1010-00001 · Client 1010 · Correspondence

post-closing-letter-to-aht.docx DOCUMENT Finance & Banking

7 / 12 ← → ✕

PRIVILEGED AND CONFIDENTIAL

CALDERWOOD & HARKNESS LLP One Liberty Plaza, 44th Floor New York, NY 10006

Telephone: (212) 455-7800 Facsimile: (212) 455-7801 www.calderwoodharkness.com

August 20, 2024

Mr. Gerald Fong General Counsel & Corporate Secretary Arbor Health Technologies Inc. 400 Beacon Ridge Parkway, Suite 800 Waltham, MA 02451

Re: $25,000,000 Bridge Loan Facility — Post-Closing Obligations Matter No. 1010-00001

Dear Gerald:

We are writing in connection with that certain Bridge Loan Agreement, dated as of August 16, 2024 (as may be amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement"), by and between Arbor Health Technologies Inc., a Delaware corporation (the "Company" or "AHT"), as Borrower, and Pinnacle Trust Bank, N.A., a national banking association (the "Lender"). Capitalized terms used but not defined in this letter have the meanings assigned to such terms in the Loan Agreement.

As you know, the Loan Agreement was signed and funded on August 16, 2024 (the "Closing Date") on a sign-and-close basis, and the full $25,000,000 senior secured bridge loan was drawn at closing. We congratulate the Company on the successful closing of this transaction.

The purpose of this letter is to summarize the post-closing obligations that must be completed by August 30, 2024 — that is, within fourteen (14) days after the Closing Date — as required by Section 7.01(h) of the Loan Agreement. In addition, this letter sets forth certain key reminders regarding the Company's ongoing obligations under the Loan Agreement and the other Loan Documents. We urge you to review this letter carefully with the Company's finance team and to circulate it internally as appropriate so that the relevant personnel are fully aware of the applicable deadlines and requirements.

I. POST-CLOSING DELIVERABLES

Section 7.01(h) of the Loan Agreement requires the Company to deliver or cause to be delivered the items set forth in Schedule 7.01(h) to the Loan Agreement (collectively, the "Post-Closing Deliverables") within fourteen (14) days following the Closing Date. The failure to timely deliver any Post-Closing Deliverable constitutes a Default under Section 10.01(d) of the Loan Agreement, which, if not cured within the applicable cure period specified therein, will ripen into an Event of Default. Accordingly, it is critical that all Post-Closing Deliverables be completed, executed, and delivered on or before August 30, 2024.

Set forth below is a summary table identifying each Post-Closing Deliverable, its current status, and the action required to complete it. We have organized the table for ease of reference and follow it with additional detail on each item.

We discuss each item in greater detail below.

Item 1 — Deposit Account Control Agreement: Ridgefield National Bank (Acct ****5694 — Money Market / Reserves Account)

Status: In Progress

The Loan Agreement and the Security Agreement require the Company to deliver a Deposit Account Control Agreement ("DACA") with respect to each deposit account maintained by the Company or any Guarantor at a depository institution other than the Lender, in accordance with Articles 8 and 9 of the Uniform Commercial Code as in effect in the relevant jurisdiction. The Company currently maintains a money market and reserves account at Ridgefield National Bank, account number ending in 5694 (the "Reserves Account"). Calderwood & Harkness has prepared and circulated a draft DACA to Ridgefield National Bank's outside counsel, Arden & Lowe LLP (attention: Patricia Neville), for review and negotiation. We are currently awaiting comments from Ms. Neville's office.

Action Required: The Company should coordinate directly with its relationship manager at Ridgefield National Bank to facilitate the prompt execution of this DACA. Based on our experience, Ridgefield National Bank typically requires five to seven business days from the date it receives a final, agreed-upon form to obtain internal approvals and authorized signatures. Accordingly, we believe that execution by August 27, 2024 is achievable, provided that any comments from Arden & Lowe are received and resolved by no later than August 23, 2024. We encourage the Company to impress upon its banking contacts the urgency of this timeline.

Item 2 — Deposit Account Control Agreement: Ridgefield National Bank (Acct ****7782 — Concentration Account)

Status: In Progress

The Company also maintains a concentration account at Ridgefield National Bank, account number ending in 7782 (the "Concentration Account"). A separate DACA is required with respect to this account. We are negotiating both DACAs concurrently with Arden & Lowe LLP in order to minimize the administrative burden on Ridgefield National Bank and to streamline the execution process. Both DACAs follow the Lender's standard form, with such modifications as are customarily accepted by Ridgefield National Bank for its depositary accounts.

Action Required: Same as Item 1. The Company should coordinate with Ridgefield National Bank to ensure that both DACAs are executed simultaneously. We expect both agreements to be finalized by August 27, 2024.

Important Note Regarding Pinnacle Trust Accounts: For the avoidance of doubt, the deposit accounts maintained by the Company at Pinnacle Trust Bank, N.A. — specifically, the operating and funding account (Acct **8417) and the payroll account (Acct 3201) — do not require separate DACAs. With respect to the operating account, Pinnacle Trust is both the depository bank and the Lender, and accordingly possesses the requisite control over that account by virtue of being the bank at which the account is maintained. With respect to the payroll account (Acct **3201), this account is excluded from the DACA requirement under Section 5.12(b) of the Security Agreement as a "Payroll and Tax Account," subject to the $2,500,000 aggregate carve-out for payroll and tax accounts set forth therein. We have confirmed with the Lender's counsel, Catherine Whitfield at Whitfield Gage & Associates LLP, that no additional DACAs are required at this time.

Item 3 — Landlord Waiver: Beacon Ridge Realty Partners LLC (400 Beacon Ridge Parkway, Suite 800, Waltham, MA 02451)

Status: Pending

Section 7.01(h)(iii) of the Loan Agreement requires the Company to deliver landlord lien waivers and access agreements (each, a "Landlord Waiver") from the landlord at each location where the Company maintains a leased premises at which equipment, inventory, books and records, or other Collateral of material value is located. This location — 400 Beacon Ridge Parkway, Suite 800, Waltham, Massachusetts — is the Company's principal office and headquarters. The Company's primary equipment, books and records, and servers are located at this facility, making this Landlord Waiver particularly important for the Lender's collateral position.

Action Required: The Company's local counsel, Hargrove & Patten LLP (Lucinda Hargrove), is coordinating directly with the landlord's property manager to obtain execution of the Lender's standard form of Landlord Waiver, which was transmitted to the landlord on August 19, 2024. Ms. Hargrove has confirmed that initial contact has been made, but no substantive response has yet been received from the landlord. We will continue to monitor progress and will escalate as needed.

Item 4 — Landlord Waiver: Keystone Corporate Properties LP (1100 Commerce Boulevard, Suite 200, King of Prussia, PA 19406)

Status: Pending

This location is a satellite office of the Company where certain equipment is maintained. The Company's lease with Keystone Corporate Properties LP at this address permits the assignment of liens on personalty located at the premises, which should simplify the landlord's review and make the Landlord Waiver largely a pro forma exercise.

Action Required: Hargrove & Patten LLP is coordinating with the landlord. Given the permissive language in the underlying lease, we anticipate that the landlord's consent will be obtained without significant negotiation. However, the Company should follow up directly with its primary point of contact at Keystone Corporate Properties to ensure timely attention to the request.

Item 5 — Landlord Waiver: Cumberland Office Holdings Inc. (250 Healthway Drive, Suite 1400, Nashville, TN 37203)

Status: Pending

This location is the Company's Nashville office, which is a smaller satellite facility. While less Collateral is located at this site relative to the Waltham headquarters, a Landlord Waiver is nonetheless required under the terms of Schedule 7.01(h).

Action Required: Hargrove & Patten LLP is coordinating with the landlord, Cumberland Office Holdings Inc. We note that the Lender has indicated flexibility with respect to this particular Landlord Waiver: specifically, if the waiver cannot be obtained by the August 30, 2024 deadline, the Lender is willing to consider a reasonable extension of the post-closing period for this item, provided that (a) the Company can demonstrate that it has been using commercially reasonable efforts to obtain the waiver and (b) a mutually agreeable extension date is negotiated with the Lender (through its counsel, Whitfield Gage & Associates LLP). Notwithstanding this flexibility, we strongly recommend that the Company make every effort to deliver this Landlord Waiver by the August 30 deadline, and we will continue to work with Hargrove & Patten to that end.

Item 6 — IP Security Agreement: USPTO Recordation (Trademarks and Patents)

Status: In Progress

Under Section 5.09 of the Security Agreement, the Company and each Guarantor are required to execute and deliver short-form intellectual property security agreements suitable for recordation with the applicable federal agencies. Calderwood & Harkness has prepared short-form trademark and patent security agreements for recordation with the United States Patent and Trademark Office (the "USPTO"). These short-form agreements cover the following registered and pending intellectual property:

Trademarks:

• Trademark Registration No. 6,481,723 — ARBOR HEALTH (word mark); Owner: Arbor Health Technologies Inc.

• Trademark Registration No. 6,481,724 — ARBOR HEALTH & Design; Owner: Arbor Health Technologies Inc.

• Trademark Registration No. 6,592,108 — ARBORFLOW; Owner: Arbor Health Platform Services Inc.

Patents:

• U.S. Patent No. 11,284,671 — Clinical Workflow Orchestration System; Owner: Arbor Health Platform Services Inc.

• U.S. Patent Application No. 17/893,214 — Automated Surgical Scheduling Engine (pending); Owner: Cortland Surgical Systems, Inc.

Action Required: Calderwood & Harkness will file the short-form trademark security agreement and patent security agreement with the USPTO's Assignment Recordation Branch. We expect these filings to be submitted electronically by August 26, 2024. Processing times at the USPTO currently range from approximately three to five weeks; however, the relevant post-closing obligation is satisfied upon the submission of the filing (not upon its acceptance or issuance of a reel and frame number by the USPTO), so long as the filing is made within the post-closing period.

Item 7 — IP Security Agreement: USCO Recordation (Copyright)

Status: In Progress

In addition to the USPTO recordations described above, a short-form copyright security agreement must be recorded with the United States Copyright Office (the "USCO") to perfect the Lender's security interest in the Company's registered copyrights. Calderwood & Harkness has prepared the short-form copyright security agreement, which covers:

• Copyright Registration No. TXu 2-341-877 — ARBORFLOW Platform — Software Code; Owner: Arbor Health Platform Services Inc.

Action Required: Calderwood & Harkness will file the short-form copyright security agreement electronically through the USCO's electronic recordation system. Filing is expected to be completed by August 26, 2024. As with the USPTO filings, the post-closing obligation will be considered satisfied upon submission, and we will provide confirmation of filing to the Company and the Lender promptly upon completion.

Item 8 — Pledged Stock Certificates and Stock Powers

Status: In Progress

Under Section 5.04 of the Pledge Agreement, the Company is required to deliver to the Lender (or to the Lender's counsel to hold in escrow for the Lender) original stock certificates, membership interest certificates, or other instruments evidencing the Pledged Equity Interests, together with undated stock powers and/or transfer instruments executed in blank, with respect to the following entities:

(i) 100% of the membership interests in Arbor Health Holdings LLC, a Delaware limited liability company and direct wholly-owned subsidiary of AHT;

(ii) 100% of the issued and outstanding shares of capital stock of Arbor Health Platform Services Inc., a Delaware corporation and direct wholly-owned subsidiary of Arbor Health Holdings LLC;

(iii) 100% of the membership interests in MedBridge Workflow Solutions LLC, a Delaware limited liability company and indirect wholly-owned subsidiary of AHT, held through Arbor Health Holdings LLC; and

(iv) 100% of the issued and outstanding shares of capital stock of Cortland Surgical Systems, Inc., a Delaware corporation and indirect wholly-owned subsidiary of AHT, held through Arbor Health Holdings LLC.

Each certificate must be accompanied by an undated stock power or transfer instrument, duly executed in blank by the registered holder of such interests, in form and substance satisfactory to the Lender.

Action Required: Evan Strickland's office is currently assembling the original certificates and preparing the endorsed stock powers. We expect delivery of these items to Calderwood & Harkness by August 28, 2024. Upon receipt, we will review each certificate and stock power for completeness and conformity with the requirements of the Pledge Agreement, and will thereafter deliver them to Whitfield Gage & Associates LLP to hold for the Lender.

Note Regarding Foreign Subsidiaries: Section 5.04(b) of the Pledge Agreement limits the pledge of equity interests in first-tier foreign subsidiaries to 65% of the total outstanding voting equity interests of any such subsidiary (in order to avoid adverse tax consequences under Section 956 of the Internal Revenue Code). Based on our review of the Company's organizational chart delivered at closing, no first-tier foreign subsidiaries have been identified, and accordingly this limitation is not applicable to the current deliverables. If the Company forms or acquires any foreign subsidiary in the future, please consult with us regarding the applicability of this limitation.

II. KEY REMINDERS — ONGOING OBLIGATIONS

In addition to the Post-Closing Deliverables described above, we wish to bring to your attention certain ongoing obligations under the Loan Agreement and the other Loan Documents that will require the Company's attention in the near term. These reminders are intended to be practical and are not exhaustive of the Company's obligations under the Loan Documents; we encourage the Company to review the Loan Agreement in its entirety with its finance and legal teams.

Reminder 1 — First Interest Payment

The first quarterly interest payment under the Loan Agreement is due on September 30, 2024, which is the last Business Day of the fiscal quarter ending on that date (as required by Section 3.03(a) of the Loan Agreement). The Company should ensure that a sufficient amount is available in the operating account at Pinnacle Trust Bank, N.A. (Acct **8417) in advance of such date to fund the payment.

Based on our preliminary calculations, the estimated interest payment for the period from August 16, 2024 (the Closing Date) through September 30, 2024 will be in the range of approximately $318,000 to $320,000. The exact amount will depend on the actual number of days elapsed during the interest period and the applicable SOFR rate at the time of the relevant rate reset. For your reference, the all-in interest rate at signing was approximately 10.19%, calculated as follows:

• 1-Month Term SOFR (as of August 16, 2024): 5.34%

• SOFR Adjustment: 0.10%

• Applicable Margin: 4.75%

• All-In Rate: approximately 10.19%

Interest is computed on the basis of a 360-day year and actual days elapsed, as specified in Section 3.04 of the Loan Agreement. Because the 1-Month Term SOFR rate is subject to periodic reset, the actual interest rate applicable to any given Interest Period may differ from the rate quoted above. We recommend that the Company's treasury function confirm the applicable rate with Pinnacle Trust Bank in advance of the payment date.

Reminder 2 — Compliance Certificate

The first compliance certificate is due within forty-five (45) days after the end of the fiscal quarter ending September 30, 2024 — that is, by no later than November 14, 2024 — pursuant to Section 7.01(c) of the Loan Agreement. The compliance certificate must be signed by the Chief Financial Officer of the Company and must include detailed calculations demonstrating the Company's compliance with each of the following three financial covenants:

(a) Minimum Liquidity (Section 9.01). The Company must maintain unrestricted cash and cash equivalents of not less than $15,000,000 at all times, tested as of the last day of each calendar month.

(b) Maximum Net Leverage Ratio (Section 9.02). Total Funded Debt, minus unrestricted cash and cash equivalents (capped at $20,000,000 for purposes of this calculation), divided by trailing twelve-month Adjusted EBITDA, shall not exceed 3.50 to 1.00, tested as of the last day of each fiscal quarter.

(c) Minimum Fixed Charge Coverage Ratio (Section 9.03). Adjusted EBITDA, minus Unfinanced Capital Expenditures, divided by Fixed Charges (defined to include scheduled principal payments, cash interest expense, cash taxes paid, and restricted payments made during the measurement period), shall not be less than 1.25 to 1.00, tested as of the last day of each fiscal quarter.

Calderwood & Harkness will circulate a template for the compliance certificate, based on the form attached as Exhibit D to the Loan Agreement, in advance of the first reporting deadline so that the Company's finance team has adequate time to prepare the required calculations.

For context, the Company's financial covenant metrics as of the Closing Date, based on the closing-date financial statements delivered to the Lender, reflected substantial headroom under each covenant:

• Net Leverage Ratio at Closing: 0.18x (versus maximum of 3.50x)

• Fixed Charge Coverage Ratio at Closing: 3.76x (versus minimum of 1.25x)

• Unrestricted Cash at Closing: approximately $72,000,000 (versus minimum of $15,000,000)

While this headroom is considerable, we note that the Company should carefully monitor its covenant compliance on an ongoing basis, particularly in light of anticipated capital expenditures and any potential future draws on additional indebtedness.

Reminder 3 — Monthly Liquidity Reporting

As noted above, Section 9.01 of the Loan Agreement requires monthly testing of the minimum liquidity covenant, requiring the Company to maintain unrestricted cash and cash equivalents of not less than $15,000,000 as of the last day of each calendar month. While the Loan Agreement does not require the delivery of a formal certificate in connection with the monthly liquidity test (as distinguished from the quarterly compliance certificate described above), Calderwood & Harkness recommends that the Company institute an internal process to monitor and document its compliance with this covenant on a monthly basis.

Specifically, we suggest that the Company designate a member of its finance team to track and report unrestricted cash and cash equivalent balances as of the last day of each calendar month, and to retain such reports in its files for purposes of demonstrating compliance in the event of a Lender inquiry or audit. At closing, the Company's unrestricted cash position was approximately $72,000,000 (consisting of approximately $47,000,000 in existing cash on hand plus the $25,000,000 in bridge loan proceeds), well in excess of the $15,000,000 minimum. Maintaining this discipline will help ensure that the Company is well positioned to certify compliance when required and to identify any potential issues early.

Reminder 4 — Notification Obligations

Under Section 7.01(e) of the Loan Agreement, the Company is required to promptly notify the Lender in writing upon becoming aware of any of the following:

(a) the occurrence of any Default or Event of Default (as defined in Article X of the Loan Agreement);

(b) any event, condition, or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect (as defined in Section 1.01 of the Loan Agreement);

(c) the commencement of, or any material development in, any material litigation, arbitration, or governmental proceeding affecting the Company or any Subsidiary; and

(d) any ERISA Event (as defined in Section 1.01 of the Loan Agreement), including but not limited to any Reportable Event, the filing of a notice of intent to terminate any Pension Plan, any withdrawal from a Multiemployer Plan, or any failure to satisfy the minimum funding standards under ERISA or the Internal Revenue Code with respect to any Pension Plan.

It is important that the Company's legal department and finance team be made aware of these notification requirements so that relevant events are escalated promptly to the General Counsel's office and, where appropriate, communicated to Calderwood & Harkness for purposes of preparing the required notices.

All notices to the Lender under the Loan Agreement should be directed to:

Derek Calloway Vice President, Healthcare Finance Group Pinnacle Trust Bank, N.A. 600 Lexington Avenue, 22nd Floor New York, NY 10022

with a copy to the Lender's outside counsel:

Catherine Whitfield Whitfield Gage & Associates LLP 787 Seventh Avenue, 30th Floor New York, NY 10019

Reminder 5 — Restrictions on Indebtedness, Acquisitions, Restricted Payments, and Asset Sales

The negative covenants set forth in Article VIII of the Loan Agreement impose significant restrictions on the Company's ability to incur indebtedness, make acquisitions, declare dividends or make other restricted payments, and dispose of assets. We highlight the following restrictions for the Company's attention:

Indebtedness. The Company may not incur, create, assume, or permit to exist additional Funded Debt in excess of $2,000,000 in the aggregate without the Lender's prior written consent, other than the following categories of Permitted Debt: (i) the Bridge Loan; (ii) a Permanent Facility (as contemplated by Section 4.03); (iii) purchase money indebtedness and capital lease obligations in an aggregate principal amount not to exceed $5,000,000 at any time outstanding; and (iv) intercompany indebtedness among the Company and its wholly-owned Subsidiaries, subject to customary subordination and other conditions.

Acquisitions. The Company may not consummate any Acquisition (as defined in Section 1.01 of the Loan Agreement) with a purchase price or total consideration in excess of $7,500,000 individually, or $15,000,000 in the aggregate during the term of the Bridge Loan, without the Lender's prior written consent. Any Acquisition within these thresholds must satisfy additional conditions, including compliance with financial covenants on a pro forma basis and delivery of an updated perfection certificate.

Restricted Payments. Dividends, distributions, and other restricted payments are limited as follows: (i) dividends and distributions by Subsidiaries to the Company are permitted without restriction; (ii) share repurchases pursuant to equity compensation plans are permitted in an aggregate amount not to exceed $3,000,000 per fiscal year; and (iii) other common stock repurchases are permitted in an aggregate amount not to exceed $5,000,000 per fiscal year, in each case so long as no Default or Event of Default has occurred and is continuing or would result therefrom.

Asset Sales. Any disposition of assets (other than in the ordinary course of business) with a fair market value in excess of $5,000,000 individually, or $10,000,000 in the aggregate during any twelve-month period, triggers a mandatory prepayment obligation under Section 4.03(b) of the Loan Agreement in an amount equal to 100% of the net cash proceeds of such disposition.

We strongly recommend that the Company consult with Calderwood & Harkness before entering into any transaction that may implicate these restrictions, including any proposed borrowing, acquisition, significant capital expenditure financed with third-party debt, restricted payment, or asset disposition.

Reminder 6 — Permanent Credit Facility and Mandatory Prepayment

Under Section 4.03(a) of the Loan Agreement, the closing of any Permanent Facility (defined as any revolving credit facility, term loan, or other credit facility entered into by the Company after the Closing Date for the purpose of refinancing or replacing the Bridge Loan) triggers a mandatory prepayment of the Bridge Loan in an amount equal to 100% of the net cash proceeds received by the Company from such Permanent Facility.

We understand that the Company is currently in preliminary discussions with several banks — including Pinnacle Trust Bank, N.A., which has been shortlisted along with two other financial institutions — regarding a revolving credit facility that is expected to close in the first quarter of 2025. We note that the maturity date of the Bridge Loan is February 16, 2026 (eighteen months from the Closing Date), and while there is adequate runway, the timely negotiation and execution of a permanent credit facility is important to avoid refinancing risk and to ensure that the Company has access to a longer-term, more flexible source of capital.

Calderwood & Harkness would be pleased to represent the Company in negotiating and documenting the permanent credit facility under a separate engagement letter, and we are available to begin preliminary discussions at the Company's convenience.

III. CONCLUSION

We trust that this letter provides a comprehensive summary of the Company's post-closing obligations and key ongoing requirements under the Loan Agreement and the other Loan Documents. We will continue to monitor the progress of each Post-Closing Deliverable and will keep you informed of any developments. As noted throughout, the deadline for completion of all Post-Closing Deliverables is August 30, 2024, and we ask that the Company and its advisors treat this deadline with appropriate urgency.

Please do not hesitate to contact Claudia Merritt (212-455-7833; cmerritt@calderwoodharkness.com) or Marcus Leung (212-455-7841; mleung@calderwoodharkness.com) with any questions regarding the post-closing obligations described herein, or any other aspect of the Bridge Loan or the Loan Documents. We remain available to assist the Company with all matters arising under this transaction and look forward to continuing our work together.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Claudia Merritt Partner, Banking & Finance

cc: Evan Strickland, Chief Financial Officer, Arbor Health Technologies Inc. Marcus Leung, Calderwood & Harkness LLP Sophie Tremblay, Calderwood & Harkness LLP

No.	Item	Status	Action Required
1	Deposit Account Control Agreement — Ridgefield National Bank (Acct **5694)	In Progress	Company to coordinate execution with Ridgefield National Bank
2	Deposit Account Control Agreement — Ridgefield National Bank (Acct **7782)	In Progress	Company to coordinate execution with Ridgefield National Bank (negotiated concurrently with Item 1)
3	Landlord Waiver — Beacon Ridge Realty Partners LLC (Waltham, MA)	Pending	Hargrove & Patten LLP coordinating with landlord's property manager
4	Landlord Waiver — Keystone Corporate Properties LP (King of Prussia, PA)	Pending	Hargrove & Patten LLP coordinating with landlord
5	Landlord Waiver — Cumberland Office Holdings Inc. (Nashville, TN)	Pending	Hargrove & Patten LLP coordinating with landlord
6	IP Security Agreement — USPTO Recordation (Trademarks and Patents)	In Progress	C&H to file short-form security agreements with the USPTO
7	IP Security Agreement — USCO Recordation (Copyright)	In Progress	C&H to file short-form copyright security agreement with the USCO
8	Pledged Stock Certificates and Stock Powers	In Progress	Company to deliver original certificates and endorsed stock powers/transfer instruments

PRIVILEGED AND CONFIDENTIAL
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 44th Floor New York, NY 10006
Telephone: (212) 455-7800 Facsimile: (212) 455-7801 www.calderwoodharkness.com
August 20, 2024
Mr. Gerald Fong General Counsel & Corporate Secretary Arbor Health Technologies Inc. 400 Beacon Ridge Parkway, Suite 800 Waltham, MA 02451
Re: $25,000,000 Bridge Loan Facility — Post-Closing Obligations Matter No. 1010-00001
Dear Gerald:
We are writing in connection with that certain Bridge Loan Agreement, dated as of August 16, 2024 (as may be amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement"), by and between Arbor Health Technologies Inc., a Delaware corporation (the "Company" or "AHT"), as Borrower, and Pinnacle Trust Bank, N.A., a national banking association (the "Lender"). Capitalized terms used but not defined in this letter have the meanings assigned to such terms in the Loan Agreement.
As you know, the Loan Agreement was signed and funded on August 16, 2024 (the "Closing Date") on a sign-and-close basis, and the full $25,000,000 senior secured bridge loan was drawn at closing. We congratulate the Company on the successful closing of this transaction.
The purpose of this letter is to summarize the post-closing obligations that must be completed by August 30, 2024 — that is, within fourteen (14) days after the Closing Date — as required by Section 7.01(h) of the Loan Agreement. In addition, this letter sets forth certain key reminders regarding the Company's ongoing obligations under the Loan Agreement and the other Loan Documents. We urge you to review this letter carefully with the Company's finance team and to circulate it internally as appropriate so that the relevant personnel are fully aware of the applicable deadlines and requirements.
I. POST-CLOSING DELIVERABLES
Section 7.01(h) of the Loan Agreement requires the Company to deliver or cause to be delivered the items set forth in Schedule 7.01(h) to the Loan Agreement (collectively, the "Post-Closing Deliverables") within fourteen (14) days following the Closing Date. The failure to timely deliver any Post-Closing Deliverable constitutes a Default under Section 10.01(d) of the Loan Agreement, which, if not cured within the applicable cure period specified therein, will ripen into an Event of Default. Accordingly, it is critical that all Post-Closing Deliverables be completed, executed, and delivered on or before August 30, 2024.
Set forth below is a summary table identifying each Post-Closing Deliverable, its current status, and the action required to complete it. We have organized the table for ease of reference and follow it with additional detail on each item.
We discuss each item in greater detail below.
Item 1 — Deposit Account Control Agreement: Ridgefield National Bank (Acct ****5694 — Money Market / Reserves Account)
Status: In Progress
The Loan Agreement and the Security Agreement require the Company to deliver a Deposit Account Control Agreement ("DACA") with respect to each deposit account maintained by the Company or any Guarantor at a depository institution other than the Lender, in accordance with Articles 8 and 9 of the Uniform Commercial Code as in effect in the relevant jurisdiction. The Company currently maintains a money market and reserves account at Ridgefield National Bank, account number ending in 5694 (the "Reserves Account"). Calderwood & Harkness has prepared and circulated a draft DACA to Ridgefield National Bank's outside counsel, Arden & Lowe LLP (attention: Patricia Neville), for review and negotiation. We are currently awaiting comments from Ms. Neville's office.
Action Required: The Company should coordinate directly with its relationship manager at Ridgefield National Bank to facilitate the prompt execution of this DACA. Based on our experience, Ridgefield National Bank typically requires five to seven business days from the date it receives a final, agreed-upon form to obtain internal approvals and authorized signatures. Accordingly, we believe that execution by August 27, 2024 is achievable, provided that any comments from Arden & Lowe are received and resolved by no later than August 23, 2024. We encourage the Company to impress upon its banking contacts the urgency of this timeline.
Item 2 — Deposit Account Control Agreement: Ridgefield National Bank (Acct ****7782 — Concentration Account)
Status: In Progress
The Company also maintains a concentration account at Ridgefield National Bank, account number ending in 7782 (the "Concentration Account"). A separate DACA is required with respect to this account. We are negotiating both DACAs concurrently with Arden & Lowe LLP in order to minimize the administrative burden on Ridgefield National Bank and to streamline the execution process. Both DACAs follow the Lender's standard form, with such modifications as are customarily accepted by Ridgefield National Bank for its depositary accounts.
Action Required: Same as Item 1. The Company should coordinate with Ridgefield National Bank to ensure that both DACAs are executed simultaneously. We expect both agreements to be finalized by August 27, 2024.
Important Note Regarding Pinnacle Trust Accounts: For the avoidance of doubt, the deposit accounts maintained by the Company at Pinnacle Trust Bank, N.A. — specifically, the operating and funding account (Acct **8417) and the payroll account (Acct 3201) — do not require separate DACAs. With respect to the operating account, Pinnacle Trust is both the depository bank and the Lender, and accordingly possesses the requisite control over that account by virtue of being the bank at which the account is maintained. With respect to the payroll account (Acct **3201), this account is excluded from the DACA requirement under Section 5.12(b) of the Security Agreement as a "Payroll and Tax Account," subject to the $2,500,000 aggregate carve-out for payroll and tax accounts set forth therein. We have confirmed with the Lender's counsel, Catherine Whitfield at Whitfield Gage & Associates LLP, that no additional DACAs are required at this time.
Item 3 — Landlord Waiver: Beacon Ridge Realty Partners LLC (400 Beacon Ridge Parkway, Suite 800, Waltham, MA 02451)
Status: Pending
Section 7.01(h)(iii) of the Loan Agreement requires the Company to deliver landlord lien waivers and access agreements (each, a "Landlord Waiver") from the landlord at each location where the Company maintains a leased premises at which equipment, inventory, books and records, or other Collateral of material value is located. This location — 400 Beacon Ridge Parkway, Suite 800, Waltham, Massachusetts — is the Company's principal office and headquarters. The Company's primary equipment, books and records, and servers are located at this facility, making this Landlord Waiver particularly important for the Lender's collateral position.
Action Required: The Company's local counsel, Hargrove & Patten LLP (Lucinda Hargrove), is coordinating directly with the landlord's property manager to obtain execution of the Lender's standard form of Landlord Waiver, which was transmitted to the landlord on August 19, 2024. Ms. Hargrove has confirmed that initial contact has been made, but no substantive response has yet been received from the landlord. We will continue to monitor progress and will escalate as needed.
Item 4 — Landlord Waiver: Keystone Corporate Properties LP (1100 Commerce Boulevard, Suite 200, King of Prussia, PA 19406)
Status: Pending
This location is a satellite office of the Company where certain equipment is maintained. The Company's lease with Keystone Corporate Properties LP at this address permits the assignment of liens on personalty located at the premises, which should simplify the landlord's review and make the Landlord Waiver largely a pro forma exercise.
Action Required: Hargrove & Patten LLP is coordinating with the landlord. Given the permissive language in the underlying lease, we anticipate that the landlord's consent will be obtained without significant negotiation. However, the Company should follow up directly with its primary point of contact at Keystone Corporate Properties to ensure timely attention to the request.
Item 5 — Landlord Waiver: Cumberland Office Holdings Inc. (250 Healthway Drive, Suite 1400, Nashville, TN 37203)
Status: Pending
This location is the Company's Nashville office, which is a smaller satellite facility. While less Collateral is located at this site relative to the Waltham headquarters, a Landlord Waiver is nonetheless required under the terms of Schedule 7.01(h).
Action Required: Hargrove & Patten LLP is coordinating with the landlord, Cumberland Office Holdings Inc. We note that the Lender has indicated flexibility with respect to this particular Landlord Waiver: specifically, if the waiver cannot be obtained by the August 30, 2024 deadline, the Lender is willing to consider a reasonable extension of the post-closing period for this item, provided that (a) the Company can demonstrate that it has been using commercially reasonable efforts to obtain the waiver and (b) a mutually agreeable extension date is negotiated with the Lender (through its counsel, Whitfield Gage & Associates LLP). Notwithstanding this flexibility, we strongly recommend that the Company make every effort to deliver this Landlord Waiver by the August 30 deadline, and we will continue to work with Hargrove & Patten to that end.
Item 6 — IP Security Agreement: USPTO Recordation (Trademarks and Patents)
Status: In Progress
Under Section 5.09 of the Security Agreement, the Company and each Guarantor are required to execute and deliver short-form intellectual property security agreements suitable for recordation with the applicable federal agencies. Calderwood & Harkness has prepared short-form trademark and patent security agreements for recordation with the United States Patent and Trademark Office (the "USPTO"). These short-form agreements cover the following registered and pending intellectual property:
Trademarks:
•  Trademark Registration No. 6,481,723 — ARBOR HEALTH (word mark); Owner: Arbor Health Technologies Inc.
•  Trademark Registration No. 6,481,724 — ARBOR HEALTH & Design; Owner: Arbor Health Technologies Inc.
•  Trademark Registration No. 6,592,108 — ARBORFLOW; Owner: Arbor Health Platform Services Inc.
Patents:
•  U.S. Patent No. 11,284,671 — Clinical Workflow Orchestration System; Owner: Arbor Health Platform Services Inc.
•  U.S. Patent Application No. 17/893,214 — Automated Surgical Scheduling Engine (pending); Owner: Cortland Surgical Systems, Inc.
Action Required: Calderwood & Harkness will file the short-form trademark security agreement and patent security agreement with the USPTO's Assignment Recordation Branch. We expect these filings to be submitted electronically by August 26, 2024. Processing times at the USPTO currently range from approximately three to five weeks; however, the relevant post-closing obligation is satisfied upon the submission of the filing (not upon its acceptance or issuance of a reel and frame number by the USPTO), so long as the filing is made within the post-closing period.
Item 7 — IP Security Agreement: USCO Recordation (Copyright)
Status: In Progress
In addition to the USPTO recordations described above, a short-form copyright security agreement must be recorded with the United States Copyright Office (the "USCO") to perfect the Lender's security interest in the Company's registered copyrights. Calderwood & Harkness has prepared the short-form copyright security agreement, which covers:
•  Copyright Registration No. TXu 2-341-877 — ARBORFLOW Platform — Software Code; Owner: Arbor Health Platform Services Inc.
Action Required: Calderwood & Harkness will file the short-form copyright security agreement electronically through the USCO's electronic recordation system. Filing is expected to be completed by August 26, 2024. As with the USPTO filings, the post-closing obligation will be considered satisfied upon submission, and we will provide confirmation of filing to the Company and the Lender promptly upon completion.
Item 8 — Pledged Stock Certificates and Stock Powers
Status: In Progress
Under Section 5.04 of the Pledge Agreement, the Company is required to deliver to the Lender (or to the Lender's counsel to hold in escrow for the Lender) original stock certificates, membership interest certificates, or other instruments evidencing the Pledged Equity Interests, together with undated stock powers and/or transfer instruments executed in blank, with respect to the following entities:
(i) 100% of the membership interests in Arbor Health Holdings LLC, a Delaware limited liability company and direct wholly-owned subsidiary of AHT;
(ii) 100% of the issued and outstanding shares of capital stock of Arbor Health Platform Services Inc., a Delaware corporation and direct wholly-owned subsidiary of Arbor Health Holdings LLC;
(iii) 100% of the membership interests in MedBridge Workflow Solutions LLC, a Delaware limited liability company and indirect wholly-owned subsidiary of AHT, held through Arbor Health Holdings LLC; and
(iv) 100% of the issued and outstanding shares of capital stock of Cortland Surgical Systems, Inc., a Delaware corporation and indirect wholly-owned subsidiary of AHT, held through Arbor Health Holdings LLC.
Each certificate must be accompanied by an undated stock power or transfer instrument, duly executed in blank by the registered holder of such interests, in form and substance satisfactory to the Lender.
Action Required: Evan Strickland's office is currently assembling the original certificates and preparing the endorsed stock powers. We expect delivery of these items to Calderwood & Harkness by August 28, 2024. Upon receipt, we will review each certificate and stock power for completeness and conformity with the requirements of the Pledge Agreement, and will thereafter deliver them to Whitfield Gage & Associates LLP to hold for the Lender.
Note Regarding Foreign Subsidiaries: Section 5.04(b) of the Pledge Agreement limits the pledge of equity interests in first-tier foreign subsidiaries to 65% of the total outstanding voting equity interests of any such subsidiary (in order to avoid adverse tax consequences under Section 956 of the Internal Revenue Code). Based on our review of the Company's organizational chart delivered at closing, no first-tier foreign subsidiaries have been identified, and accordingly this limitation is not applicable to the current deliverables. If the Company forms or acquires any foreign subsidiary in the future, please consult with us regarding the applicability of this limitation.
II. KEY REMINDERS — ONGOING OBLIGATIONS
In addition to the Post-Closing Deliverables described above, we wish to bring to your attention certain ongoing obligations under the Loan Agreement and the other Loan Documents that will require the Company's attention in the near term. These reminders are intended to be practical and are not exhaustive of the Company's obligations under the Loan Documents; we encourage the Company to review the Loan Agreement in its entirety with its finance and legal teams.
Reminder 1 — First Interest Payment
The first quarterly interest payment under the Loan Agreement is due on September 30, 2024, which is the last Business Day of the fiscal quarter ending on that date (as required by Section 3.03(a) of the Loan Agreement). The Company should ensure that a sufficient amount is available in the operating account at Pinnacle Trust Bank, N.A. (Acct **8417) in advance of such date to fund the payment.
Based on our preliminary calculations, the estimated interest payment for the period from August 16, 2024 (the Closing Date) through September 30, 2024 will be in the range of approximately $318,000 to $320,000. The exact amount will depend on the actual number of days elapsed during the interest period and the applicable SOFR rate at the time of the relevant rate reset. For your reference, the all-in interest rate at signing was approximately 10.19%, calculated as follows:
•  1-Month Term SOFR (as of August 16, 2024): 5.34%
•  SOFR Adjustment: 0.10%
•  Applicable Margin: 4.75%
•  All-In Rate: approximately 10.19%
Interest is computed on the basis of a 360-day year and actual days elapsed, as specified in Section 3.04 of the Loan Agreement. Because the 1-Month Term SOFR rate is subject to periodic reset, the actual interest rate applicable to any given Interest Period may differ from the rate quoted above. We recommend that the Company's treasury function confirm the applicable rate with Pinnacle Trust Bank in advance of the payment date.
Reminder 2 — Compliance Certificate
The first compliance certificate is due within forty-five (45) days after the end of the fiscal quarter ending September 30, 2024 — that is, by no later than November 14, 2024 — pursuant to Section 7.01(c) of the Loan Agreement. The compliance certificate must be signed by the Chief Financial Officer of the Company and must include detailed calculations demonstrating the Company's compliance with each of the following three financial covenants:
(a) Minimum Liquidity (Section 9.01). The Company must maintain unrestricted cash and cash equivalents of not less than $15,000,000 at all times, tested as of the last day of each calendar month.
(b) Maximum Net Leverage Ratio (Section 9.02). Total Funded Debt, minus unrestricted cash and cash equivalents (capped at $20,000,000 for purposes of this calculation), divided by trailing twelve-month Adjusted EBITDA, shall not exceed 3.50 to 1.00, tested as of the last day of each fiscal quarter.
(c) Minimum Fixed Charge Coverage Ratio (Section 9.03). Adjusted EBITDA, minus Unfinanced Capital Expenditures, divided by Fixed Charges (defined to include scheduled principal payments, cash interest expense, cash taxes paid, and restricted payments made during the measurement period), shall not be less than 1.25 to 1.00, tested as of the last day of each fiscal quarter.
Calderwood & Harkness will circulate a template for the compliance certificate, based on the form attached as Exhibit D to the Loan Agreement, in advance of the first reporting deadline so that the Company's finance team has adequate time to prepare the required calculations.
For context, the Company's financial covenant metrics as of the Closing Date, based on the closing-date financial statements delivered to the Lender, reflected substantial headroom under each covenant:
•  Net Leverage Ratio at Closing: 0.18x (versus maximum of 3.50x)
•  Fixed Charge Coverage Ratio at Closing: 3.76x (versus minimum of 1.25x)
•  Unrestricted Cash at Closing: approximately $72,000,000 (versus minimum of $15,000,000)
While this headroom is considerable, we note that the Company should carefully monitor its covenant compliance on an ongoing basis, particularly in light of anticipated capital expenditures and any potential future draws on additional indebtedness.
Reminder 3 — Monthly Liquidity Reporting
As noted above, Section 9.01 of the Loan Agreement requires monthly testing of the minimum liquidity covenant, requiring the Company to maintain unrestricted cash and cash equivalents of not less than $15,000,000 as of the last day of each calendar month. While the Loan Agreement does not require the delivery of a formal certificate in connection with the monthly liquidity test (as distinguished from the quarterly compliance certificate described above), Calderwood & Harkness recommends that the Company institute an internal process to monitor and document its compliance with this covenant on a monthly basis.
Specifically, we suggest that the Company designate a member of its finance team to track and report unrestricted cash and cash equivalent balances as of the last day of each calendar month, and to retain such reports in its files for purposes of demonstrating compliance in the event of a Lender inquiry or audit. At closing, the Company's unrestricted cash position was approximately $72,000,000 (consisting of approximately $47,000,000 in existing cash on hand plus the $25,000,000 in bridge loan proceeds), well in excess of the $15,000,000 minimum. Maintaining this discipline will help ensure that the Company is well positioned to certify compliance when required and to identify any potential issues early.
Reminder 4 — Notification Obligations
Under Section 7.01(e) of the Loan Agreement, the Company is required to promptly notify the Lender in writing upon becoming aware of any of the following:
(a) the occurrence of any Default or Event of Default (as defined in Article X of the Loan Agreement);
(b) any event, condition, or circumstance that has had, or could reasonably be expected to have, a Material Adverse Effect (as defined in Section 1.01 of the Loan Agreement);
(c) the commencement of, or any material development in, any material litigation, arbitration, or governmental proceeding affecting the Company or any Subsidiary; and
(d) any ERISA Event (as defined in Section 1.01 of the Loan Agreement), including but not limited to any Reportable Event, the filing of a notice of intent to terminate any Pension Plan, any withdrawal from a Multiemployer Plan, or any failure to satisfy the minimum funding standards under ERISA or the Internal Revenue Code with respect to any Pension Plan.
It is important that the Company's legal department and finance team be made aware of these notification requirements so that relevant events are escalated promptly to the General Counsel's office and, where appropriate, communicated to Calderwood & Harkness for purposes of preparing the required notices.
All notices to the Lender under the Loan Agreement should be directed to:
Derek Calloway Vice President, Healthcare Finance Group Pinnacle Trust Bank, N.A. 600 Lexington Avenue, 22nd Floor New York, NY 10022
with a copy to the Lender's outside counsel:
Catherine Whitfield Whitfield Gage & Associates LLP 787 Seventh Avenue, 30th Floor New York, NY 10019
Reminder 5 — Restrictions on Indebtedness, Acquisitions, Restricted Payments, and Asset Sales
The negative covenants set forth in Article VIII of the Loan Agreement impose significant restrictions on the Company's ability to incur indebtedness, make acquisitions, declare dividends or make other restricted payments, and dispose of assets. We highlight the following restrictions for the Company's attention:
Indebtedness. The Company may not incur, create, assume, or permit to exist additional Funded Debt in excess of $2,000,000 in the aggregate without the Lender's prior written consent, other than the following categories of Permitted Debt: (i) the Bridge Loan; (ii) a Permanent Facility (as contemplated by Section 4.03); (iii) purchase money indebtedness and capital lease obligations in an aggregate principal amount not to exceed $5,000,000 at any time outstanding; and (iv) intercompany indebtedness among the Company and its wholly-owned Subsidiaries, subject to customary subordination and other conditions.
Acquisitions. The Company may not consummate any Acquisition (as defined in Section 1.01 of the Loan Agreement) with a purchase price or total consideration in excess of $7,500,000 individually, or $15,000,000 in the aggregate during the term of the Bridge Loan, without the Lender's prior written consent. Any Acquisition within these thresholds must satisfy additional conditions, including compliance with financial covenants on a pro forma basis and delivery of an updated perfection certificate.
Restricted Payments. Dividends, distributions, and other restricted payments are limited as follows: (i) dividends and distributions by Subsidiaries to the Company are permitted without restriction; (ii) share repurchases pursuant to equity compensation plans are permitted in an aggregate amount not to exceed $3,000,000 per fiscal year; and (iii) other common stock repurchases are permitted in an aggregate amount not to exceed $5,000,000 per fiscal year, in each case so long as no Default or Event of Default has occurred and is continuing or would result therefrom.
Asset Sales. Any disposition of assets (other than in the ordinary course of business) with a fair market value in excess of $5,000,000 individually, or $10,000,000 in the aggregate during any twelve-month period, triggers a mandatory prepayment obligation under Section 4.03(b) of the Loan Agreement in an amount equal to 100% of the net cash proceeds of such disposition.
We strongly recommend that the Company consult with Calderwood & Harkness before entering into any transaction that may implicate these restrictions, including any proposed borrowing, acquisition, significant capital expenditure financed with third-party debt, restricted payment, or asset disposition.
Reminder 6 — Permanent Credit Facility and Mandatory Prepayment
Under Section 4.03(a) of the Loan Agreement, the closing of any Permanent Facility (defined as any revolving credit facility, term loan, or other credit facility entered into by the Company after the Closing Date for the purpose of refinancing or replacing the Bridge Loan) triggers a mandatory prepayment of the Bridge Loan in an amount equal to 100% of the net cash proceeds received by the Company from such Permanent Facility.
We understand that the Company is currently in preliminary discussions with several banks — including Pinnacle Trust Bank, N.A., which has been shortlisted along with two other financial institutions — regarding a revolving credit facility that is expected to close in the first quarter of 2025. We note that the maturity date of the Bridge Loan is February 16, 2026 (eighteen months from the Closing Date), and while there is adequate runway, the timely negotiation and execution of a permanent credit facility is important to avoid refinancing risk and to ensure that the Company has access to a longer-term, more flexible source of capital.
Calderwood & Harkness would be pleased to represent the Company in negotiating and documenting the permanent credit facility under a separate engagement letter, and we are available to begin preliminary discussions at the Company's convenience.
III. CONCLUSION
We trust that this letter provides a comprehensive summary of the Company's post-closing obligations and key ongoing requirements under the Loan Agreement and the other Loan Documents. We will continue to monitor the progress of each Post-Closing Deliverable and will keep you informed of any developments. As noted throughout, the deadline for completion of all Post-Closing Deliverables is August 30, 2024, and we ask that the Company and its advisors treat this deadline with appropriate urgency.
Please do not hesitate to contact Claudia Merritt (212-455-7833; cmerritt@calderwoodharkness.com) or Marcus Leung (212-455-7841; mleung@calderwoodharkness.com) with any questions regarding the post-closing obligations described herein, or any other aspect of the Bridge Loan or the Loan Documents. We remain available to assist the Company with all matters arising under this transaction and look forward to continuing our work together.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Claudia Merritt Partner, Banking & Finance
cc: Evan Strickland, Chief Financial Officer, Arbor Health Technologies Inc. Marcus Leung, Calderwood & Harkness LLP Sophie Tremblay, Calderwood & Harkness LLP
No. | Item | Status | Action Required
1 | Deposit Account Control Agreement — Ridgefield National Bank (Acct **5694) | In Progress | Company to coordinate execution with Ridgefield National Bank
2 | Deposit Account Control Agreement — Ridgefield National Bank (Acct **7782) | In Progress | Company to coordinate execution with Ridgefield National Bank (negotiated concurrently with Item 1)
3 | Landlord Waiver — Beacon Ridge Realty Partners LLC (Waltham, MA) | Pending | Hargrove & Patten LLP coordinating with landlord's property manager
4 | Landlord Waiver — Keystone Corporate Properties LP (King of Prussia, PA) | Pending | Hargrove & Patten LLP coordinating with landlord
5 | Landlord Waiver — Cumberland Office Holdings Inc. (Nashville, TN) | Pending | Hargrove & Patten LLP coordinating with landlord
6 | IP Security Agreement — USPTO Recordation (Trademarks and Patents) | In Progress | C&H to file short-form security agreements with the USPTO
7 | IP Security Agreement — USCO Recordation (Copyright) | In Progress | C&H to file short-form copyright security agreement with the USCO
8 | Pledged Stock Certificates and Stock Powers | In Progress | Company to deliver original certificates and endorsed stock powers/transfer instruments

PRIVILEGED AND CONFIDENTIAL

I. POST-CLOSING DELIVERABLES

III. CONCLUSION

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts