Contract analysis

I. Executive Summary and Purpose This memorandum analyzes the principal federal income tax issues arising from the equity compensation arrangements of Arbor Health Technologies Inc. ("AHT" or the "Company") in connection with the Company's initial public offering (the "IPO") of shares of its common stock, par value $0.001 per share, on the New York Stock Exchange (the "NYSE") under the ticker symbol "ARHT." Based on

II. Background A. Company Overview Arbor Health Technologies Inc. is a Delaware C-corporation, Employer Identification Number 47-3891205. The Company was incorporated in the State of Delaware on March 14, 2014, and has been taxed as a C-corporation since inception. AHT operates in the healthcare technology sector, providing a Software-as-a-Service ("SaaS") platform for clinical decision support, population health man

III. Section 409A Compliance — Outstanding Options Under the 2014 Stock Incentive Plan A. Applicable Legal Framework

Section 409A of the Code, enacted as part of the American Jobs Creation Act of 2004, imposes comprehensive requirements on arrangements that constitute "nonqualified deferred compensation." Failure to comply with Section 409A results in severe consequences for the service provider (i.e., the option holder): all deferred compensation under the noncompliant arrangement becomes immediately includable in income to the ex

1. Maintain Historical Valuation Reports. All historical 409A valuation reports from 2014 through 2023, together with the underlying data, assumptions, and methodologies, should be maintained in the Company's permanent tax files. These reports may be relevant in the event of an IRS examination or other inquiry into the pricing of pre-IPO option grants. The statute of limitations for assessment of additional tax under

2. Confirm No Option Repricing or Modifications. The Company should confirm, through a review of Board and Compensation Committee minutes and corporate records, that no outstanding stock option under the 2014 Plan has been repriced, extended, or otherwise materially modified in a manner that could constitute a new "date of grant" for purposes of the 409A valuation analysis. Under Treasury Regulation § 1.409A-1(b)(5)(

3. Implement Public-Company FMV Procedures. The Company should adopt a formal policy, approved by the Compensation Committee, for determining the exercise price of post-IPO option grants under the 2024 Plan. As noted above, we recommend the use of the NYSE closing price on the date of grant (or the immediately preceding trading day if the grant date is not a trading day). The policy should also address the timing of

4. Document the Transition. The transition from private-company valuation methods (independent appraisal) to public-company market price methods (NYSE closing price) should be properly documented in the Compensation Committee's records to demonstrate continuity of the Company's 409A compliance practices.

IV. Section 83(b) Elections — Restricted Stock Grants A. Applicable Legal Framework

Section 83(a) of the Code provides the general rule governing the taxation of property transferred in connection with the performance of services. Under Section 83(a), the fair market value of such property (less any amount paid for the property) is includable in the service provider's gross income in the first taxable year in which the property becomes "substantially vested" — that is, the first taxable year in whic

Section 83(b) of the Code permits a service provider who receives property that is subject to a substantial risk of forfeiture to elect to include the fair market value of the property in income at the time of transfer (rather than waiting until the property substantially vests). The amount includable in income is the fair market value of the property at the time of transfer, less any amount paid by the service provi

1. Confirm Continued Employment and Vesting Status. The Company should confirm that all fourteen employees who made Section 83(b) elections remain employed by the Company and that their restricted stock grants are on track for full vesting in accordance with the applicable vesting schedules. If any of these employees have terminated employment or are at risk of termination, the Company should assess the impact on the

2. Maintain Election Files. Copies of all fourteen Section 83(b) election forms, together with proof of timely filing, should be maintained in AHT's permanent tax and human resources files. These records should be readily accessible in the event of an IRS examination or other inquiry.

3. Advise Employees on Capital Gain Implications. The Company should work with its human resources department and, if appropriate, outside counsel, to provide affected employees with information regarding the capital gains implications of holding and disposing of their shares, including the applicable holding period calculations and the interaction of the 83(b) election with the lock-up period. While the Company cann

4. Ensure Proper Reporting. The Company should ensure that all compensation recognized under the Section 83(b) elections was properly reported on Forms W-2 for the applicable years and that corresponding compensation deductions were properly claimed on the Company's tax returns. Going forward, no additional W-2 reporting should be required in connection with the vesting of the restricted stock (since the income was a

V. ISO vs. NQSO Classification and Treatment A. Applicable Legal Framework

Section 422 of the Code governs incentive stock options. An ISO is a stock option granted to an employee of the corporation (or its parent or subsidiary) with respect to the stock of that corporation, which meets the specific statutory requirements set forth in Section 422(b). ISOs provide favorable tax treatment to the employee: there is no regular income tax recognized at the time of grant or at the time of exercis

VI. Section 423 Qualification — 2024 Employee Stock Purchase Plan A. Applicable Legal Framework

Section 423 of the Code provides favorable tax treatment for employee stock purchase plans that satisfy the statutory requirements. An "employee stock purchase plan" within the meaning of Section 423 is a plan under which shares of stock of the employer corporation are offered to employees, provided that the plan meets the requirements of Section 423(b). The principal tax benefit of a qualifying ESPP is that no incom

Section 423(b) of the Code sets forth the following requirements for a qualifying ESPP: (i) Stockholder Approval. The plan must be approved by the stockholders of the employer corporation within twelve months before or after the date the plan is adopted. (ii) Employee Participation Only. Only employees of the employer corporation (or its designated parent or subsidiary corporations) may participate. No employee may b