Contract analysis

I. Introduction and Purpose This memorandum summarizes and provides our recommended responses to the initial markup of the draft Executive Employment Agreement (the "Agreement") received from Fielding & Rowe LLP ("F&R"), counsel to Dr. Marcus J. Elliston ("Dr. Elliston" or the "Executive"), on August 19, 2022. The first draft of the Agreement was transmitted by Calderwood & Harkness LLP ("C&H" or "we") on behalf of A

II. Executive Summary of Key Issues The table below provides a high-level summary of the ten most significant issues raised in the F&R markup, together with our recommended posture and estimated cost impact. Each issue is discussed in greater detail in the sections that follow. As summarized above, our recommendations are designed to hold the line on the most consequential financial issues — particularly the CIC equi

III. Detailed Analysis — Compensation Terms A. Base Salary ($575,000) F&R's markup does not propose any changes to the base salary amount of Five Hundred Seventy-Five Thousand Dollars ($575,000) per annum, which is consistent with the Internal Term Sheet and falls at approximately the 60th percentile for COO-level base compensation among the Broadleaf Report peer group. No action is required on this point. F&R did, h

1. Target and Maximum Bonus Opportunities. F&R accepted the annual bonus target of seventy-five percent (75%) of base salary ($431,250 at current base salary) and the maximum bonus opportunity of one hundred fifty percent (150%) of target ($646,875) without change. These amounts are consistent with the Internal Term Sheet and are at approximately the 55th percentile (target) and 50th percentile (maximum) of the Broad

2. Guaranteed Minimum Bonus in Year 1. F&R proposes a guaranteed minimum annual bonus of fifty percent (50%) of target ($215,625) for the first fiscal year of Dr. Elliston's employment. F&R's cover letter explains that this request is premised on the fact that Dr. Elliston would join AHT on November 1, 2022, partway through the fiscal year, and would therefore have limited ability to influence company performance res

3. Bonus Performance Metrics. F&R requests that specific performance metrics for the annual bonus be attached as an exhibit to the Agreement and approved by the Board Compensation Committee within sixty (60) days of Dr. Elliston's start date. F&R further proposes that the metrics be subject to "mutual agreement" between the Executive and the Board Compensation Committee, effectively giving Dr. Elliston a veto right o

4. Bonus Payment Timing. F&R requests that annual bonus payments be made within sixty (60) days after the end of each fiscal year. The current draft does not specify a precise payment deadline but states that bonuses will be paid "as soon as administratively practicable" following the end of the fiscal year. Recommendation: Accept. A sixty-day payment deadline is consistent with the short-term deferral exception unde

1. Clawback Period. F&R proposes reducing the clawback period from twenty-four (24) months to twelve (12) months. F&R's cover letter argues that a twenty-four month clawback is "punitive" and exceeds market norms for C-suite signing bonuses. We disagree with F&R's characterization. The Broadleaf Report indicates that signing bonus clawback periods for COO-level positions in the peer group range from twelve (12) to tw

2. Clawback on Termination Without Cause. F&R proposes that no clawback apply if the Company terminates the Executive's employment without Cause. Under the current draft, the clawback applies to all terminations within the twenty-four month period other than termination due to death or disability. Recommendation: Accept. This is a reasonable market position. It would be inequitable to require the Executive to repay a

3. Pro-Rata Clawback Reduction. F&R proposes that the clawback amount be reduced on a pro-rata basis over the twenty-four month period, such that one twenty-fourth (1/24th) of the signing bonus is forgiven for each full month of employment completed by the Executive. Under the current draft, the full $250,000 is subject to clawback at any point during the twenty-four month period. Recommendation: Accept. A pro-rata c

1. Standard Benefits. F&R's markup accepted, without material change, the following elements of the benefits package as set forth in the first draft: • Health insurance (medical, dental, and vision) on the same terms as other senior executives of AHT; • Company-paid life insurance with a death benefit of $1,150,000 (equal to two times (2×) base salary); • Long-term disability insurance providing benefits equal to six

2. Executive Physical Exam Program. F&R accepted AHT's offer to cover the cost of an annual comprehensive executive physical examination at a provider of the Executive's choosing. No changes were proposed. No action is required.

3. Relocation Allowance. The first draft included a relocation allowance of up to $75,000 to cover reasonable moving and relocation expenses. F&R's markup notes that this provision is inapplicable, as Dr. Elliston currently resides in Wellesley, Massachusetts, approximately twelve (12) miles from AHT's headquarters in Cambridge, Massachusetts. F&R requests deletion of the relocation provision in its entirety. Recomme

IV. Detailed Analysis — Equity Awards A. Stock Options (1.25% of Fully Diluted Equity)

1. Grant Size. F&R accepted the proposed stock option grant covering one and one-quarter percent (1.25%) of AHT's fully diluted equity as of the date of grant, without change. This grant size is consistent with the Internal Term Sheet and falls at approximately the 55th percentile for COO-level initial option grants among the Broadleaf Report peer group of PE-backed healthcare IT companies. No action is required.

2. Vesting Schedule. F&R accepted the proposed four-year vesting schedule, with twenty-five percent (25%) of the shares subject to the option vesting on the first anniversary of the grant date (the "cliff") and the remaining seventy-five percent (75%) vesting in equal monthly installments over the subsequent thirty-six (36) months, in each case subject to the Executive's continued employment through the applicable ve

3. Exercise Price. F&R accepted that the per-share exercise price of the option will be equal to the fair market value ("FMV") of a share of AHT common stock as of the date of grant. F&R requested that the Agreement specify that FMV will be determined by an independent third-party valuation (i.e., a Section 409A valuation performed by a qualified independent appraiser), rather than by the Board of Directors in its di

4. Post-Termination Exercise Period. The current draft provides that, upon termination of employment for any reason other than Cause, the Executive will have ninety (90) days following the date of termination to exercise any vested and unexercised stock options. Upon termination for Cause, all options (vested and unvested) are immediately forfeited. F&R proposes extending the post-termination exercise period from nin

1. Grant Size. F&R accepted the proposed restricted stock unit ("RSU") grant covering one-half of one percent (0.50%) of AHT's fully diluted equity as of the date of grant, without change. This grant size is consistent with the Internal Term Sheet and falls at approximately the 50th percentile for COO-level initial RSU grants in the Broadleaf Report peer group. No action is required.

2. Vesting Schedule. F&R accepted the proposed three-year annual vesting schedule, under which one-third (33.33%) of the RSUs vest on each of the first, second, and third anniversaries of the grant date, subject to the Executive's continued employment through each applicable vesting date. This is a standard RSU vesting schedule for C-suite executives at PE-backed companies. No changes were proposed. No action is requ

3. Settlement Timing. F&R requests that vested RSUs be settled (i.e., shares delivered) within thirty (30) days following each applicable vesting date. The current draft states that settlement will occur "as soon as administratively practicable" following vesting, without specifying a precise deadline. Recommendation: Accept. Thirty-day settlement following vesting is standard and is compliant with Section 409A under

1. Current Draft. The current draft provides that, upon a qualifying termination (defined as termination by the Company without Cause or resignation by the Executive for Good Reason) that does not occur within twenty-four (24) months following a Change in Control, twenty-five percent (25%) of the Executive's then-unvested stock options and RSUs will immediately vest and become exercisable or settled, as applicable.

2. F&R Proposal. F&R proposes increasing the non-CIC acceleration percentage from twenty-five percent (25%) to fifty percent (50%) of unvested equity. F&R's cover letter characterizes this as necessary to provide the Executive with adequate downside protection, particularly given the four-year vesting schedule on the stock options and the Executive's decision to leave a senior role at Pinnacle (though we note that Dr

1. Current Draft (Double-Trigger). The current draft provides for one hundred percent (100%) acceleration of all unvested stock options and RSUs upon a "qualifying termination" (termination without Cause or resignation for Good Reason) that occurs within twenty-four (24) months following a Change in Control (as defined in the Agreement). This is a "double-trigger" acceleration provision, meaning that two events must

2. F&R Proposal (Single-Trigger). F&R proposes replacing the double-trigger structure with a "single-trigger" acceleration provision, under which one hundred percent (100%) of all unvested equity would vest immediately upon the occurrence of any Change in Control event, regardless of whether the Executive's employment is subsequently terminated. F&R's cover letter argues that single-trigger acceleration is necessary

V. Detailed Analysis — Severance and Termination Provisions A. Definition of "Cause" The definition of "Cause" is a critical provision in any executive employment agreement, as it determines the circumstances under which the Company may terminate the Executive's employment without triggering severance obligations. The current draft defines Cause to include the following categories: (i) conviction of, or plea of guilt

1. Cure Period. F&R requests the addition of a written-notice and thirty (30) day cure period for all Cause events that are capable of cure. The current draft provides a cure period only for category (iii) (willful failure to perform duties) and category (iv) (material breach of the Agreement). Recommendation: Accept. A thirty-day cure period for curable Cause events is standard in C-suite employment agreements and i

3. Removal of "Disrepute" Trigger. F&R proposes deleting category (vi) in its entirety, arguing that "conduct that brings the Company into material disrepute" is vague, subjective, and potentially overbroad. Recommendation: Accept. We agree that the "disrepute" trigger is vulnerable to challenge on grounds of vagueness and subjectivity, and we are aware of at least one Massachusetts Superior Court decision (unreporte

4. Board Super-Majority Vote. F&R proposes adding a requirement that any determination of Cause be made by a super-majority vote of seventy-five percent (75%) of the non-employee members of the Board of Directors. The current draft does not specify a voting threshold for Cause determinations. Recommendation: Reject. A seventy-five percent super-majority requirement is above-market and could effectively give a single

1. Relocation Trigger Threshold. F&R proposes reducing the relocation trigger from fifty (50) miles to twenty-five (25) miles. F&R argues that a fifty-mile relocation would be a significant disruption for a Boston-area executive, and that twenty-five miles is the more common threshold in comparable agreements. Recommendation: Accept. A twenty-five mile relocation trigger is reasonable for an executive based in the gr

2. Material Diminution of Duties. F&R proposes adding a new Good Reason trigger for any "material diminution of the Executive's duties, authority, or responsibilities," even in the absence of a change in the Executive's title. Under the current draft, Good Reason is triggered only by a material diminution of "title or reporting line," which could theoretically permit the Company to strip the COO of substantive respon

3. Material Reduction in Target Bonus Opportunity. F&R proposes adding a new Good Reason trigger for any "material reduction in the Executive's target annual bonus opportunity." The current draft addresses only base salary reductions. Recommendation: Counter. We recognize that a significant reduction in the Executive's target bonus opportunity could have a substantial impact on total compensation and that it is reaso

4. Board Nomination. F&R proposes adding a Good Reason trigger for the Company's "failure to nominate the Executive to the Board of Directors if initially promised." F&R's cover letter acknowledges that no board seat is currently contemplated in the term sheet but includes this language as a "placeholder." Recommendation: Reject. No board seat has been discussed or promised to Dr. Elliston, and the Internal Term Shee

5. Reporting Structure. F&R proposes adding a Good Reason trigger requiring that the Executive "report directly to the Chief Executive Officer of the Company at all times," such that any change in reporting structure (e.g., requiring the COO to report to the Board of Directors, a division president, or another officer) would constitute Good Reason. Recommendation: Accept. This request is consistent with Exhibit A to

6. Procedural Requirements. The current draft requires the Executive to provide the Company with written notice of the existence of a Good Reason condition within thirty (30) days of the Executive's knowledge of the condition, and provides the Company with thirty (30) days to cure the condition following receipt of such notice. F&R proposes extending the cure period from thirty (30) days to ninety (90) days. F&R's co

7. Cost Impact. Expanding the Good Reason definition increases the universe of circumstances under which the Executive may trigger a qualifying termination and receive full severance benefits. The incremental cost exposure is inherently difficult to quantify because it depends on the probability that any of the newly added triggers will be invoked. However, the addition of the "material diminution of duties" and "rep

1. Current Draft. Under the current draft, if the Executive is terminated without Cause or resigns for Good Reason (and the termination does not occur within twenty-four months following a Change in Control), the Executive is entitled to the following severance benefits, subject to execution and non-revocation of the general release of claims: • Twelve (12) months of continued base salary ($575,000), payable in regul

2. F&R Proposed Changes. F&R's markup proposes the following increases to the non-CIC severance package: • Increase the cash severance from twelve (12) months to eighteen (18) months of base salary ($575,000 × 1.5 = $862,500); • Replace the pro-rata actual-performance bonus with a full target bonus ($431,250), regardless of the timing of termination or actual company performance; • Increase COBRA continuation from tw

3. Recommendations. Cash Severance. Counter — maintain twelve (12) months. The Broadleaf Report shows that twelve months of base salary continuation is at the 50th percentile for COO-level non-CIC severance in PE-backed healthcare IT companies. Eighteen months would place Dr. Elliston's severance above the 75th percentile, which is inconsistent with AHT's stated philosophy of targeting the 50th to 60th percentile for

1. Current Draft. Under the current draft, if the Executive experiences a qualifying termination (without Cause or for Good Reason) within twenty-four (24) months following a Change in Control, the Executive is entitled to the following enhanced severance benefits, subject to execution and non-revocation of the general release: • Twenty-four (24) months of base salary ($575,000 × 2 = $1,150,000), payable in a lump su

2. F&R Proposed Changes. F&R proposes the following increases: • Increase the cash severance multiple from two times (2×) to two and one-half times (2.5×) base salary ($575,000 × 2.5 = $1,437,500); • Increase the bonus multiple from two times (2×) to two and one-half times (2.5×) target bonus ($431,250 × 2.5 = $1,078,125); • Increase COBRA continuation from eighteen (18) to twenty-four (24) months ($2,150 × 24 = $51,

3. Recommendations. Cash and Bonus Multiples. Reject the 2.5× request; maintain 2× as currently drafted. The Broadleaf Report shows that a 2× multiple for both base salary and bonus is at the 60th to 65th percentile for COO-level CIC severance in PE-backed healthcare companies. A 2.5× multiple would place Dr. Elliston's CIC severance at or above the 90th percentile — well above the Company's target percentile range —

1. Current Draft. The current draft includes a "best-net cutback" provision, under which the Executive's parachute payments (as defined in Section 280G of the Internal Revenue Code) will be reduced to the "safe harbor" amount (i.e., three times the Executive's base amount minus one dollar) if, and only if, the after-tax benefit to the Executive would be greater after such reduction than the after-tax benefit the Exec

2. F&R Proposal. F&R proposes replacing the best-net cutback with a full tax gross-up provision, under which the Company would pay the Executive an additional amount sufficient to cover any excise tax imposed on excess parachute payments under Section 4999, as well as any income and excise taxes imposed on the gross-up payment itself (a "gross-up on the gross-up"). Under this approach, the Executive would receive the

3. Recommendation: Reject. We strongly recommend that AHT decline the gross-up request and maintain the best-net cutback provision. Our reasons are as follows: First, tax gross-up provisions for golden parachute payments are increasingly disfavored in current market practice. The trend has been overwhelmingly away from gross-ups and toward best-net cutback provisions, particularly at PE-backed companies. The Broadlea

1. Current Draft. Schedule B to the Agreement sets forth the form of general release of claims that the Executive must execute as a condition to receiving severance benefits. Under the current draft, the Executive must execute the release within twenty-one (21) days of the date of termination (consistent with the Age Discrimination in Employment Act, 29 U.S.C. § 626(f)), and the Executive has a seven (7) day revocati

2. F&R Proposed Changes. F&R proposes three modifications to the release provisions: (a) Mutual Release. F&R requests that the release be mutual — i.e., that the Company also release the Executive from claims, in addition to the Executive releasing the Company. (b) Carve-Outs. F&R requests the addition of specific carve-outs from the Executive's release for claims relating to: (i) vested benefits under the Company's

3. Recommendations. Mutual Release. Counter. We agree in principle that a mutual release is appropriate in the context of a negotiated separation, as it provides certainty to both parties and facilitates a clean break. However, we recommend that the Company's release of the Executive expressly exclude claims arising from: (i) fraud or intentional misconduct by the Executive; (ii) breach of the Executive's obligations

VI. Detailed Analysis — Restrictive Covenants A. Non-Competition. The Restrictive Covenant Agreement includes a post-termination non-competition covenant that restricts the Executive from engaging in competitive activities for a specified period following termination of employment. F&R's markup raises four issues with respect to the non-competition provisions.

1. Duration. The current draft provides for a non-competition period of eighteen (18) months following the date of termination. F&R proposes reducing this period to twelve (12) months. Recommendation: Accept. This is not a concession; it is a legal compliance matter. The Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L (the "MNAA"), which took effect on October 1, 2018, and applies to noncompetition a