ARBOR HEALTH TECHNOLOGIES INC. 400 Seaport Boulevard, Suite 1200 Boston, MA 02210
June 21, 2024
Lakeshore National Bank, as Administrative Agent
Attention: Credit Administration / Covenant Compliance Department
200 South Wacker Drive, Suite 3000 Chicago, IL 60606
Re: Notice Pursuant to Section 7.12 of the Credit Agreement dated March 15, 2022 (as amended June 1, 2023) — Material intellectual Property License
Dear Sir or Madam:
Reference is hereby made to that certain Credit Agreement, dated as of March 15, 2022 (as amended by that certain First Amendment to Credit Agreement dated as of June 1, 2023, the "Credit Agreement"), among Arbor Health Technologies Inc., a Delaware corporation (the "Borrower" or "AHT"), Lakeshore National Bank, a national banking association, in its capacity as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), and the several financial institutions from time to time party thereto as lenders (the "Lenders"), providing for a Senior Secured Revolving Credit Facility in the aggregate principal amount of Seventy-Five Million Dollars ($75,000,000). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Credit Agreement.
I. Purpose of This Notice
Arbor Health Technologies Inc., a Delaware corporation with its principal office at 400 Seaport Boulevard, Suite 1200, Boston, Massachusetts 02210 (Employer Identification Number: 83-2941076), hereby delivers this notice (this "Notice") to Lakeshore National Bank, in its capacity as Administrative Agent under the Credit Agreement.
This Notice is delivered pursuant to Section 7.12 of the Credit Agreement (Notices Regarding Material intellectual Property Transactions), which requires the Borrower to provide not less than fifteen (15) Business Days' prior written notice to the Administrative Agent before entering into any material intellectual property license or similar arrangement with a total value (whether measured by aggregate license fees, royalty commitments, or other consideration payable by the Borrower) in excess of Three Million Dollars ($3,000,000).
AHT intends to enter into a material intellectual property license, specifically an inbound data license agreement, with a total value of Nine Million Dollars ($9,000,000). Because the aggregate value of the proposed transaction exceeds the $3,000,000 threshold set forth in Section 7.12, the Borrower is providing this Notice to the Administrative Agent in accordance with the requirements of the Credit Agreement. The details of the proposed transaction are set forth below.
II. Description of the Proposed Transaction
Nature of the Transaction. The Borrower proposes to enter into an inbound data license agreement (the "Data License Agreement") pursuant to which AHT will obtain a non-exclusive license to receive, access, and use a comprehensive set of de-identified healthcare claims data for internal analytics, product development, and integration purposes, as more fully described herein. The Data License Agreement has been assigned internal reference number AHT-PCA-DLA-2024-001.
Counterparty. The counterparty to the Data License Agreement is Pinnacle Claims Analytics LLC ("PCA"), a Delaware limited liability company headquartered at 3100 West End Avenue, Suite 800, Nashville, Tennessee 37203 (Employer Identification Number: 84-3750219). PCA is a specialty health-data aggregator that aggregates, de-identifies, and licenses healthcare claims data sourced under downstream data-contribution agreements with regional health plans and third-party administrators located throughout the United States. PCA is privately held and, based on publicly available information and representations made by PCA during the course of negotiations, has estimated annual revenue of approximately Forty-Seven Million Dollars ($47,000,000). PCA has been operating in the health-data aggregation and licensing space since 2017 and maintains data-contribution agreements with over forty (40) regional health plans and third-party administrators across thirty-two (32) states.
Licensed Data. Under the terms of the Data License Agreement, PCA will provide AHT with access to de-identified healthcare claims data consisting of approximately eighty-five million (85,000,000) unique de-identified patient records and approximately three billion four hundred million (3,400,000,000) individual claim lines. The licensed data encompasses professional claims, facility (institutional) claims, pharmacy claims, and ancillary claims across commercial fully-insured and self-insured populations, Medicare Advantage, and Medicaid managed-care lines of business. The historical claims data covers the eight (8) full calendar-year period from January 1, 2016 through December 31, 2023. In addition, following the effective date of the Data License Agreement, PCA will deliver quarterly data refreshes for a period of thirty-six (36) months, ensuring that AHT maintains access to current claims data throughout the initial data-refresh period.
De-Identification Standard. All licensed data has been de-identified in compliance with the HIPAA Safe Harbor method as set forth in 45 C.F.R. § 164.514(b)(2). In addition, PCA has represented and warranted that Expert Determination certification under 45 C.F.R. § 164.514(b)(1) has been independently obtained through a qualified independent statistical consultancy. Accordingly, the licensed data does not constitute Protected Health Information as defined under HIPAA and is not subject to the use and disclosure restrictions applicable to individually identifiable health information.
Permitted Uses. Under the Data License Agreement, AHT is authorized to use the licensed data for the following purposes: (a) internal analytics and research; (b) training, validation, and calibration of machine learning models and predictive algorithms; (c) product development and enhancement; and (d) integration into AHT's proprietary software-as-a-service ("SaaS") platform for the purpose of generating analytics outputs, benchmarking reports, and predictive insights delivered to AHT's customers. The Data License Agreement expressly prohibits the re-sale or sub-licensing of the raw underlying licensed data to any third party.
Business Rationale. The licensed data will be integrated into AHT's proprietary predictive-analytics platform, which currently serves health systems, managed-care payers, and employer-sponsored health plans across the United States. The addition of PCA's comprehensive claims dataset will significantly enhance the breadth and depth of AHT's analytics offerings, enabling AHT to deliver more granular cost-of-care benchmarking, utilization pattern analysis, risk stratification, and network adequacy assessments to its customer base. The transaction is expected to support AHT's continued revenue growth trajectory, with current annualized recurring revenue of approximately Sixty-Two Million Dollars ($62,000,000), and to strengthen AHT's competitive position in the health-data analytics market.
III. Financial Terms of the Data License Agreement
The financial terms of the Data License Agreement, as negotiated between the parties, are summarized as follows:
Total License Fee. The total license fee payable by AHT to PCA under the Data License Agreement is Nine Million Dollars ($9,000,000) (the "License Fee").
Payment Structure. The License Fee is payable in three (3) installments, as follows:
(a) Signing Payment: Three Million Six Hundred Thousand Dollars ($3,600,000), representing forty percent (40%) of the total License Fee, due and payable upon execution of the Data License Agreement;
(b) Second Installment: Two Million Seven Hundred Thousand Dollars ($2,700,000), representing thirty percent (30%) of the total License Fee, due and payable on January 1, 2025; and
(c) Final Installment: Two Million Seven Hundred Thousand Dollars ($2,700,000), representing the remaining thirty percent (30%) of the total License Fee, due and payable on July 1, 2025.
The sum of all installments equals $3,600,000 + $2,700,000 + $2,700,000 = $9,000,000.
Quarterly Data-Refresh Fee. No additional fee is payable for the quarterly data refreshes during the initial thirty-six (36) month data-refresh period, as such refreshes are included in the $9,000,000 License Fee. In the event that AHT elects to exercise its renewal option and continue receiving quarterly data refreshes beyond the initial refresh period, the post-term renewal data-refresh fee is Three Hundred Seventy-Five Thousand Dollars ($375,000) per quarter (One Million Five Hundred Thousand Dollars ($1,500,000) on an annualized basis).
Late-Payment Interest. Any installment of the License Fee not paid when due shall accrue interest at a rate of one and one-half percent (1.5%) per month (eighteen percent (18%) per annum), calculated on the outstanding balance from the date such payment was due until the date of actual payment.
IV. Key Terms of the Data License Agreement
The following is a summary of additional key terms and conditions of the Data License Agreement:
Anticipated Execution / Effective Date. The Data License Agreement is expected to be executed on or about July 1, 2024, with simultaneous sign-and-close (i.e., the effective date of the Data License Agreement will be the date of execution thereof).
Initial Term. The initial term of the Data License Agreement is five (5) years from the effective date, extending through June 30, 2029, unless earlier terminated in accordance with the terms thereof.
Renewal Options. AHT has the option to renew the Data License Agreement for two (2) successive two (2)-year renewal terms, each exercisable at AHT's sole option, subject to AHT providing not less than one hundred eighty (180) days' prior written notice to PCA before the expiration of the then-current term.
Termination for Convenience. AHT may terminate the Data License Agreement for convenience upon ninety (90) days' prior written notice to PCA, provided that such termination right may not be exercised prior to the first (1st) anniversary of the effective date. In the event of such termination, no refund of License Fee installments previously paid shall be due or owing to AHT.
intellectual Property Ownership. PCA shall retain all right, title, and interest in and to the licensed data, including all intellectual property rights therein. AHT shall own all right, title, and interest in and to all analytics outputs, algorithms, models, derivative insights, and other derivative works produced by AHT using the licensed data (collectively, "Derivative Works"), provided that such Derivative Works do not permit the reconstruction of the underlying licensed data at the individual-claim-line level. In the event of any termination or expiration of the Data License Agreement, AHT's ownership of its Derivative Works shall survive, subject to the foregoing non-reconstruction condition.
Indemnification. The Data License Agreement provides for mutual indemnification obligations, with the aggregate liability of each party capped at Nine Million Dollars ($9,000,000), an amount equal to the total License Fee. Each party's indemnification obligation is subject to a deductible basket of Ninety Thousand Dollars ($90,000) (representing one percent (1%) of the License Fee), with first-dollar recovery after the basket amount has been met. Notwithstanding the foregoing cap, liability for willful misconduct or any breach of the data de-identification and re-identification restrictions shall be uncapped.
Insurance Requirements. Under the Data License Agreement: (i) PCA is required to maintain cyber liability and technology errors and omissions insurance coverage of not less than Ten Million Dollars ($10,000,000) per occurrence, underwritten by Graystone Specialty Insurance Co. (or a replacement carrier with an A.M. Best rating of A- or better), and commercial general liability insurance of not less than Five Million Dollars ($5,000,000) per occurrence; and (ii) AHT is required to maintain cyber liability insurance coverage of not less than Ten Million Dollars ($10,000,000) per occurrence, underwritten by Commonwealth Mutual Assurance Corp. (or a replacement carrier with an A.M. Best rating of A- or better). Certificates of insurance evidencing such coverage are to be exchanged between the parties prior to or upon execution of the Data License Agreement.
Governing Law and Venue. The Data License Agreement is governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict-of-laws principles. Each party has consented to the exclusive jurisdiction and venue of the state and federal courts located in Suffolk County, Massachusetts, for the resolution of any disputes arising out of or relating to the Data License Agreement.
V. Corporate Authorization
The Board of Directors of AHT approved the Data License Agreement and the associated Nine Million Dollar ($9,000,000) expenditure by unanimous written consent on June 18, 2024, as memorialized in Board Resolution No. AHT-BOD-2024-017. The resolution authorized AHT's officers to negotiate, execute, and deliver the Data License Agreement and all related ancillary documents on behalf of AHT, and to take all such further actions and execute all such further instruments as may be necessary or desirable to consummate the transactions contemplated thereby.
The aggregate value of the Data License Agreement exceeds the Five Million Dollar ($5,000,000) threshold requiring board-level approval under AHT's corporate governance arrangements with its equity sponsor, Cedarpoint Capital Partners Fund IV, L.P. Accordingly, the requisite approval of Cedarpoint Capital Partners Fund IV, L.P. has been obtained in connection with the Board's unanimous written consent, and no further equity sponsor approval is required.
AHT's outside legal counsel, Calderwood & Harkness LLP (matter number 1010-00006), is representing AHT in the negotiation, documentation, and closing of the Data License Agreement and has reviewed the terms summarized herein.
VI. Covenant Compliance Confirmation
The Borrower hereby represents, warrants, and confirms that, as of the date of this Notice and after giving pro forma effect to the proposed Data License Agreement and the payment of the License Fee installments described herein:
(a) The Borrower is in full compliance with all covenants, terms, and conditions of the Credit Agreement, including without limitation Section 7.12 (Notices Regarding Material intellectual Property Transactions) and all financial covenants set forth in Article VIII of the Credit Agreement;
(b) No Event of Default has occurred and is continuing, and no event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default under the Credit Agreement has occurred and is continuing or would result from the execution, delivery, or performance of the Data License Agreement or the payment of the License Fee installments contemplated thereby;
(c) The execution, delivery, and performance of the Data License Agreement does not create, and will not result in the creation of, any Lien on any property or assets of the Borrower or any of its Subsidiaries, other than Permitted Liens as defined in and permitted under the Credit Agreement; and
(d) The payment of the License Fee installments under the Data License Agreement will be funded from available cash on hand and operating cash flow of the Borrower and will not require any additional borrowings under the Credit Facility or any other indebtedness.
VII. Objection Period / Administrative Agent Response
Pursuant to Section 7.12 of the Credit Agreement, the Administrative Agent has a period of ten (10) Business Days following its receipt of this Notice (the "Objection Period") in which to deliver a written objection to the Borrower with respect to the proposed Data License Agreement, or to request additional information or documentation in connection therewith. The Borrower respectfully requests that the Administrative Agent acknowledge and confirm receipt of this Notice and, if applicable, communicate any objection or request for additional information within the Objection Period.
In the absence of a written objection from the Administrative Agent received by the Borrower within the Objection Period, the Borrower intends to proceed with the execution and delivery of the Data License Agreement on or about July 1, 2024, in accordance with the terms described herein and in reliance upon the provisions of Section 7.12 of the Credit Agreement.
VIII. Offer of Additional Information
AHT will promptly provide such additional information or documentation as the Administrative Agent may reasonably request regarding the Data License Agreement or the transactions contemplated thereby, including without limitation copies of draft or final transaction documents, financial analyses, and corporate authorization records.
Copies of the executed Data License Agreement and any related ancillary documents will be made available to the Administrative Agent upon request following the closing of the transaction.
IX. Contact Information for Inquiries
Any questions, requests for additional information, or communications regarding this Notice or the Data License Agreement should be directed to:
Primary Contact — Borrower: Helen Tsao, General Counsel Arbor Health Technologies Inc. 400 Seaport Boulevard, Suite 1200 Boston, MA 02210 Telephone: (617) 555-4820
Email: htsao@arborhealthtech.com
Outside Legal Counsel: Nathaniel Bower, Partner Calderwood & Harkness LLP 100 Federal Street, Suite 3400 Boston, MA 02110 Telephone: (617) 555-7100
Email: nbower@calderwoodharkness.com
We appreciate the Administrative Agent's prompt attention to this Notice and look forward to receiving confirmation of receipt at your earliest convenience. Should you have any questions or require further clarification regarding the foregoing, please do not hesitate to contact the undersigned or the persons identified above.
Very truly yours,
ARBOR HEALTH TECHNOLOGIES INC.
By: ________
Name: Helen Tsao
Title: General Counsel
Arbor Health Technologies Inc.
Date: June 21, 2024
cc:
Dr. Priya Narayanan, Chief Executive Officer, Arbor Health Technologies Inc. Marcus Ellison, Chief Data Officer, Arbor Health Technologies Inc. Daniel Fong, Operating Partner, Cedarpoint Capital Management LLC Nathaniel Bower, Partner, Calderwood & Harkness LLP Colette Whitman, Partner, Calderwood & Harkness LLP
Enclosures: None. The executed Data License Agreement will be provided to the Administrative Agent upon request following closing.