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HARDESTY & HANOVER, LLC Notes to Statement of Direct Labor, Fringe Benefits and General Overhead For the Year Ended December 31, 2019 NOTE 8: MEMBER AND EMPLOYEE RELATED OBLIGATIONS One remaining senior founding member has elected the “income” retirement payout rather than the “vested unit” retirement payout. This member’s retirement payout will be paid for ten years, equal to a percentage of the average of the member’s total annual compensation (Salary plus any profit and bonus distributions) for the three calendar year period immediately preceding the year of the member’s voluntary withdrawal. The member shall also receive a return of their capital account value which shall be calculated and paid in four equal quarterly installments, without interest. The member’s retirement date has not been determined. The Company has commitments to all other members for the value of outstanding vested units and members’ capital account balances. If a member wants to voluntarily withdraw from the Company, written notice must be given to the Company. Upon withdrawal from the Company, the member’s capital account including the current year’s profit/loss would be paid to the member in four quarterly payments. The member’s vested units will be paid over a period of years. The payout of the member’s vested units would begin one year after the withdrawal. The fair market value is determined by an outside valuation professional. As of December 31, 2019, no liability has been recorded as it has not been considered probable that a withdrawal will occur. As of August 1, 2018, Hardesty & Hanover, LLC has offered an employee phantom option units under a grant agreement known as the 2015 Phantom Unit Option Plan. The Plan is intended to comply with the terms and conditions required for current non-recognition of deferred compensation within the meaning of sector 409A of the Internal Revenue Code of 1986. The Company’s Board of Managers will determine the value of the grant price per phantom unit. One hundred percent of the phantom units subject to the option shall vest on January 1, 2023 and the grantee shall have no rights as an LLC Member with respect to the option. The Company shall treat the option as exercised upon grantee’s exercise date without further action by grantee and shall pay to the grantee the option benefit, if any, that shall be the amount equal to the excess of the exercise price over the grant price per phantom unit for all the vested units, as determined by the Board of Managers in accordance with the Plan. As of December 31, 2019 the option had not been exercised and no liability has been recorded on the books regarding this plan. There are no costs included in the Statement of Direct Labor, Fringe Benefits and General Overhead of Hardesty & Hanover, LLC. NOTE 9: CAPTIVE INSURANCE COMPANY In 2018, the Company purchased shares in a captive insurance company, Revolution, which provides general liability insurance coverage to the Company. Premiums paid to the captive insurance company are treated as an ordinary business expense and the initial capital contribution of $36,000 is shown on the balance sheet as an asset. Furthermore there is a cash security deposit in the amount of $166,664 recorded as a deposit since it is never expected to be used unless the captive insurance company defaults on an obligation. As per FAR 31.205-18 costs of $344,918 were appropriately included in the Statement of Direct Labor, Fringe Benefits and General Overhead of Hardesty & Hanover, LLC. These expenses are not in excess of third party insurance costs. -14-