Carbon Health Technologies, Inc. and its affiliated debtors have filed a motion seeking bankruptcy court approval for two employee compensation programs totaling approximately $2.79 million. The motion, filed on February 17, 2026, in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, requests authorization for a Key Employee Incentive Plan covering three senior executives and a Key Employee Retention Plan for forty non-insider employees.
Company Background
Carbon Health Technologies, Inc. has its principal place of business at 500 East Remington Drive, Suite 20, Sunnyvale, California. The company filed for Chapter 11 bankruptcy protection on February 2, 2026, and continues to operate its business as a debtor in possession. At the time of filing, the company employed approximately 1,420 individuals. No trustee or examiner has been appointed in the case. The Official Committee of Unsecured Creditors was appointed on February 16, 2026. The motion states that the Debtors commenced the Chapter 11 cases either to reorganize or, in the alternative, to conduct an expedited sale process and wind down the Debtors' remaining business.
The Proposed Employee Programs
The motion outlines two distinct programs that collectively cover 43 individuals the Debtors describe as essential to the success of the Chapter 11 cases. The Debtors enlisted financial advisor Alvarez & Marsal to assist in designing both programs, citing the firm's experience with executive compensation in bankruptcy proceedings and access to extensive industry compensation data. Alvarez & Marsal reviewed sale-based incentive programs and retention-based programs approved for similarly-sized companies in recent Chapter 11 cases. The programs underwent multiple rounds of revision before being submitted for consideration to the Debtors' board of directors. Future Solution Investments LLC, the Debtors' prepetition and proposed postpetition secured lender, supports both programs and has agreed to the use of DIP funds to cover the associated costs.
Key Employee Incentive Plan
The KEIP covers three members of the Debtors' senior leadership team and provides performance-based bonuses. Bonuses are payable based on one of two scenarios: a sale or series of sales of substantially all of the Debtors' assets, or confirmation of a plan of reorganization, which may occur following the sale of a portion of the Debtors' assets. The target bonus pool totals $1.2 million, with the opportunity to earn 50 percent of target amounts at threshold performance levels and up to 200 percent at maximum performance levels.
Bonus payments are contingent on the Debtors achieving specific levels of "Total Consideration Provided," a metric defined in the motion as the sum of the dollar value of current debt converted to equity, the dollar value of all debt assumed, and all proceeds realized from the sale of the Debtors' assets during the bankruptcy period. If threshold performance levels are not met, no bonuses are earned. Earned bonuses would be paid within 30 days following plan confirmation following emergence from bankruptcy protection or the closing of the sale process.
The KEIP supersedes any existing severance obligations to participants. Participants terminated for cause or who voluntarily resign forfeit their bonus payments, while those terminated without cause, who resign for good reason, or who die or become disabled remain eligible for earned bonuses. All participants must execute releases of any claims for severance or other claims under existing bonus programs.
Key Employee Retention Plan
The KERP applies to 40 non-insider employees and provides retention-based awards calculated as a percentage of each participant's base salary. If all participants remain through the retention period, total KERP payments would be approximately $1.59 million.
The retention period runs from January 30, 2026, through July 30, 2026, though it would end earlier upon the Debtors' emergence from Chapter 11 or a change in control. Payments are structured in two installments: 30 percent within 15 days of court approval and 70 percent at the conclusion of the retention period, with both payments contingent on continued employment.
Participants who voluntarily leave or are terminated for cause before the end of the retention period forfeit unpaid installments. To receive payments, participants must sign releases of all employment-related claims against the Debtors, including severance claims. In exchange, participants who complete the retention period and execute the required releases will also receive payment of all accrued and unpaid PTO. All pre-existing severance benefits are being terminated.
According to the motion, the KERP participants, with the exception of one executive, are not responsible for setting company policy and generally do not attend senior management meetings or participate in meetings of the Debtors' board of directors. Although certain participants hold titles such as vice president, senior manager, or director, the motion states their scopes of authority are limited and their duties are generally limited to implementing tasks within a particular division or department. The one senior executive included in the KERP has received a bona fide job offer from another business at the same or greater rate of compensation.
Legal Basis
The motion seeks approval under several provisions of the Bankruptcy Code. For the KEIP, the Debtors argue the plan should be approved under Section 363(b)(1) as an appropriate exercise of business judgment and that it satisfies the "facts and circumstances" test under Section 503(c)(3). The motion states the KEIP is incentive-based rather than retention-based and therefore is not subject to the restrictions of Section 503(c)(1).
The motion analyzes the six factors established in In re Dana Corp. to support approval of both programs, addressing the relationship between plan design and desired results, the reasonableness of costs and scope, consistency with industry standards, and the due diligence and independent advisory oversight that went into plan development.
For the KERP, the Debtors argue the plan is not subject to Sections 503(c)(1) and (2) because the participants are not "insiders" as defined by the Bankruptcy Code. The Debtors additionally seek approval under Section 105(a) and characterize the payments as administrative expenses under Section 503(b)(1).
Professional Representation
The Debtors are represented by Pachulski Stang Ziehl & Jones LLP. Alvarez & Marsal serves as the Debtors' financial advisor. The case is assigned to Judge Christopher M. Lopez. A proposed order approving both programs was filed alongside the motion but had not yet been signed as of the filing date.
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