1010-00004 · Arbor Health Technologies Inc · Correspondence/Client

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

Date: August 22, 2022

From: Devon Archer, Lead Associate, Labor & Employment, Calderwood & Harkness LLP Bernard Crawford, Responsible Partner, Labor & Employment, Calderwood & Harkness LLP

To: Aaron Whitfield, General Counsel, Arbor Health Technologies Inc. Lisa Murakami, Chief Human Resources Officer, Arbor Health Technologies Inc.

Re: Summary of Fielding & Rowe LLP Markup of Executive Employment Agreement — Dr. Marcus J. Elliston (Prospective COO) and Recommended Responses

Matter No.: 1010-00004 / Client No. 81-30294

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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 Arbor Health Technologies Inc. ("AHT" or the "Company") to Catherine A. Fielding, Partner, Fielding & Rowe LLP, on August 5, 2022. An annotated copy of the F&R markup is enclosed herewith for reference.

The F&R markup contains approximately forty-seven (47) substantive comments and proposed revisions spanning the full suite of transaction documents, including the Executive Employment Agreement, the Employee Non-Competition and Non-Solicitation Agreement (the "Restrictive Covenant Agreement"), and the equity award documentation (consisting of the stock option award agreement and the restricted stock unit award agreement, each to be granted under the AHT 2020 Equity Incentive Plan, as amended May 2021). F&R's markup was prepared under the direction of Catherine A. Fielding, Partner, with support from Jonathan M. Pryce, Associate. The markup was transmitted via email to Devon Archer on August 19, 2022, at 4:17 PM EST, together with a brief cover letter outlining F&R's priorities for the negotiation.

This memorandum organizes each proposed change into one of three recommendation categories:

(a) Accept — We recommend that AHT agree to the proposed change as drafted by F&R, either because it reflects standard market practice, is legally required, or poses minimal risk or cost to the Company.

(b) Reject — We recommend that AHT decline the proposed change and retain the original language from the first draft, because the proposal poses unacceptable risk, is inconsistent with AHT's stated compensation philosophy, or would conflict with existing agreements or stakeholder expectations.

(c) Counter — We recommend that AHT propose a modified counter-position that addresses the Executive's underlying concern while better protecting the Company's interests, reducing cost exposure, or conforming to market norms.

Where applicable, we have provided an estimated impact on total compensation cost, both on a recurring annual basis and on a contingent basis (i.e., amounts payable only upon certain triggering events such as termination of employment or a change in control).

Our recommendations take into account the following key reference materials:

• The Broadleaf Compensation Advisors LLC Peer Benchmarking Report, dated June 2022, prepared by Diane K. Holbrook (the "Broadleaf Report"), which benchmarks COO-level compensation packages at peer-group companies in the PE-backed healthcare IT sector;

• The AHT internal term sheet for the Dr. Elliston recruitment, circulated by Aaron Whitfield and Lisa Murakami on July 18, 2022 (the "Internal Term Sheet");

• The existing CEO Employment Agreement between AHT and Priya Chandrasekaran, negotiated by Wentworth & Gage LLP and executed on March 15, 2021 (the "Chandrasekaran Agreement"), and the CFO Employment Agreement between AHT and Derek Solano, executed on September 1, 2021 (the "Solano Agreement"), each of which serves as a precedent for certain C-suite employment terms at AHT;

• Gregory Tan's (C&H Tax) August 22, 2022, memorandum regarding Section 409A compliance considerations (the "409A Memo"); and

• Nadia Petrov's (C&H Labor & Employment) July 25, 2022, compliance checklist memorandum regarding the Massachusetts Noncompetition Agreement Act (the "MNAA Checklist") and her August 8, 2022, memorandum regarding non-solicitation enforceability under Massachusetts common law (the "Non-Solicitation Memo").

Background. Dr. Elliston is being recruited to serve as Chief Operating Officer ("COO") of AHT, reporting directly to Chief Executive Officer Priya Chandrasekaran. The proposed start date is November 1, 2022. Dr. Elliston is currently unemployed, having departed his prior position as Senior Vice President of Operations at Pinnacle Care Systems, Inc. ("Pinnacle") in June 2022. He holds a Doctor of Medicine degree from the Johns Hopkins University School of Medicine and a Master of Business Administration from the Wharton School of the University of Pennsylvania. He brings approximately eighteen (18) years of healthcare operations experience spanning hospital system administration, population health management, and healthcare IT platform development. Dr. Elliston resides at 87 Laurel Hill Road, Wellesley, Massachusetts 02481, which is approximately twelve (12) miles from AHT's headquarters at 400 Brattle Commerce Park, Suite 1200, Cambridge, Massachusetts 02138. Accordingly, relocation is not a factor in this negotiation, and F&R has confirmed that the relocation provisions in the draft Agreement may be deleted.

We note that the timeline for finalizing the Agreement is driven by the November 1, 2022 target start date, and both parties have expressed a desire to reach agreement on principal terms by mid-September 2022, with execution of definitive documents by no later than October 15, 2022. We have structured this memorandum and our recommended next steps accordingly.

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 equity acceleration trigger, the CIC severance multiplier, and the 280G treatment — while demonstrating flexibility on issues where the F&R position is either legally compelled (as in the case of the non-compete duration), consistent with market practice, or poses minimal incremental cost or risk to AHT. A more detailed discussion of each issue follows in Sections III through VII below.

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, however, request the insertion of standard language providing that the Executive's base salary will be reviewed by the Board of Directors (or the Compensation Committee thereof) no less frequently than annually, and that such base salary may be increased but not decreased below the initial level of $575,000 without the Executive's written consent (a "salary floor" provision). This type of salary floor is customary in C-suite employment agreements and is consistent with the terms of both the Chandrasekaran Agreement and the Solano Agreement.

Recommendation: Accept. The annual review obligation with a salary floor is market-standard and does not create meaningful incremental cost exposure for AHT. It is important to note that the salary floor does not prevent AHT from adjusting other elements of compensation (e.g., bonus targets, equity awards) in future years, subject to the Good Reason provisions discussed below.

B. Annual Bonus

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 Broadleaf Report peer group, respectively. No action is required.

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 results for the stub period. F&R characterizes this as a "make-whole" element rather than a guaranteed bonus.

While we understand the Executive's concern, a guaranteed minimum bonus is inconsistent with AHT's pay-for-performance compensation philosophy and would set an unwelcome precedent for future C-suite hires. The guarantee would obligate AHT to pay $215,625 regardless of company or individual performance during the stub period, eliminating the at-risk nature of the bonus. Moreover, we note that the Chandrasekaran Agreement did not include a guaranteed minimum bonus for CEO Priya Chandrasekaran's first partial year of employment; rather, Ms. Chandrasekaran received a pro-rata bonus based on actual company performance, a structure that was negotiated by Wentworth & Gage LLP on behalf of AHT.

Recommendation: Reject. We recommend that AHT decline the guaranteed minimum bonus and instead propose that Dr. Elliston receive a pro-rata annual bonus for the stub period from November 1 through fiscal year-end, calculated based on actual company performance for the full fiscal year and prorated for the number of days of employment during the year. This approach preserves the performance-based nature of the bonus, is consistent with the Chandrasekaran Agreement precedent, and still provides Dr. Elliston with meaningful bonus upside for the partial year. If the client wishes to offer an additional concession, we could propose that the pro-rata bonus will be no less than a stated minimum (e.g., $50,000), though we do not affirmatively recommend this approach.

Cost Impact. The difference between a guaranteed minimum of $215,625 and a pro-rata actual-performance bonus could be significant in a year of below-target company performance. In a scenario where actual company performance yields a bonus payout at 25% of target, the pro-rata bonus for two months of employment would be approximately $17,969, compared to the guaranteed floor of $215,625 — a difference of $197,656.

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 over the selection of performance metrics.

We agree that it is reasonable (and indeed in both parties' interest) for performance metrics to be established promptly after the start date. However, granting the Executive a mutual-agreement right over metric design would be inconsistent with AHT's existing C-suite agreements, under which the Board Compensation Committee retains sole discretion over the establishment of performance metrics, goals, and weightings. Both the Chandrasekaran Agreement and the Solano Agreement provide that the Board Compensation Committee will establish performance metrics in consultation with the respective executive, but that the Committee retains final authority.

Recommendation: Counter. We recommend agreeing that performance metrics will be established by the Board Compensation Committee within ninety (90) days of Dr. Elliston's start date (which is the company standard and provides additional time for the Committee to consult with the new COO), but that the Committee will retain sole discretion over metric design. We would include language providing that the Committee will consult with the Executive regarding proposed metrics, which addresses Dr. Elliston's interest in having input while preserving the Committee's authority. The ninety-day period (rather than F&R's proposed sixty days) is consistent with the timeline used for both the Chandrasekaran and Solano bonus metric establishments.

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 under Section 409A of the Internal Revenue Code (which generally permits payment by the 15th day of the third month following the end of the fiscal year in which the bonus is earned). Gregory Tan has confirmed in his August 22 memo that a sixty-day payment window is compliant and poses no adverse tax consequences. This is a reasonable request that provides certainty to the Executive without creating an administrative burden for AHT.

C. Signing Bonus ($250,000)

The current draft provides for a signing bonus of Two Hundred Fifty Thousand Dollars ($250,000), payable within thirty (30) days of the Executive's start date, subject to a twenty-four (24) month repayment clawback if the Executive voluntarily resigns or is terminated for Cause. F&R's markup raises three issues with respect to the signing bonus clawback.

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 twenty-four (24) months, with a median of eighteen (18) months. A twenty-four month clawback is within the range, though at the longer end. However, we note that the signing bonus is intended in part to compensate Dr. Elliston for forfeited compensation at Pinnacle, and the twenty-four month clawback helps ensure that AHT receives an adequate return on this investment in the form of a meaningful period of employment.

Recommendation: Counter. We recommend maintaining the twenty-four (24) month clawback period for voluntary resignation and termination for Cause, but accepting F&R's proposal to eliminate the clawback upon termination without Cause (discussed below) and adopting a pro-rata reduction mechanism (also discussed below). The combination of the twenty-four month period with a pro-rata reduction and the without-Cause carve-out represents a balanced and defensible position.

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 signing bonus when the Company initiates the termination and the Executive has not engaged in conduct constituting Cause. The Broadleaf benchmarking data supports this carve-out, with approximately sixty-five percent (65%) of comparable signing bonus clawback provisions in the peer group excluding termination without Cause from the clawback trigger. Retaining the clawback for voluntary resignation and termination for Cause provides AHT with sufficient protection against the risk that the Executive will depart prematurely or engage in misconduct.

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 clawback reduction is the standard approach in current market practice and significantly reduces litigation risk associated with signing bonus repayment disputes. A "cliff" clawback (where the full amount is repayable until a specific date, after which no clawback applies) creates an all-or-nothing dynamic that can lead to disputes and, in some jurisdictions, enforceability challenges. The pro-rata approach is fairer to the Executive and is consistent with the Broadleaf Report's peer-group data.

D. Benefits Package

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 sixty percent (60%) of base salary;

• Participation in the AHT 401(k) plan with a Company match of four percent (4%) of eligible compensation;

• Twenty-five (25) days of paid time off per year (inclusive of vacation and personal days), in addition to AHT-observed holidays; and

• An annual professional development allowance of $15,000 for industry conferences, continuing education, and professional memberships.

No action is required with respect to these items.

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.

Recommendation: Accept. We recommend removing the relocation provision from the Agreement. There is no reason to retain language addressing a contingency that is not applicable to this hire. Deletion of the provision does not preclude AHT from addressing relocation in the future if circumstances change (e.g., if AHT were to relocate its headquarters), as any such relocation would be addressed through the Good Reason provisions of the Agreement.

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 vesting date. This is a standard four-year vesting schedule and no changes were proposed. No action is required.

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 discretion.

Recommendation: Accept. This request is consistent with standard Section 409A compliance requirements for incentive stock options and nonqualified stock options. The use of an independent 409A valuation provides a "safe harbor" for establishing FMV under Treasury Regulation Section 1.409A-1(b)(5)(iv)(B) and protects both the Company and the Executive from adverse tax consequences. Gregory Tan has confirmed in his August 22, 2022 memo that this approach is not only acceptable but advisable. AHT has historically used Apex Valuation Group LLC for its 409A valuations, and we would expect the next valuation to be conducted in connection with or promptly following the grant of Dr. Elliston's equity awards.

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 ninety (90) days to twelve (12) months for all terminations other than Cause.

A twelve-month post-termination exercise period is more generous than is typical for PE-backed companies, where ninety-day periods remain standard. However, we recognize that a ninety-day window can be unduly constraining, particularly where the Executive may face blackout periods, liquidity constraints, or ongoing negotiations regarding the valuation of privately held shares. A compromise position is appropriate.

Recommendation: Counter. We propose the following tiered structure for the post-termination exercise period:

• Termination without Cause or resignation for Good Reason: One hundred eighty (180) days following the date of termination to exercise vested, unexercised options.

• Voluntary resignation without Good Reason: Ninety (90) days following the date of termination to exercise vested, unexercised options.

• Termination for Cause: Immediate forfeiture of all options (both vested and unvested) upon the date of termination.

• Death or Disability: Twelve (12) months following the date of termination (or the date of death, as applicable) to exercise vested, unexercised options (exercisable by the Executive's estate or legal representative in the case of death).

This tiered approach rewards involuntary departures with additional time while preserving a shorter window for voluntary resignations. We note that Sandra Okafor will need to review the AHT 2020 Equity Incentive Plan (as amended May 2021) (the "Plan") to confirm that the Plan permits post-termination exercise periods in excess of ninety days, as some plans impose a hard cap. If the Plan requires amendment to accommodate the proposed periods, the Board would need to approve such amendment.

B. Restricted Stock Units (0.50% of Fully Diluted Equity)

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 required.

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 the short-term deferral exception (which generally requires settlement by the 15th day of the third month following the end of the calendar year in which the RSU vests). Gregory Tan has confirmed that this timing is acceptable. Specifying a thirty-day window provides certainty to the Executive and does not create any meaningful administrative burden for AHT.

C. Acceleration Provisions — Non-CIC Termination

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. Elliston departed Pinnacle in June 2022 and is currently unemployed).

Recommendation: Counter. We recommend a tiered acceleration structure that balances the Company's retention objectives with reasonable executive protection:

• Years 1–2 of Employment: Twenty-five percent (25%) of then-unvested equity accelerates upon a qualifying non-CIC termination.

• After Year 2 of Employment: Fifty percent (50%) of then-unvested equity accelerates upon a qualifying non-CIC termination.

This approach rewards longevity by providing enhanced acceleration for executives who remain with the Company through the initial vesting cliff and into the second year of service. It addresses F&R's concern about downside protection while preserving AHT's retention leverage during the critical first two years of Dr. Elliston's tenure. The incremental cost of this approach, compared to a flat 25% acceleration, is modest in the first two years and meaningful only in years three and four, when a greater proportion of equity remains unvested.

We note that Sandra Okafor will need to confirm that the proposed acceleration provisions are consistent with the terms of the Ridgeline Capital Partners Stockholders' Agreement, and specifically that the acceleration does not trigger any consent rights held by Helix Ventures Fund III, LP or other stockholders regarding equity issuances or acceleration events. We have asked Sandra to review this matter and provide her analysis by August 26, 2022.

D. Acceleration Provisions — Change in Control

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 occur before acceleration is triggered: (i) a Change in Control, and (ii) a qualifying termination of the Executive's employment within the specified window.

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 to ensure that the Executive participates fully in the value created through a liquidity event and is not subject to the risk that a successor entity may terminate the Executive shortly after a Change in Control in order to recapture unvested equity.

Recommendation: Reject. We strongly recommend that AHT decline this proposal and maintain the double-trigger acceleration structure as set forth in the current draft. Our reasons are as follows:

First, single-trigger acceleration is disfavored by institutional investors and is inconsistent with Ridgeline Capital Partners' stated compensation philosophy for portfolio companies. Thomas R. Glenwood and the Board Compensation Committee have indicated that double-trigger is the expected standard for all C-suite equity awards across Ridgeline's portfolio. Adopting single-trigger for the COO would create inconsistency with the Chandrasekaran Agreement (which uses double-trigger) and could create pressure to renegotiate existing C-suite equity awards.

Second, the Broadleaf Report confirms that double-trigger is the majority-practice approach for COO-level CIC equity acceleration at PE-backed healthcare IT companies, with approximately seventy-two percent (72%) of the peer group using double-trigger and only twenty-eight percent (28%) using single-trigger.

Third, single-trigger acceleration could complicate Ridgeline Capital Partners' exit strategy by immediately vesting one hundred percent (100%) of Dr. Elliston's options (1.25% of fully diluted equity) and RSUs (0.50% of fully diluted equity) upon any Change in Control, regardless of whether Dr. Elliston continues in his role with the successor entity. This could add significant cost to a transaction and may reduce the acquirer's willingness to retain the Executive — which is the opposite of the intended retention effect.

Fourth, the double-trigger structure already provides robust protection to the Executive: if Dr. Elliston is terminated without Cause or resigns for Good Reason within twenty-four (24) months after a Change in Control, he receives full (100%) acceleration. The risk that F&R's cover letter identifies — that a successor may terminate the Executive to recapture unvested equity — is precisely the scenario that the double-trigger is designed to address.

Cost Impact. The difference between single-trigger and double-trigger is potentially very significant. Single-trigger would result in immediate acceleration of all unvested equity upon any Change in Control, which could represent substantial equity value depending on the Company's valuation at the time of the event. Under double-trigger, acceleration occurs only if the Executive experiences a qualifying termination — an event that may or may not occur, and which the acquirer can avoid by retaining the Executive in a substantially equivalent role. We strongly recommend holding this position.

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 guilty or nolo contendere to, a felony or crime involving moral turpitude; (ii) material dishonesty or fraud in connection with the Executive's duties; (iii) willful failure to perform material duties after written notice; (iv) material breach of the Agreement or any restrictive covenant; (v) breach of fiduciary duty to the Company; and (vi) conduct that brings the Company into material disrepute.

F&R's markup proposes four modifications to the Cause definition:

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 is unlikely to prejudice AHT's ability to terminate for Cause in cases of serious misconduct. Non-curable events (such as felony conviction, fraud, or breach of fiduciary duty) would not be subject to cure. We recommend revising the language to clarify which Cause categories are curable and which are not, and to provide that the thirty-day cure period applies only to curable events.

2. "Material and Sustained" Qualifier. F&R proposes modifying category (iii) to require a "material and sustained" failure to perform duties, rather than a "willful failure to perform material duties." The effect of this change would be to require the Company to demonstrate not only that the Executive's failure was material, but also that it was sustained over a period of time.

Recommendation: Counter. We recommend agreeing to add the qualifier "material" (which is already present in the current draft) but declining to add "sustained." The addition of "sustained" creates an ambiguous temporal requirement and sets an unnecessarily high bar for establishing Cause based on performance failures. A single material failure to perform a critical duty — such as failing to implement a Board-mandated compliance initiative or failing to disclose a material operational risk — should be sufficient to constitute Cause without requiring the Company to demonstrate that the failure persisted over an extended period. We propose the language "material failure to perform the Executive's duties" with the existing thirty-day cure period, which provides the Executive with ample opportunity to correct any performance deficiency before Cause is triggered.

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 (unreported) in which a similar provision was deemed unenforceable due to indefiniteness. The Company retains sufficient protection through the other Cause categories — particularly the felony conviction, fraud, dishonesty, and breach of fiduciary duty triggers — to address conduct that would genuinely bring the Company into disrepute. We recommend deleting category (vi) and, if the client desires additional protection, adding a narrower trigger focused on "material violation of the Company's written Code of Conduct or Ethics Policy," which provides a more objective and enforceable standard.

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 board member veto power over a Cause determination, depending on the composition of the Board. We propose instead that the Cause determination be made by a simple majority vote of the Board of Directors (with the Executive recusing from the vote if the Executive is a member of the Board, which is not the case here). A simple majority threshold is consistent with the Chandrasekaran Agreement and the Solano Agreement and is the prevailing practice among AHT's peer group according to the Broadleaf Report.

B. Definition of "Good Reason"

The definition of "Good Reason" determines the circumstances under which the Executive may voluntarily resign and still receive the severance benefits that would be payable upon an involuntary termination without Cause. The current draft defines Good Reason as the occurrence of any of the following without the Executive's written consent: (i) a material reduction in the Executive's base salary; (ii) a material diminution of the Executive's title or reporting line; or (iii) the relocation of the Executive's principal workplace by more than fifty (50) miles from its current location.

F&R proposes several additions and modifications to the Good Reason definition, each of which is discussed below.

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 greater Boston metropolitan area. AHT's headquarters is currently located in Cambridge, Massachusetts, and Dr. Elliston resides in Wellesley, Massachusetts, approximately twelve (12) miles away. A relocation of AHT's principal offices by more than twenty-five miles from Cambridge could place the headquarters outside the reasonable commuting range for Dr. Elliston. We note that the Broadleaf Report indicates that the median relocation trigger among the peer group is twenty-five (25) miles, with a range of twenty-five to fifty miles. Accepting this request aligns AHT with market median.

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 responsibilities while maintaining the COO title and reporting structure.

Recommendation: Accept with Modification. A material diminution of duties trigger is standard for COO-level positions and is included in both the Chandrasekaran Agreement and the Solano Agreement. However, we recommend adding a qualifier to the language to provide objective context for determining whether a diminution is "material." Specifically, we propose the following formulation: "a material diminution of the Executive's duties, authority, or responsibilities as compared to those in effect immediately prior to the alleged diminution." This qualifier ties the assessment to the Executive's actual duties at the time of the alleged diminution and prevents the Executive from claiming Good Reason based on a comparison to an aspirational or theoretical scope of authority.

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 reasonable for the Executive to have protection against such a reduction. However, the term "material" is undefined and could lead to disputes over relatively minor adjustments. We recommend accepting this trigger but defining "material" as a reduction of more than ten percent (10%) of the then-current target annual bonus opportunity. This provides a clear, quantitative threshold and prevents litigation over de minimis adjustments. For example, under the proposed definition, a reduction of the target bonus from 75% to 67.5% of base salary (a 10% reduction of the target opportunity) would trigger Good Reason, but a reduction from 75% to 70% would not. This approach balances reasonable executive protection with appropriate company flexibility.

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 Sheet makes no reference to board membership. Including this trigger — even as a placeholder — could create an argument that board membership was contemplated and would unnecessarily complicate the agreement. We recommend excluding this language entirely. If board membership is discussed at a future date, it can be addressed through a separate amendment.

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 the Agreement (Position Description), which specifies that the COO will report directly to CEO Priya Chandrasekaran. Maintaining this reporting relationship is a fundamental element of the role as described to Dr. Elliston during the recruitment process, and a change in reporting structure — particularly one that interposes an additional layer of management between the COO and the CEO — could reasonably be viewed as a demotion. We recommend accepting this trigger as drafted.

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 cover letter argues that certain Good Reason conditions (such as a diminution of duties) may take time to manifest and that a thirty-day cure period is insufficient.

Recommendation: Counter. We believe that ninety (90) days is unnecessarily long and could create extended uncertainty about the Executive's employment status. We recommend a compromise of sixty (60) days, which provides the Company with a meaningful opportunity to cure the condition while avoiding an extended period of ambiguity. A sixty-day cure period is consistent with the Broadleaf Report's median and is the standard used in both the Chandrasekaran Agreement and the Solano Agreement.

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 "reporting structure" triggers, in particular, could expose AHT to severance obligations in connection with organizational restructurings or changes in management that might not otherwise constitute a qualifying termination under the current draft.

C. Severance — Termination Without Cause / Resignation for Good Reason (Non-CIC)

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 regular installments;

• A pro-rata annual bonus for the fiscal year of termination, based on actual company performance;

• Twelve (12) months of COBRA health insurance continuation at the Company's expense ($2,150 per month = $25,800 total); and

• Acceleration of twenty-five percent (25%) of unvested stock options and RSUs.

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 twelve (12) to eighteen (18) months ($2,150 × 18 = $38,700); and

• Increase equity acceleration from twenty-five percent (25%) to fifty percent (50%) of unvested equity (addressed in Section IV.C above).

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 cash severance components. Additionally, both the Chandrasekaran Agreement and the Solano Agreement provide twelve months of non-CIC cash severance, and increasing the COO's severance above the CEO's would create internal equity concerns.

Bonus Component. Counter. We recommend maintaining the pro-rata actual-performance calculation but adding a floor equal to the pro-rata target bonus. Specifically, we propose that the severance bonus component equal the greater of (i) the pro-rata annual bonus based on actual company performance for the fiscal year of termination, and (ii) the pro-rata annual bonus at target. This approach addresses F&R's concern that the Executive could be terminated in a below-target year and receive a negligible bonus in severance, while preserving the performance-based character of the bonus and limiting AHT's exposure to the target amount rather than the full target as F&R proposes.

COBRA. Counter — maintain twelve (12) months ($25,800). Eighteen-month COBRA continuation is above the median for non-CIC severance in the peer group. Twelve months is the standard period included in both the Chandrasekaran Agreement and the Solano Agreement. The incremental cost of the additional six months ($12,900) is modest in absolute terms, but we recommend holding this position for consistency with existing agreements.

Summary of Cost Impact. The table below summarizes the total estimated non-CIC severance under the current draft, the F&R proposal, and our recommended position (excluding equity acceleration, which is addressed in Section IV.C):

The F&R proposal represents an incremental cost of approximately $300,400 above the current draft. Our recommended position maintains the cost at approximately the level of the current draft, with the only potential increase arising from the bonus floor (which would apply only if actual performance is below target).

D. Change in Control Severance (Double-Trigger)

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 sum;

• Two times (2×) the target annual bonus ($431,250 × 2 = $862,500), payable in a lump sum;

• Eighteen (18) months of COBRA continuation at the Company's expense ($2,150 × 18 = $38,700); and

• One hundred percent (100%) acceleration of all unvested stock options and RSUs (double-trigger).

Total estimated CIC cash severance (excluding equity): $2,051,200.

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 = $51,600);

• Change equity acceleration from double-trigger to single-trigger (addressed in Section IV.D above); and

• Replace the best-net cutback with a full Section 280G tax gross-up (addressed in Section V.E below).

Total estimated CIC cash severance under F&R proposal (excluding equity and gross-up): $2,567,225.

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 — and would likely raise concerns with Ridgeline Capital Partners. Thomas R. Glenwood and the Board Compensation Committee have been consulted on C-suite compensation terms and have indicated that 2× is the ceiling for CIC cash multiples across the Ridgeline portfolio. We note that the 2× multiple in the current draft already represents a concession from the 1.5× multiple originally contemplated in AHT's Internal Term Sheet, which was increased to 2× during internal discussions at the recommendation of Lisa Murakami and with the approval of the Compensation Committee. Moving to 2.5× would require re-engagement with Ridgeline and is unlikely to be approved.

COBRA. Counter — maintain eighteen (18) months ($38,700). Twenty-four months of COBRA continuation is above market for CIC severance. Eighteen months is consistent with the Chandrasekaran Agreement and is at the 55th percentile of the Broadleaf Report peer group.

Equity Acceleration. Reject single-trigger; maintain double-trigger. This issue is discussed in detail in Section IV.D above and we incorporate that analysis here by reference.

Cost Impact of F&R Proposal vs. Current Draft. The table below summarizes the incremental cost of the F&R CIC severance proposal compared to the current draft:

The F&R proposal would increase CIC cash severance by approximately $516,025, exclusive of the additional cost associated with single-trigger equity acceleration and the potential 280G gross-up discussed below.

E. Section 280G / Golden Parachute Treatment

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 Executive would receive from the full payment after accounting for the twenty percent (20%) excise tax imposed by Section 4999 of the Internal Revenue Code. In other words, the cutback applies only when it benefits the Executive; if the Executive is better off receiving the full payment and paying the excise tax, no cutback is applied.

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 full parachute payment, net of all excise taxes, and the Company would bear the entire cost of any 280G excise tax liability.

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 Broadleaf Report confirms that fewer than fifteen percent (15%) of newly negotiated COO-level agreements in the peer group include gross-up provisions, while approximately seventy percent (70%) use best-net cutback and fifteen percent (15%) use a straight cutback (no best-net comparison).

Second, the potential cost of a gross-up to AHT could be very significant. Based on preliminary modeling by Hargrove & Sinclair CPAs (Malcolm R. Sinclair), the estimated cost of a Section 280G gross-up in a hypothetical Change in Control scenario could range from approximately $500,000 to $800,000 or more, depending on the magnitude of excess parachute payments, the Executive's base amount, and the applicable federal and state tax rates. This cost is uncapped and could increase if the Executive's compensation increases over time or if additional parachute payments are triggered.

Third, a gross-up provision would be inconsistent with Ridgeline Capital Partners' portfolio-wide compensation philosophy, which requires best-net cutback treatment for all C-suite executives across portfolio companies. Adopting a gross-up for Dr. Elliston would create a precedent that could be invoked by other executives in Ridgeline's portfolio.

Fourth, the best-net cutback approach already provides meaningful protection to the Executive. Under the best-net analysis, the Executive's payments are reduced only if the reduction would leave the Executive in a better after-tax position than receiving the full payment and paying the excise tax. In many scenarios, the best-net analysis will result in no cutback at all, because the Executive is better off receiving the full payment. The only scenarios in which the cutback applies are those in which the Executive is, by definition, better off with the reduced payment.

We have engaged Hargrove & Sinclair CPAs (Malcolm R. Sinclair) to prepare a detailed Section 280G analysis and best-net cutback modeling for Dr. Elliston's compensation package. This analysis is being coordinated by Gregory Tan (C&H Tax) and Nadia Petrov (C&H Labor & Employment) and is expected to be completed by September 2, 2022. The analysis will model the best-net cutback under various CIC scenarios and will be available to support AHT's position in negotiations with F&R.

F. Release Requirement

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 revocation period following execution. The release is a unilateral release by the Executive in favor of the Company and its affiliates, officers, directors, employees, agents, and successors.

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 benefit plans; (ii) indemnification rights under the Company's bylaws, certificate of incorporation, or any separate indemnification agreement; (iii) coverage under the Company's directors' and officers' ("D&O") liability insurance policy; and (iv) workers' compensation claims.

(c) Payment Timing. F&R requests that the first installment of severance be paid no later than sixty (60) days after the date of termination.

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 under the Restrictive Covenant Agreement (including the non-competition, non-solicitation, confidentiality, and invention assignment obligations); and (iii) any criminal conduct. These carve-outs are essential to preserve AHT's ability to enforce the restrictive covenants and pursue claims for serious misconduct, even in the context of a negotiated separation.

Carve-Outs from Executive's Release. Accept. The requested carve-outs are standard and appropriate. Vested benefits, indemnification rights, D&O insurance coverage, and workers' compensation claims are typically excluded from executive releases, and requiring the Executive to release these rights could raise enforceability concerns. We recommend accepting these carve-outs without modification.

Payment Timing. Accept. Payment of the first severance installment within sixty (60) days of termination is consistent with Section 409A requirements, as confirmed by Gregory Tan's August 22, 2022, memo. This is a standard provision that provides reasonable certainty to the Executive while allowing sufficient time for the release to become effective (twenty-one day consideration period plus seven-day revocation period equals twenty-eight days). We recommend specifying that the first installment will include all payments that would have been made during the sixty-day period had payments commenced on the date of termination, with regular installments continuing thereafter.

We note that Schedule B (Form of Release) was included with the first draft package transmitted to F&R on August 5, 2022, and will need to be revised to reflect the agreed-upon terms, including the mutual release structure and carve-outs.

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 agreements entered into on or after that date, provides that a noncompetition agreement may not be enforceable for a period exceeding twelve (12) months from the date of cessation of employment (with a limited exception allowing up to twenty-four months where the employe

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
Date: August 22, 2022
From: Devon Archer, Lead Associate, Labor & Employment, Calderwood & Harkness LLP Bernard Crawford, Responsible Partner, Labor & Employment, Calderwood & Harkness LLP
To: Aaron Whitfield, General Counsel, Arbor Health Technologies Inc. Lisa Murakami, Chief Human Resources Officer, Arbor Health Technologies Inc.
Re: Summary of Fielding & Rowe LLP Markup of Executive Employment Agreement — Dr. Marcus J. Elliston (Prospective COO) and Recommended Responses
Matter No.: 1010-00004 / Client No. 81-30294
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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 Arbor Health Technologies Inc. ("AHT" or the "Company") to Catherine A. Fielding, Partner, Fielding & Rowe LLP, on August 5, 2022. An annotated copy of the F&R markup is enclosed herewith for reference.
The F&R markup contains approximately forty-seven (47) substantive comments and proposed revisions spanning the full suite of transaction documents, including the Executive Employment Agreement, the Employee Non-Competition and Non-Solicitation Agreement (the "Restrictive Covenant Agreement"), and the equity award documentation (consisting of the stock option award agreement and the restricted stock unit award agreement, each to be granted under the AHT 2020 Equity Incentive Plan, as amended May 2021). F&R's markup was prepared under the direction of Catherine A. Fielding, Partner, with support from Jonathan M. Pryce, Associate. The markup was transmitted via email to Devon Archer on August 19, 2022, at 4:17 PM EST, together with a brief cover letter outlining F&R's priorities for the negotiation.
This memorandum organizes each proposed change into one of three recommendation categories:
(a) Accept — We recommend that AHT agree to the proposed change as drafted by F&R, either because it reflects standard market practice, is legally required, or poses minimal risk or cost to the Company.
(b) Reject — We recommend that AHT decline the proposed change and retain the original language from the first draft, because the proposal poses unacceptable risk, is inconsistent with AHT's stated compensation philosophy, or would conflict with existing agreements or stakeholder expectations.
(c) Counter — We recommend that AHT propose a modified counter-position that addresses the Executive's underlying concern while better protecting the Company's interests, reducing cost exposure, or conforming to market norms.
Where applicable, we have provided an estimated impact on total compensation cost, both on a recurring annual basis and on a contingent basis (i.e., amounts payable only upon certain triggering events such as termination of employment or a change in control).
Our recommendations take into account the following key reference materials:
•  The Broadleaf Compensation Advisors LLC Peer Benchmarking Report, dated June 2022, prepared by Diane K. Holbrook (the "Broadleaf Report"), which benchmarks COO-level compensation packages at peer-group companies in the PE-backed healthcare IT sector;
•  The AHT internal term sheet for the Dr. Elliston recruitment, circulated by Aaron Whitfield and Lisa Murakami on July 18, 2022 (the "Internal Term Sheet");
•  The existing CEO Employment Agreement between AHT and Priya Chandrasekaran, negotiated by Wentworth & Gage LLP and executed on March 15, 2021 (the "Chandrasekaran Agreement"), and the CFO Employment Agreement between AHT and Derek Solano, executed on September 1, 2021 (the "Solano Agreement"), each of which serves as a precedent for certain C-suite employment terms at AHT;
•  Gregory Tan's (C&H Tax) August 22, 2022, memorandum regarding Section 409A compliance considerations (the "409A Memo"); and
•  Nadia Petrov's (C&H Labor & Employment) July 25, 2022, compliance checklist memorandum regarding the Massachusetts Noncompetition Agreement Act (the "MNAA Checklist") and her August 8, 2022, memorandum regarding non-solicitation enforceability under Massachusetts common law (the "Non-Solicitation Memo").
Background. Dr. Elliston is being recruited to serve as Chief Operating Officer ("COO") of AHT, reporting directly to Chief Executive Officer Priya Chandrasekaran. The proposed start date is November 1, 2022. Dr. Elliston is currently unemployed, having departed his prior position as Senior Vice President of Operations at Pinnacle Care Systems, Inc. ("Pinnacle") in June 2022. He holds a Doctor of Medicine degree from the Johns Hopkins University School of Medicine and a Master of Business Administration from the Wharton School of the University of Pennsylvania. He brings approximately eighteen (18) years of healthcare operations experience spanning hospital system administration, population health management, and healthcare IT platform development. Dr. Elliston resides at 87 Laurel Hill Road, Wellesley, Massachusetts 02481, which is approximately twelve (12) miles from AHT's headquarters at 400 Brattle Commerce Park, Suite 1200, Cambridge, Massachusetts 02138. Accordingly, relocation is not a factor in this negotiation, and F&R has confirmed that the relocation provisions in the draft Agreement may be deleted.
We note that the timeline for finalizing the Agreement is driven by the November 1, 2022 target start date, and both parties have expressed a desire to reach agreement on principal terms by mid-September 2022, with execution of definitive documents by no later than October 15, 2022. We have structured this memorandum and our recommended next steps accordingly.
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 equity acceleration trigger, the CIC severance multiplier, and the 280G treatment — while demonstrating flexibility on issues where the F&R position is either legally compelled (as in the case of the non-compete duration), consistent with market practice, or poses minimal incremental cost or risk to AHT. A more detailed discussion of each issue follows in Sections III through VII below.
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, however, request the insertion of standard language providing that the Executive's base salary will be reviewed by the Board of Directors (or the Compensation Committee thereof) no less frequently than annually, and that such base salary may be increased but not decreased below the initial level of $575,000 without the Executive's written consent (a "salary floor" provision). This type of salary floor is customary in C-suite employment agreements and is consistent with the terms of both the Chandrasekaran Agreement and the Solano Agreement.
Recommendation: Accept. The annual review obligation with a salary floor is market-standard and does not create meaningful incremental cost exposure for AHT. It is important to note that the salary floor does not prevent AHT from adjusting other elements of compensation (e.g., bonus targets, equity awards) in future years, subject to the Good Reason provisions discussed below.
B. Annual Bonus
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 Broadleaf Report peer group, respectively. No action is required.
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 results for the stub period. F&R characterizes this as a "make-whole" element rather than a guaranteed bonus.
While we understand the Executive's concern, a guaranteed minimum bonus is inconsistent with AHT's pay-for-performance compensation philosophy and would set an unwelcome precedent for future C-suite hires. The guarantee would obligate AHT to pay $215,625 regardless of company or individual performance during the stub period, eliminating the at-risk nature of the bonus. Moreover, we note that the Chandrasekaran Agreement did not include a guaranteed minimum bonus for CEO Priya Chandrasekaran's first partial year of employment; rather, Ms. Chandrasekaran received a pro-rata bonus based on actual company performance, a structure that was negotiated by Wentworth & Gage LLP on behalf of AHT.
Recommendation: Reject. We recommend that AHT decline the guaranteed minimum bonus and instead propose that Dr. Elliston receive a pro-rata annual bonus for the stub period from November 1 through fiscal year-end, calculated based on actual company performance for the full fiscal year and prorated for the number of days of employment during the year. This approach preserves the performance-based nature of the bonus, is consistent with the Chandrasekaran Agreement precedent, and still provides Dr. Elliston with meaningful bonus upside for the partial year. If the client wishes to offer an additional concession, we could propose that the pro-rata bonus will be no less than a stated minimum (e.g., $50,000), though we do not affirmatively recommend this approach.
Cost Impact. The difference between a guaranteed minimum of $215,625 and a pro-rata actual-performance bonus could be significant in a year of below-target company performance. In a scenario where actual company performance yields a bonus payout at 25% of target, the pro-rata bonus for two months of employment would be approximately $17,969, compared to the guaranteed floor of $215,625 — a difference of $197,656.
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 over the selection of performance metrics.
We agree that it is reasonable (and indeed in both parties' interest) for performance metrics to be established promptly after the start date. However, granting the Executive a mutual-agreement right over metric design would be inconsistent with AHT's existing C-suite agreements, under which the Board Compensation Committee retains sole discretion over the establishment of performance metrics, goals, and weightings. Both the Chandrasekaran Agreement and the Solano Agreement provide that the Board Compensation Committee will establish performance metrics in consultation with the respective executive, but that the Committee retains final authority.
Recommendation: Counter. We recommend agreeing that performance metrics will be established by the Board Compensation Committee within ninety (90) days of Dr. Elliston's start date (which is the company standard and provides additional time for the Committee to consult with the new COO), but that the Committee will retain sole discretion over metric design. We would include language providing that the Committee will consult with the Executive regarding proposed metrics, which addresses Dr. Elliston's interest in having input while preserving the Committee's authority. The ninety-day period (rather than F&R's proposed sixty days) is consistent with the timeline used for both the Chandrasekaran and Solano bonus metric establishments.
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 under Section 409A of the Internal Revenue Code (which generally permits payment by the 15th day of the third month following the end of the fiscal year in which the bonus is earned). Gregory Tan has confirmed in his August 22 memo that a sixty-day payment window is compliant and poses no adverse tax consequences. This is a reasonable request that provides certainty to the Executive without creating an administrative burden for AHT.
C. Signing Bonus ($250,000)
The current draft provides for a signing bonus of Two Hundred Fifty Thousand Dollars ($250,000), payable within thirty (30) days of the Executive's start date, subject to a twenty-four (24) month repayment clawback if the Executive voluntarily resigns or is terminated for Cause. F&R's markup raises three issues with respect to the signing bonus clawback.
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 twenty-four (24) months, with a median of eighteen (18) months. A twenty-four month clawback is within the range, though at the longer end. However, we note that the signing bonus is intended in part to compensate Dr. Elliston for forfeited compensation at Pinnacle, and the twenty-four month clawback helps ensure that AHT receives an adequate return on this investment in the form of a meaningful period of employment.
Recommendation: Counter. We recommend maintaining the twenty-four (24) month clawback period for voluntary resignation and termination for Cause, but accepting F&R's proposal to eliminate the clawback upon termination without Cause (discussed below) and adopting a pro-rata reduction mechanism (also discussed below). The combination of the twenty-four month period with a pro-rata reduction and the without-Cause carve-out represents a balanced and defensible position.
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 signing bonus when the Company initiates the termination and the Executive has not engaged in conduct constituting Cause. The Broadleaf benchmarking data supports this carve-out, with approximately sixty-five percent (65%) of comparable signing bonus clawback provisions in the peer group excluding termination without Cause from the clawback trigger. Retaining the clawback for voluntary resignation and termination for Cause provides AHT with sufficient protection against the risk that the Executive will depart prematurely or engage in misconduct.
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 clawback reduction is the standard approach in current market practice and significantly reduces litigation risk associated with signing bonus repayment disputes. A "cliff" clawback (where the full amount is repayable until a specific date, after which no clawback applies) creates an all-or-nothing dynamic that can lead to disputes and, in some jurisdictions, enforceability challenges. The pro-rata approach is fairer to the Executive and is consistent with the Broadleaf Report's peer-group data.
D. Benefits Package
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 sixty percent (60%) of base salary;
•  Participation in the AHT 401(k) plan with a Company match of four percent (4%) of eligible compensation;
•  Twenty-five (25) days of paid time off per year (inclusive of vacation and personal days), in addition to AHT-observed holidays; and
•  An annual professional development allowance of $15,000 for industry conferences, continuing education, and professional memberships.
No action is required with respect to these items.
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.
Recommendation: Accept. We recommend removing the relocation provision from the Agreement. There is no reason to retain language addressing a contingency that is not applicable to this hire. Deletion of the provision does not preclude AHT from addressing relocation in the future if circumstances change (e.g., if AHT were to relocate its headquarters), as any such relocation would be addressed through the Good Reason provisions of the Agreement.
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 vesting date. This is a standard four-year vesting schedule and no changes were proposed. No action is required.
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 discretion.
Recommendation: Accept. This request is consistent with standard Section 409A compliance requirements for incentive stock options and nonqualified stock options. The use of an independent 409A valuation provides a "safe harbor" for establishing FMV under Treasury Regulation Section 1.409A-1(b)(5)(iv)(B) and protects both the Company and the Executive from adverse tax consequences. Gregory Tan has confirmed in his August 22, 2022 memo that this approach is not only acceptable but advisable. AHT has historically used Apex Valuation Group LLC for its 409A valuations, and we would expect the next valuation to be conducted in connection with or promptly following the grant of Dr. Elliston's equity awards.
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 ninety (90) days to twelve (12) months for all terminations other than Cause.
A twelve-month post-termination exercise period is more generous than is typical for PE-backed companies, where ninety-day periods remain standard. However, we recognize that a ninety-day window can be unduly constraining, particularly where the Executive may face blackout periods, liquidity constraints, or ongoing negotiations regarding the valuation of privately held shares. A compromise position is appropriate.
Recommendation: Counter. We propose the following tiered structure for the post-termination exercise period:
•  Termination without Cause or resignation for Good Reason: One hundred eighty (180) days following the date of termination to exercise vested, unexercised options.
•  Voluntary resignation without Good Reason: Ninety (90) days following the date of termination to exercise vested, unexercised options.
•  Termination for Cause: Immediate forfeiture of all options (both vested and unvested) upon the date of termination.
•  Death or Disability: Twelve (12) months following the date of termination (or the date of death, as applicable) to exercise vested, unexercised options (exercisable by the Executive's estate or legal representative in the case of death).
This tiered approach rewards involuntary departures with additional time while preserving a shorter window for voluntary resignations. We note that Sandra Okafor will need to review the AHT 2020 Equity Incentive Plan (as amended May 2021) (the "Plan") to confirm that the Plan permits post-termination exercise periods in excess of ninety days, as some plans impose a hard cap. If the Plan requires amendment to accommodate the proposed periods, the Board would need to approve such amendment.
B. Restricted Stock Units (0.50% of Fully Diluted Equity)
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 required.
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 the short-term deferral exception (which generally requires settlement by the 15th day of the third month following the end of the calendar year in which the RSU vests). Gregory Tan has confirmed that this timing is acceptable. Specifying a thirty-day window provides certainty to the Executive and does not create any meaningful administrative burden for AHT.
C. Acceleration Provisions — Non-CIC Termination
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. Elliston departed Pinnacle in June 2022 and is currently unemployed).
Recommendation: Counter. We recommend a tiered acceleration structure that balances the Company's retention objectives with reasonable executive protection:
•  Years 1–2 of Employment: Twenty-five percent (25%) of then-unvested equity accelerates upon a qualifying non-CIC termination.
•  After Year 2 of Employment: Fifty percent (50%) of then-unvested equity accelerates upon a qualifying non-CIC termination.
This approach rewards longevity by providing enhanced acceleration for executives who remain with the Company through the initial vesting cliff and into the second year of service. It addresses F&R's concern about downside protection while preserving AHT's retention leverage during the critical first two years of Dr. Elliston's tenure. The incremental cost of this approach, compared to a flat 25% acceleration, is modest in the first two years and meaningful only in years three and four, when a greater proportion of equity remains unvested.
We note that Sandra Okafor will need to confirm that the proposed acceleration provisions are consistent with the terms of the Ridgeline Capital Partners Stockholders' Agreement, and specifically that the acceleration does not trigger any consent rights held by Helix Ventures Fund III, LP or other stockholders regarding equity issuances or acceleration events. We have asked Sandra to review this matter and provide her analysis by August 26, 2022.
D. Acceleration Provisions — Change in Control
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 occur before acceleration is triggered: (i) a Change in Control, and (ii) a qualifying termination of the Executive's employment within the specified window.
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 to ensure that the Executive participates fully in the value created through a liquidity event and is not subject to the risk that a successor entity may terminate the Executive shortly after a Change in Control in order to recapture unvested equity.
Recommendation: Reject. We strongly recommend that AHT decline this proposal and maintain the double-trigger acceleration structure as set forth in the current draft. Our reasons are as follows:
First, single-trigger acceleration is disfavored by institutional investors and is inconsistent with Ridgeline Capital Partners' stated compensation philosophy for portfolio companies. Thomas R. Glenwood and the Board Compensation Committee have indicated that double-trigger is the expected standard for all C-suite equity awards across Ridgeline's portfolio. Adopting single-trigger for the COO would create inconsistency with the Chandrasekaran Agreement (which uses double-trigger) and could create pressure to renegotiate existing C-suite equity awards.
Second, the Broadleaf Report confirms that double-trigger is the majority-practice approach for COO-level CIC equity acceleration at PE-backed healthcare IT companies, with approximately seventy-two percent (72%) of the peer group using double-trigger and only twenty-eight percent (28%) using single-trigger.
Third, single-trigger acceleration could complicate Ridgeline Capital Partners' exit strategy by immediately vesting one hundred percent (100%) of Dr. Elliston's options (1.25% of fully diluted equity) and RSUs (0.50% of fully diluted equity) upon any Change in Control, regardless of whether Dr. Elliston continues in his role with the successor entity. This could add significant cost to a transaction and may reduce the acquirer's willingness to retain the Executive — which is the opposite of the intended retention effect.
Fourth, the double-trigger structure already provides robust protection to the Executive: if Dr. Elliston is terminated without Cause or resigns for Good Reason within twenty-four (24) months after a Change in Control, he receives full (100%) acceleration. The risk that F&R's cover letter identifies — that a successor may terminate the Executive to recapture unvested equity — is precisely the scenario that the double-trigger is designed to address.
Cost Impact. The difference between single-trigger and double-trigger is potentially very significant. Single-trigger would result in immediate acceleration of all unvested equity upon any Change in Control, which could represent substantial equity value depending on the Company's valuation at the time of the event. Under double-trigger, acceleration occurs only if the Executive experiences a qualifying termination — an event that may or may not occur, and which the acquirer can avoid by retaining the Executive in a substantially equivalent role. We strongly recommend holding this position.
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 guilty or nolo contendere to, a felony or crime involving moral turpitude; (ii) material dishonesty or fraud in connection with the Executive's duties; (iii) willful failure to perform material duties after written notice; (iv) material breach of the Agreement or any restrictive covenant; (v) breach of fiduciary duty to the Company; and (vi) conduct that brings the Company into material disrepute.
F&R's markup proposes four modifications to the Cause definition:
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 is unlikely to prejudice AHT's ability to terminate for Cause in cases of serious misconduct. Non-curable events (such as felony conviction, fraud, or breach of fiduciary duty) would not be subject to cure. We recommend revising the language to clarify which Cause categories are curable and which are not, and to provide that the thirty-day cure period applies only to curable events.
2. "Material and Sustained" Qualifier. F&R proposes modifying category (iii) to require a "material and sustained" failure to perform duties, rather than a "willful failure to perform material duties." The effect of this change would be to require the Company to demonstrate not only that the Executive's failure was material, but also that it was sustained over a period of time.
Recommendation: Counter. We recommend agreeing to add the qualifier "material" (which is already present in the current draft) but declining to add "sustained." The addition of "sustained" creates an ambiguous temporal requirement and sets an unnecessarily high bar for establishing Cause based on performance failures. A single material failure to perform a critical duty — such as failing to implement a Board-mandated compliance initiative or failing to disclose a material operational risk — should be sufficient to constitute Cause without requiring the Company to demonstrate that the failure persisted over an extended period. We propose the language "material failure to perform the Executive's duties" with the existing thirty-day cure period, which provides the Executive with ample opportunity to correct any performance deficiency before Cause is triggered.
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 (unreported) in which a similar provision was deemed unenforceable due to indefiniteness. The Company retains sufficient protection through the other Cause categories — particularly the felony conviction, fraud, dishonesty, and breach of fiduciary duty triggers — to address conduct that would genuinely bring the Company into disrepute. We recommend deleting category (vi) and, if the client desires additional protection, adding a narrower trigger focused on "material violation of the Company's written Code of Conduct or Ethics Policy," which provides a more objective and enforceable standard.
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 board member veto power over a Cause determination, depending on the composition of the Board. We propose instead that the Cause determination be made by a simple majority vote of the Board of Directors (with the Executive recusing from the vote if the Executive is a member of the Board, which is not the case here). A simple majority threshold is consistent with the Chandrasekaran Agreement and the Solano Agreement and is the prevailing practice among AHT's peer group according to the Broadleaf Report.
B. Definition of "Good Reason"
The definition of "Good Reason" determines the circumstances under which the Executive may voluntarily resign and still receive the severance benefits that would be payable upon an involuntary termination without Cause. The current draft defines Good Reason as the occurrence of any of the following without the Executive's written consent: (i) a material reduction in the Executive's base salary; (ii) a material diminution of the Executive's title or reporting line; or (iii) the relocation of the Executive's principal workplace by more than fifty (50) miles from its current location.
F&R proposes several additions and modifications to the Good Reason definition, each of which is discussed below.
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 greater Boston metropolitan area. AHT's headquarters is currently located in Cambridge, Massachusetts, and Dr. Elliston resides in Wellesley, Massachusetts, approximately twelve (12) miles away. A relocation of AHT's principal offices by more than twenty-five miles from Cambridge could place the headquarters outside the reasonable commuting range for Dr. Elliston. We note that the Broadleaf Report indicates that the median relocation trigger among the peer group is twenty-five (25) miles, with a range of twenty-five to fifty miles. Accepting this request aligns AHT with market median.
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 responsibilities while maintaining the COO title and reporting structure.
Recommendation: Accept with Modification. A material diminution of duties trigger is standard for COO-level positions and is included in both the Chandrasekaran Agreement and the Solano Agreement. However, we recommend adding a qualifier to the language to provide objective context for determining whether a diminution is "material." Specifically, we propose the following formulation: "a material diminution of the Executive's duties, authority, or responsibilities as compared to those in effect immediately prior to the alleged diminution." This qualifier ties the assessment to the Executive's actual duties at the time of the alleged diminution and prevents the Executive from claiming Good Reason based on a comparison to an aspirational or theoretical scope of authority.
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 reasonable for the Executive to have protection against such a reduction. However, the term "material" is undefined and could lead to disputes over relatively minor adjustments. We recommend accepting this trigger but defining "material" as a reduction of more than ten percent (10%) of the then-current target annual bonus opportunity. This provides a clear, quantitative threshold and prevents litigation over de minimis adjustments. For example, under the proposed definition, a reduction of the target bonus from 75% to 67.5% of base salary (a 10% reduction of the target opportunity) would trigger Good Reason, but a reduction from 75% to 70% would not. This approach balances reasonable executive protection with appropriate company flexibility.
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 Sheet makes no reference to board membership. Including this trigger — even as a placeholder — could create an argument that board membership was contemplated and would unnecessarily complicate the agreement. We recommend excluding this language entirely. If board membership is discussed at a future date, it can be addressed through a separate amendment.
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 the Agreement (Position Description), which specifies that the COO will report directly to CEO Priya Chandrasekaran. Maintaining this reporting relationship is a fundamental element of the role as described to Dr. Elliston during the recruitment process, and a change in reporting structure — particularly one that interposes an additional layer of management between the COO and the CEO — could reasonably be viewed as a demotion. We recommend accepting this trigger as drafted.
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 cover letter argues that certain Good Reason conditions (such as a diminution of duties) may take time to manifest and that a thirty-day cure period is insufficient.
Recommendation: Counter. We believe that ninety (90) days is unnecessarily long and could create extended uncertainty about the Executive's employment status. We recommend a compromise of sixty (60) days, which provides the Company with a meaningful opportunity to cure the condition while avoiding an extended period of ambiguity. A sixty-day cure period is consistent with the Broadleaf Report's median and is the standard used in both the Chandrasekaran Agreement and the Solano Agreement.
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 "reporting structure" triggers, in particular, could expose AHT to severance obligations in connection with organizational restructurings or changes in management that might not otherwise constitute a qualifying termination under the current draft.
C. Severance — Termination Without Cause / Resignation for Good Reason (Non-CIC)
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 regular installments;
•  A pro-rata annual bonus for the fiscal year of termination, based on actual company performance;
•  Twelve (12) months of COBRA health insurance continuation at the Company's expense ($2,150 per month = $25,800 total); and
•  Acceleration of twenty-five percent (25%) of unvested stock options and RSUs.
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 twelve (12) to eighteen (18) months ($2,150 × 18 = $38,700); and
•  Increase equity acceleration from twenty-five percent (25%) to fifty percent (50%) of unvested equity (addressed in Section IV.C above).
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 cash severance components. Additionally, both the Chandrasekaran Agreement and the Solano Agreement provide twelve months of non-CIC cash severance, and increasing the COO's severance above the CEO's would create internal equity concerns.
Bonus Component. Counter. We recommend maintaining the pro-rata actual-performance calculation but adding a floor equal to the pro-rata target bonus. Specifically, we propose that the severance bonus component equal the greater of (i) the pro-rata annual bonus based on actual company performance for the fiscal year of termination, and (ii) the pro-rata annual bonus at target. This approach addresses F&R's concern that the Executive could be terminated in a below-target year and receive a negligible bonus in severance, while preserving the performance-based character of the bonus and limiting AHT's exposure to the target amount rather than the full target as F&R proposes.
COBRA. Counter — maintain twelve (12) months ($25,800). Eighteen-month COBRA continuation is above the median for non-CIC severance in the peer group. Twelve months is the standard period included in both the Chandrasekaran Agreement and the Solano Agreement. The incremental cost of the additional six months ($12,900) is modest in absolute terms, but we recommend holding this position for consistency with existing agreements.
Summary of Cost Impact. The table below summarizes the total estimated non-CIC severance under the current draft, the F&R proposal, and our recommended position (excluding equity acceleration, which is addressed in Section IV.C):
The F&R proposal represents an incremental cost of approximately $300,400 above the current draft. Our recommended position maintains the cost at approximately the level of the current draft, with the only potential increase arising from the bonus floor (which would apply only if actual performance is below target).
D. Change in Control Severance (Double-Trigger)
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 sum;
•  Two times (2×) the target annual bonus ($431,250 × 2 = $862,500), payable in a lump sum;
•  Eighteen (18) months of COBRA continuation at the Company's expense ($2,150 × 18 = $38,700); and
•  One hundred percent (100%) acceleration of all unvested stock options and RSUs (double-trigger).
Total estimated CIC cash severance (excluding equity): $2,051,200.
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 = $51,600);
•  Change equity acceleration from double-trigger to single-trigger (addressed in Section IV.D above); and
•  Replace the best-net cutback with a full Section 280G tax gross-up (addressed in Section V.E below).
Total estimated CIC cash severance under F&R proposal (excluding equity and gross-up): $2,567,225.
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 — and would likely raise concerns with Ridgeline Capital Partners. Thomas R. Glenwood and the Board Compensation Committee have been consulted on C-suite compensation terms and have indicated that 2× is the ceiling for CIC cash multiples across the Ridgeline portfolio. We note that the 2× multiple in the current draft already represents a concession from the 1.5× multiple originally contemplated in AHT's Internal Term Sheet, which was increased to 2× during internal discussions at the recommendation of Lisa Murakami and with the approval of the Compensation Committee. Moving to 2.5× would require re-engagement with Ridgeline and is unlikely to be approved.
COBRA. Counter — maintain eighteen (18) months ($38,700). Twenty-four months of COBRA continuation is above market for CIC severance. Eighteen months is consistent with the Chandrasekaran Agreement and is at the 55th percentile of the Broadleaf Report peer group.
Equity Acceleration. Reject single-trigger; maintain double-trigger. This issue is discussed in detail in Section IV.D above and we incorporate that analysis here by reference.
Cost Impact of F&R Proposal vs. Current Draft. The table below summarizes the incremental cost of the F&R CIC severance proposal compared to the current draft:
The F&R proposal would increase CIC cash severance by approximately $516,025, exclusive of the additional cost associated with single-trigger equity acceleration and the potential 280G gross-up discussed below.
E. Section 280G / Golden Parachute Treatment
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 Executive would receive from the full payment after accounting for the twenty percent (20%) excise tax imposed by Section 4999 of the Internal Revenue Code. In other words, the cutback applies only when it benefits the Executive; if the Executive is better off receiving the full payment and paying the excise tax, no cutback is applied.
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 full parachute payment, net of all excise taxes, and the Company would bear the entire cost of any 280G excise tax liability.
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 Broadleaf Report confirms that fewer than fifteen percent (15%) of newly negotiated COO-level agreements in the peer group include gross-up provisions, while approximately seventy percent (70%) use best-net cutback and fifteen percent (15%) use a straight cutback (no best-net comparison).
Second, the potential cost of a gross-up to AHT could be very significant. Based on preliminary modeling by Hargrove & Sinclair CPAs (Malcolm R. Sinclair), the estimated cost of a Section 280G gross-up in a hypothetical Change in Control scenario could range from approximately $500,000 to $800,000 or more, depending on the magnitude of excess parachute payments, the Executive's base amount, and the applicable federal and state tax rates. This cost is uncapped and could increase if the Executive's compensation increases over time or if additional parachute payments are triggered.
Third, a gross-up provision would be inconsistent with Ridgeline Capital Partners' portfolio-wide compensation philosophy, which requires best-net cutback treatment for all C-suite executives across portfolio companies. Adopting a gross-up for Dr. Elliston would create a precedent that could be invoked by other executives in Ridgeline's portfolio.
Fourth, the best-net cutback approach already provides meaningful protection to the Executive. Under the best-net analysis, the Executive's payments are reduced only if the reduction would leave the Executive in a better after-tax position than receiving the full payment and paying the excise tax. In many scenarios, the best-net analysis will result in no cutback at all, because the Executive is better off receiving the full payment. The only scenarios in which the cutback applies are those in which the Executive is, by definition, better off with the reduced payment.
We have engaged Hargrove & Sinclair CPAs (Malcolm R. Sinclair) to prepare a detailed Section 280G analysis and best-net cutback modeling for Dr. Elliston's compensation package. This analysis is being coordinated by Gregory Tan (C&H Tax) and Nadia Petrov (C&H Labor & Employment) and is expected to be completed by September 2, 2022. The analysis will model the best-net cutback under various CIC scenarios and will be available to support AHT's position in negotiations with F&R.
F. Release Requirement
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 revocation period following execution. The release is a unilateral release by the Executive in favor of the Company and its affiliates, officers, directors, employees, agents, and successors.
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 benefit plans; (ii) indemnification rights under the Company's bylaws, certificate of incorporation, or any separate indemnification agreement; (iii) coverage under the Company's directors' and officers' ("D&O") liability insurance policy; and (iv) workers' compensation claims.
(c) Payment Timing. F&R requests that the first installment of severance be paid no later than sixty (60) days after the date of termination.
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 under the Restrictive Covenant Agreement (including the non-competition, non-solicitation, confidentiality, and invention assignment obligations); and (iii) any criminal conduct. These carve-outs are essential to preserve AHT's ability to enforce the restrictive covenants and pursue claims for serious misconduct, even in the context of a negotiated separation.
Carve-Outs from Executive's Release. Accept. The requested carve-outs are standard and appropriate. Vested benefits, indemnification rights, D&O insurance coverage, and workers' compensation claims are typically excluded from executive releases, and requiring the Executive to release these rights could raise enforceability concerns. We recommend accepting these carve-outs without modification.
Payment Timing. Accept. Payment of the first severance installment within sixty (60) days of termination is consistent with Section 409A requirements, as confirmed by Gregory Tan's August 22, 2022, memo. This is a standard provision that provides reasonable certainty to the Executive while allowing sufficient time for the release to become effective (twenty-one day consideration period plus seven-day revocation period equals twenty-eight days). We recommend specifying that the first installment will include all payments that would have been made during the sixty-day period had payments commenced on the date of termination, with regular installments continuing thereafter.
We note that Schedule B (Form of Release) was included with the first draft package transmitted to F&R on August 5, 2022, and will need to be revised to reflect the agreed-upon terms, including the mutual release structure and carve-outs.
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 agreements entered into on or after that date, provides that a noncompetition agreement may not be enforceable for a period exceeding twelve (12) months from the date of cessation of employment (with a limited exception allowing up to twenty-four months where the employe

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