PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
Prepared in advance of January 22, 2024 public S-1 filing. Calderwood & Harkness LLP, 125 Broad Street, New York, NY 10004
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I. Executive Summary
This memorandum analyzes whether Arbor Health Technologies Inc. ("AHT" or the "Company"), a Delaware corporation headquartered at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, satisfies the quantitative and qualitative listing standards of the New York Stock Exchange (the "NYSE") for the listing of its common stock, par value $0.001 per share, under the proposed ticker symbol "ARHT" in connection with its proposed initial public offering (the "IPO"). The Company's Registration Statement on Form S-1 (the "Registration Statement") is expected to be filed publicly with the Securities and Exchange Commission (the "SEC") on January 22, 2024, bearing SEC File No. 333-276841, CIK No. 0001987432, under Standard Industrial Classification Code 7372 (Prepackaged Software). The CUSIP number assigned to the Company's common stock is 039217105.
Based on our analysis, AHT satisfies all applicable initial listing standards under the NYSE Listed Company Manual (the "Manual"), including the quantitative distribution standards set forth in Section 102.01A, the financial standards set forth in Section 102.01C (under both the Earnings Test (Standard I) and the Market Capitalization/Revenue Test (Standard IV)), and the qualitative corporate governance standards set forth in Section 303A of the Manual. With respect to the corporate governance requirements, our analysis considers the controlled company exception under Section 303A.00, which we conclude is not applicable to AHT following the IPO based on the termination of the Amended and Restated Voting Agreement upon the closing of the offering and the absence of any post-IPO contractual arrangement binding stockholders to vote together. AHT's compliance with the board and committee independence requirements is subject to reliance on the applicable phase-in periods available to newly listed companies in connection with an IPO, and certain action items relating to the completion of independence determinations for investor-designated directors must be resolved within the time frames set forth herein.
The proposed listing involves the offering by the Company of 20,000,000 shares of common stock (the "base offering"), with the underwriters having an option to purchase up to 3,000,000 additional shares to cover overallotments (the "overallotment option"), at a public offering price of $20.00 per share (revised from the initially filed range of $17.00 to $19.00 per share). Continental Share Services, Inc., 1 Ashbury Asset Advisors Plaza, 30th Floor, New York, New York 10004, will serve as the transfer agent and registrar for the Company's common stock. Toppan Quillon Health IT, 35 West Wacker Drive, Chicago, Illinois 60601, has been engaged as the Company's financial printer and EDGAR filing agent.
The following sections of this memorandum provide a detailed analysis of each applicable NYSE listing requirement. Section II describes the framework of applicable listing standards. Section III analyzes AHT's compliance with quantitative listing standards. Section IV analyzes AHT's compliance with Section 303A corporate governance standards, including a detailed controlled company exception analysis and board and committee independence assessments. Section V confirms AHT's status as a domestic issuer. Section VI addresses listing fee obligations. Section VII provides a summary of recommendations and key action items, including a phase-in compliance calendar. Section VIII identifies the exhibits and attachments referenced herein.
II. Applicable Listing Standards Framework
The NYSE Listed Company Manual establishes both quantitative and qualitative requirements that a company must satisfy in order to list its securities on the NYSE. The relevant standards for purposes of AHT's proposed listing are set forth in Sections 102.01A through 102.01C (quantitative initial listing standards) and Sections 303A.00 through 303A.14 (corporate governance standards).
Quantitative Standards. Section 102.01A establishes distribution standards applicable to all initial listings, including minimum requirements for the number of round lot holders, the number of publicly held shares, and the aggregate market value of publicly held shares. Section 102.01C establishes alternative financial standards, one of which a company must satisfy in order to list. These alternative standards include the Earnings Test (Standard I), the Valuation/Revenue Test (Standard II), the Affiliated Company Test (Standard III), and the Market Capitalization/Revenue Test (Standard IV), among others. As discussed in Section III below, AHT intends to qualify under the Earnings Test (Standard I) or, alternatively, under the Market Capitalization/Revenue Test (Standard IV), given the Company's fiscal year 2023 revenue of $612.4 million and post-IPO market capitalization of approximately $2,060,000,000.
Corporate Governance Standards. Section 303A of the Manual establishes corporate governance requirements applicable to all NYSE-listed domestic companies, subject to certain exceptions and phase-in provisions. These requirements include, among others, the requirement for a majority independent board (Section 303A.01), the requirement for regularly scheduled executive sessions of non-management directors (Section 303A.03), the requirement for a fully independent nominating and corporate governance committee (Section 303A.04), the requirement for a fully independent compensation committee (Section 303A.05), and the requirements for an independent audit committee meeting heightened independence standards (Sections 303A.06 and 303A.07). Section 303A.00 provides an exemption from certain of these requirements for "controlled companies" — that is, companies in which more than 50% of the voting power for the election of directors is held by an individual, a group, or another company.
Domestic Company Standards. AHT intends to list under the domestic company standards of the NYSE. AHT is incorporated in the State of Delaware and has its principal executive offices in Cambridge, Massachusetts. The Company does not qualify as a "foreign private issuer" as defined in Rule 3b-4 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and accordingly is not eligible for the accommodations available to foreign private issuers under Section 303A.11 of the Manual. As a domestic issuer, AHT must comply fully with all applicable provisions of Section 303A, subject only to the controlled company exception (if applicable) and the phase-in provisions available in connection with an IPO.
Controlled Company Exception. A threshold question for the Section 303A analysis is whether AHT will qualify as a "controlled company" following the IPO, which would exempt AHT from the requirements for a majority independent board (Section 303A.01), a fully independent nominating and corporate governance committee (Section 303A.04), and a fully independent compensation committee (Section 303A.05). This question turns on whether any individual, group, or entity will hold more than 50% of the voting power for the election of directors following the consummation of the offering. As discussed in detail in Section IV.A below, this analysis requires an assessment of post-IPO ownership concentrations, particularly the holdings of Brindoval Trelvon Partners Fund IV, L.P. ("Brindoval Summit" or "CSP"), which will hold approximately 27.18% of the outstanding common stock post-IPO, and Ridgeline Growth Equity Fund III, LLC ("Ridgeline" or "RGE"), which will hold approximately 15.53% of the outstanding common stock post-IPO, as well as the holdings of the Company's co-founders.
III. Quantitative Listing Standards Analysis
A. Distribution Standards (Section 102.01A)
Section 102.01A of the Manual establishes the minimum distribution standards that must be satisfied in connection with an original listing. The following subsections analyze AHT's compliance with each applicable distribution criterion.
1. Minimum Number of Round Lot Holders
NYSE Requirement. Section 102.01A requires that a company listing its common stock on the NYSE have at least 400 holders of 100 shares or more (commonly referred to as "round lot holders"). This requirement is designed to ensure that the listed security has a sufficient base of public shareholders to support an active and liquid trading market.
Analysis. AHT's IPO consists of a base offering of 20,000,000 shares of common stock, with the underwriters holding an option to purchase up to 3,000,000 additional shares to cover overallotments, at a public offering price of $20.00 per share. The total offering size ranges from $400,000,000 (base offering) to $460,000,000 (with full exercise of the overallotment option). The managing underwriters for the offering — Whitfield Barrow & Co., LLC, as representative of the underwriters, together with Calloway Pierce Securities LLC, Velthorn Capital Partners Inc., and Pemberton Wallis LLC — have confirmed that the distribution plan for the offering targets a number of round lot holders that will significantly exceed the 400-holder minimum. Based on our experience with IPOs of comparable size in the healthcare technology and software-as-a-service sectors, an offering of this magnitude (exceeding $400 million in gross proceeds) typically results in distribution to well in excess of 1,000 round lot holders, given standard institutional and retail allocation patterns. The Company's profile as a high-growth healthcare technology company with strong revenue metrics is expected to attract broad institutional interest across diversified, growth-oriented, and sector-specific investment mandates, further supporting a wide distribution.
We note that the actual number of round lot holders will not be definitively confirmed until after the allocation process is complete, which typically occurs on the pricing date. Accordingly, we recommend that the Company coordinate with Whitfield Barrow & Co., LLC, as representative of the underwriters, to confirm the round lot holder count promptly following allocation.
Status: Expected to satisfy. The distribution plan, the size and profile of the offering, and confirmation from the underwriters collectively support the expectation that the 400 round lot holder minimum will be met by a substantial margin.
2. Minimum Number of Publicly Held Shares
NYSE Requirement. Section 102.01A requires that there be at least 1,100,000 shares held in the public float at the time of listing. For purposes of this calculation, "publicly held shares" are determined by subtracting from the total shares outstanding all shares held by directors, officers, or their immediate families, as well as all other concentrated holdings of 10% or more of the total shares outstanding.
Analysis. In the IPO, AHT is offering 20,000,000 shares to the public (base offering), with the underwriters having an option to purchase up to 3,000,000 additional shares. Upon full exercise of the overallotment option, a total of 23,000,000 shares will be distributed to public investors through the offering. These shares will constitute the initial public float.
The Company's pre-IPO stockholders — including the co-founders, Dr. Nathaniel Rourke and Margaret Tsujimoto, and the principal stockholders, Brindoval Trelvon Partners Fund IV, L.P. and Ridgeline Growth Equity Fund III, LLC — hold a combined total of approximately 80,000,000 pre-IPO shares. All of these pre-IPO shares are subject to 180-day lock-up agreements in favor of Whitfield Barrow & Co., LLC, as representative of the underwriters. These insider and affiliate shares would not be counted in the public float for purposes of the Section 102.01A analysis.
Even in the base offering scenario (without exercise of the overallotment option), the 20,000,000 shares offered to the public exceed the 1,100,000-share minimum by a factor of more than 18 times. With full exercise of the overallotment option, the 23,000,000 shares in the public float exceed the minimum by a factor of approximately 21 times. There is no reasonable scenario in which the public float would fall below the required threshold.
Status: Satisfied. The public float of 23,000,000 shares (assuming full exercise of the overallotment option) exceeds the 1,100,000-share minimum by a factor of approximately 21 times.
3. Aggregate Market Value of Publicly Held Shares
NYSE Requirement. Section 102.01A requires that the aggregate market value of publicly held shares be at least $40,000,000 for a company listing in connection with an IPO.
Analysis. Based on the public offering price of $20.00 per share and 23,000,000 shares in the public float (assuming full exercise of the overallotment option), the aggregate market value of publicly held shares is:
23,000,000 shares × $20.00 per share = $460,000,000
This amount exceeds the $40,000,000 threshold by a factor of more than 11 times. Even in the base offering scenario (20,000,000 shares at $20.00 per share = $400,000,000), the aggregate market value of publicly held shares exceeds the minimum by a factor of 10 times. Moreover, even at the bottom of the originally filed price range ($17.00 per share), the aggregate market value in the base offering scenario ($17.00 × 20,000,000 = $340,000,000) would exceed the $40,000,000 minimum by a factor of more than 8.5 times.
Status: Satisfied. The aggregate market value of publicly held shares of $460,000,000 exceeds the $40,000,000 minimum by a wide margin under all pricing scenarios.
B. Financial Standards (Section 102.01C)
Section 102.01C of the Manual establishes the financial standards that must be satisfied for an original listing. AHT expects to qualify under the Earnings Test (Standard I) or, alternatively, under the Market Capitalization/Revenue Test (Standard IV). Each is analyzed below.
1. Earnings Test (Standard I)
NYSE Requirement. Standard I of Section 102.01C requires that a company demonstrate aggregate pre-tax earnings from continuing operations of at least $10,000,000 over the three most recent fiscal years, with a minimum of $2,000,000 in pre-tax earnings in each of the two most recent fiscal years, and positive pre-tax earnings in all three fiscal years.
Analysis. Based on the financial information available to us, AHT reported net income of approximately $41.3 million for the fiscal year ended December 31, 2023 ("FY2023"). The Company's revenue has grown from approximately $478.4 million in FY2022 to $612.4 million in FY2023, reflecting strong operational momentum. While the FY2023 net income figure alone strongly suggests that the $10,000,000 three-year aggregate threshold will be met, a complete analysis under Standard I requires confirmation of the Company's pre-tax earnings for fiscal years 2021 and 2022 from the Company's independent registered public accounting firm, Kellerman & Associates LLP. In particular, we need to confirm that (a) pre-tax earnings in FY2022 were at least $2,000,000; (b) pre-tax earnings in FY2021 were positive; and (c) the aggregate pre-tax earnings over FY2021, FY2022, and FY2023 meet the $10,000,000 threshold.
Given the Company's strong FY2023 profitability and the revenue growth trajectory from FY2022 to FY2023, we believe it is likely that the Earnings Test will be satisfied. However, we note that the Company was in an earlier stage of growth during FY2021 and earlier, and there is some risk that FY2021 pre-tax earnings may have been negative or minimal, particularly if the Company was still investing heavily in product development and customer acquisition during that period. We recommend that the working group confirm the FY2021 and FY2022 pre-tax earnings figures with Kellerman & Associates LLP as soon as practicable.
Status: Expected to satisfy, subject to confirmation of FY2021 and FY2022 pre-tax earnings data from the Company's independent auditors.
2. Alternative: Market Capitalization / Revenue Test (Standard IV)
NYSE Requirement. Standard IV of Section 102.01C provides an alternative financial standard requiring (a) global market capitalization of at least $200,000,000 and (b) revenue of at least $100,000,000 in the most recently completed fiscal year.
Analysis. AHT expects to satisfy both elements of Standard IV by a wide margin:
Global Market Capitalization. Following the consummation of the IPO and the full exercise of the overallotment option, AHT will have 103,000,000 shares of common stock outstanding, calculated as follows:
80,000,000 pre-IPO shares + 20,000,000 base offering shares + 3,000,000 overallotment shares = 103,000,000 shares
At the IPO price of $20.00 per share, the Company's global market capitalization will be:
103,000,000 shares × $20.00 per share = $2,060,000,000
This exceeds the $200,000,000 threshold by a factor of more than 10 times. Even at the bottom of the originally filed price range ($17.00 per share), the global market capitalization would be:
103,000,000 shares × $17.00 per share = $1,751,000,000
This would still exceed the $200,000,000 threshold by a factor of approximately 8.75 times. There is no realistic pricing scenario within or near the filing range that would result in a failure to satisfy this criterion.
Revenue. The Company reported revenue of $612,400,000 for FY2023. This exceeds the $100,000,000 revenue threshold by a factor of more than 6 times.
Status: Satisfied. Both the global market capitalization and revenue requirements of Standard IV are met by substantial margins under all pricing scenarios.
3. Minimum IPO Price
NYSE Requirement. Section 102.01C requires that the price per share at the time of listing be at least $4.00.
Analysis. The IPO price of $20.00 per share exceeds the $4.00 minimum by a factor of 5 times. The initially filed price range was $17.00 to $19.00 per share; the revised range is $18.00 to $20.00 per share. All price points within both the initial and revised filing ranges significantly exceed the $4.00 threshold. This requirement presents no compliance concern whatsoever.
Status: Satisfied.
C. Summary of Quantitative Standards Compliance
The following table summarizes AHT's compliance with each applicable quantitative listing standard:
As reflected in the table above, AHT satisfies all applicable quantitative listing standards by substantial margins. Even under the most conservative pricing assumptions (the bottom of the originally filed range of $17.00 per share) and assuming only the base offering (without exercise of the overallotment option), every quantitative threshold would still be exceeded by a wide margin.
IV. Corporate Governance Standards — Section 303A Analysis
Section 303A of the Manual establishes the corporate governance requirements applicable to NYSE-listed domestic companies. This section analyzes AHT's compliance with each applicable requirement, beginning with the threshold controlled company exception analysis.
A. Controlled Company Exception Analysis (Section 303A.00)
1. The Controlled Company Standard
Section 303A.00 of the Manual provides that a "controlled company" — defined as a company of which more than 50% of the voting power for the election of directors is held by an individual, a group, or another company — is exempt from certain independence requirements that would otherwise apply. Specifically, a controlled company is exempt from: (a) the requirement for a majority independent board (Section 303A.01); (b) the requirement for a fully independent nominating and corporate governance committee (Section 303A.04); and (c) the requirement for a fully independent compensation committee (Section 303A.05). A controlled company is not exempt from the audit committee independence requirements under Sections 303A.06 and 303A.07 or from Rule 10A-3 under the Exchange Act.
The determination of whether a company is a "controlled company" is critical because it defines the scope of corporate governance obligations that must be satisfied at listing and within the applicable phase-in periods.
2. Post-IPO Ownership Analysis
Following the consummation of the IPO and the full exercise of the overallotment option, the post-IPO ownership of AHT's common stock will be as follows:
No single stockholder will hold more than 50% of the voting power following the IPO. Brindoval Summit, as the largest single stockholder, will hold approximately 27.18% of the outstanding common stock, well below the 50% threshold. Even the combined holdings of Brindoval Summit and Ridgeline (44,000,000 shares, or 42.72%) do not reach 50%. The combined holdings of Brindoval Summit, Ridgeline, Dr. Rourke, and Ms. Tsujimoto total 66,400,000 shares, or 64.47% of the outstanding shares, which would exceed the 50% threshold — but only if these holders were determined to constitute a "group" for purposes of the controlled company test.
3. Analysis of Whether a "Group" Exists
The determination of whether multiple stockholders constitute a "group" for purposes of the controlled company exception is a facts-and-circumstances analysis. Relevant factors include (a) the existence of voting agreements or arrangements among the stockholders, (b) the existence of board designation rights or observer rights that effectively coordinate the stockholders' influence over the company, (c) the nature and extent of any commercial relationships among the stockholders, and (d) any other evidence of a coordinated plan or understanding to act together with respect to the election of directors or other governance matters.
We have reviewed the following relevant agreements:
Amended and Restated Voting Agreement. AHT, Brindoval Summit, Ridgeline, Dr. Rourke, and Ms. Tsujimoto are parties to an Amended and Restated Voting Agreement dated as of March 14, 2021 (the "Voting Agreement"). The Voting Agreement provides for mutual voting commitments among the parties with respect to board composition and certain protective provisions. Critically, the Voting Agreement terminates by its terms upon the consummation of the IPO. Following the IPO, no party will have any contractual obligation to vote its shares in coordination with any other party.
Registration Rights Agreement. AHT, Brindoval Summit, Ridgeline, Dr. Rourke, and Ms. Tsujimoto are parties to a Registration Rights Agreement dated as of March 14, 2021, as amended (the "Registration Rights Agreement"). The Registration Rights Agreement provides customary demand and piggyback registration rights and includes standstill provisions restricting the timing and manner of certain sales of registrable securities. However, the Registration Rights Agreement does not contain any voting arrangements and does not require or contemplate coordinated action with respect to the election of directors or other governance matters.
Amended and Restated Certificate of Incorporation. AHT's Amended and Restated Certificate of Incorporation (to be filed upon the closing of the IPO) provides for a single class of common stock with one vote per share. It does not grant any stockholder special voting rights, class voting rights, or board designation rights.
Board Designation Practices. While Brindoval Summit and Ridgeline each have designees on the Board (Leonard Corbett and Diana Coltrane for Brindoval Summit; Howard Feng for Ridgeline), these designations are the result of informal arrangements and prior governance practices rather than contractual rights that survive the IPO. Following the closing of the offering, neither Brindoval Summit nor Ridgeline will have a contractual right to designate directors.
4. Conclusion on Controlled Company Status
Based on the foregoing analysis, we conclude that AHT is not expected to qualify as a controlled company under Section 303A.00 of the Manual following the consummation of the IPO. No single stockholder will hold more than 50% of the voting power, and the principal stockholders are not expected to constitute a "group" within the meaning of the controlled company test. The Voting Agreement — the only contractual arrangement that bound the major stockholders to vote together — will terminate by its terms upon the IPO. While the combined holdings of Brindoval Summit, Ridgeline, Dr. Rourke, and Ms. Tsujimoto represent approximately 64.47% of the outstanding shares, the absence of any post-IPO voting agreement or other contractual arrangement requiring coordinated action, combined with the diverse and potentially divergent interests of the respective parties, supports the conclusion that no "group" exists for purposes of the controlled company test.
Recommendation. If, notwithstanding the foregoing analysis, the NYSE or the Company's advisors were to determine that the principal stockholders constitute a "group" (for example, by virtue of board designation practices, course of dealing, or other factors), AHT could elect to rely on the controlled company exception and would disclose such reliance in the prospectus as required by Section 303A.00 of the Manual. However, based on the current facts and analysis, we recommend that the Company proceed on the basis that it is not a controlled company and that it comply with all standard corporate governance requirements, subject to the applicable phase-in periods for newly listed companies.
B. Board Independence — Majority Independent Board Requirement (Section 303A.01)
1. NYSE Requirement
Section 303A.01 of the Manual requires that a majority of the directors of a NYSE-listed company be independent. Under Section 303A.02, a director qualifies as independent only if the board of directors affirmatively determines that the director has no material relationship with the listed company, either directly or as a partner, stockholder, or officer of an organization that has a relationship with the company. Section 303A.02 also sets forth specific categorical disqualifications (referred to as "bright-line" tests), including, among others, (a) current employment by the company or employment within the last three years, (b) receipt of more than $120,000 in direct compensation from the company in any twelve-month period within the last three years (other than director and committee fees and pension or other forms of deferred compensation for prior service), (c) being a partner or employee of the company's internal or external auditor within specified time periods, and (d) interlocking directorate relationships with another company whose compensation committee includes an officer of the listed company.
2. Post-IPO Board Composition
Following the IPO, AHT's board of directors will consist of seven directors. The following is our preliminary assessment of the independence of each director:
1. Dr. Nathaniel Rourke — Chairman and Chief Executive Officer. Dr. Rourke is the co-founder of AHT and serves as the Company's Chairman of the Board and Chief Executive Officer. As a current executive officer of the Company, Dr. Rourke is categorically disqualified from independence under Section 303A.02(b)(i). Classification: Not Independent.
2. Margaret Tsujimoto — Co-Founder and Chief Technology Officer. Ms. Tsujimoto is the co-founder of AHT and serves as the Company's Chief Technology Officer. As a current executive officer of the Company, Ms. Tsujimoto is categorically disqualified from independence under Section 303A.02(b)(i). Classification: Not Independent.
3. Leonard Corbett — Managing Partner, Brindoval Trelvon Partners. Mr. Corbett serves as a director of AHT as a designee of Brindoval Trelvon Partners Fund IV, L.P., which will hold approximately 27.18% of the Company's outstanding common stock following the IPO. Under NYSE rules, the mere fact that a director was designated by, or represents the interests of, a significant stockholder does not, in and of itself, preclude a determination of independence. However, independence requires an assessment of whether Mr. Corbett has any material relationship with AHT, either directly or through Brindoval Summit. Relevant considerations include whether Brindoval Summit or any of its affiliates has material commercial relationships with AHT (such as management, advisory, or consulting agreements pursuant to which fees are paid), whether Mr. Corbett has received compensation from AHT beyond standard director fees, and whether any interlocking directorate or other disqualifying relationships exist. Preliminary Classification: Potentially Non-Independent, pending completion of the D&O questionnaire review and assessment of Brindoval Summit's commercial relationships with AHT.
4. Diana Coltrane — Partner, Brindoval Trelvon Partners. Ms. Coltrane serves as a director of AHT as a second designee of Brindoval Trelvon Partners Fund IV, L.P. The same analysis applicable to Mr. Corbett applies to Ms. Coltrane. Her independence depends on whether she has any material relationship with AHT beyond her role as a Brindoval Summit designee, and on whether Brindoval Summit or its affiliates have material commercial relationships with the Company. Preliminary Classification: Potentially Non-Independent, pending the same review as Mr. Corbett.
5. Howard Feng — Managing Director, Ridgeline Growth Equity. Mr. Feng serves as a director of AHT as a designee of Ridgeline Growth Equity Fund III, LLC, which will hold approximately 15.53% of the Company's outstanding common stock following the IPO. As with Mr. Corbett and Ms. Coltrane, the mere fact of stockholder designation does not preclude independence, but Mr. Feng's independence must be assessed in light of any material relationships between Ridgeline and AHT, any compensation received by Mr. Feng from AHT beyond director fees, and any other disqualifying factors. Preliminary Classification: Potentially Non-Independent, pending completion of the independence review.
6. Carolyn Whittemore — Independent Director. Ms. Whittemore has no current or recent employment relationship with AHT, has not received compensation from AHT other than standard director and committee fees, and has no material relationship with AHT, its management, or its major stockholders, based on our review of her D&O questionnaire responses. No categorical disqualification applies. Classification: Independent.
7. Dr. Samuel Obadina — Independent Director. Dr. Obadina has no current or recent employment relationship with AHT, has not received compensation from AHT other than standard director and committee fees, and has no material relationship with AHT, its management, or its major stockholders, based on our review of his D&O questionnaire responses. No categorical disqualification applies. Classification: Independent.
3. Assessment of Majority Independence Requirement
Under Section 303A.01, at least four of the seven directors must be independent in order to achieve a majority independent board. Currently, two directors (Whittemore and Obadina) are clearly independent, and two directors (Rourke and Tsujimoto) are clearly not independent. The independence of the remaining three directors (Corbett, Coltrane, and Feng) is under review.
If all three investor designees (Corbett, Coltrane, and Feng) are determined to be independent, the board would have five independent directors out of seven, comfortably exceeding the majority threshold. If two of the three are determined to be independent, the board would have four independent directors, which would also satisfy the majority requirement. If only one of the three is determined to be independent, the board would have three independent directors out of seven, which would fall short of the majority requirement at listing but would still satisfy the applicable phase-in rule for newly listed IPO companies.
4. IPO Phase-In Provisions
Section 303A.00 of the Manual provides that a company listing in connection with its IPO may avail itself of the following phase-in period for board independence: at least one independent director at the time of listing, with the board achieving a majority of independent directors within one year of the listing date. AHT has at least two independent directors (Whittemore and Obadina) at listing, which exceeds the phase-in requirement of one independent director at listing.
Under the most conservative analysis — assuming that Corbett, Coltrane, and Feng are all determined to be non-independent — the board would consist of two independent directors and five non-independent directors at listing. This would comply with the phase-in rule requiring at least one independent director at listing, but AHT would need to add additional independent directors or have some of the investor designees qualify as independent within one year of the listing date (i.e., by approximately February 13, 2025) in order to achieve a majority independent board.
5. Recommendation. We recommend that the Company complete the independence assessment for Leonard Corbett, Diana Coltrane, and Howard Feng as promptly as practicable based on their D&O questionnaire responses, including a thorough review of any commercial relationships between Brindoval Summit, Ridgeline, and their respective affiliates, on the one hand, and AHT, on the other. The results of this assessment should be disclosed in the prospectus. If any of the three investor designees qualify as independent, the disclosure should reflect the board's affirmative independence determination and the basis therefor. If the majority independence threshold cannot be met at listing, the prospectus should disclose the Company's reliance on the phase-in provisions of Section 303A.00, along with the anticipated timeline for achieving full compliance.
C. Audit Committee Requirements (Sections 303A.06, 303A.07; Rule 10A-3)
1. Composition and Independence
NYSE Requirement. Sections 303A.06 and 303A.07 of the Manual, together with Rule 10A-3 under the Exchange Act, require that the audit committee consist of a minimum of three members, all of whom must satisfy the general independence requirements of Section 303A.02 and the heightened independence requirements of Rule 10A-3. Under Rule 10A-3(b)(1), an audit committee member may not, directly or indirectly, accept any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries (other than in his or her capacity as a member of the board of directors and any board committee), and may not be an "affiliated person" of the issuer or any subsidiary thereof. An "affiliated person" includes, among others, a person who directly or indirectly controls, is controlled by, or is under common control with, the issuer, which may include executive officers of entities that are 10% or greater beneficial owners of the issuer's outstanding equity securities.
AHT Audit Committee Composition. Following the IPO, AHT's Audit Committee will be composed of the following three members:
Carolyn Whittemore (Chair). Ms. Whittemore is an independent director with no compensatory relationship with AHT other than standard director and committee fees. She is not an affiliated person of AHT. She satisfies both the general independence requirements of Section 303A.02 and the heightened independence requirements of Rule 10A-3. Independent for all audit committee purposes.
Dr. Samuel Obadina. Dr. Obadina is an independent director with no compensatory relationship with AHT other than standard director and committee fees. He is not an affiliated person of AHT. He satisfies both the general independence requirements of Section 303A.02 and the heightened independence requirements of Rule 10A-3. Independent for all audit committee purposes.
Howard Feng. Mr. Feng is a Managing Director of Ridgeline Growth Equity, which will hold approximately 15.53% of AHT's outstanding common stock following the IPO. His independence for audit committee purposes requires a more nuanced analysis under Rule 10A-3.
Rule 10A-3 Analysis for Howard Feng. Under Rule 10A-3(b)(1)(ii), a person is not considered independent for audit committee purposes if such person is an "affiliated person" of the issuer or any subsidiary thereof. As a managing director of Ridgeline Growth Equity, which will hold 15.53% of AHT's outstanding common stock post-IPO (a beneficial ownership percentage exceeding 10%), Mr. Feng may be considered an affiliated person of AHT by virtue of his association with a significant stockholder.
However, Rule 10A-3 includes an important safe harbor provision. Under Rule 10A-3(b)(1)(iv)(B), a person is not considered an affiliate of the issuer solely because the person is (1) a member of the board of directors and (2) the beneficial owner of less than 10% of any class of the issuer's equity securities, or an executive officer of an entity that beneficially owns less than 20% of any class of the issuer's equity securities. Ridgeline's post-IPO holdings of 15.53% are below the 20% threshold in this safe harbor provision. Accordingly, if Mr. Feng's affiliation with AHT arises solely from his role as a Ridgeline executive officer and his board membership (rather than any other material relationship), the safe harbor may apply, but the board would need to make an affirmative determination that Mr. Feng's affiliate status does not interfere with the exercise of his independent judgment as a member of the audit committee.
Separately, under Rule 10A-3(b)(1)(iv)(A), the IPO phase-in rule provides that a company listing in connection with its IPO need not have a fully independent audit committee at the time of listing. Instead, such a company must have at least one independent audit committee member at the time of listing, a majority of independent members within 90 days after listing, and a fully independent audit committee within one year after listing.
AHT currently has two clearly independent audit committee members (Whittemore and Obadina), which already exceeds the phase-in requirements for both the listing date (one independent member required) and the 90-day milestone (majority independent required — two of three members constitutes a majority). Within one year of listing, the audit committee must be fully independent. If Mr. Feng is ultimately determined not to satisfy Rule 10A-3 independence requirements, AHT will need to replace him with an independent director or obtain a satisfactory independence determination within that one-year period.
Status: Satisfies phase-in requirements at listing. Two of three members are clearly independent, exceeding the requirements for both the listing date and the 90-day milestone. Full compliance within one year will depend on the resolution of Mr. Feng's independence status or the appointment of a replacement independent audit committee member.
2. Financial Literacy and Audit Committee Financial Expert
NYSE Requirement. Section 303A.07(a) of the Manual requires that all members of the audit committee be financially literate, as determined by the board of directors in its business judgment, or must become financially literate within a reasonable period of time after appointment to the audit committee. In addition, at least one member of the audit committee must have "accounting or related financial management expertise," which the NYSE has interpreted to encompass the criteria for an "audit committee financial expert" as defined in Item 407(d)(5) of Regulation S-K under the Securities Act of 1933, as amended.
Analysis.
Carolyn Whittemore. The board intends to designate Ms. Whittemore as the audit committee financial expert. Based on our review of her D&O questionnaire responses and biographical materials (to be confirmed in the final prospectus), Ms. Whittemore possesses the requisite accounting and financial management expertise, including through her prior board service and professional background. The specific basis for her designation will be disclosed in the prospectus.
Dr. Samuel Obadina. Based on his prior professional and board experience, Dr. Obadina is financially literate within the meaning of Section 303A.07(a).
Howard Feng. As a managing director at Ridgeline Growth Equity with significant investment oversight responsibilities, Mr. Feng possesses the financial literacy required by Section 303A.07(a).
Status: Satisfied. All three audit committee members are financially literate, and Ms. Whittemore has been designated as the audit committee financial expert.
3. Audit Committee Charter
NYSE Requirement. Section 303A.07(b) of the Manual requires that the audit committee have a written charter that addresses the committee's purpose and responsibilities, including (a) the committee's authority to engage independent advisors, (b) the committee's responsibility for the appointment, compensation, retention, and oversight of the work of the independent registered public accounting firm, (c) procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters, including procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters (the "whistleblower" requirement), and (d) appropriate funding for the committee's operations, including the engagement of independent advisors and the independent auditor.
Analysis. AHT has adopted an Audit Committee Charter that will become effective upon the consummation of the IPO. We have reviewed the Audit Committee Charter for compliance with Section 303A.07(b) requirements. The charter addresses the committee's authority to engage independent counsel and other advisors, its oversight responsibilities with respect to the Company's external auditor (Kellerman & Associates LLP), complaint and whistleblower procedures for the receipt and treatment of concerns regarding accounting and auditing matters, and the committee's access to appropriate funding. The charter also addresses the committee's role in reviewing the Company's annual and quarterly financial statements, overseeing the Company's internal audit function, and monitoring compliance with legal and regulatory requirements.
Status: Compliant.
D. Compensation Committee Requirements (Section 303A.05)
NYSE Requirement. Section 303A.05 of the Manual requires that listed companies maintain a compensation committee composed entirely of independent directors. The compensation committee must have a written charter addressing the committee's purpose and responsibilities, including the authority to retain and terminate any compensation consultant or other advisor and the authority to approve the consultant's or advisor's fees and other retention terms.
AHT Compensation Committee Composition. Following the IPO, AHT's Compensation Committee will be composed of the following three members:
Dr. Samuel Obadina (Chair). Dr. Obadina is an independent director and satisfies the independence requirements applicable to compensation committee membership under Section 303A.05. Independent.
Diana Coltrane. Ms. Coltrane is a designee of Brindoval Trelvon Partners Fund IV, L.P. (27.18% holder). Her independence is under review as discussed in Section IV.B above. Under NYSE rules, compensation committee members must satisfy both the general independence requirements of Section 303A.02 and the additional independence factors set forth in Section 303A.02(a)(ii), which require the board to consider whether the director receives compensation from the company other than director fees and whether the director is affiliated with the company, a subsidiary of the company, or an affiliate of a subsidiary of the company. If Ms. Coltrane is determined to be non-independent, the phase-in provisions described below will apply. Independence under review.
Carolyn Whittemore. Ms. Whittemore is an independent director and satisfies all applicable independence requirements. Independent.
Phase-In Provisions. Section 303A.05 provides that a company listing in connection with its IPO must have at least one independent compensation committee member at the time of listing, a majority of independent members within 90 days after listing, and a fully independent compensation committee within one year after listing. AHT has at least two independent compensation committee members at listing (Obadina and Whittemore), which exceeds the requirements for both the listing date and the 90-day milestone.
Compensation Consultant. The Compensation Committee has engaged Hargrove Prindaux Advisory Group LLC, 1600 Market Street, Suite 3400, Philadelphia, Pennsylvania 19103, as its independent compensation consultant to advise the Committee on IPO-readiness compensation matters, including the design and implementation of executive compensation programs and equity incentive plans appropriate for a publicly traded company.
Compensation Committee Charter. AHT has adopted a Compensation Committee Charter that will become effective upon the consummation of the IPO. The charter addresses the committee's authority to retain and terminate compensation consultants and other advisors, the committee's responsibility for reviewing and approving executive officer compensation, and the committee's role in overseeing the Company's equity incentive plans and other compensation programs.
Status: Satisfies phase-in requirements at listing. Full compliance expected within one year, contingent on the resolution of Ms. Coltrane's independence status or committee reconstitution.
E. Nominating and Corporate Governance Committee Requirements (Section 303A.04)
NYSE Requirement. Section 303A.04 of the Manual requires that listed companies maintain a nominating and corporate governance committee composed entirely of independent directors. The committee must have a written charter addressing, among other things, the committee's purpose and responsibilities, including identification and evaluation of director candidates, and the development and recommendation of corporate governance principles applicable to the company.
AHT Nominating and Corporate Governance Committee Composition. Following the IPO, AHT's Nominating and Corporate Governance Committee will be composed of the following three members:
Leonard Corbett (Chair). Mr. Corbett is a designee of Brindoval Trelvon Partners Fund IV, L.P. His independence is under review as discussed in Section IV.B above. Independence under review.
Howard Feng. Mr. Feng is a designee of Ridgeline Growth Equity Fund III, LLC. His independence is under review as discussed in Section IV.B above. Independence under review.
Dr. Samuel Obadina. Dr. Obadina is an independent director. Independent.
Phase-In Analysis. If both Mr. Corbett and Mr. Feng are determined to be non-independent, the Nominating and Corporate Governance Committee would have only one independent member (Dr. Obadina) at listing. Under the phase-in provisions of Section 303A.04, a company listing in connection with its IPO must have at least one independent member on the nominating and corporate governance committee at the time of listing, a majority of independent members within 90 days after listing, and a fully independent committee within one year after listing.
AHT satisfies the one-member-at-listing requirement with Dr. Obadina. However, if both Corbett and Feng are non-independent, AHT would need to achieve a majority independent committee (i.e., at least two independent members) within 90 days of listing and a fully independent committee within one year. This may require the appointment of additional independent directors to the committee or the reconstitution of committee membership.
Nominating and Corporate Governance Committee Charter. AHT has adopted a Nominating and Corporate Governance Committee Charter that will become effective upon the consummation of the IPO. The charter addresses the committee's responsibilities for identifying and evaluating director candidates, recommending nominees for election to the board, developing and recommending corporate governance principles, and overseeing the annual evaluation of the board and its committees.
Recommendation. AHT should plan proactively for potential committee reconstitution within the applicable phase-in periods, particularly the 90-day milestone for majority independence. If the independence assessments for Corbett and Feng are favorable, no reconstitution will be needed. However, if both are determined to be non-independent, AHT should identify and appoint at least one additional independent director to the Nominating and Corporate Governance Committee within 90 days of listing.
Status: Satisfies phase-in requirements at listing. Future reconstitution may be necessary depending on the outcome of the independence assessments.
F. Additional Corporate Governance Requirements
1. Corporate Governance Guidelines (Section 303A.09)
NYSE Requirement. Section 303A.09 of the Manual requires that listed companies adopt and disclose corporate governance guidelines addressing a range of governance matters, including director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, director orientation and continuing education, management succession, and annual performance evaluation of the board.
Analysis. AHT has adopted Corporate Governance Guidelines that will become effective upon the consummation of the IPO. The Corporate Governance Guidelines address the following topics, among others: board composition and size; director independence criteria, including the criteria set forth in Section 303A.02 of the Manual; the role of the lead independent director (if designated); board meeting procedures and frequency; the process for CEO evaluation; management succession planning; stock ownership guidelines for directors and executive officers; and director continuing education. The Corporate Governance Guidelines will be made available on the Company's corporate website.
Status: Compliant.
2. Code of Business Conduct and Ethics (Section 303A.10)
NYSE Requirement. Section 303A.10 of the Manual requires that listed companies adopt and disclose a code of business conduct and ethics applicable to all directors, officers, and employees. The code must address, at a minimum, conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of company assets, compliance with laws, rules, and regulations (including insider trading laws), and the process for reporting illegal or unethical behavior.
Analysis. AHT has adopted a Code of Business Conduct and Ethics (the "Code") that will become effective upon the consummation of the IPO. The Code applies to all employees, officers, and directors of the Company and its subsidiaries and covers conflicts of interest, confidentiality of company information, insider trading prohibitions, anti-corruption and anti-bribery compliance (including compliance with the Foreign Corrupt Practices Act), whistleblower protections for individuals who report potential violations in good faith, and the process for waivers and amendments of the Code (which must be disclosed on the Company's website to the extent required by NYSE rules). The Code will be posted on the Company's corporate website prior to or promptly following the listing date.
Status: Compliant.
3. CEO Certification (Section 303A.12)
NYSE Requirement. Section 303A.12(a) of the Manual requires that the chief executive officer of each listed company certify to the NYSE annually that he or she is not aware of any violation by the company of NYSE corporate governance listing standards, qualifying such certification to the extent necessary to indicate any material qualifications. In addition, an interim CEO certification is required within 30 days after the date on which the company's securities first trade on the NYSE in connection with an IPO.
Analysis. Dr. Nathaniel Rourke, as Chairman and Chief Executive Officer of AHT, will be responsible for providing both the interim CEO certification (within 30 days after listing) and the annual CEO certification thereafter. The interim certification will be required by approximately March 14, 2024 (30 days after the expected listing date of February 13, 2024).
Status: Noted; will comply post-listing. We will prepare the form of CEO certification for Dr. Rourke's review and execution promptly following listing.
4. Annual Written Affirmation (Section 303A.12(b))
NYSE Requirement. Section 303A.12(b) of the Manual requires that each listed company provide a written affirmation to the NYSE annually and on an interim basis within specified time frames, confirming compliance with applicable NYSE corporate governance standards. The affirmation must address, among other things, the composition and independence of the board and its committees, the adoption and maintenance of required charters and governance documents, and any changes in the company's compliance status.
Analysis. AHT will be required to submit its first annual written affirmation following the conclusion of the fiscal year in which it lists (i.e., following the end of fiscal year 2024). In addition, interim affirmations may be required in the event of any material change in the Company's compliance status, such as a change in the independence status of a director or a failure to satisfy a committee composition requirement.
Status: Noted; will comply post-listing.
5. Non-Executive Sessions (Section 303A.03)
NYSE Requirement. Section 303A.03 of the Manual requires that the non-management directors of each listed company meet at regularly scheduled executive sessions without management present. If the group of non-management directors includes directors who are not independent under the NYSE's independence standards, the independent directors of the company must also meet separately in executive session at least once per year. The company must disclose a method by which interested parties may communicate directly with the presiding director of such sessions or with the non-management directors as a group.
Analysis. AHT's Corporate Governance Guidelines provide for regularly scheduled executive sessions of the non-management directors, to be held in connection with regularly scheduled meetings of the full board. If any of the non-management directors (Corbett, Coltrane, Feng, Whittemore, or Obadina) are determined to be non-independent, the Corporate Governance Guidelines also provide for separate executive sessions of the independent directors at least once per year. The presiding director for non-management executive sessions will be designated by the board. A method for interested parties to communicate with the non-management directors will be posted on the Company's corporate website.
Status: Compliant.
6. Classified Board / Anti-Takeover Provisions
Analysis. AHT's Amended and Restated Certificate of Incorporation (the "Charter"), which will be filed with the Secretary of State of the State of Delaware on the closing date of the IPO (expected February 13, 2024), includes the following governance and anti-takeover provisions:
(a) Classified Board. The Charter provides for a classified board of directors, divided into three classes (Class I, Class II, and Class III), with directors in each class serving staggered three-year terms. Approximately one-third of the board will stand for election at each annual meeting of stockholders.
(b) Prohibition on Stockholder Action by Written Consent. The Charter provides that stockholders may not take action by written consent in lieu of a meeting following the IPO. All stockholder actions must be taken at a duly called annual or special meeting of stockholders.
(c) Supermajority Vote to Amend Bylaws. The Charter requires the affirmative vote of the holders of at least 66⅔% of the voting power of the outstanding shares of capital stock entitled to vote thereon in order for stockholders to amend, alter, or repeal any provision of the Company's Amended and Restated Bylaws (the "Bylaws").
(d) Advance Notice Bylaw. The Bylaws include an advance notice provision requiring that stockholder proposals and director nominations be submitted not earlier than 120 days and not later than 90 days before the first anniversary of the preceding year's annual meeting (the "advance notice window").
(e) Blank Check Preferred Stock. The Charter authorizes the board of directors to issue up to 50,000,000 shares of preferred stock in one or more series, with such designations, powers, preferences, and rights as the board may determine (commonly referred to as "blank check" preferred stock authority).
(f) Section 203 of the DGCL. The Charter does not opt out of Section 203 of the Delaware General Corporation Law, which imposes restrictions on certain business combinations between a Delaware corporation and interested stockholders (generally, holders of 15% or more of the corporation's outstanding voting stock).
All of the foregoing provisions are permissible under NYSE listing standards. The NYSE does not prohibit classified boards, supermajority voting provisions, blank check preferred stock, or other anti-takeover measures, although the NYSE does have requirements relating to stockholder approval of certain equity issuances and other transactions (see Section IV.F.7 below). These provisions will be disclosed in the prospectus and the Charter and Bylaws will be filed as exhibits to the Registration Statement.
Status: Permissible; no NYSE compliance issue.
7. Stockholder Approval Requirements (Section 312)
NYSE Requirement. Section 312 of the Manual requires stockholder approval for certain significant transactions by NYSE-listed companies, including (a) the adoption of equity compensation plans and material amendments thereto, (b) certain issuances of common stock (or securities convertible into common stock) involving 20% or more of the outstanding shares or voting power, (c) certain issuances to related parties, and (d) certain issuances that would result in a change of control.
Analysis. AHT has adopted two equity compensation plans that will become effective upon the consummation of the IPO:
(a) 2024 Equity Incentive Plan. The 2024 Equity Incentive Plan (the "2024 EIP") reserves 10,300,000 shares of common stock for issuance pursuant to stock options, restricted stock awards, restricted stock units, stock appreciation rights, and other equity-based awards. The 2024 EIP includes an annual "evergreen" provision that automatically increases the share reserve on the first day of each fiscal year by an amount equal to 3% of the total number of shares of common stock outstanding on the last day of the prior fiscal year (or such lesser number as determined by the board of directors). The 2024 EIP has been approved by the Company's stockholders prior to the IPO by written consent.
(b) 2024 Employee Stock Purchase Plan. The 2024 Employee Stock Purchase Plan (the "2024 ESPP") reserves 2,060,000 shares of common stock for issuance. The 2024 ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended, and provides for semi-annual offering periods with a purchase price equal to 85% of the lesser of the fair market value of the common stock on the first day of the offering period and the last day of the applicable purchase period (representing a 15% discount). The 2024 ESPP has been approved by the Company's stockholders prior to the IPO by written consent.
Both plans were approved by the Company's stockholders prior to the IPO and will be disclosed as pre-IPO-approved plans in the prospectus. Under NYSE rules, equity compensation plans adopted prior to a company's listing are generally not subject to the post-listing stockholder approval requirements of Section 312, provided that they are disclose