rights to any termination payment under this Agreement. 9. SEPARABILITY Executive agrees that the provisions of Paragraph 8 hereof constitute independent and separable covenants, for which Executive is receiving consideration which shall survive the termination of employment and which shall be enforceable by the Company notwithstanding any rights or remedies the Company may have under any other provision hereof. 10. SPECIFIC PERFORMANCE Executive acknowledges that: (i) the services to be rendered under the provisions of this Agreement are of a special character and it would be difficult to replace such services; -9- (ii) the Company is relying on the covenants contained herein, including, without limitation, those contained in Paragraph 8 above, as a material inducement for entering into this Agreement; (iii) the Company may be damaged if the provisions hereof are not specifically enforced; and (iv) the award of monetary damages may not adequately protect the Company in the event of a breach hereof by Executive. By virtue thereof, Executive agrees and consents that if Executive breaches any of the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or otherwise, shall (without any bond or other security being required and without the necessity of proving monetary damages) be entitled to a temporary and/or permanent injunction to be issued by a court of competent jurisdiction restraining Executive from committing or continuing any violation of this Agreement, or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be in addition to any other remedy which that the Company may have. 11. MISCELLANEOUS a. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire employment agreement between the parties and may not be modified, amended or terminated (other than pursuant to the terms hereof) except by a written instrument executed by the parties hereto. All other agreements between the parties pertaining to the employment or remuneration of Executive not specifically contemplated hereby or incorporated or merged herein are terminated and shall be of no further force or effect. -10- b. ASSIGNMENT; SUCCESSORS. This Agreement is not assignable by Executive without the prior written consent of the Company and any purported assignment by Executive of Executive's rights and/or obligations under this Agreement shall be null and void. Except as provided below, this Agreement may be assigned by the Company at any time, upon delivery of written notice to Executive (with Executive's consent, not to be unreasonably withheld), to any successor to the business of the Company, or to any subsidiaries or affiliates of the Company. In the event that Executive does not consent to the assignment of this Agreement, the Company shall have the right, provided it is otherwise in compliance with this Agreement, to terminate this Agreement automatically with no further liability, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans, including any stock options vested through the date of termination. In the event that another corporation or other business entity becomes a Successor of the Company, then this Agreement may not be assigned to such Successor unless the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had been no Successor. The term "Successor" shall mean any corporation or other business entity which succeeds to substantially all of the assets or conducts the business of the Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise. c. WAIVERS, ETC. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. The failure of any party to insist upon strict adherence to any term of this Agreement on any occasion shall not operate or be -11- construed as a waiver of the right to insist upon strict adherence to that term or any other term of this Agreement on that or any other occasion. d. PROVISIONS OVERLY BROAD. In the event that any term or provision of this Agreement shall be deemed by a court of competent jurisdiction to be overly broad in scope, duration or area of applicability, the court considering the same shall have the power and hereby is authorized and directed to modify such term or provision to limit such scope, duration or area, or all of them, so that such term or provision is no longer overly broad and to enforce the same as so limited. Subject to the foregoing sentence, in the event that any provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement. e. NOTICES. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given on the date of delivery or, if mailed by certified mail, postage prepaid, return receipt requested, documented overnight courier, or by facsimile transmission, on the date mailed or transmitted. (i) If to Executive to: Jerome Ball at his address set forth in the preamble to this Agreement (ii) If to the Company to: the address set forth in the preamble to this Agreement Attention: President with a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 -12- Attention: Jeffrey W. Rubin, Esq. Telecopy: (212) 697-6686 F. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK GOVERNING CONTRACTS MADE AND TO BE PERFORMED IN NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. g. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. h. This Agreement may be executed in counterparts, each of which shall be deemed an original, and each party may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE FORWARD INDUSTRIES, INC. /s/ By: /s/ - ------------------------------ ----------------------------- Jerome Ball Name: Michael Schiffman Title:President -13- EX-10.2 3 a2047275zex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 Forward Industries, Inc. 1801 Green Road, Suite E Pompano Beach, Florida 33064 January 30, 2001 Mr. Jerome E. Ball 20583 Links Circle Boca Raton, Florida 33434 Dear Jerry: In view of the relocation of the Company's principal executive offices to Florida, and the Company's desire to maintain an apartment for use in connection with Company business in the New York area, this letter will confirm our understanding that as of January 1, 2001 you shall assign to the Company and the Company will assume and agree to pay directly all of your obligations as the tenant under that certain lease with Glenwood Management (the "Landlord") of real property located at 300 East 56th Street, Apt. 18J, New York, New York (the "Lease"); provided, however that the security deposit (the "Security Deposit") paid by you under the Lease shall remain with the Landlord for the benefit of the Company. Upon the earlier of termination of the Lease or termination of your employment by the Company, the Company shall pay to you the Security Deposit. In addition, you will provide a guarantee of the Company's obligation under the Lease as requested by the Landlord. For so long as the Company is the assignee under the Lease, the leased premises will be available for use by you on a first-priority basis when traveling to the New York area on Company business and to meet with the Company's accountants and legal counsel, both of whom are located in New York. If the foregoing correctly reflects your understanding with respect to the Lease, please sign in the space indicated below. Very truly yours, FORWARD INDUSTRIES, INC. By:/s/______________________ ACCEPTED AND AGREED: Michael M. Schiffmann President /s/__________________________ Jerome E. Ball EX-10.3 4 a2047275zex-10_3.txt EXHIBIT 10.3 Exhibit 10.3 EMPLOYMENT AGREEMENT AGREEMENT effective as of January 1, 2001 between Forward Industries, Inc., a New York corporation with offices at 1801 Green Road, Suite E, Pompano Beach, Florida 33064 (the "Company"), and Michael Schiffman residing at 7921 Tennyson Court, Boca Raton, Florida 33433 ("Executive"). W I T N E S S E T H: WHEREAS, Executive has been rendering services to the Company pursuant to an employment agreement effective as of October 1, 1998 (the "Prior Agreement"). WHEREAS, the Company desires to terminate the Prior Agreement and employ Executive to perform senior executive and other services for the Company, and Executive desires to accept such employment, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which the parties acknowledge, the parties agree as follows: TERMINATION OF PRIOR AGREEMENT The Prior Agreement is hereby terminated and shall be of no further force and effect, and the terms and conditions of this Agreement supersede the terms and conditions of the Prior Agreement. The Company has no remaining obligations under the Prior Agreement. EMPLOYMENT AND DUTIES The Company hereby employs Executive for the term of this Agreement and Executive hereby accepts such employment as the President and Chief Operating Officer, [and upon the termination or resignation of Jerome Ball, the Chief Executive Officer,] of the Company on the terms and conditions set forth in this Agreement. JANUARY 30, 2001 1. EMPLOYMENT TERM Unless terminated at an earlier date pursuant to the terms of this Agreement, the term of employment hereunder (the "Employment Term") shall be three (3) years, commencing on the date hereof (the "Commencement Date"). This Agreement shall be automatically renewed for successive one-year terms unless either party provides written notice to the other party of its or his desire not to renew within 120 days prior to the expiration of the initial term or any renewal term, as the case maybe. 2. SERVICES a. Executive shall perform such duties of a senior executive nature for the Company, as shall be consistent with the provisions of the Company's By-laws in effect on the date hereof, subject to the direction of the Board of Directors of the Company (the "Board"). Executive shall serve the Company faithfully and to the best of his ability and shall devote his full business time and attention to the affairs of the Company, subject to reasonable absences for vacation and illness as determined by the Board. b. The headquarters for the performance of Executive's services during the term of this Agreement shall be the principal executive offices of the Company in Pompano Beach, Florida, unless otherwise agreed by the Company and Executive and subject to such reasonable travel in the performance of Executive's duties as the business of the Company may require. 3. Compensation and Expense Reimbursement a. SALARY. Executive shall be entitled to receive for all services rendered by Executive in any capacity, an annual salary at the rate of $300,000 (payable in equal installments -2- JANUARY 30, 2001 in accordance with the then prevailing practices of the Company, but in no event less frequently than monthly), subject to adjustment upon terms agreed upon by the Company and Executive. b. SALARY. The Executive shall receive a bonus with respect to each full fiscal year ended during the Employment Term equal to ten percent (10%) of the Pre-tax Operating Profit (if any) of the Company above $675,000 (before bonuses paid to all sales and administrative executives and without deduction for any compensation expense incurred by the Company in connection with any stock option grants) as shown in or derived from its audited financial statements for each such fiscal year. For purposes hereof, "Pre-Tax Operating Profit" shall mean net profit before taxes and bonuses and after the payment of corporate interest. c. EXPENSES. Executive will be reimbursed for all reasonable and necessary expenses incurred by Executive in carrying out the duties contemplated under this Agreement, in accordance with then prevailing Company procedure, as such practices may be changed from time to time by the Board. d. STOCK OPTIONS. The Company shall grant to the Executive stock options in accordance with the terms of a side letter between the Company and Executive in substantially the form annexed hereto as Exhibit A. e. BENEFITS. Executive shall be entitled to participate in all group health and other insurance programs and all other fringe benefit or retirement plans (including any 401(k) plan) or other compensatory plans which the Company may hereafter elect to make available to its \executives generally on terms no less favorable than those provided to other executives generally, provided Executive meets the qualifications therefor, but the Company shall not be required to establish any such program or plan, except as provided in this Paragraph 3. -3- JANUARY 30, 2001 f. BOARD OF DIRECTORS. The Executive shall serve on the Company's Board of Directors for the Employment Term. 4. TERMINATION FOR CAUSE In the event of: (a) fraud against the Company, conviction of a felony, the intentional disclosure of confidential information (unless required by applicable law or court or other order), aiding a competitor to the detriment of the Company, its subsidiaries or affiliates, intentionally engaging in conduct which brings disrepute or otherwise is damaging to the reputation of the Company, its subsidiaries or affiliates, performing competitive services or acting in a competitive capacity for any other person, firm or corporation without the prior written consent of the Company; or (b) willful misconduct, gross negligence, prolonged and unexcused absenteeism by Executive in connection with Executive's employment hereunder, or Executive's willful or intentional failure to implement the reasonable business requests or directions of the Board, the Company shall have the right to give Executive a termination notice, specifying the nature of the breach or failure. If such termination notice is given pursuant to clause (a) above, the Employment Term shall terminate upon the giving of such notice. If such termination notice is given pursuant to clause (b) above, the Employment Term shall terminate thirty (30) days after the giving of such notice if the circumstances described in such notice have not been remedied by Executive within such thirty (30)-day period. Upon the termination of the Employment Term pursuant to this Paragraph 4, all provisions of this Agreement shall terminate except for the provisions of Paragraphs 8 and 9. Upon the effective date of termination of the Employment Term, the Company shall have no further obligation to Executive hereunder, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the -4- JANUARY 30, 2001 Company and its employee benefit plans, including any stock options vested through the date of termination. 5. TERMINATION BY EXECUTIVE FOR GOOD REASON a. In the event of a Change of Control (as hereinafter defined), Executive shall have the right to terminate his employment under this Agreement for Good Reason (as hereinafter defined) upon prior written notice to the Company, in which case this Agreement shall terminate on the date specified in such notice; provided that in the case of paragraph (i) or (ii) of this Section 5, the date of termination specified in such notice shall be at least thirty (30) days after the delivery of such notice, subject to the Company's right as provided below to remedy the event giving rise to the termination prior to the date of termination specified in such notice. In the event of any termination of employment by the Executive for Good Reason, the Executive shall have no further obligations under this Agreement other than the obligations provided for in Section 8 and 9 hereof, and the Company shall have no further obligations under this Agreement, except to pay to Executive all unreimbursed business-related expenses and lump sum severance within thirty (30) days following termination under this Section 5 in an amount equal to his base salary under Section 3a. hereof through September 30, 2003 and the last annual bonus paid to Executive under Section 3b. hereof. For purposes of this Agreement, the term "Good Reason" shall mean: (i) the assignment to Executive of any duties inconsistent in any material respect with Executive's positions (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2 of this Agreement or any other action by the Company which results in a material diminishment in such -5- JANUARY 30, 2001 positions, authority, duties or responsibilities, other than action or inaction which is remedied by the Company prior to the date of termination specified in the written notice from Executive; or (ii) the Executive shall cease to be the highest ranking officer of the Company other than Jerome Ball; (iii) transfer by the Company of all or substantially all of its assets to a Successor (as defined in Section 11b. hereof) without such Successor having expressly assumed this Agreement as provided in Section 11b. hereof. b. For purposes of this Agreement, a "Change in Control" means the occurrence of any one of the following events: (a) any person or other entity, including any person as defined in Section 13(d)(3) of the Exchange Act, becoming the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of more than fifty (50%) of the total combined voting power of all classes of capital stock of the Company ordinarily entitled to vote for the election of directors of the Company, (b) the Board of Directors of the Company approving the sale of all or substantially all of the property or assets of the Company, (c) the Board of Directors of the Company approving a consolidation or merger of the Company with another corporation (other than in which the Company is the surviving corporation), the consummation of which would result in the occurrence of an event described in clause (a) above, or (d) a change in the Board of Directors of the Company occurring with the result that the members of the Board of Directors of the Company on the date hereof no longer constitute a majority of such Board of Directors. 6. ILLNESS OR INCAPACITY In the event of any disability, illness or other incapacity which prevents Executive from performing services as contemplated herein, the obligation of the Company to pay -6- JANUARY 30, 2001 compensation to Executive shall be reduced to the extent of any amount received by Executive pursuant to any disability insurance policy maintained and paid for by the Company. If Executive shall be incapacitated for more than 120 consecutive days or 180 days in any consecutive 12-month period, the Company shall have the right to terminate this Agreement upon 10 days' prior written notice with no further liability, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans including any stock options vested through the date of such termination, provided that such termination shall not prejudice any rights of Executive under any disability policies being maintained by the Company for Executive under the terms of this Agreement. Notwithstanding any such termination, the provisions of Paragraphs 8 and 9 will continue to apply. 7. DEATH This Agreement shall terminate automatically upon the death of Executive. In such event, the Company shall pay the estate of Executive, in addition to any amounts to which Executive's estate would otherwise be entitled under the Company's retirement plans and group life insurance policy, within 30 days after the date of death, all compensation earned under Paragraph 3 through the date of death. In addition, the Company will pay to the widow of the Executive or, if the Executive's spouse has pre-deceased him, to the Executive's estate, a monthly death benefit of $5,500, payable on the first day of each month during the 10 year period following the date of the Executive's death, commencing with the first calendar month following the month in which the Executive died; if the widow dies prior to the end of such 10 year period, then after the widow's death, such monthly payments will be made to the widow's estate for the balance of such 10-year period; provided, however, that if the Company is not the -7- JANUARY 30, 2001 recipient of at least $1,000,000 of insurance on the life of the Executive, the monthly death benefit of $5,500 will be reduced to $2,750 in the third through tenth years following the Executive's death. Payments will be made by mail to the recipient at such address as the recipient may designate in writing to the Company from time to time. 8. NON-COMPETITION AND TRADE SECRETS a. CONFIDENTIALITY AND WORK PRODUCT. During the term of this Agreement and thereafter without limitation of time, Executive shall not knowingly divulge, furnish, or make available to any third person, company, corporation or other organization (including but not limited to customers, competitors or government officials), except in the course of performing his duties as an Executive hereunder or with the Company's prior written consent, trade secrets or other confidential information concerning the Company, its subsidiaries or affiliates or the business of any of the foregoing, including without limitation, confidential methods of operation and organization and confidential sources of supply and customer lists, but Executive may make disclosures as required by applicable law or orders without prior written notice to the Company. For purposes of this Paragraph 8, information shall not be deemed confidential if it (i) is within the public domain, or (ii) becomes publicly known other than through disclosure by Executive in violation of this provision. b. NON-COMPETITION. During the Employment Term and for a period of one (1) year thereafter, Executive agrees not to directly or indirectly, own, control, manage, operate, participate or invest in, including, but not limited to, as an officer, director, shareholder, employee, consultant, agent, or otherwise be connected with, in any manner, any business, enterprise or venture which is engaged in the business of manufacturing and/or distributing of carrying cases supplied to the cellular telephone, home medical equipment, laptop computer, -8- JANUARY 30, 2001 photography, video or audio industries and any other business engaged in by the Company during the Employment Term, except that nothing in this subparagraph shall be deemed to prohibit Executive from the acquisition or holding of, solely as a passive stockholder, not more than one percent (1%) of the shares or other securities of a publicly-owned corporation if such securities are traded on a national securities exchange or over the counter. c. SOLICITATION. During the Employment Term and for a period of one (1) year thereafter, Executive agrees not to directly or indirectly solicit, employ or retain or arrange to have any other person, firm or other entity solicit, employ, retain, or otherwise participate in the employment or retention of, any person who is then, or who has been, within the preceding six (6) months, an employee, technician or engineer of the Company, its subsidiaries or affiliates. d. In the event Executive shall violate any provisions of this Paragraph 8 (which provisions Executive hereby acknowledges are reasonable and equitable), Executive shall no longer be entitled to and hereby waives any and all rights to any termination payment under this Agreement. 9. SEPARABILITY Executive agrees that the provisions of Paragraph 8 hereof constitute independent and separable covenants, for which Executive is receiving consideration which shall survive the termination of employment and which shall be enforceable by the Company notwithstanding any rights or remedies the Company may have under any other provision hereof. 10. SPECIFIC PERFORMANCE Executive acknowledges that: (i) the services to be rendered under the provisions of this Agreement are of a special character and it would be difficult to replace such services; -9- JANUARY 30, 2001 (ii) the Company is relying on the covenants contained herein, including, without limitation, those contained in Paragraph 8 above, as a material inducement for entering into this Agreement; (iii) the Company may be damaged if the provisions hereof are not specifically enforced; and (iv) the award of monetary damages may not adequately protect the Company in the event of a breach hereof by Executive. By virtue thereof, Executive agrees and consents that if Executive breaches any of the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or otherwise, shall (without any bond or other security being required and without the necessity of proving monetary damages) be entitled to a temporary and/or permanent injunction to be issued by a court of competent jurisdiction restraining Executive from committing or continuing any violation of this Agreement, or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be in addition to any other remedy which the Company may have. 11. MISCELLANEOUS a. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire employment agreement between the parties and may not be modified, mended or terminated (other than pursuant to the terms hereof) except by a written instrument executed by the parties hereto. All other agreements between the parties pertaining to the employment or remuneration of Executive not specifically contemplated hereby or incorporated or merged herein are terminated and shall be of no further force or effect. -10- JANUARY 30, 2001 b. ASSIGNMENT; SUCCESSORS. This Agreement is not assignable by Executive without the prior written consent of the Company and any purported assignment by Executive of Executive's rights and/or obligations under this Agreement shall be null and void. Except as provided below, this Agreement may be assigned by the Company at any time, upon delivery of written notice to Executive (with Executive's consent, not to be unreasonably withheld), to any successor to the business of the Company, or to any subsidiaries or affiliates of the Company. In the event that Executive does not consent to the assignment of this Agreement, the Company shall have the right, provided it is otherwise in compliance with this Agreement, to terminate this Agreement automatically with no further liability, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans including any stock options vested through the date of termination. In the event that another corporation or other business entity becomes a Successor of the Company, then this Agreement may not be assigned to such Successor unless the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had been no Successor. The term "Successor" shall mean any corporation or other business entity which succeeds to substantially all of the assets or conducts the business of the Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise. c. WAIVERS, ETC. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. The failure of any party to insist upon strict adherence to any term of this Agreement on any occasion shall not operate or be -11- JANUARY 30, 2001 construed as a waiver of the right to insist upon strict adherence to that term or any other term of this Agreement on that or any other occasion. d. PROVISIONS OVERLY BROAD. In the event that any term or provision of this Agreement shall be deemed by a court of competent jurisdiction to be overly broad in scope, duration or area of applicability, the court considering the same shall have the power and hereby is authorized and directed to modify such term or provision to limit such scope, duration or area, or all of them, so that such term or provision is no longer overly broad and to enforce the same as so limited. Subject to the foregoing sentence, in the event that any provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement. e. NOTICES. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given on the date of delivery or, if mailed by certified mail, postage prepaid, return receipt requested, documented overnight courier, or by facsimile transmission, on the date mailed or transmitted. (i) If to Executive to: Michael Schiffman at his address set forth in the preamble to this Agreement (ii) If to the Company to: the address set forth in the preamble to this Agreement Attention: Chairman of the Board with a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue -12- JANUARY 30, 2001 New York, New York 10176 Attention: Jeffrey W. Rubin, Esq. Telecopy: (212) 697-6686 F. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK GOVERNING CONTRACTS MADE AND TO BE PERFORMED IN NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF. g. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. h. This Agreement may be executed in counterparts, each of which shall be deemed an original, and each party may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE FORWARD INDUSTRIES, INC. /s/ By: /s/ - ---------------------------------- -------------------------------- Michael Schiffman Name: Jerome E. Ball Title: Chief Executive Officer -13- EX-10.4 5 a2047275zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 January 30, 2001 Page 1 EXHIBIT A FORWARD INDUSTRIES, INC. 1801 Green Road, Suite E Pompano Beach, Florida 33064 Mr. Michael Schiffman 7921 Tennyson Court Boca Raton, Florida 33433 RE: FORWARD INDUSTRIES, INC. (THE "COMPANY") Dear Michael: This is to confirm the Company's Agreement to grant to you promptly upon execution of a new Employment Agreement with the Company, the following options to acquire shares of the Company's common stock, $.01 par value per share (the "Shares"): 1. Fully-vested option under the Company's 1996 Incentive Stock Option Plan (the "Plan") to acquire 150,000 Shares at an exercise price of $1.50 per Share for a five year period following the date of grant; 2. Fully-vested option under the Plan to acquire 300,000 Shares at an exercise price of $2.00 per Share for a five-year period following the date of the grant. Upon such grant, your existing fully-vested option to acquire 300,000 shares at an exercise price of $2.00 until November 2001 shall be terminated; 3. Options to acquire (a) 200,000 Shares for an exercise price of $3.25 per Share, vesting on the four-year anniversary of the date of grant; provided, however, that all such options shall vest immediately in the event that the Company's share price averages $3.50 per Share for 180 consecutive days (not less than 90 days of which shall be during the Employment Term, as defined in your Employment Agreement with the Company), based upon the average reported closing sales prices for the Shares on the NASDAQ small cap market and (b) 200,000 Shares for an exercise price of $2.50 per Share, vesting on the four-year anniversary of the date of grant; provided, however, that all such options shall vest immediately in the event that the Company's share price averages $5.00 per Share for 180 consecutive days ( not less than 90 days of which shall be during the Employment Term, as defined in your Employment Agreement with the Company), based upon the average reported closing sales prices for the Shares on the NASDAQ small cap market. The foregoing options shall expire five years after the date of such grant, provided you are still employed by the Company. If your January 30, 2001 Page 2 EXHIBIT A employment is terminated prior to the end of your Employment Term, all such options shall expire one year after the date of termination. The Company acknowledges that, you currently hold fully vested options to acquire (1) 200,000 Shares at $1.88 per share, exercisable until September 1, 2004 (the "$1.88 Options") and (2) an additional 200,000 Shares at $3.25 per share exercisable until September 16, 2004 (the "$3.25 Options"). Nothing contained herein shall effect the validity of the $1.88 Options. In consideration of the foregoing grants, you have agreed to the termination by the Company of the $3.25 Options. FORWARD INDUSTRIES, INC. By: /s/____________________________ Jerome Ball Chief Executive Officer Acknowledged and Accepted By: /s/__________________________ Michael Schiffman DRW:cgc EX-10.5 6 a2047275zex-10_5.txt EXHIBIT 10.5 Exhibit 10.5 EMPLOYMENT AGREEMENT AGREEMENT effective as of January 1, 2001 between Forward Industries, Inc., a New York corporation with offices at 1801 Green Road, Suite E, Pompano Beach, Florida 33064 (the "Company"), and Douglas W. Sabra residing at 7441 Brunswick Circle, Boynton Beach, Florida 33437 ("Executive"). W I T N E S S E T H: ------------------- WHEREAS, Executive has been rendering services to the Company pursuant to a letter agreement effective as of June 1, 2000 (the "Letter Agreement"). WHEREAS, the Company desires to terminate the Letter Agreement and employ Executive to perform senior executive and other services for the Company, and Executive desires to accept such employment, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which the parties acknowledge, the parties agree as follows: TERMINATION OF LETTER AGREEMENT The Letter Agreement is hereby terminated and shall be of no further force and effect, and the terms and conditions of this Agreement supersede the terms and conditions of the Letter Agreement. The Company has no remaining obligations under the Letter Agreement. EMPLOYMENT AND DUTIES The Company hereby employs Executive for the term of this Agreement and Executive hereby accepts such employment as the Chief Financial Officer, of the Company on the terms and conditions set forth in this Agreement. 1. EMPLOYMENT TERM Unless terminated at an earlier date pursuant to the terms of this Agreement, the term of employment hereunder (the "Employment Term") shall be three (3) years, commencing on the date hereof (the "Commencement Date"). This Agreement shall be automatically renewed for successive one-year terms unless either party provides written notice to the other party of its or his desire not to renew within 120 days prior to the expiration of the initial term or any renewal term, as the case maybe. 2. SERVICES a. Executive shall perform such duties of a senior executive nature for the Company, as shall be consistent with the provisions of the Company's By-laws in effect on the date hereof, subject to the direction of the Board of Directors of the Company (the "Board"). Executive shall serve the Company faithfully and to the best of his ability and shall devote his full business -2- time and attention to the affairs of the Company, subject to reasonable absences for vacation and illness as determined by the Board. b. The headquarters for the performance of Executive's services during the term of this Agreement shall be the principal executive offices of the Company in Pompano Beach, Florida, unless otherwise agreed by the Company and Executive and subject to such reasonable travel in the performance of Executive's duties as the business of the Company may require. 3. COMPENSATION AND EXPENSE REIMBURSEMENT a. SALARY. Executive shall be entitled to receive for all services rendered by Executive in any capacity, an annual salary of $120,000 (payable in equal installments in accordance with the then prevailing practices of the Company, but in no event less frequently than monthly), subject to an annual increase as agreed to among the Executive, the Company's Chief Executive Officer and the Company's President. b. BONUS. The Executive shall be eligible for an annual bonus of up to 50% of his then current annual salary based on performance as determined by the Company's President and Chief Executive Officer. c. EXPENSES. Executive will be reimbursed for all reasonable and necessary expenses incurred by Executive in carrying out the duties contemplated under this Agreement, in accordance with then prevailing Company procedure, as such practices may be changed from time to time by the Board. d. STOCK OPTIONS. The Company hereby grants Executive options under the Plan to purchase 75,000 shares of the Company's Common Stock at an exercise price of $2.00 per share with a date of grant of January 1, 2001. Such options shall vest upon the four-year anniversary of -3- the date of grant; provided, however, that all such options shall immediately vest in the event that the Company's Common Stock price averages $3.50 per share for 180 consecutive days (not less than 90 days of which shall be during the Employment Term), based upon the average reported closing sale prices for the Company's Common Stock on the Nasdaq Smallcap Market. Such options shall expire five (5) years following the date of grant. If this Agreement is terminated prior to the end of the Employment Term, such options shall expire one year after the date of such termination. [Nothing contained herein shall affect the stock options granted to Executive under the Letter Agreement.] e. BENEFITS. Executive shall be entitled to participate in all group health and other insurance programs and all other fringe benefit or retirement plans (including any 401(k) plan) or other compensatory plans which the Company may hereafter elect to make available to its executives generally on terms no less favorable than those provided to other executives generally, provided Executive meets the qualifications therefore, but the Company shall not be required to establish any such program or plan, except as provided in this Paragraph 3. f. AUTOMOBILE. The Company will provide to the Executive an automobile for use during the term of the Agreement and provide the maintenance, insurance and operating expenses of such vehicle. g. VACATION. The Executive is entitled to three (3) weeks paid vacation per year. Unused vacation may be carried forward to subsequent years or, at the Executive's sole option, paid to him. The election to carry forward, or to receive payment, shall be made by the Executive by December 1st of each year. 4. TERMINATION FOR CAUSE -4- In the event of: (a) fraud against the Company, conviction of a felony, the intentional disclosure of confidential information (unless required by applicable law or court or other order), aiding a competitor to the detriment of the Company, its subsidiaries or affiliates, intentionally engaging in conduct which brings disrepute or otherwise is damaging to the reputation of the Company, its subsidiaries or affiliates, performing competitive services or acting in a competitive capacity for any other person, firm or corporation without the prior written consent of the Company; or (b) willful misconduct, gross negligence, prolonged and unexcused absenteeism by Executive in connection with Executive's employment hereunder, or Executive's willful or intentional failure to implement the reasonable business requests or directions of the Board, the Company shall have the right to give Executive a termination notice, specifying the nature of the breach or failure. If such termination notice is given pursuant to clause (a) above, the Employment Term shall terminate upon the giving of such notice. If such termination notice is given pursuant to clause (b) above, the Employment Term shall terminate thirty (30) days after the giving of such notice if the circumstances described in such notice have not been remedied by Executive within such thirty (30)-day period. Upon the termination of the Employment Term pursuant to this Paragraph 4, all provisions of this Agreement shall terminate except for the provisions of Paragraphs 8 and 9. Upon the effective date of termination of the Employment Term, the Company shall have no further obligation to Executive hereunder, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans through the date of termination. 5. TERMINATION BY EXECUTIVE FOR GOOD REASON. a. In the event of a Change in Senior Management (as hereinafter defined), Executive shall have the right to terminate his employment under this Agreement for Good Reason -5- (as hereinafter defined) upon prior written notice to the Company, in which case this Agreement shall terminate on the date specified in such notice; PROVIDED that in the case of paragraph (i) or (ii) of this Section 5, the date of termination specified in such notice shall be at least thirty (30) days after the delivery of such notice, subject to the Company's right as provided below to remedy the event giving rise to the termination prior to the date of termination specified in such notice. In the event of any termination of employment by the Executive for Good Reason, the Executive shall have no further obligations under this Agreement other than the obligations provided for in Section 8 and 9 hereof, and the Company shall have no further obligations under this Agreement, except to pay to Executive all unreimbursed business-related expenses and lump sum severance within thirty (30) days following termination under this Section 5 in an amount equal to his base salary under Section 3a. hereof through December 31, 2003 and the last annual bonus paid to Executive under Section 3b. hereof. For purposes of this Agreement, the term "Good Reason" shall mean: (i) the assignment to Executive of any duties inconsistent in any material respect with Executive's positions (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 2 of this Agreement or any other action by the Company which results in a material diminishment in such positions, authority, duties or responsibilities, other than action or inaction which is remedied by the Company prior to the date of termination specified in the written notice from Executive; or (ii) transfer by the Company of all or substantially all of its assets to a Successor (as defined in Section 11b. hereof) without such Successor having expressly assumed this Agreement as provided in Section 11b. hereof. b. For purposes of this Agreement, a "Change in Senior Management" means any circumstances by which the Executive no longer reports to the Company's current President Mr. -6- Michael Schiffman or the Company's current Chief Executive Officer Mr. Jerome Ball. 6. ILLNESS OR INCAPACITY In the event of any disability, illness or other incapacity which prevents Executive from performing services as contemplated herein, the obligation of the Company to pay compensation to Executive shall be reduced to the extent of any amount received by Executive pursuant to any disability insurance policy maintained and paid for by the Company. If Executive shall be incapacitated for more than 120 consecutive days or 180 days in any consecutive 12-month period, the Company shall have the right to terminate this Agreement upon 10 days' prior written notice with no further liability, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans through the date of such termination, provided that such termination shall not prejudice any rights of Executive under any disability policies being maintained by the Company for Executive under the terms of this Agreement. Notwithstanding any such termination, the provisions of Paragraphs 8 and 9 will continue to apply. 7. DEATH This Agreement shall terminate automatically upon the death of Executive. In such event, the Company shall pay the estate of Executive, in addition to any amounts to which Executive's estate would otherwise be entitled under the Company's retirement plans and group life insurance policy, within 30 (thirty) days after the date of death, all compensation earned under Paragraph 3 through the date of death. 8. NON-COMPETITION AND TRADE SECRETS -7- a. CONFIDENTIALITY AND WORK PRODUCT. During the term of this Agreement and thereafter without limitation of time, Executive shall not knowingly divulge, furnish, or make available to any third person, company, corporation or other organization (including but not limited to customers, competitors or government officials), except in the course of performing his duties as an Executive hereunder or with the Company's prior written consent, trade secrets or other confidential information concerning the Company, its subsidiaries or affiliates or the business of any of the foregoing, including without limitation, confidential methods of operation and organization and confidential sources of supply and customer lists, but Executive may make disclosures as required by applicable law or orders without prior written notice to the Company. For purposes of this Paragraph 8, information shall not be deemed confidential if it (i) is within the public domain, or (ii) becomes publicly known other than through disclosure by Executive in violation of this provision. b. NON-COMPETITION. During the Employment Term and for a period of one (1) year thereafter, Executive agrees not to directly or indirectly, own, control, manage, operate, participate or invest in, including, but not limited to, as an officer, director, shareholder, employee, consultant, agent, or otherwise be connected with, in any manner, any business, enterprise or venture which is engaged in the business of manufacturing and/or distributing of carrying cases supplied to the cellular telephone, home medical equipment, laptop computer, photography, video or audio industries and any other business engaged in by the Company during the Employment Term, except that nothing in this subparagraph shall be deemed to prohibit Executive from the acquisition or holding of, solely as a passive stockholder, not more than one percent (1%) of the shares or other securities of a publicly-owned corporation if such securities are traded on a national securities exchange or over the counter. -8- c. SOLICITATION. During the Employment Term and for a period of one (1) year thereafter, Executive agrees not to directly or indirectly solicit, employ or retain or arrange to have any other person, firm or other entity solicit, employ, retain, or otherwise participate in the employment or retention of, any person who is then, or who has been, within the preceding six (6) months, an employee, technician or engineer of the Company, its subsidiaries or affiliates. d. In the event Executive shall violate any provisions of this Paragraph 8 (which provisions Executive hereby acknowledges are reasonable and equitable), Executive shall no longer be entitled to and hereby waives any and all rights to any termination payment under this Agreement. 9. SEPARABILITY Executive agrees that the provisions of Paragraph 8 hereof constitute independent and separable covenants, for which Executive is receiving consideration which shall survive the termination of employment and which shall be enforceable by the Company notwithstanding any rights or remedies the Company may have under any other provision hereof. 10. SPECIFIC PERFORMANCE Executive acknowledges that: (i) the services to be rendered under the provisions of this Agreement are of a special character and it would be difficult to replace such services; (ii) the Company is relying on the covenants contained herein, including, without limitation, those contained in Paragraph 8 above, as a material inducement for entering into this Agreement; (iii) the Company may be damaged if the provisions hereof are not specifically -9- enforced; and (iv) the award of monetary damages may not adequately protect the Company in the event of a breach hereof by Executive. By virtue thereof, Executive agrees and consents that if Executive breaches any of the provisions of this Agreement, the Company, in addition to any other rights and remedies available under this Agreement or otherwise, shall (without any bond or other security being required and without the necessity of proving monetary damages) be entitled to a temporary and/or permanent injunction to be issued by a court of competent jurisdiction restraining Executive from committing or continuing any violation of this Agreement, or any other appropriate decree of specific performance. Such remedies shall not be exclusive and shall be in addition to any other remedy which the Company may have. 11. MISCELLANEOUS a. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire employment agreement between the parties and may not be modified, amended or terminated (other than pursuant to the terms hereof) except by a written instrument executed by the parties hereto. All other agreements between the parties pertaining to the employment or remuneration of Executive not specifically contemplated hereby or incorporated or merged herein are terminated and shall be of no further force or effect. b. ASSIGNMENT; SUCCESSORS. This Agreement is not assignable by Executive without the prior written consent of the Company and any purported assignment by Executive of Executive's rights and/or obligations under this Agreement shall be null and void. Except as provided below, this Agreement may be assigned by the Company at any time, upon delivery of -10- written notice to Executive (with Executive's consent, not to be unreasonably withheld), to any successor to the business of the Company, or to any subsidiaries or affiliates of the Company. In the event that Executive does not consent to the assignment of this Agreement, the Company shall have the right, provided it is otherwise in compliance with this Agreement, to terminate this Agreement automatically with no further liability, except for accrued and unpaid salary, and other previously earned, accrued and unpaid benefits from the Company and its employee benefit plans. In the event that another corporation or other business entity becomes a Successor of the Company, then this Agreement may not be assigned to such Successor unless the Successor shall, by an agreement in form and substance reasonably satisfactory to the Executive, expressly assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if there had been no Successor. The term "Successor" shall mean any corporation or other business entity which succeeds to substantially all of the assets or conducts the business of the Company, whether directly or indirectly, by purchase, merger, consolidation or otherwise. c. WAIVERS, ETC. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. The failure of any party to insist upon strict adherence to any term of this Agreement on any occasion shall not operate or be construed as a waiver of the right to insist upon strict adherence to that term or any other term of this Agreement on that or any other occasion. d. PROVISIONS OVERLY BROAD. In the event that any term or provision of this Agreement shall be deemed by a court of competent jurisdiction to be overly broad in scope, duration or area of applicability, the court considering the same shall have the power and hereby is authorized and directed to modify such term or provision to limit such scope, duration or area, or all of them, -11- so that such term or provision is no longer overly broad and to enforce the same as so limited. Subject to the foregoing sentence, in the event that any provision of this Agreement shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall attach only to such provision and shall not affect or render invalid or unenforceable any other provision of this Agreement. e. NOTICES. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given on the date of delivery or, if mailed by certified mail, postage prepaid, return receipt requested, documented overnight courier, or by facsimile transmission, on the date mailed or transmitted. (i) If to Executive to: Douglas Sabra at his address set forth in the preamble to this Agreement (ii) If to the Company to: the address set forth in the preamble to this Agreement Attention: Chairman of the Board with a copy to: Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 Attention: Jeffrey W. Rubin, Esq. Telecopy: (212) 697-6686 f. This Agreement shall be governed by and construed in accordance with the laws of the State of New York governing contracts made and to be performed in New York without regard to conflict of law principles thereof. g. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, personal representatives, successors and -12- permitted assigns. h. This Agreement may be executed in counterparts, each of which shall be deemed an original, and each party may become a party hereto by executing a counterpart hereof. This Agreement and any counterpart so executed shall be deemed to be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE FORWARD INDUSTRIES, INC. /s/ By:/s/ - ------------------------ ----------------------------------- Douglas W. Sabra Name: Jerome E. Ball Title: Chief Executive Officer -13- -----END PRIVACY-ENHANCED MESSAGE-----