Forward Industries Inc

PROPOSAL 6. APPROVAL OF AMENDMENT TO THE 2021 EQUITY INCENTIVE PLAN

The Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was adopted by the Board on December 17, 2020 and was approved by shareholders on February 16, 2021. On June 19, 2025, the Board approved the 2021 Plan Amendment to increase the maximum total number of shares of common stock the Company may issue under the 2021 Plan to 429,100 (an increase of 300,000 shares) because the Company needs to be able to issue equity awards to directors, management, and service providers in order to retain such persons and to further align their interests with those of the Company’s shareholders. As of the record date, there were approximately 60 employees, 3 non-employee directors and 12 consultants eligible to participate in the 2021 Plan. As of the record date, the closing price of the Company’s common stock was $6.49.

The Board, acting as the Compensation Committee (the “Committee”), approved the 2021 Plan Amendment, subject to approval of the shareholders. If the shareholders do not approve the 2021 Plan Amendment, the 2021 Plan will remain in effect and unchanged. If approved by the shareholders, the 2021 Plan Amendment will be effective immediately, subject to any restrictions on the issuance of awards under the 2021 Plan because of a lack of available or reserved shares of common stock to underlie such awards.

Reason for the Proposal

The 2021 Plan currently authorizes the issuance of up to 129,100 shares of common stock. As of the record date, there were 146,432 shares of common stock subject to outstanding restricted stock awards and stock options, which includes 36,441 whose vesting is subject to approval of the 2021 Plan Amendment. No additional shares are available for issuance under the 2021 Plan.

As of the record date, there are no shares remaining for future grants under the 2021 Plan. The 2021 Plan Amendment will increase the remaining shares for future grants under the 2021 Plan to 282,668 shares.

If approved by the shareholders, the 2021 Plan Amendment will enable the Company to continue to provide stock-based incentives that will enhance the alignment of interests of employees, consultants and directors with those of the shareholders of the Company. In offering stock ownership and rewarding employees for their achievements, the Company believes it will continue to motivate employees to achieve superior long-term results. Additionally, as the Company competes for employees and key personnel in a variety of geographic regions and talent markets, the Company believes it must maintain competitive compensation programs to continue to attract, motivate, and retain the types of employees, consultants and directors who will contribute to the Company's short-term financial performance and long-range success. The Company also believes that the 2021 Plan Amendment will allow it to continue to utilize a balanced approach to compensation by using a combination of salaries, performance-based bonuses, and long-term equity incentives. The compensation structure encourages management to make decisions that favor the Company’s future stability and profitability, rather than short term results.

Set forth below is a summary of the 2021 Plan, which is qualified in its entirety by reference to the full text of the 2021 Plan Amendment, a copy of which is included as Annex D to this Proxy Statement and the full text of the 2021 Plan as originally approved by the shareholders, a copy of which is included as Annex E to this Proxy Statement and which is included in the Company’s Proxy Statement on Schedule 14A filed with the SEC on December 29, 2020. If there is any inconsistency between the following summary of the 2021 Plan and the 2021 Plan Amendment and the full text, the full text shall govern.

Material Terms of the 2021 Plan

The following summary of the material terms of the 2021 Plan is qualified in its entirety by the full text of the 2021 Plan. You also may obtain a copy of the 2021 Plan, free of charge, by writing to the Company, Attention: Corporate Secretary, 700 Veterans Memorial Hwy, Suite 100, Hauppauge, New York 11788.

Effective Date; Duration of the 2021 Plan

If approved, the 2021 Plan Amendment will become effective as of the date on which the 2021 Plan Amendment is approved by our shareholders. The 2021 Plan became effective on February 16, 2021, and will continue in effect until the tenth anniversary of the date it was approved by shareholders, unless terminated by the Board.

Plan Administration

The 2021 Plan will continue to be administered by the Committee or, in the Board’s sole discretion by the Board. The Committee will continue to have the authority to, among other things, interpret the 2021 Plan, determine who will be granted awards under the 2021 Plan, determine the terms and conditions of each award, and take action as it determines to be necessary or advisable for the administration of the 2021 Plan.

Eligibility

The Committee may grant awards to any employee, consultant, or director of the Company and its affiliates. Only employees are eligible to receive incentive stock options.

Shares Available for Awards; Limits on Awards

The 2021 Plan currently authorizes the issuance of up to 129,100 shares of common stock. As of the record date, there were 146,432 shares of common stock subject to outstanding restricted stock awards and stock options, which includes 36,441 whose vesting is subject to approval of this 2021 Plan Amendment. No additional shares are available for issuance under the 2021 Plan. In the event this proposal is not approved, the 36,441 options will be terminated.

As of the record date, there are no shares remaining for future grants under the 2021 Plan. The 2021 Plan Amendment will increase the remaining shares for future grants under the 2021 Plan to 282,668 shares.

If any outstanding award expires or is canceled, forfeited, or terminated without issuance of the full number of shares of common stock to which the award related, then the shares subject to such award will again become available for future grant under the 2021 Plan.

Types of Awards that May Be Granted

Subject to the limits in the 2021 Plan, the Committee has the authority to set the size and type of award and any vesting or performance conditions. The types of awards that may be granted under the 2021 Plan are: stock options (including both incentive stock options (ISOs) and non-qualified stock options), stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs), performance share awards, and performance cash awards.

Stock Options

A stock option is the right to purchase shares of common stock at a future date at a specified price per share called the exercise price. An option may be either an ISO or a non-qualified stock option. ISOs and non-qualified stock options are taxed differently, as described under Federal Income Tax Consequences of Awards. Except in the case of options granted pursuant to an assumption or substitution for another option, the exercise price of a stock option may not be less than the fair market value (or in the case of an ISO granted to a ten percent shareholder, 110% of the fair market value) of a share of common stock on the grant date. As noted above, as of the record date under the 2021 Plan, the closing price of our common stock was $6.49 per share. Full payment of the exercise price must be made at the time of such exercise either in cash or bank check or in another manner approved by the Committee.

Stock Appreciation Rights

A stock appreciation right (“SAR”) is the right to receive payment of an amount equal to the excess of the fair market value of a share of common stock on the date of exercise of the SAR over the exercise price. The exercise price of a SAR may not be less than the fair market value of a share of common stock on the grant date. SARs may be granted alone or in tandem with an option granted under the 2021 Plan.

Restricted Stock

A restricted stock award is an award of actual shares of common stock which may be subject to certain restrictions for a period of time determined by the Committee. Restricted stock may be held by the Company or in escrow or delivered to the participant pending the release of the restrictions. Participants who receive restricted stock awards generally have the rights and privileges of shareholders regarding the shares of restricted stock during the restricted period, including the right to vote and the right to receive dividends, provided that any cash or stock dividends with respect to the restricted stock will be withheld by the Company for the participant’s account, and interest may be credited on the amount of the cash dividends withheld at a rate and subject to such terms as determined by the Committee. The cash dividends or stock dividends so withheld will be distributed to the participant in cash or, at the discretion of the Committee, in shares of common stock having a fair market value equal to the amount of such dividends upon the release of restrictions on such restricted stock, unless such restricted stock is forfeited.

Restricted Stock Units

A restricted stock unit (“RSU”) is an award of hypothetical common stock units having a value equal to the fair market value of an identical number of shares of common stock, which may be subject to certain restrictions for a period of time determined by the Committee. No shares of common stock are issued at the time an RSU is granted, and the Company is not required to set aside any funds for the payment of any RSU award. Because no shares are outstanding, the participant does not have any rights as a shareholder. The Committee may grant RSUs with a deferral feature (deferred stock units or DSUs), which defers settlement of the RSU beyond the vesting date until a future payment date or event set out in the participant’s award agreement. The Committee has the discretion to credit RSUs or DSUs with dividend equivalents.

Performance Share Awards

A performance award is an award of shares of common stock or units that are only earned if certain conditions are met. The Committee has the discretion to determine the number of shares of common stock or stock-denominated units subject to a performance share award, the applicable performance period, the conditions that must be satisfied for a participant to earn an award, and any other terms, conditions and restrictions of the award.

Performance Cash Awards

A performance cash award is a cash award (for a dollar value not in excess of $50,000) that is payable contingent upon the attainment during a performance period of certain performance goals. The Committee has the discretion to determine the length of the applicable performance period, the conditions that must be satisfied for a participant to earn an award, and any other terms, conditions and restrictions of the award. The Company may still award cash bonuses or similar cash-based compensation outside of the 2021 Plan.

Vesting

The 2021 Plan allows for awards subject to either time-based vesting or performance-based vesting, or both as determined by the Committee. The Committee has the authority to determine the vesting schedule of each award, and to accelerate the vesting and exercisability of any award.

Adjustments Upon Changes in Stock

In the event of changes in the outstanding common stock or in the capital structure of the Company by reason of any stock or extraordinary cash dividend, stock split, reverse stock split, an extraordinary corporate transaction such as any recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the grant date of any award, awards granted under the 2021 Plan and any award agreements, the exercise price of options and SARs, the maximum number of shares of common stock subject to all awards and the maximum number of shares of common stock with respect to which any one person may be granted awards during any period will be equitably adjusted or substituted, as to the number, price or kind of a share of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of the award.

Unless the Committee specifically determines that such adjustment is in the best interests of the Company or its affiliates, the Committee will, in the case of incentive stock options (“ISOs”), ensure that any adjustments made will not constitute a modification, extension or renewal of the ISO within the meaning of Section 424(h)(3) of the Internal Revenue Code (the “Code”) and in the case of non-qualified stock options, ensure that any adjustments will not constitute a modification of such non-qualified stock options within the meaning of Section 409A of the Code. Any adjustments will be made in a manner which does not adversely affect the exemption provided under Rule 16b-3 under the Exchange Act. The Company will give participants notice of any adjustment.

Change in Control

Unless otherwise provided in an award agreement, in the event of a change in control of the Company, (i) the vesting of all awards under the 2021 Plan will fully accelerate and all outstanding options and SARs will become immediately exercisable, (ii) the restricted period will expire immediately with respect to all outstanding restricted stock and restricted stock units, and (iii) in the case of performance share awards and performance cash awards, all incomplete performance periods in effect on the date the change in control occurs will end on the date of such change in control and the Committee will (a) determine the extent to which performance goals with respect to each such performance period have been met and (b) cause applicable participants to be paid partial or full awards for each such performance period based upon the Committee’s determination of the degree to which performance goals were attained or, if not determinable, assuming that the applicable “target” levels of performance have been attained, or on such other basis determined by the Committee.

In addition, in the event of a change in control, the Committee may, in its discretion and upon at least 10 days' advance notice to the affected persons, cancel any outstanding awards and pay to the holders the value of the awards based upon the price per share of common stock received or to be received by other shareholders of the Company in the event. In the case of any option or SAR with an exercise price that equals or exceeds the price paid for a share of common stock in connection with the change in control, the Committee may cancel the option or SAR without the payment of any consideration.

“Change in Control” generally means, with certain exceptions, the occurrence of: (i) any person becomes the owner of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction; (ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the shareholders of the Company immediately prior thereto do not own, directly or indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such transaction. (iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than 50% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or (iv) individuals who, on the date the 2021 Plan is adopted by the Board, are Incumbent Directors cease for any reason to constitute at least a majority of the members of the Board. Shareholders are encouraged to review the 2021 Plan for the full definition of Change of Control.

Amendment or Termination of the 2021 Plan

The Board may amend or terminate the 2021 Plan at any time. However, except in the case of adjustments upon changes in common stock, no amendment will be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy applicable laws or the rules of any stock exchange or quotation system on which the shares of common stock are listed or quoted, and the applicable laws of any foreign country or jurisdiction where Awards are granted under the 2021 Plan. The 2021 Plan will terminate on the tenth anniversary from the date it was approved by shareholders, unless previously terminated by the Board.

Amendment of Awards

The Committee may amend the terms of any one or more awards. However, the Committee may not amend an award that would impair a participant’s rights under the award without the participant’s written consent.

Forfeiture and Recoupment

Each award and the applicable participant’s rights, payments and benefits with respect to an award are subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of the participant’s: (i) breach of a duty of confidentiality, (ii) competing with the Company, (ii) soliciting Company personnel after employment is terminated, (iii) failure to assign any invention or technology to the Company if such assignment is a condition of employment or any other agreements between the Company and the participant, (iv) being terminated for cause, (v) violating of the Company’s insider trading policy, (vi) or engaging in other conduct that is detrimental to the business or reputation of the Company and/or its affiliates as determined by the Board.

Clawback

Each award which is subject to recovery under any law, government regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement, or any policy adopted by the Company pursuant to any of the foregoing.

Federal Income Tax Consequences of Awards

The following is a summary of U.S. federal income tax consequences of awards granted under the 2021 Plan, based on current U.S. federal income tax laws. This summary does not constitute legal or tax advice and does not address municipal, state or foreign income tax consequences.

Nonqualified Stock Options

The grant of a nonqualified stock option will not result in taxable income to the participant. The participant will recognize ordinary income at the time of exercise equal to the excess of the fair market value of the shares on the date of exercise over the exercise price and the Company will be entitled to a corresponding deduction for tax purposes. Gains or losses realized by the participant upon the sale of the shares acquired on exercise will be treated as capital gains or losses.

Incentive Stock Options

The grant of an ISO will not result in taxable income to the participant. The exercise of an ISO will not result in taxable income to the participant if at the time of exercise the participant has been employed by the Company or its subsidiaries at all times beginning on the date the ISO was granted and ending not more than 90 days before the date of exercise. However, the excess of the fair market value of the shares on the date of exercise over the exercise price is an adjustment that is included in the calculation of the participant's alternative minimum tax liability for the year the shares are sold.

If the participant does not sell the shares acquired on exercise within two years from the date of grant and one year from the date of exercise then on the sale of the shares any amount realized in excess of the exercise price will be taxed as capital gain. If the amount realized in the sale is less than the exercise price, then the participant will recognize a capital loss.

If these holding requirements are not met, then the participant will generally recognize ordinary income at the time the shares are sold in an amount equal to the lesser of (a) the excess of the fair market value of the shares on the date of exercise over the exercise price, or (b) the excess, if any, of the amount realized on the sale of the shares over the exercise price, and the Company will be entitled to a corresponding deduction.

Stock Appreciation Rights

The grant of a SAR will not result in taxable income to the participant. The participant will recognize ordinary income at the time of exercise equal to the amount of cash received or the fair market value of the shares received and the Company will be entitled to a corresponding deduction for tax purposes. If the SARs are settled in shares, then when the shares are sold the participant will recognize capital gain or loss on the difference between the sale price and the amount recognized at exercise. Whether it is a long-term or short-term gain or loss depends on how long the shares are held.

Restricted Stock and Performance Shares

Unless a participant makes an election to accelerate the recognition of income to the grant date (as described below), the grant of restricted stock or performance shares awards will not result in taxable income to the participant. When the restrictions lapse, the participant will recognize ordinary income on the excess of the fair market value of the shares on the vesting date over the amount paid for the shares, if any, and the Company will be entitled to a corresponding deduction.

If the participant makes an election under Section 83(b) of the Code within thirty days after the grant date, the participant will recognize ordinary income as of the grant date equal to the fair market value of the shares on the grant date over the amount paid, if any, and the Company will be entitled to a corresponding deduction. Any future appreciation will be taxed at capital gains rates. However, if the shares are later forfeited, the participant will not be able to recover any taxes paid.

Restricted Stock Units

The grant of an RSU will not result in taxable income to the participant. When the RSU is settled, the participant will recognize ordinary income equal to the fair market value of the shares or the cash provided on settlement and the Company will be entitled to a corresponding deduction. Any future appreciation will be taxed at capital gains rates.

Section 409A

Section 409A of the Code imposes complex rules on nonqualified deferred compensation arrangements, including requirements with respect to elections to defer compensation and the timing of payment of deferred amounts. Depending on how they are structured, certain equity-based awards may be subject to Section 409A of the Code, while others are exempt. If an award is subject to Section 409A of the Code and a violation occurs, the compensation is includible in income when no longer subject to a substantial risk of forfeiture and the participant may be subject to a 20% penalty tax and, in some cases, interest penalties. The 2021 Plan and awards granted under the 2021 Plan are intended to be exempt from or conform to the requirements of Section 409A of the Code.

New Plan Benefits

The following New Plan Benefits Table sets forth the benefits or amounts that have been approved and will be received by the listed individuals under the 2021 Plan Amendment, subject to shareholder approval.

NEW PLAN BENEFITS TABLE (1)

(1) Represents options granted to non-executive directors, which are exercisable at $6.37 per share. Exercisability is subject to shareholder approval of Proposal 6.

The Board recommends a vote “FOR” the Amendment to the 2021 Equity Incentive Plan Proposal.