Contract analysis

I. Executive Summary and Purpose This memorandum analyzes the application of Internal Revenue Code ("Code") Section 409A to the proposed compensation package for Dr. Marcus J. Elliston ("Dr. Elliston") in connection with his prospective appointment as Chief Operating Officer ("COO") of Arbor Health Technologies Inc. ("AHT" or the "Company"), a Delaware corporation headquartered at 400 Brattle Commerce Park, Suite 120

II. Background on Section 409A A. Statutory Overview

Section 409A of the Internal Revenue Code was enacted as part of the American Jobs Creation Act of 2004 (Pub. L. 108-357, § 885) in response to perceived abuses in nonqualified deferred compensation arrangements, particularly those highlighted in connection with the Enron Corporation bankruptcy and related corporate scandals. Section 409A imposes comprehensive requirements on the design and administration of arrangem

Section 409A imposes three principal sets of requirements on nonqualified deferred compensation arrangements: Permissible Payment Events. Amounts of deferred compensation may be paid only upon the occurrence of one or more of the following six permissible payment events specified in Section 409A(a)(2)(A): (i) separation from service (as defined in Treasury Regulation § 1.409A-1(h)); (ii) the date the participant beco

III. Analysis of Stock Option Grant A. Description of Proposed Grant The proposed compensation package includes a grant of nonqualified stock options ("NQSOs") to Dr. Elliston to purchase shares of AHT common stock representing 1.25% of the Company's fully diluted equity. The options would be granted under the AHT 2020 Equity Incentive Plan, as amended in May 2021 (the "Equity Plan"), and would be governed by a Stock

IV. Analysis of Restricted Stock Unit (RSU) Grant A. Description of Proposed Grant The proposed compensation package includes a grant of restricted stock units ("RSUs") covering shares of AHT common stock representing 0.50% of the Company's fully diluted equity. The RSUs would be granted under the AHT 2020 Equity Incentive Plan (as amended May 2021) and would be governed by a Restricted Stock Unit Award Agreement bet

Section 409A(a)(2)(B)(i) provides that, in the case of any "specified employee" (as defined in Section 409A(a)(2)(B)(ii)), distributions of nonqualified deferred compensation that are payable on account of separation from service shall not be made before the date that is six months after the date of separation from service (or, if earlier, the date of death). This six-month delay requirement applies only to service r

V. Analysis of Signing Bonus with Clawback A. Description. The proposed compensation package includes a one-time signing bonus of $250,000, payable to Dr. Elliston within 30 days of his anticipated start date of November 1, 2022. The signing bonus is intended to serve as an inducement for Dr. Elliston to accept the COO position and to compensate him, in part, for compensation he will forfeit from his current employer

VI. Analysis of Annual Bonus Compensation A. Description. The proposed compensation package includes eligibility for an annual performance bonus with the following parameters: • Target Bonus: 75% of Dr. Elliston's $575,000 annual base salary, yielding a target annual bonus of $431,250. • Maximum Bonus: 150% of the target bonus, yielding a maximum annual bonus of $646,875. • Performance Metrics: The bonus will be base