CALDERWOOD & HARKNESS LLP
One International Place, Suite 3400 Boston, Massachusetts 02110 Telephone: (617) 555-8200
NEW MATTER MEMORANDUM
CONFIDENTIAL — FOR INTERNAL USE ONLY
Form NM-3 (Rev. 01/2022)
I. MATTER IDENTIFICATION
This memorandum documents the opening of the above-referenced matter in accordance with Calderwood & Harkness LLP's internal new matter intake procedures. The matter was initiated upon receipt of an engagement inquiry from the prospective client's General Counsel on July 8, 2022, followed by a preliminary intake meeting on July 11, 2022. This memorandum is intended to provide all relevant personnel with the information necessary to staff, administer, and bill this engagement, and to memorialize the results of the firm's conflict clearance process.
II. CLIENT INFORMATION
Existing Client Note: Arbor Health Technologies Inc. is an existing client of the firm for purposes of our client records; however, it should be noted that AHT has not previously engaged Calderwood & Harkness LLP for any representation. AHT's regular outside corporate counsel is Wentworth & Gage LLP, where it is represented principally by Richard D. Gage, Partner. This engagement with Calderwood & Harkness LLP is a new and distinct matter arising from AHT's desire to retain specialized labor and employment counsel for the preparation and negotiation of an executive-suite employment agreement package. AHT's General Counsel, Aaron Whitfield, confirmed during intake that Wentworth & Gage LLP is aware of and supports AHT's decision to engage separate counsel for this matter, and that Wentworth & Gage LLP will serve in a cooperative capacity by providing background corporate governance and compensation documents as described further herein.
AHT operates a cloud-based clinical workflow and revenue cycle management SaaS platform marketed to hospital systems, physician groups, and ambulatory surgical centers across the United States. The company was taken private in December 2019 by Ridgeline Capital Partners, LP, and is a portfolio company of Ridgeline Capital Partners Fund IV, LP. Additional background regarding AHT's corporate structure, ownership, and market position is set forth in Section XI of this memorandum.
III. KEY CLIENT CONTACTS
The following individuals have been identified as the principal points of contact for this engagement:
Primary Contact — General Counsel
Aaron Whitfield, Esq. General Counsel Arbor Health Technologies Inc. 400 Brattle Commerce Park, Suite 1200 Cambridge, MA 02138 Telephone: (617) 555-4420
Email: awhitfield@arborht.com
Mr. Whitfield will serve as the primary contact for this engagement and will be responsible for day-to-day substantive direction of the work product, review and approval of all outgoing drafts and correspondence, and coordination of internal approvals at the AHT management and Board level. Mr. Whitfield joined AHT in March 2020 from the Boston office of a national law firm, where he was a senior associate in the labor and employment practice. All billing inquiries and invoices should be directed to Mr. Whitfield.
Secondary Contact — Chief Human Resources Officer
Lisa Murakami Chief Human Resources Officer Arbor Health Technologies Inc. 400 Brattle Commerce Park, Suite 1200 Cambridge, MA 02138 Telephone: (617) 555-4435
Email: lmurakami@arborht.com
Ms. Murakami will serve as the secondary contact and will be consulted on matters related to AHT's standard employee benefits, internal HR policies, position descriptions, onboarding procedures, and the practical implementation of restrictive covenant provisions.
Chief Executive Officer (Escalation / Board-Level Matters)
Priya Chandrasekaran Chief Executive Officer Arbor Health Technologies Inc. 400 Brattle Commerce Park, Suite 1200 Cambridge, MA 02138 Telephone: (617) 555-4400
Email: pchandrasekaran@arborht.com
Ms. Chandrasekaran should be contacted only for escalation purposes or matters requiring direct CEO involvement, including Board-level presentations and final compensation committee approval of the COO employment package. Day-to-day engagement communications should not be directed to Ms. Chandrasekaran unless specifically requested by Mr. Whitfield.
Board Chair / PE Sponsor Representative
Thomas R. Glenwood Board Chair, Arbor Health Technologies Inc. Managing Partner, Ridgeline Capital Partners, LP 200 Clarendon Street, 42nd Floor Boston, MA 02116 Telephone: (617) 555-7700
Email: tglenwood@ridgelinecapital.com
Mr. Glenwood chairs the AHT Board of Directors and also serves as chair of the Board compensation committee in his capacity as a designee of the majority private equity sponsor, Ridgeline Capital Partners, LP. Contact with Mr. Glenwood should be coordinated through Mr. Whitfield unless otherwise directed.
Chief Financial Officer
Derek Solano Chief Financial Officer Arbor Health Technologies Inc. 400 Brattle Commerce Park, Suite 1200 Cambridge, MA 02138 Telephone: (617) 555-4450
Email: dsolano@arborht.com
Mr. Solano's existing executive employment agreement will be used as a precedent template for certain provisions of the COO agreement. Mr. Solano may be contacted as necessary regarding the financial and equity-related aspects of the engagement, including AHT's current capitalization and fully diluted share count.
IV. MATTER DESCRIPTION
Matter Type: Executive Employment Agreement — Drafting and Negotiation
Brief Description:
Calderwood & Harkness LLP has been engaged by Arbor Health Technologies Inc. to prepare a comprehensive executive-suite employment agreement package for AHT's incoming Chief Operating Officer, Dr. Marcus J. Elliston. This engagement represents a significant C-suite hiring for AHT, involving the recruitment of a senior healthcare technology executive to serve in a newly elevated role within AHT's management team. Dr. Elliston is currently serving as Senior Vice President of Operations at Pinnacle Care Systems, Inc., a healthcare IT competitor located in Rockville, Maryland, and his anticipated resignation and transition to AHT requires careful attention to the terms and timing of his departure, any existing restrictive covenant obligations owed to Pinnacle Care Systems, and compliance with all applicable Massachusetts employment laws.
The scope of work encompasses the following principal workstreams:
(a) Drafting of a comprehensive executive employment agreement for the position of Chief Operating Officer, including all ancillary schedules and exhibits (Prior Inventions Disclosure Form, Form of General Release Agreement, and Position Description and Reporting Structure);
(b) Drafting of a standalone Employee Non-Competition Agreement that complies in all respects with the Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L, including the garden-leave payment requirement and all mandatory statutory terms;
(c) Drafting of equity award agreements — specifically, a Stock Option Award Agreement and a Restricted Stock Unit Award Agreement — under the AHT 2020 Equity Incentive Plan (as amended May 2021), in coordination with counsel experienced in equity compensation matters;
(d) Preparation of internal compliance and advisory memoranda addressing Massachusetts employment law requirements, federal tax considerations, and market benchmarking analysis;
(e) Negotiation of all documents with Dr. Elliston's personal counsel, Fielding & Rowe LLP; and
(f) Preparation of all related correspondence, transmittal letters, and client advisory communications.
Governing Law: The employment agreement and all ancillary documents are expected to be governed by the laws of the Commonwealth of Massachusetts. Certain equity-related documents may also reference Delaware corporate law with respect to the terms of the AHT 2020 Equity Incentive Plan. Federal tax law considerations, including Sections 409A and 280G/4999 of the Internal Revenue Code, will apply to the structuring of the compensation and severance package.
Anticipated Counterparty / Opposing Counsel:
Fielding & Rowe LLP 101 Federal Street, Suite 2600 Boston, MA 02110
Lead Attorney: Catherine A. Fielding, Partner Associate: Jonathan M. Pryce
Telephone: (617) 555-6100
Fielding & Rowe LLP represents Dr. Marcus J. Elliston in his personal capacity in connection with the negotiation of the terms of his employment with AHT. Ms. Fielding is a well-known Boston employment attorney who regularly represents senior executives in employment agreement negotiations. The firm's engagement by Dr. Elliston is understood to be limited to this specific transaction. The Calderwood & Harkness team has previously interacted with Ms. Fielding on other matters and anticipates a professional and constructive negotiation process.
V. STAFFING / TIMEKEEPER ASSIGNMENT
The following attorneys have been assigned to this matter:
A. Core Staffing
Bernard Crawford, Partner, Labor & Employment — Mr. Crawford will serve as the Responsible Partner for this engagement and will maintain overall supervisory responsibility for the quality and timeliness of all work product. Mr. Crawford will personally handle key client communications with AHT's General Counsel, lead strategic negotiations with Fielding & Rowe LLP, and present final recommendations to the AHT Board compensation committee as needed. Mr. Crawford has over twenty-five years of experience in executive compensation and employment law matters, with particular expertise in the healthcare and technology sectors.
Renata Vasquez, Partner, Labor & Employment — Ms. Vasquez will serve as the Billing Partner and will oversee the financial administration of the engagement, including the preparation and review of monthly invoices. Ms. Vasquez may also be called upon to contribute substantive guidance on Massachusetts employment law compliance matters, including the Massachusetts Noncompetition Agreement Act and Wage Act considerations.
Devon Archer, Associate, Labor & Employment — Mr. Archer will serve as the Lead Associate and will be responsible for the primary drafting of the executive employment agreement, the non-competition agreement, and all ancillary schedules and exhibits. Mr. Archer will also prepare the first drafts of all internal compliance memoranda and handle day-to-day communications with the client team and opposing counsel.
Nadia Petrov, Associate, Labor & Employment — Ms. Petrov will serve as the Working Associate and will support Mr. Archer in research, drafting, and document preparation. Ms. Petrov was responsible for conducting the initial conflict clearance and preparing this New Matter Memorandum. Ms. Petrov will also be responsible for maintaining the matter file and tracking all deadlines and deliverables.
B. Additional Resources (As Needed)
Gregory Tan, Partner, Tax — Mr. Tan will be consulted as needed on equity compensation structuring issues, including the application of Section 409A of the Internal Revenue Code to stock options, restricted stock units, and any deferred compensation elements of the employment agreement. Mr. Tan will also advise on the Section 280G/4999 golden parachute excise tax analysis in connection with the change in control severance provisions, coordinating with AHT's outside tax advisors at Hargrove & Sinclair CPAs.
Sandra Okafor, Counsel, Corporate / M&A — Ms. Okafor will be consulted as needed on change in control provisions, the terms and capacity of the AHT 2020 Equity Incentive Plan (as amended May 2021), equity award agreement drafting, and any related corporate governance matters. Ms. Okafor will also review the Ridgeline Capital Partners Stockholders' Agreement to determine whether the proposed equity grants to Dr. Elliston trigger any consent requirements on the part of Helix Ventures Fund III, LP, or any other equity holder.
All timekeepers are expected to record their time to Matter No. 1010-00004 using the firm's standard billing codes. Time entries should include sufficient narrative detail to satisfy the client's billing guidelines.
VI. BILLING INFORMATION
Fee Estimate: The fee estimate of $85,000 to $125,000 encompasses the full suite of executive employment documents described in this memorandum, including drafting, internal compliance analysis, negotiation with opposing counsel, and all related advisory work. This estimate was communicated to the client in the engagement letter and is based on the assumption that the negotiation process will involve no more than three to four rounds of substantive comments and markups with Fielding & Rowe LLP. The estimate does not include any litigation or dispute resolution costs, nor does it include representation in connection with any regulatory matter or government investigation that may arise. Should the scope of the engagement expand or the negotiation process prove more protracted than anticipated, the client will be advised in writing before the estimated budget is exceeded.
Engagement Letter: At the time of intake (July 11, 2022), the engagement letter had been prepared and circulated to AHT's General Counsel, Aaron Whitfield, for review and execution. The engagement letter was fully executed on July 13, 2022, two days after matter opening. A copy of the executed engagement letter has been filed in the matter file and in the firm's centralized engagement letter repository.
Hourly Rates:
The foregoing hourly rates are the firm's standard rates for the 2022 calendar year and are consistent with the rates set forth in the executed engagement letter. The engagement letter provides that these rates are subject to annual adjustment, and the client will be notified in writing of any rate changes.
Billing Frequency and Terms: Invoices will be rendered monthly, in arrears, on a calendar-month basis. Payment terms are net thirty (30) days from date of invoice. All invoices will be directed to Mr. Whitfield at his email address on file with the firm.
VII. RELATED PARTIES AND INTERESTED ENTITIES
The following parties and entities have been identified as related to or interested in this matter, and have been included in the firm's conflict clearance process:
1. Arbor Health Technologies Inc. — Client. Delaware corporation with its principal place of business at 400 Brattle Commerce Park, Suite 1200, Cambridge, MA 02138. AHT operates a cloud-based clinical workflow and revenue cycle management SaaS platform. AHT is the employer and the contracting party under the proposed executive employment agreement. AHT is the entity engaging Calderwood & Harkness LLP.
2. Dr. Marcus J. Elliston — Prospective Chief Operating Officer / Executive. Residence: 87 Laurel Hill Road, Wellesley, MA 02481. Dr. Elliston is currently serving as Senior Vice President of Operations at Pinnacle Care Systems, Inc. in Rockville, Maryland. Dr. Elliston holds an M.D. from Johns Hopkins University School of Medicine and an M.B.A. from the Wharton School at the University of Pennsylvania. He has approximately eighteen years of experience in healthcare operations and healthcare technology. Dr. Elliston is not a client of the firm; he is the counterparty to the employment agreement and is represented by his personal counsel, Fielding & Rowe LLP.
3. Ridgeline Capital Partners, LP — Private equity sponsor. Ridgeline owns approximately 68% of AHT's equity through its fund vehicle, Ridgeline Capital Partners Fund IV, LP (Fund size: $2.8 billion). Ridgeline is headquartered at 200 Clarendon Street, 42nd Floor, Boston, MA 02116. Managing Partner: Thomas R. Glenwood. Ridgeline acquired AHT in a take-private transaction in December 2019 at an enterprise value of approximately $340 million. Ridgeline has Board-level approval authority over all C-suite employment terms and compensation arrangements. Two Ridgeline designees sit on the AHT Board compensation committee, which committee is chaired by Mr. Glenwood. Ridgeline's interests in this matter are aligned with those of AHT as the majority equity holder and controlling stockholder.
4. Helix Ventures Fund III, LP — Minority investor. Helix holds approximately 14% of AHT's equity. Helix has consent rights on certain equity issuances pursuant to the Ridgeline Capital Partners Stockholders' Agreement. It will be necessary to confirm whether the proposed equity grants to Dr. Elliston (1.25% stock options and 0.50% RSUs) trigger Helix's consent rights.
5. Management and Other Holders — Approximately 18% of AHT's fully diluted equity is held by members of AHT's management team and other holders, representing the balance of AHT's capitalization not held by Ridgeline and Helix (100% minus 68% minus 14%).
6. Pinnacle Care Systems, Inc. — Dr. Elliston's current employer. 1500 Research Boulevard, Suite 600, Rockville, MD 20850. Pinnacle Care Systems is a healthcare IT company and competitor of AHT. Dr. Elliston's departure from Pinnacle Care Systems and any existing restrictive covenant obligations owed by Dr. Elliston to Pinnacle Care Systems will need to be reviewed and considered in connection with the drafting and negotiation of the AHT employment documents.
7. Fielding & Rowe LLP — Executive's personal counsel. 101 Federal Street, Suite 2600, Boston, MA 02110. Lead Attorney: Catherine A. Fielding, Partner. Associate: Jonathan M. Pryce. Fielding & Rowe LLP represents Dr. Elliston in his personal capacity and will serve as the principal negotiating counterparty on all employment documents.
8. Wentworth & Gage LLP — AHT's regular outside corporate counsel. 125 High Street, Suite 2800, Boston, MA 02110. Lead Partner: Richard D. Gage. Wentworth & Gage LLP will provide background documents to Calderwood & Harkness LLP, including the AHT 2020 Equity Incentive Plan (as amended), prior C-suite employment agreements (CEO and CFO), company governance documents, and the Ridgeline Capital Partners Stockholders' Agreement. Wentworth & Gage LLP is not actively involved in drafting or negotiating the documents that are the subject of this engagement.
9. Broadleaf Compensation Advisors LLC — Executive compensation consultant to the AHT Board compensation committee. 300 Atlantic Avenue, Suite 500, Boston, MA 02210. Lead Consultant: Diane K. Holbrook. Broadleaf prepared a peer benchmarking analysis in June 2022 that informed the AHT Board compensation committee's framework for the COO compensation package. This analysis provides the market data against which the proposed compensation terms are benchmarked.
10. Hargrove & Sinclair CPAs — AHT's tax and accounting advisors. 75 Ashbury Asset Advisors, Suite 1400, Boston, MA 02109. Lead Partner: Malcolm R. Sinclair, CPA. Hargrove & Sinclair will be consulted on Section 280G/4999 golden parachute excise tax analysis and Section 409A compliance matters in connection with the structuring of the executive compensation and severance package. Coordination with Gregory Tan (Calderwood & Harkness Tax) will be required.
VIII. CONFLICT CHECK STATUS
Parties Searched: The following parties and their known affiliates were searched through the firm's conflict management system (Greaves Services Inc.) and cross-referenced against the firm's client and matter databases:
• Arbor Health Technologies Inc. (and known subsidiaries and affiliates)
• Ridgeline Capital Partners, LP (and Ridgeline Capital Partners Fund IV, LP, and known affiliates)
• Helix Ventures Fund III, LP (and known affiliates)
• Dr. Marcus J. Elliston (and known family members and affiliated entities)
• Pinnacle Care Systems, Inc. (and known subsidiaries and affiliates)
• Fielding & Rowe LLP (and individual attorneys)
• Wentworth & Gage LLP (and individual attorneys)
• Broadleaf Compensation Advisors LLC
• Hargrove & Sinclair CPAs
• Related persons and affiliates identified during the search process
Summary of Results: The conflict search returned no results that would constitute a disqualifying conflict of interest under the Massachusetts Rules of Professional Conduct or the firm's internal conflict policies. Specifically, the firm does not currently represent and has not previously represented Dr. Marcus J. Elliston, Pinnacle Care Systems, Inc., Fielding & Rowe LLP, or any party whose interests are adverse to AHT in connection with this matter. The firm's prior and current representations of Ridgeline Capital Partners and its affiliated funds were reviewed and determined not to create any conflict, as Ridgeline's interests in this matter are aligned with those of AHT as majority equity holder.
Cross-Reference: A detailed Conflict Check Memorandum dated July 11, 2022, setting forth the full results of the conflict search and the basis for the clearance determination, has been prepared and filed separately in the firm's conflict management system and in the matter file. The Conflict Check Memorandum is incorporated herein by reference.
IX. SCOPE OF WORK / ANTICIPATED DELIVERABLES
The following is an itemized list of the anticipated work product and deliverables for this engagement:
1. Executive Employment Agreement (COO — Dr. Marcus J. Elliston)
The principal deliverable is a comprehensive executive employment agreement between Arbor Health Technologies Inc. and Dr. Marcus J. Elliston for the position of Chief Operating Officer. The agreement is expected to address, among other things: employment term and renewal provisions; duties and reporting structure; base salary, annual bonus, and signing bonus; equity compensation; employee benefits and perquisites; severance and termination provisions (including voluntary resignation, involuntary termination without cause, termination for cause, death and disability, and change in control termination); restrictive covenants (non-competition, non-solicitation of employees and customers, and confidentiality); intellectual property assignment; dispute resolution; and miscellaneous provisions. The agreement will include the following ancillary schedules and exhibits:
• Schedule A: Prior Inventions Disclosure Form — for Dr. Elliston to identify any pre-existing inventions, patents, or intellectual property that should be excluded from the scope of the invention assignment provisions of the employment agreement.
• Schedule B: Form of General Release Agreement — a template release agreement to be executed by Dr. Elliston as a condition to receipt of severance benefits upon a qualifying termination.
• Exhibit A: Position Description and Reporting Structure — a detailed description of the COO role, including key responsibilities, direct reports, and reporting relationship to CEO Priya Chandrasekaran.
2. Employee Non-Competition Agreement
A standalone Employee Non-Competition Agreement compliant in all respects with the Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L. This agreement will be executed contemporaneously with the employment agreement and will contain all statutorily required provisions, including the garden-leave payment requirement, a maximum duration of twelve (12) months, and a scope limited to the geographic and industry parameters permitted under the statute. The agreement will be drafted to satisfy both the procedural and substantive requirements of the Act, including the requirement that the agreement be supported by independent consideration (here, the commencement of employment and the garden-leave payment) and that the employee be advised of the right to consult with counsel prior to execution.
3. Stock Option Award Agreement
A Stock Option Award Agreement under the AHT 2020 Equity Incentive Plan (as amended May 2021) granting Dr. Elliston stock options representing 1.25% of AHT's fully diluted equity. The options are expected to vest over a four-year period with a one-year cliff and monthly vesting thereafter, subject to continued employment. The Stock Option Award Agreement will be drafted in coordination with Sandra Okafor (Corporate/M&A) and Gregory Tan (Tax) to ensure compliance with the terms of the AHT 2020 Equity Incentive Plan and applicable provisions of the Internal Revenue Code, including Section 409A.
4. Restricted Stock Unit Award Agreement
A Restricted Stock Unit Award Agreement under the AHT 2020 Equity Incentive Plan (as amended May 2021) granting Dr. Elliston restricted stock units representing 0.50% of AHT's fully diluted equity. The RSUs are expected to vest over a three-year period with annual vesting, subject to continued employment. The RSU Award Agreement will similarly be drafted in coordination with Ms. Okafor and Mr. Tan.
5. Internal Memoranda
The following internal memoranda will be prepared for the client's use and for the Calderwood & Harkness engagement team's reference:
• Massachusetts Noncompetition Agreement Act Compliance Checklist — a detailed checklist of all procedural and substantive requirements under M.G.L. c. 149, § 24L, confirming that each requirement has been satisfied in the non-competition agreement.
• Massachusetts Wage Act Considerations for Executive Compensation — an advisory memorandum addressing the classification of bonus, signing bonus clawback, and severance payments under the Massachusetts Wage Act, M.G.L. c. 149, §§ 148–150, and the potential for treble damages exposure in the event of noncompliance.
• Massachusetts Non-Solicitation and Non-Disclosure Enforceability Analysis — an analysis of the enforceability of the non-solicitation (employee and customer) and confidentiality provisions under Massachusetts law, including relevant case law and drafting recommendations.
• Change in Control Provisions Design and Market Analysis — an analysis of the proposed change in control provisions, including the double-trigger structure, the severance multiples, and the accelerated vesting provisions, benchmarked against market data from the Broadleaf Compensation Advisors peer benchmarking report.
• Equity Award Structuring Memorandum — a memorandum addressing the available capacity under the AHT 2020 Equity Incentive Plan, the need for Helix Ventures consent, and the structuring of the stock option and RSU grants.
• Section 409A Compliance Analysis — a memorandum analyzing the application of Section 409A of the Internal Revenue Code to the stock options (short-term deferral / stock rights exclusion), RSUs, and any deferred compensation elements of the employment agreement (e.g., severance payments, bonus payments).
• Section 280G / Golden Parachute Analysis and Best-Net Cutback Modeling — a memorandum analyzing the potential application of Section 280G of the Internal Revenue Code and the associated Section 4999 excise tax to the change in control severance package, including modeling of the "best-net cutback" approach (as opposed to a gross-up), prepared in coordination with Hargrove & Sinclair CPAs.
6. Negotiation of All Documents with Executive's Counsel
Calderwood & Harkness LLP will lead the negotiation of all employment documents with Fielding & Rowe LLP on behalf of AHT. This is expected to involve multiple rounds of comments, markups, and in-person or virtual negotiation sessions over the course of August and September 2022.
7. Correspondence and Transmittal Letters
Preparation of all correspondence and transmittal letters to Fielding & Rowe LLP in connection with the exchange of drafts, comments, and executed documents.
8. Client Advisory Communications
Preparation of client advisory communications, including status updates, negotiation strategy memoranda, and issue-specific advisories, directed to Aaron Whitfield (General Counsel) and Lisa Murakami (CHRO) as appropriate.
X. KEY TERMS UNDER NEGOTIATION (SUMMARY)
The following is a summary of the key economic and non-economic terms of the proposed COO compensation package as approved by the AHT Board compensation committee for purposes of initial drafting. These terms are subject to negotiation with Fielding & Rowe LLP and may be modified during the course of the engagement:
Severance — No Change in Control:
In the event of a qualifying termination without cause or resignation for good reason (not in connection with a change in control), the proposed severance package includes:
• Twelve (12) months of base salary continuation ($575,000);
• Pro-rata annual bonus for the year of termination, based on actual performance;
• Twelve (12) months of COBRA premium reimbursement ($25,800);
• Acceleration of vesting of 25% of unvested equity awards; and
• Execution of a general release agreement (Schedule B to the employment agreement) as a condition to receipt of severance benefits.
Severance — Change in Control (Double Trigger):
In the event of a qualifying termination without cause or resignation for good reason occurring within twenty-four (24) months following a change in control (double-trigger structure), the proposed severance package includes:
• Twenty-four (24) months of base salary ($1,150,000);
• Two times (2×) target annual bonus ($862,500);
• Eighteen (18) months of COBRA premium reimbursement ($38,700);
• One hundred percent (100%) acceleration of vesting of all unvested equity awards; and
• Section 280G best-net cutback provision (no gross-up). Under this approach, if any payments or benefits would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code, the payments and benefits will be reduced to the extent necessary to avoid the application of the Section 4999 excise tax, but only if such reduction would result in a greater after-tax benefit to the Executive than payment of the full amount with the excise tax applied.
Restrictive Covenants:
• Non-Competition: Twelve (12) months post-termination; scope limited to companies in the healthcare IT / SaaS industry with annual revenue exceeding $50 million, operating within the United States; garden-leave payment equal to 50% of base salary ($287,500), payable in equal installments during the restricted period, in compliance with the Massachusetts Noncompetition Agreement Act.
• Non-Solicitation of Employees: Eighteen (18) months post-termination; applicable to AHT employees at the manager level and above.
• Non-Solicitation of Customers: Twelve (12) months post-termination; applicable to customers and prospective customers with whom Dr. Elliston had material contact during the last twenty-four (24) months of employment.
• Confidentiality: Perpetual obligation not to disclose or use AHT confidential information, with customary carve-outs for information that becomes publicly available, is independently developed, or is required to be disclosed by law or regulation (including Defend Trade Secrets Act whistleblower immunity notice).
XI. BACKGROUND / CORPORATE CONTEXT
This section provides additional background information regarding Arbor Health Technologies Inc. and the corporate context of this engagement.
Company Overview. Arbor Health Technologies Inc. is a Delaware corporation headquartered in Cambridge, Massachusetts. AHT operates a cloud-based clinical workflow and revenue cycle management SaaS platform that is marketed to hospital systems, physician groups, ambulatory surgical centers, and other healthcare providers across the United States. The AHT platform integrates clinical workflow management tools with revenue cycle management capabilities, enabling healthcare providers to streamline patient scheduling, clinical documentation, claims submission, and reimbursement processes. AHT's platform is deployed across more than 300 healthcare provider locations and processes approximately $4.2 billion in annual healthcare claims.
Ownership and Capital Structure. AHT was taken private in December 2019 by Ridgeline Capital Partners, LP, through its fund vehicle Ridgeline Capital Partners Fund IV, LP (Fund size: $2.8 billion), in a transaction valued at approximately $340 million on an enterprise value basis. As of the date of this memorandum, the ownership of AHT's fully diluted equity is as follows:
• Ridgeline Capital Partners Fund IV, LP: ~68%
• Helix Ventures Fund III, LP: ~14%
• Management and other holders: ~18%
Financial Overview. AHT reported revenue of $127.4 million for the fiscal year ended December 31, 2021 (FY2021), representing year-over-year revenue growth of approximately 22%. AHT employs approximately 620 individuals, the majority of whom are based in Cambridge, Massachusetts, with additional offices in Nashville, Tennessee, and Denver, Colorado.
Governance and Advisors. AHT's Board of Directors is chaired by Thomas R. Glenwood, who also serves as Managing Partner of Ridgeline Capital Partners, LP. The Board compensation committee, which has approval authority over all C-suite compensation arrangements, is chaired by Mr. Glenwood and includes two Ridgeline designees. AHT's regular outside corporate counsel is Wentworth & Gage LLP (Richard D. Gage, Partner), which will provide background documents for this engagement, including the AHT 2020 Equity Incentive Plan (as amended May 2021), prior C-suite employment agreements, company governance documents, and the Ridgeline Capital Partners Stockholders' Agreement. Wentworth & Gage LLP is not actively involved in the drafting or negotiation of the documents that are the subject of this engagement.
Compensation Advisory. Broadleaf Compensation Advisors LLC (Diane K. Holbrook, Lead Consultant) completed a peer benchmarking analysis in June 2022 at the direction of the AHT Board compensation committee. The Broadleaf report analyzed compensation packages for COO-level executives at peer companies in the healthcare IT and SaaS sectors and provided a framework for the AHT Board compensation committee's determination of the proposed compensation terms for Dr. Elliston.
Tax Advisory. Hargrove & Sinclair CPAs (Malcolm R. Sinclair, CPA, Lead Partner) serve as AHT's tax and accounting advisors. Hargrove & Sinclair will be consulted in connection with the Section 280G/4999 golden parachute excise tax analysis and Section 409A compliance matters. Gregory Tan (Calderwood & Harkness Tax) will coordinate with Hargrove & Sinclair as needed.
XII. SPECIAL CONSIDERATIONS / NOTES
The following special considerations and notes should be kept in mind by all members of the engagement team:
1. Ridgeline Capital Partners Board Approval. Ridgeline Capital Partners has Board-level approval authority over all C-suite compensation arrangements at AHT. Two Ridgeline designees sit on the AHT Board compensation committee, which is chaired by Thomas R. Glenwood (Ridgeline Managing Partner). Accordingly, the final terms of the COO employment package will require formal approval by the AHT Board compensation committee. The engagement team should ensure that proposed terms are aligned with the compensation committee's framework as set forth in the Broadleaf benchmarking report and any Board directives communicated through Aaron Whitfield.
2. Helix Ventures Consent Rights. Helix Ventures Fund III, LP has consent rights on certain equity issuances under the Ridgeline Capital Partners Stockholders' Agreement. Sandra Okafor (Corporate/M&A) should review the relevant provisions of the Stockholders' Agreement to determine whether the proposed equity grants to Dr. Elliston — stock options representing 1.25% of fully diluted equity and RSUs representing 0.50% of fully diluted equity — trigger Helix's consent rights. If consent is required, the engagement team should coordinate with Aaron Whitfield to ensure that the consent process is initiated in a timely manner so as not to delay the anticipated execution timeline.
3. Precedent Agreements. The existing CEO employment agreement (Priya Chandrasekaran) and CFO employment agreement (Derek Solano) will be used as precedent templates for the COO employment agreement. These documents are to be provided to Calderwood & Harkness by Wentworth & Gage LLP at the direction of Aaron Whitfield. The engagement team should carefully review these precedent agreements to ensure consistency in approach across AHT's C-suite, while accounting for any terms that are specific to the COO role or that reflect updated legal requirements or market practices.
4. Massachusetts Noncompetition Agreement Act Compliance. Compliance with the Massachusetts Noncompetition Agreement Act, M.G.L. c. 149, § 24L, is critical to the enforceability of the standalone non-competition agreement. Key requirements include:
• The agreement must be in writing and signed by both parties;
• The agreement must expressly state that the employee has the right to consult with counsel prior to signing;
• The agreement must be supported by independent consideration (for new employees, the commencement of employment is sufficient, but the statute also requires a "garden-leave" payment or "other mutually-agreed upon consideration");
• The garden-leave payment must be at least 50% of the employee's highest annualized base salary during the two years preceding the termination (here, the proposed garden-leave payment of $287,500 equals 50% of the proposed $575,000 base salary);
• The non-competition period may not exceed twelve (12) months from the date of cessation of employment (or twenty-four months if the employee has breached a fiduciary duty or has unlawfully taken the employer's property);
• The agreement must be reasonable in scope and geographic reach; and
• The agreement must comply with all other applicable provisions of the statute.
The Devon Archer / Nadia Petrov team should prepare a comprehensive compliance checklist as an early deliverable, and all drafts of the non-competition agreement should be reviewed against this checklist prior to circulation to the client or opposing counsel.
5. Massachusetts Wage Act Considerations. The Massachusetts Wage Act, M.G.L. c. 149, §§ 148–150, has significant implications for the structuring of the executive compensation package. Key considerations include:
• Massachusetts courts have held that certain types of earned compensation, including commissions and certain bonuses, may constitute "wages" within the meaning of the Wage Act and thus may not be subject to forfeiture or clawback;
• The Wage Act provides for treble damages, attorneys' fees, and costs in the event of a violation, creating substantial exposure for employers;
• The signing bonus clawback provision (24-month clawback in the event of voluntary resignation or termination for cause) must be carefully structured to avoid characterization as an unlawful wage forfeiture;
• Severance payments may be characterized as "wages" under certain circumstances, and the form of general release agreement must be reviewed for compliance with the Wage Act's requirements regarding the timing of final wage payments upon termination.
The engagement team should prepare an internal advisory memorandum addressing these considerations and should flag any provisions of the employment agreement that present Wage Act risk for discussion with Bernard Crawford and the client.
6. Section 409A Compliance. Section 409A of the Internal Revenue Code imposes significant restrictions on the deferral and payment of compensation. The following elements of the COO compensation package require Section 409A analysis:
• Stock Options: Must be granted at no less than fair market value on the date of grant to qualify for the stock rights exclusion under Treasury Regulation § 1.409A-1(b)(5). A contemporaneous valuation (409A valuation) of AHT's common stock should be obtained or confirmed to be current.
• RSUs: Must be structured to either comply with Section 409A (as deferred compensation subject to a fixed payment schedule) or to qualify for the short-term deferral exception under Treasury Regulation § 1.409A-1(b)(4).
• Severance Payments: Must comply with the two-year / two-times safe harbor under Treasury Regulation § 1.409A-1(b)(9)(iii), or must otherwise be structured as a "separation pay plan" that satisfies the requirements of Section 409A.
• Other Deferred Compensation Elements: Any provisions that provide for the deferral of compensation beyond the applicable short-term deferral period must comply with Section 409A's requirements regarding the time and form of payment, including the six-month delay for payments to "specified employees" of publicly traded companies (note: AHT is currently privately held, but a potential IPO should be considered in drafting).
Gregory Tan (Tax) should be consulted on all Section 409A issues. Coordination with Hargrove & Sinclair CPAs may also be required.
7. Section 280G / 4999 Golden Parachute Analysis. The change in control severance package includes significant payments and benefits (24 months base salary, 2× target bonus, 18 months COBRA, 100% accelerated vesting) that may constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code, subjecting Dr. Elliston to the 20% excise tax under Section 4999 and AHT to the loss of the corporate deduction. The proposed best-net cutback approach (no gross-up) must be carefully modeled to determine the breakpoints at which the cutback is more favorable to the Executive than payment of the full amount with the excise tax applied. Gregory Tan (Tax) should coordinate with Hargrove & Sinclair CPAs (Malcolm R. Sinclair) on this analysis.
XIII. ANTICIPATED TIMELINE
The following timeline has been established for this engagement, subject to adjustment based on the pace of negotiations and client directives:
The target execution date of late September / early October 2022 provides a buffer of approximately four to five weeks prior to Dr. Elliston's proposed start date of November 1, 2022. This buffer is intended to accommodate any final negotiation items, the Board compensation committee approval process, and Dr. Elliston's resignation and transition from Pinnacle Care Systems, Inc.
All members of the engagement team should be mindful of the timeline and should promptly escalate any issues that may cause delay.
XIV. APPROVALS AND SIGNATURES
This New Matter Memorandum has been prepared, reviewed, and approved by the following individuals in accordance with Calderwood & Harkness LLP's new matter intake policies and procedures:
Prepared by:
NADIA PETROV Associate, Labor & Employment Calderwood & Harkness LLP
Signature: ________
Date: July 11, 2022
Reviewed by:
DEVON ARCHER Lead Associate, Labor & Employment Calderwood & Harkness LLP
Signature: ________
Date: July 11, 2022
Approved by:
BERNARD CRAWFORD Responsible Partner, Labor & Employment Calderwood & Harkness LLP
Signature: ________
Date: July 11, 2022
Billing Partner Acknowledgment:
RENATA VASQUEZ Partner, Labor & Employment Calderwood & Harkness LLP
Signature: ________