Contract analysis

I. Executive Summary and Purpose This memorandum analyzes whether the AHT 2020 Equity Incentive Plan (as amended May 2021) (the "Plan") has sufficient capacity to accommodate the proposed equity grants to Dr. Marcus J. Elliston in connection with his prospective engagement as Chief Operating Officer of Arbor Health Technologies Inc. ("AHT" or the "Company"). This memorandum further addresses the terms under which suc

II. Overview of the AHT 2020 Equity Incentive Plan (as Amended May 2021) A. Plan Adoption and Amendment History The Plan was originally adopted by the AHT Board of Directors (the "Board") on February 14, 2020 and approved by the Company's stockholders by written consent on the same date, effective as of the closing of the Ridgeline take-private transaction. The Plan was designed to provide equity-based compensation t

1. Expiration, Forfeiture, or Cancellation. Any shares of common stock subject to an award that expires, is forfeited, or is cancelled without the issuance of shares will be returned to and again become available for issuance under the Plan.

2. Cash Settlement. If an award is settled in cash rather than in shares, the shares that were subject to the cash-settled award will not be counted against the share reserve and will remain available for future awards.

3. Tax Withholding and Exercise Price. The May 2021 Amendment clarified the treatment of shares withheld in connection with tax withholding obligations. Under the Plan as amended, shares that are withheld by the Company to satisfy tax withholding obligations arising in connection with the exercise or settlement of an award do not return to the available share reserve. Similarly, shares that are tendered by a particip

4. Corporate Adjustments. The Plan provides for customary anti-dilution adjustments to the share reserve and outstanding awards in the event of stock splits, stock dividends, reverse stock splits, recapitalizations, reorganizations, mergers, or other changes in the Company's corporate structure. We note that the Plan does not contain an "evergreen" or automatic annual increase provision. The share reserve is fixed at

Section 6(a) of the Plan requires that the exercise price per share for any stock option granted under the Plan be set at no less than 100% of the fair market value ("FMV") of a share of AHT common stock as of the date of grant. The Plan defines "fair market value" as the value determined in good faith by the Compensation Committee, taking into account such factors as the Compensation Committee deems appropriate, inc

III. Analysis of Available Share Reserve Capacity A. Current Outstanding Awards Based on the Plan administration records provided to us by Wentworth & Gage LLP, the following table summarizes the current status of awards under the Plan as of June 30, 2022: The 2,140,000 shares subject to outstanding stock options include grants to the following individuals, among others: • Priya Chandrasekaran, CEO: 650,000 stock opt

IV. Proposed Award Terms and Plan Compliance A. Stock Option Award Terms The following summarizes the key terms proposed for the stock option grant to Dr. Elliston, as reflected in the Internal Term Sheet and as discussed with Aaron Whitfield, and our assessment of each term's compliance with the Plan: Grant. Options to purchase 250,000 shares of AHT common stock, representing approximately 1.25% of the Company's ful

V. Ridgeline Capital Partners Consent Requirements A. Board and Compensation Committee Approval As discussed in Section II.A above, the Plan is administered by the Compensation Committee of the Board. The grant of equity awards to Dr. Elliston will require formal approval by the Compensation Committee, and given the magnitude and C-suite nature of the proposed grants, we recommend that the grants also be approved by

VI. Helix Ventures Fund III, LP Anti-Dilution and Consent Provisions A. Minority Investor Rights Helix Ventures Fund III, LP holds approximately 14% of AHT's equity and is a party to the Stockholders' Agreement. As a significant minority investor, Helix Ventures holds certain protective rights under the Stockholders' Agreement that are designed to protect its investment from dilution and to give it a voice in materia

Section 5.2 of the Stockholders' Agreement contains anti-dilution protections for Helix Ventures. Based on our review, Helix Ventures holds weighted-average anti-dilution protection (rather than full-ratchet protection) with respect to certain issuances of equity securities by the Company at a price per share that is below the price per share originally paid by Helix Ventures for its investment in the Company. The an

Section 4.3(b) of the Stockholders' Agreement provides that, in addition to Ridgeline's consent right discussed in Section V.B above, the Company shall not issue equity securities representing in the aggregate more than 2.5% of the Company's fully diluted equity in any single fiscal year without the prior written consent of any stockholder holding at least 10% of the Company's fully diluted equity (which includes Hel

Section 5.1 of the Stockholders' Agreement grants Helix Ventures (and other stockholders holding at least 10% of the Company's fully diluted equity) preemptive rights with respect to the issuance of new equity securities by the Company. These preemptive rights generally entitle the holder to purchase its pro rata share of any new equity securities issued by the Company, in order to maintain its percentage ownership i

VII. Interaction with Existing Executive Equity Awards As noted above, the CEO Employment Agreement (Priya Chandrasekaran) and the CFO Employment Agreement (Derek Solano) have been used as precedent templates for the structuring of Dr. Elliston's equity awards. It is important to ensure internal consistency across the C-suite equity awards to avoid creating disparate terms that could lead to administrative complexity

VIII. Practical Steps and Recommendations A. Share Reserve Sufficiency Based on the analysis set forth in Section III above, the Plan's remaining available share reserve of approximately 1,450,000 shares is sufficient to accommodate the proposed Elliston grants of 350,000 shares without amendment. Following the Elliston grants, the remaining available reserve would be approximately 1,100,000 shares, or approximately