PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
Annotated Comparison: Term Sheet (v4) vs. Draft 1 Agreement — Key Translations and Open Points
July 22, 2024
From: James Underwood, Associate, Calderwood & Harkness LLP
To: Renata Vasquez, Partner, Calderwood & Harkness LLP
Cc: Devon Archer, Associate, Calderwood & Harkness LLP; Bernard Crawford, Partner, Calderwood & Harkness LLP
Client: Northgate Telecommunications PLC
Matter: Executive Employment Agreement — Marcus Elliot Harding, CEO Candidate
Matter Number: 1022-00004
Re: Section-by-Section Comparison of Revised Term Sheet (v4, dated July 10, 2024) Against Executive Employment Agreement Draft 1 (dated July 22, 2024)
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I. Purpose and Scope of This Memorandum
This memorandum provides a detailed, section-by-section comparison of the agreed and bracketed term sheet (version 4, dated July 10, 2024), as revised following the July 8, 2024 negotiation call between Calderwood & Harkness LLP, on behalf of Northgate Telecommunications PLC ("Northgate" or "NTP"), and Hargrove & Liddell LLP ("H&L"), on behalf of Marcus Elliot Harding ("Harding" or the "Executive"), against Draft 1 of the Executive Employment Agreement (the "Agreement" or "Draft 1") between Northgate Telecommunications US, Inc. ("NTP US"), as employer, and Marcus Elliot Harding, as executive. Draft 1 was circulated to Hargrove & Liddell LLP on July 22, 2024.
The purpose of this memorandum is threefold:
1. To identify where Draft 1 language faithfully translates the concepts and commercial terms set forth in the term sheet;
2. To identify where Draft 1 language elaborates upon, supplements, or departs from the term sheet, including instances in which additional legal mechanics or regulatory compliance provisions have been introduced; and
3. To identify all open, bracketed, and disputed items that remain subject to further negotiation between the parties and that are expected to generate substantive comment from Hargrove & Liddell in their redline of Draft 1.
By way of background, Term Sheet v4 reflects the agreed and disputed terms emerging from negotiation calls #1 through #5, held on June 24, July 1, July 8, July 12, and July 19, 2024, respectively. The term sheet contains bracketed alternatives on several key provisions where the parties have been unable to reach agreement, most notably the change in control severance multiplier and tax treatment, the definition of "Change in Control," and the restrictive covenant package. On disputed provisions, the term sheet sets forth each party's position in brackets, without resolution.
Draft 1 was prepared by this firm incorporating Northgate's positions on all bracketed items, consistent with direction received from the Northgate Board of Directors acting through the Remuneration Committee. The initial Board direction was communicated by Elaine Whitford, General Counsel, on June 22, 2024, and was subsequently updated by Ms. Whitford's August 9, 2024 guidance regarding the Remuneration Committee's authorized fallback position on non-compete duration and geographic scope. It should be noted, however, that because Draft 1 was circulated on July 22, 2024, it does not yet incorporate the August 9 guidance; that guidance will be reflected in Draft 2 as and when appropriate in the context of responding to H&L's anticipated redline.
We anticipate that Hargrove & Liddell's redline objections will be concentrated principally on two areas: Section 7 of Draft 1 (Change in Control Provisions), which reflects Northgate's positions on the CIC multiplier, tax treatment, and the exclusion of the "Board turnover" trigger from the definition of Change in Control; and Section 9 of Draft 1 (Restrictive Covenants), which reflects Northgate's positions on the 24-month duration, worldwide geographic scope, and revenue-based activity definition for the non-competition covenant. These two sections represent the core areas of disagreement between the parties that have persisted through five rounds of negotiation.
Draft 1 is governed by the laws of the State of New York, consistent with the agreed dual-contract architecture pursuant to which the primary employment agreement will be a New York-governed agreement between NTP US and Harding, with a secondary UK service agreement between Northgate PLC and Harding to be drafted by Moorfield Bates LLP (lead partner: Simon Aldridge) to address Harding's UK duties, FCA Senior Manager & Certification Regime ("SM&CR") compliance obligations, and certain UK employment law requirements. Coordination with Moorfield Bates on the UK agreement is ongoing and addressed at various points in this memorandum where the two agreements intersect.
II. Legend / Reading Guide
The following legend is used throughout this memorandum to categorize the status of each provision in Draft 1 relative to the term sheet:
• "Agreed" — The term or provision is reflected in Draft 1 as agreed by both sides during the term sheet negotiations. No substantive departure, and no objection is anticipated from Hargrove & Liddell on this point.
• "Elaborated" — The term sheet concept has been translated into fuller contractual language in Draft 1. There is no substantive departure from the commercial terms agreed in the term sheet, but additional detail, legal mechanics, or procedural provisions have been added to render the concept in definitive agreement form. Some elaborated provisions may draw minor or clarifying comments from H&L but are not expected to be areas of material dispute.
• "NTP Position" — Draft 1 reflects Northgate's position on a bracketed or disputed item from the term sheet. These are provisions where the parties have not reached agreement, and Draft 1 has been drafted to reflect Northgate's preferred outcome. Significant pushback from H&L is expected on all provisions so designated.
• "Open" — An item has been identified as requiring further negotiation between the parties. This may include provisions where additional information is needed (e.g., PSU performance metrics to be established by the Remuneration Committee), where the parties' positions have not been fully defined, or where a decision has been deferred to a later stage.
• "New" — A provision has been included in Draft 1 that was not expressly addressed in the term sheet but is customary for agreements of this nature, legally required for compliance purposes, or otherwise necessary to create a complete and enforceable definitive agreement. New provisions may include Section 409A compliance language, dispute resolution mechanics, and standard representations and warranties.
All cross-references in this memorandum are to Draft 1 section numbers (e.g., "Draft 1 §7.3") and term sheet v4 paragraph numbers (e.g., "¶7"), unless otherwise indicated.
III. Section-by-Section Comparison
Section 1: Definitions (Draft 1 §1)
Term Sheet Reference: Not separately addressed; definitions implied throughout the term sheet in the context of specific provisions.
Status: Elaborated / New
Draft 1 includes a comprehensive definitions section at Section 1, which consolidates and defines key terms used throughout the Agreement. The term sheet did not include a standalone definitions section; rather, key concepts such as "for cause," "good reason," and "change in control" were identified in the body of the term sheet with notations that they were "to be defined" in the definitive agreement. The definitions in Draft 1 therefore represent a combination of (a) elaboration of concepts implied or briefly referenced in the term sheet, and (b) new defined terms added for legal precision and completeness.
The following key definitions warrant particular attention in anticipating H&L's response:
"Affiliate" — Defined in Draft 1 to include Northgate Telecommunications PLC, Northgate Telecommunications US, Inc., and all direct and indirect subsidiaries and controlled entities of Northgate PLC, whether now existing or hereafter formed or acquired. This definition is broader than the implicit scope of the term sheet, which referenced "the Company" without specifying whether affiliate entities were included within the scope of various provisions (e.g., non-solicitation, confidentiality obligations). The broad affiliate definition is favorable to Northgate, as it ensures that the Executive's obligations extend across the entire corporate group. We do not anticipate significant objection to this definition, as it is customary in senior executive agreements at multi-entity enterprises, but H&L may seek to limit the scope of certain restrictive covenants to entities with which Harding has a direct working relationship.
"Board" — Defined as the Board of Directors of Northgate Telecommunications PLC, the UK-listed parent company, and not the board of NTP US, the direct employer. This is consistent with the parties' intent that Harding will serve as Chief Executive Officer of the parent-level entity and report directly to the parent Board. The definition is important because it establishes the body responsible for Remuneration Committee oversight, annual bonus determinations, equity grant approvals, and Cause/Good Reason determinations. No departure from the term sheet's intent is presented, and no objection is anticipated.
"Cause" — This is a detailed definition that enumerates the circumstances under which Northgate may terminate the Executive's employment without severance. Draft 1 defines Cause to include: (i) willful misconduct or gross negligence in the performance of duties; (ii) material breach of the Agreement or any material written policy of the Company; (iii) conviction of, or entry of a plea of guilty or nolo contendere to, a felony or any crime involving moral turpitude, fraud, or dishonesty; (iv) commission of fraud, embezzlement, misappropriation, or other act of dishonesty against the Company or any Affiliate; (v) material violation of any written Company policy, including policies relating to harassment, discrimination, securities trading, or use of confidential information; and (vi) failure or refusal to cooperate in any investigation or proceeding involving the Company or any Affiliate, including any governmental investigation. The term sheet stated only "for cause (to be defined)" without specifying the elements of the definition. The definition in Draft 1 is drafted from Northgate's perspective and is comprehensive in scope. We anticipate that H&L will seek to narrow this definition in several respects: (a) adding "material" qualifiers to subclauses where they are absent (e.g., subclause (i)); (b) requiring that willful misconduct be "demonstrably injurious" to the Company; (c) inserting cure periods for all curable breaches, not merely "material breach" under subclause (ii); (d) excluding misdemeanor convictions that do not involve moral turpitude; and (e) requiring Board determination of Cause by a supermajority or requiring written notice and an opportunity for the Executive to be heard. Draft 1 currently includes a 30-day cure period only for curable breaches under subclause (ii), which is narrower than what Harding's counsel is likely to demand.
"Change in Control" — This definition is a core disputed provision and is analyzed in detail under Section 10 of this memorandum. The definition is included in the Draft 1 definitions section for organizational purposes but represents one of the most significant areas of disagreement between the parties.
"Disability" — Defined as the Executive's inability to perform the essential functions of his position, with or without reasonable accommodation, for a period of 180 consecutive calendar days or 270 calendar days in any 365-day rolling period, as certified by a physician mutually agreed upon by the Company and the Executive (or, in the event of disagreement, by a physician selected by the two initially designated physicians). This definition was not addressed in the term sheet and represents a new provision added for legal completeness. The definition is consistent with market practice for senior executive agreements and tracks the Americans with Disabilities Act framework. We do not anticipate significant comment from H&L on this definition, though they may seek to add a requirement that the Company engage in an interactive process prior to any Disability determination.
"Good Reason" — Defined in Draft 1 to include: (i) a material diminution in the Executive's duties, authority, or title, including the removal of the Executive from, or the failure to elect or re-elect the Executive to, the position of Chief Executive Officer; (ii) a material reduction in the Executive's base salary or target annual bonus opportunity (with any reduction below the levels set forth in the Agreement constituting a per se material reduction); (iii) the relocation of the Executive's principal office to a location more than 50 miles from 600 Lexington Avenue, New York, NY 10022; and (iv) a material breach by the Company of any provision of the Agreement. The definition requires the Executive to provide written notice to the Company within 30 days of the initial occurrence of the Good Reason event and provides the Company with a 30-day cure period following receipt of such notice. If the Company fails to cure the Good Reason event within the cure period, the Executive must resign within 30 days following the expiration of the cure period for the resignation to constitute a resignation for Good Reason. The term sheet stated "good reason (to be defined)" without specifying the elements of the definition. We anticipate that H&L will seek to expand this definition in at least two respects: (a) adding a trigger for the Company's failure to nominate the Executive for election to the Board of Northgate PLC (which is arguably subsumed within subclause (i) but is not expressly stated); and (b) adding a trigger for any change in the Executive's reporting relationship such that the Executive no longer reports directly to the Board. The latter point may be significant if Northgate were to create an Executive Chairman role to which the CEO would report.
"Restrictive Period" — Defined as the period of 24 months following the termination of the Executive's employment for any reason. This is a disputed item and is analyzed in detail under Section 11 of this memorandum. Draft 1 reflects Northgate's position of a 24-month post-termination restrictive period; Harding has demanded 12 months.
Open Points:
• Definition of "Cause" — anticipate narrowing requests from H&L, particularly regarding cure periods, materiality qualifiers, and the process for Board determination.
• Definition of "Good Reason" — anticipate expansion requests from H&L, including Board nomination and reporting line triggers.
• Definition of "Change in Control" — see Section 10 of this memorandum for detailed analysis of the disputed Board turnover trigger.
• Definition of "Restrictive Period" — see Section 11 of this memorandum for detailed analysis of the disputed duration.
Section 2: Term of Employment (Draft 1 §2)
Term Sheet Reference: ¶2 ("Term")
Status: Agreed
Draft 1 establishes an initial employment term of five years, commencing on October 1, 2024 and continuing through September 30, 2029 (the "Initial Term"). Following the expiration of the Initial Term, the Agreement automatically renews for successive one-year periods (each, a "Renewal Term"), unless either party provides the other with written notice of non-renewal at least 180 days prior to the expiration of the then-current term. Non-renewal by the Company, if the Executive does not consent to the non-renewal, would not in itself constitute a termination without Cause or give rise to Good Reason, but would entitle the Executive to accrued obligations through the end of the then-current term.
This provision faithfully translates the terms agreed during the term sheet negotiations. The five-year initial term, automatic renewal mechanism, and 180-day notice period for non-renewal are all consistent with term sheet v4, ¶2, and were agreed without dispute during the early negotiation calls.
It should be noted that during the July 19, 2024 negotiation call (call #5), the parties discussed the possibility of pushing the commencement date from October 1, 2024 to November 1, 2024 to accommodate Harding's transition from his current position as President and Chief Operating Officer of Marlowe Asset Management Digital Holdings, Inc. ("Marlowe Asset Management"). Harding indicated that his transition from Marlowe Asset Management may require additional time, including the completion of ongoing strategic initiatives and the handover of responsibilities to his successor. Draft 1 retains October 1, 2024 as the proposed start date but includes a footnote (footnote 3 on page 4 of Draft 1) indicating that the start date may be adjusted by mutual written agreement of the parties. This approach was taken to preserve the October 1 date as Northgate's preferred commencement while signaling flexibility. The actual commencement date will need to be confirmed as part of the finalization of the Agreement.
Open Points:
• Start date may shift to November 1, 2024, subject to confirmation by Harding regarding the timing of his Marlowe Asset Management transition. This is a logistical rather than substantive issue and is expected to be resolved without difficulty.
Section 3: Position, Duties, and Responsibilities (Draft 1 §3)
Term Sheet Reference: ¶3 ("Position and Duties")
Status: Agreed / Elaborated
Draft 1 provides that the Executive shall serve as Chief Executive Officer of Northgate Telecommunications PLC, with authority, duties, and responsibilities customary for such position at a publicly traded telecommunications company of Northgate's size and scope. The Executive shall report directly and exclusively to the Board of Directors of Northgate Telecommunications PLC. No officer or employee of the Company or any Affiliate shall have authority to direct or supervise the Executive other than the Board.
Draft 1 further provides that Northgate shall use reasonable best efforts to cause the Executive to be nominated for election as a member of the Board of Northgate PLC at each annual general meeting during the term of employment, and that, if elected, the Executive shall serve as a member of the Board without additional compensation. The term sheet stated that the Executive would be nominated for Board membership, and Draft 1 elaborates upon this commitment by imposing a "reasonable best efforts" standard on the Company's nomination obligation. This formulation represents a middle ground between a bare commitment to nominate (which would leave the outcome uncertain) and an absolute guarantee of Board membership (which is not within the Company's unilateral control given shareholder voting requirements). We believe this formulation is appropriate and should be acceptable to both sides, although H&L may request language clarifying that failure to achieve election after nomination does not, standing alone, constitute a breach of the Agreement.
The Executive's principal offices are established as follows: (a) 600 Lexington Avenue, 38th Floor, New York, NY 10022 (the "New York Office"), where the Executive is expected to spend approximately 80% of his working time; and (b) 45 Canary Wharf Tower, One Canada Square, London E14 5AB (the "London Office"), where the Executive is expected to spend approximately 20% of his working time. This 80/20 time split is consistent with the dual-contract architecture agreed between the parties, under which the primary employment relationship will be with NTP US (the New York-governed agreement) and a secondary service relationship will be with Northgate PLC (the UK-governed agreement to be drafted by Moorfield Bates LLP). The 80/20 allocation has implications for tax residency, social security coverage under the US-UK Totalization Agreement, and FCA SM&CR compliance, all of which are addressed in other sections of the Agreement and in the parallel workstream with Moorfield Bates.
Draft 1 adds customary provisions regarding exclusivity and best efforts that were not expressly stated in the term sheet but are standard for senior executive employment agreements. Specifically, Draft 1 requires the Executive to devote substantially all of his business time, attention, skill, and energy to the performance of his duties under the Agreement and to use his best efforts to promote the interests of the Company. The exclusivity obligation is subject to the following permitted outside activities: (a) service on boards of directors or advisory boards of charitable, educational, or civic organizations; (b) service on the board of directors of one for-profit entity at any time, provided that (1) such service does not create a conflict of interest with the Company, (2) such service does not materially interfere with the Executive's performance of his duties, and (3) the Executive obtains the prior written consent of the Board; and (c) management of the Executive's personal investments, provided that such activities do not materially interfere with the Executive's duties and do not involve investments in direct competitors of the Company. These provisions were not in the term sheet but are customary and should not generate significant objection, though H&L may seek to relax the requirement for Board pre-approval of for-profit board service (e.g., by requiring only advance notice or Board consent "not to be unreasonably withheld").
Draft 1 also includes a cross-reference to the secondary UK service agreement with Northgate PLC, which is to be entered into concurrently with the execution of the Agreement. The reference provides that the terms of the UK service agreement shall be consistent with and complementary to the Agreement, and that in the event of any conflict between the two agreements, the terms of the Agreement shall prevail except with respect to matters governed exclusively by English law or UK regulatory requirements. Coordination with Moorfield Bates LLP (Simon Aldridge, lead partner) on the UK agreement is ongoing, and the UK agreement will address, among other matters, the Executive's FCA SM&CR obligations as a Senior Manager Function holder, UK statutory employment rights, pension contributions under applicable UK schemes, and UK tax and National Insurance treatment of the Executive's UK-source income.
Open Points:
• None anticipated on this section as a whole. Minor comments from H&L may be expected regarding the scope of outside activity restrictions, particularly whether Board consent for for-profit board service should be subject to a reasonableness standard.
Section 4: Base Salary (Draft 1 §4.1)
Term Sheet Reference: ¶4(a) ("Base Salary")
Status: Agreed
Draft 1 provides for an annual base salary of $1,750,000, payable in substantially equal installments in accordance with the standard payroll practices of NTP US (currently bi-weekly). The base salary is subject to annual review by the Remuneration Committee of the Board of Northgate PLC, and may be increased (but not decreased below the initial level of $1,750,000) in the Remuneration Committee's discretion. Any decrease below $1,750,000 without the Executive's written consent would constitute a "material reduction in base salary" for purposes of the Good Reason definition in Section 1 of the Agreement.
The agreed base salary of $1,750,000 represents an increase over Harding's current base salary of $1,450,000 at Marlowe Asset Management Digital Holdings, Inc., reflecting a premium of approximately 20.7% that was justified during the negotiation process by reference to the scope and complexity of the Northgate CEO role, including the dual US/UK operating structure, the company's global footprint across 27 markets, and the significant strategic transformation agenda that Harding has been recruited to lead.
This provision is a faithful translation of term sheet v4, ¶4(a). There is no departure from the agreed commercial terms, and no open points or areas of anticipated dispute exist with respect to base salary.
Open Points: None.
Section 5: Annual Incentive Compensation (Draft 1 §4.2)
Term Sheet Reference: ¶4(b) ("Annual Bonus")
Status: Agreed
Draft 1 provides that the Executive shall be eligible to receive an annual incentive bonus (the "Annual Bonus") for each fiscal year during the term of employment, with a target Annual Bonus equal to 175% of the Executive's then-current base salary (the "Target Bonus") and a maximum Annual Bonus of 300% of the Executive's then-current base salary. At the initial base salary of $1,750,000, this translates to a Target Bonus of $3,062,500 and a maximum Annual Bonus of $5,250,000.
The performance metrics applicable to each fiscal year's Annual Bonus shall be established by the Remuneration Committee within the first 90 days of each fiscal year and communicated to the Executive in writing. Performance metrics may include, without limitation, financial metrics (revenue, EBITDA, earnings per share, free cash flow), operational metrics (subscriber growth, network investment targets, customer satisfaction), and strategic/individual performance objectives. The determination of the Executive's Annual Bonus for each fiscal year shall be made by the Remuneration Committee in its reasonable good faith discretion, based on the Executive's performance against the established metrics.
Draft 1 elaborates upon the term sheet in several respects that do not represent substantive departures from the agreed commercial terms but add necessary legal and operational detail:
• Pro-rata bonus for partial years: For any fiscal year in which the Executive is employed for less than the full fiscal year (including the first partial year of employment, if the start date falls after the beginning of NTP's fiscal year), the Executive shall be eligible for a pro-rata Annual Bonus based on the number of days of employment during such fiscal year divided by 365. The pro-rata bonus shall be calculated based on actual performance against the established metrics for the full fiscal year, as determined by the Remuneration Committee, applied to the pro-rata period.
• Timing of payment: The Annual Bonus, if earned, shall be paid no later than March 15 of the calendar year following the fiscal year to which it relates, consistent with the "short-term deferral" exception under Section 409A of the Internal Revenue Code. This timing requirement was not addressed in the term sheet but is essential for Section 409A compliance. Payment within the 2½-month period following the end of the fiscal year ensures that the Annual Bonus qualifies as a short-term deferral and is therefore exempt from the complex deferred compensation rules of Section 409A, including the six-month delay requirement applicable to specified employees upon separation from service.
• Remuneration Committee discretion: Draft 1 includes language confirming the Remuneration Committee's discretion to determine the amount of the Annual Bonus, subject to the established metrics and the target and maximum limits. This language is standard and reflects the governance reality that annual bonus determinations are within the Remuneration Committee's purview.
Open Points: None anticipated. The Annual Bonus provisions are consistent with the agreed term sheet terms and include only customary elaborations. We do not expect substantive objection from H&L on this section.
Section 6: Equity Compensation (Draft 1 §4.3)
Section 6.1: Sign-On Equity Grant — Make-Whole (Draft 1 §4.3(a)). Term Sheet Reference: ¶4(c) ("Sign-On Equity")
Status: Agreed / Elaborated
Draft 1 provides for a sign-on equity grant consisting of two components designed to compensate Harding for the forfeiture of unvested equity awards at Marlowe Asset Management Digital Holdings, Inc. upon his departure:
Restricted Stock Units ("RSUs"): A grant of RSUs with a grant-date fair value of $12,000,000, calculated based on the volume-weighted average closing price of Northgate PLC ordinary shares on the New York Stock Exchange over the 20 trading days immediately preceding the grant date (the "Grant Date VWAP"). The RSUs shall vest in three equal annual installments (one-third per installment) on each of the first three anniversaries of the grant date, subject to the Executive's continued employment through each applicable vesting date.
Performance Stock Units ("PSUs"): A grant of PSUs with a target grant-date fair value of $6,400,000, also calculated based on the Grant Date VWAP. The PSUs shall cliff vest at the end of a three-year performance period commencing on the grant date, with the number of PSUs actually vesting to be determined based on the Company's achievement of performance hurdles to be established by the Remuneration Committee, including relative total shareholder return ("TSR") and revenue growth metrics. The PSUs may vest at between 0% and 200% of the target number of units, depending on performance.
The total sign-on equity grant has a target value of $18,400,000. This figure was negotiated as part of the overall make-whole package designed to compensate Harding for his estimated forfeited Marlowe Asset Management equity of approximately $23,400,000 (consisting of unvested RSUs, PSUs, and stock options at Marlowe Asset Management, as estimated by Kensington Partners based on Marlowe Asset Management's closing share price as of June 15, 2024). The $5,000,000 shortfall between the forfeited equity and the sign-on equity grant is offset by the sign-on cash bonus discussed in Section 7 of this memorandum.
Draft 1 elaborates upon the term sheet in several respects:
• Plan reference: All sign-on equity grants will be made under the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan (the "Plan"), which was approved by shareholders at the 2022 Annual General Meeting. The Plan currently has a remaining pool of approximately 14,200,000 authorized but unissued shares. Based on a current share price of approximately $15.87 (the 20-day VWAP as of July 19, 2024), the sign-on equity grants would represent approximately 1,159,420 shares ($18,400,000 ÷ $15.87), which constitutes approximately 0.17% of NTP's outstanding ordinary shares (699,000,000 shares as of the most recent annual report). The grant is within the Plan's annual individual limits and does not require additional shareholder approval.
• Termination treatment: Draft 1 includes provisions governing the treatment of the sign-on equity awards upon various termination scenarios: (a) upon the Executive's death or Disability, unvested RSUs shall vest on a pro-rata basis through the date of termination, and unvested PSUs shall vest on a pro-rata basis based on actual performance through the date of termination (or, if the performance period has not been completed, at target); (b) upon termination by the Company for Cause or resignation by the Executive without Good Reason, all unvested RSUs and PSUs shall be forfeited immediately; (c) upon termination by the Company without Cause or resignation by the Executive for Good Reason (not in connection with a Change in Control), vesting treatment is as set forth in Section 9 of this memorandum (Non-CIC Severance); and (d) upon a qualifying termination in connection with a Change in Control, vesting treatment is as set forth in Section 10 of this memorandum (CIC Provisions — disputed).
• Accounting treatment: Galloway & Partners LLP (engagement partner: Clive Warburton) has been consulted on the accounting treatment of the sign-on equity grants under both ASC 718 (US GAAP) and IFRS 2 (as applicable to Northgate PLC's consolidated financial statements). The RSU grant will create an annual compensation expense of approximately $4,000,000 per year over the three-year vesting period, recognized on a straight-line basis. The PSU grant will be expensed over the three-year performance period at grant-date fair value, with adjustments based on the probability of achieving the performance conditions. Total estimated annual equity compensation expense for the sign-on grants is approximately $6,100,000 per year for the first three years.
Open Points:
• PSU performance metrics have not yet been specified. The Remuneration Committee is expected to establish specific TSR and revenue growth hurdles prior to the grant date. This is an internal Northgate matter and is not a point of negotiation between the parties.
• Treatment of sign-on equity upon a qualifying CIC termination is disputed. See Section 10 of this memorandum for detailed analysis.
Section 6.2: Annual Long-Term Incentive Grants (Draft 1 §4.3(b)). Term Sheet Reference: ¶4(d) ("Annual LTI")
Status: Agreed
Draft 1 provides that the Executive shall be eligible to receive annual long-term incentive ("LTI") grants with a target aggregate grant-date fair value of $9,000,000 per year. The annual LTI grants shall consist of a mix of 60% PSUs (target value: $5,400,000) and 40% RSUs (target value: $3,600,000), consistent with the Company's standard LTI mix for senior executives as established by the Remuneration Committee.
All annual LTI grants will be made under the 2022 Omnibus Incentive Plan. The first annual LTI grant shall be made on the Executive's start date or, if the start date does not coincide with a regularly scheduled Board meeting at which equity grants are approved, at the first such meeting following the start date. Annual LTI grants for subsequent years shall be made at the same time as annual LTI grants to other senior executives, typically at the Board meeting in March of each year following the end of the prior fiscal year.
The combined sign-on equity and first-year annual LTI represent an aggregate equity value of $27,400,000, which at the current Grant Date VWAP of $15.87 would require approximately 1,726,529 shares, representing approximately 0.25% of NTP's outstanding ordinary shares. This dilution level is within normal parameters for CEO-level equity compensation at companies of NTP's market capitalization.
Draft 1 adds vesting schedules for annual LTI grants consistent with the sign-on equity structure: RSUs vest ratably over three years (one-third per year), and PSUs cliff vest at the end of a three-year performance period, subject to achievement of performance hurdles established by the Remuneration Committee for each cycle.
Open Points: None.
Section 7: Sign-On Cash Bonus (Draft 1 §4.4)
Term Sheet Reference: ¶4(e) ("Sign-On Cash Bonus")
Status: Agreed
Draft 1 provides for a one-time sign-on cash bonus of $5,000,000, payable within 30 calendar days following the Executive's start date. The sign-on cash bonus is a make-whole component designed to offset the $5,000,000 gap between the Executive's estimated forfeited Marlowe Asset Management equity ($23,400,000) and the sign-on equity grants ($18,400,000).
The sign-on cash bonus is subject to a 24-month clawback provision: if the Executive voluntarily resigns his employment (other than for Good Reason) within 24 months of the start date, the Executive shall be required to repay the full amount of the sign-on cash bonus to the Company within 30 days of the date of resignation. Draft 1 provides that the clawback obligation applies on an all-or-nothing basis; there is no pro-rata reduction of the clawback amount based on the number of months of employment completed. This treatment reflects Northgate's position and was not addressed in the term sheet, which was silent on whether the clawback would be full or pro-rated.
The full clawback approach (as opposed to a pro-rata clawback that would reduce the repayment obligation by 1/24th for each completed month of employment) is a point on which H&L may raise objection. A full clawback is more favorable to Northgate because it creates a stronger retention incentive and eliminates any economic incentive for the Executive to resign at, for example, month 23 (at which point a pro-rata clawback would require repayment of only approximately $208,333). However, the full clawback approach is more aggressive than market practice, where pro-rata clawbacks are more common in sign-on bonus arrangements. We would rate this as a minor point that is likely resolvable through negotiation.
Open Points:
• Clawback mechanics: full clawback (NTP/Draft 1 position) vs. pro-rata clawback (likely H&L request). This is a minor point and should be readily negotiable. Calderwood & Harkness's recommendation is to agree to pro-rata if necessary to secure agreement on higher-priority items.
Section 8: Benefits, Perquisites, and Retirement (Draft 1 §5)
Term Sheet Reference: ¶5 ("Benefits and Perquisites")
Status: Agreed / Elaborated
8.1: 401(k) and SERP (Draft 1 §5.1). Draft 1 provides for the Executive's participation in the NTP US 401(k) Retirement Savings Plan on the same terms and conditions as other similarly situated employees, with an employer matching contribution of 6% of eligible compensation. At the Executive's base salary of $1,750,000, the 6% match represents $105,000 per year; however, actual matching contributions will be limited by the annual IRS limits on elective deferrals under Section 402(g) of the Internal Revenue Code ($23,000 for calendar year 2024, subject to annual cost-of-living adjustments) and the overall annual addition limit under Section 415 of the Internal Revenue Code ($69,000 for calendar year 2024). As a practical matter, the Executive's participation in the 401(k) plan will be constrained by these limits, and the majority of the Executive's retirement savings will be provided through the supplemental arrangement described below.
Draft 1 further provides for an annual contribution of $250,000 by the Company to a Supplemental Executive Retirement Plan ("SERP") maintained for the benefit of the Executive. The SERP is structured as an unfunded, nonqualified deferred compensation arrangement, with contributions credited to a bookkeeping account maintained by the Company on behalf of the Executive. The SERP account shall be deemed invested in investment alternatives selected by the Executive from a menu provided by the Company, and gains and losses shall be credited to the account based on the performance of the selected investments. The SERP account shall be distributed to the Executive upon the earlier of (a) the Executive's separation from service (subject to the Section 409A six-month delay for specified employees) or (b) the Executive's attainment of age 65.
Draft 1 adds comprehensive Section 409A compliance language for the SERP, including provisions regarding the timing of distributions, the separation of installment payments, and the prohibition on acceleration of distributions except as permitted by Treasury Regulation Section 1.409A-3(j)(4). The term sheet referenced the SERP contribution amount but did not address Section 409A compliance, which is a legal necessity for any nonqualified deferred compensation arrangement.
Open Points: None.
8.2: Perquisites (Draft 1 §5.2). Draft 1 provides for the following executive perquisites during the term of employment:
• Car allowance: $25,000 per year, payable in monthly installments. The Executive may use the car allowance at his discretion for vehicle lease payments, fuel, insurance, maintenance, or other transportation expenses.
• Executive health program: The Executive shall be eligible to participate in the Company's executive health assessment program, which provides for an annual comprehensive health examination at a facility designated by the Company. The Company shall bear the full cost of the annual examination, including travel expenses if the examination is conducted at a location other than New York or London.
• Supplemental life insurance: The Company shall obtain and maintain a supplemental term life insurance policy on the life of the Executive with a death benefit of $2,000,000, in addition to any group life insurance provided under the Company's employee benefit plans. The Executive shall have the right to designate the beneficiary of the supplemental life insurance policy.
• Financial and tax planning reimbursement: The Company shall reimburse the Executive for the cost of personal financial planning, tax preparation, and estate planning services up to a maximum of $35,000 per year. This amount was increased from $25,000 in the initial term sheet (v1) as a concession made by Northgate during the July 8, 2024 negotiation call (call #3) in exchange for Harding's agreement to the 30-day cure period in the Good Reason definition. The reimbursement is subject to submission of appropriate documentation and shall be paid within 30 days of submission.
All perquisites are subject to applicable tax withholding, and the Company shall report all perquisites as taxable income to the Executive to the extent required by applicable law.
Open Points: None.
8.3: D&O Insurance and Indemnification (Draft 1 §5.3). Status: Elaborated / New
Draft 1 includes comprehensive provisions regarding directors' and officers' liability insurance and corporate indemnification that go substantially beyond the brief reference to these topics in the term sheet. The term sheet stated only that "NTP will provide D&O coverage and standard executive indemnification." Draft 1 elaborates as follows:
• D&O insurance: The Company shall at all times during the Executive's employment, and for a period of six years following the termination of the Executive's employment for any reason, maintain directors' and officers' liability insurance coverage with respect to the Executive on terms and at coverage levels no less favorable than the coverage provided to the Executive at the commencement of employment. The Company's current D&O policy is underwritten by Ashdown Surety & Insurance Co. (Policy No. ASI-D&O-NTP-2024-4471) and provides coverage of $50,000,000 per occurrence and $100,000,000 in the aggregate per policy year.
• Tail coverage: The provision requiring six-year tail coverage following termination of employment is a new addition not addressed in the term sheet. Six years is the standard tail period in executive agreements and corresponds to the typical statute of limitations for securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934. H&L may request a longer tail period (e.g., the longest applicable statute of limitations, which could extend beyond six years for certain state-law claims or for claims under the UK Companies Act 2006), but six years is within the range of market practice.
• Indemnification: Draft 1 includes a standard indemnification provision pursuant to which the Company agrees to indemnify and hold harmless the Executive to the fullest extent permitted by applicable law (including, without limitation, Section 145 of the Delaware General Corporation Law, as NTP US is a Delaware corporation) against all expenses, liabilities, and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) actually and reasonably incurred by the Executive in connection with any action, suit, or proceeding arising out of or relating to the Executive's service as an officer, director, or employee of the Company or any Affiliate, provided that the Executive acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. The indemnification provision includes an obligation for the Company to advance expenses (including attorneys' fees) incurred by the Executive in defending any such action, suit, or proceeding, subject to the Executive's undertaking to repay such advances if it is ultimately determined that the Executive is not entitled to indemnification.
• Separate indemnification agreement: Draft 1 references that the Company and the Executive shall enter into a separate indemnification agreement concurrently with the execution of the Agreement, which shall set forth the Executive's indemnification rights in greater detail and shall survive the termination of the employment relationship. The form of indemnification agreement is not attached to Draft 1 and will need to be prepared and negotiated separately.
Open Points:
• Tail coverage duration: Six years is standard, but H&L may seek a longer period or an "unlimited" tail. This is a negotiable point.
• Indemnification standard: H&L may seek to broaden the scope of covered acts or to eliminate the "good faith" requirement (or substitute a more lenient standard). This is a standard area of comment.
• Separate indemnification agreement: The form has not yet been prepared and will need to be drafted and negotiated.
8.4: Tax Equalization (Draft 1 §5.4). Status: Elaborated / New
Draft 1 includes tax equalization provisions to address the Executive's UK-source income arising from his performance of approximately 20% of his duties in the United Kingdom. The term sheet referenced the need for tax equalization briefly ("NTP to provide tax equalization for UK duties"), and Draft 1 provides the full mechanics.
The key elements of the tax equalization provisions are as follows:
• The Executive shall remain a US tax resident for all purposes throughout the term of employment. The 80/20 time split between New York and London has been structured to ensure that the Executive does not become UK tax resident under the UK statutory residence test and that his UK tax obligations are limited to UK-source income arising from duties performed in the United Kingdom.
• The Company shall bear the cost of any incremental tax liability incurred by the Executive as a result of his performance of duties in the United Kingdom, such that the Executive's after-tax economic position is equivalent to what it would have been had all duties been performed in the United States. The Company shall engage a tax advisory firm (currently Whitmore Hobson LLP, engagement partner Dr. Rachel Whitmore) to prepare annual tax equalization calculations and to file all necessary UK and US tax returns on behalf of the Executive.
• The Executive shall be exempt from UK National Insurance contributions under the US-UK Totalization Agreement, pursuant to which a Certificate of Coverage (Form USA/UK 1) shall be obtained from the US Social Security Administration confirming that the Executive remains subject to the US social security system and is exempt from UK social security contributions. Coordination with Moorfield Bates LLP on the UK service agreement will ensure that the Totalization Agreement exemption is properly documented and that the secondary UK service agreement reflects the Executive's US social security status.
Open Points: None anticipated. The tax equalization provisions are a necessary complement to the dual-contract architecture and are not expected to generate objection from H&L.
Section 9: Termination of Employment — Non-CIC (Draft 1 §6)
Term Sheet Reference: ¶6 ("Termination Provisions")
Status: Agreed (partially) / NTP Position on certain items
Draft 1 §6 addresses the consequences of the termination of the Executive's employment in scenarios that do not involve a Change in Control. Change in Control-related termination provisions are addressed separately in Section 10 of this memorandum.
9.1: Termination Without Cause / Resignation for Good Reason — Non-CIC (Draft 1 §6.2). This subsection addresses the severance package payable to the Executive upon a termination of employment by the Company without Cause or a resignation by the Executive for Good Reason, in each case not in connection with a Change in Control (i.e., occurring more than 24 months after a Change in Control or prior to a Change in Control).
Northgate's position (reflected in Draft 1):
• Cash severance: A lump-sum payment equal to two times (2x) the sum of the Executive's base salary and Target Bonus: 2 × ($1,750,000 + $3,062,500) = 2 × $4,812,500 = $9,625,000.
• Pro-rata bonus: A pro-rata Annual Bonus for the fiscal year in which the termination occurs, calculated at target and subject to Board discretion as to adjustment based on actual performance.
• COBRA continuation: Company-paid COBRA health insurance continuation for a period of 18 months following the date of termination, or until the Executive becomes eligible for comparable coverage through a subsequent employer, whichever occurs first.
• Equity acceleration: 12 months of accelerated vesting of unvested time-based equity awards (RSUs). Unvested PSUs shall vest on a pro-rata basis based on actual performance through the date of termination for performance periods that have commenced, with forfeiture of PSUs for performance periods that have not yet commenced.
• Outplacement services: Not included in the non-CIC package (included only in the CIC package).
Harding's counter-demand (per term sheet v4 brackets):
• Cash severance: 2.5x the sum of base salary and Target Bonus: 2.5 × $4,812,500 = $12,031,250.
• Pro-rata bonus: At target, not subject to Board discretion.
• COBRA continuation: 24 months.
• Equity acceleration: Full acceleration of all unvested equity (both RSUs and PSUs), with PSUs vesting at target.
The severance payment gap between the parties' positions on the cash multiplier alone is $12,031,250 − $9,625,000 = $2,406,250. When combined with the differences in equity acceleration and COBRA duration, the total economic gap on the non-CIC severance package is substantially larger.
Term sheet v4 presented the non-CIC severance multiplier as a bracketed item: [2x / 2.5x], reflecting the parties' inability to agree on this point. Draft 1 uses the 2x multiplier consistent with Northgate's position and the Board direction received from Ms. Whitford.
All severance payments and benefits are conditioned upon the Executive's execution and non-revocation of a separation agreement and general release of claims in favor of the Company and its Affiliates (in the form attached to the Agreement as Schedule D), within 60 days following the date of termination. If the Executive does not execute the release within the 60-day period, or if the Executive revokes the release within any applicable revocation period, no severance payments or benefits shall be payable.
Draft 1 also includes a provision addressing the Section 409A six-month delay applicable to "specified employees" of publicly traded companies. If the Executive is a "specified employee" (as defined in Section 409A and the Company's specified employee identification policy) on the date of his separation from service, any severance payments that constitute "nonqualified deferred compensation" under Section 409A shall not be paid until the first business day following the six-month anniversary of the separation from service (or, if earlier, the date of the Executive's death), at which point all delayed payments shall be made in a lump sum with interest at the applicable federal rate.
Open Points:
• Multiplier: 2x (Northgate) vs. 2.5x (Harding) — gap of $2,406,250. This is a Category B item (negotiable and likely resolvable), though resolution may require trade-offs against other provisions.
• Equity acceleration scope: 12 months accelerated vesting (Northgate) vs. full acceleration (Harding). The gap here is potentially significant depending on the value of unvested equity at the time of termination.
• COBRA duration: 18 months (Northgate) vs. 24 months (Harding). The incremental cost of 6 additional months of COBRA is approximately $15,000–$20,000, making this a low-cost concession if needed.
9.2: Termination for Cause (Draft 1 §6.3). Status: Elaborated
Upon termination of the Executive's employment by the Company for Cause, the Executive shall be entitled only to accrued and unpaid obligations through the date of termination, consisting of: (a) accrued but unpaid base salary through the date of termination; (b) any earned but unpaid Annual Bonus for a completed fiscal year preceding the year of termination; (c) reimbursement of unreimbursed business expenses incurred prior to the date of termination in accordance with the Company's expense reimbursement policy; and (d) any vested benefits under the Company's employee benefit plans. No severance, pro-rata bonus, equity acceleration, or continued benefits shall be provided upon a termination for Cause.
The definition of Cause is set forth in Section 1 of the Agreement and is discussed in the corresponding section of this memorandum. Draft 1 includes a cure period for curable breaches: the Company must provide the Executive with 30 days' written notice specifying the acts or omissions constituting Cause, and the Executive shall have 30 days following receipt of such notice to cure the specified breach (to the extent such breach is reasonably capable of cure). If the Executive cures the breach within the cure period, the Company may not terminate the Executive's employment for Cause based on the same acts or omissions.
Open Points: The definition of Cause is an open point (see Section 1 discussion above). The cure period and process for Cause determination are likely to draw comment from H&L.
9.3: Resignation Without Good Reason (Draft 1 §6.4). Status: Agreed
The Executive may resign his employment without Good Reason upon 90 days' prior written notice to the Company. Upon such resignation, the Executive shall be entitled only to accrued and unpaid obligations (as described in Section 9.2 above). No severance, pro-rata bonus, equity acceleration, or continued benefits shall be provided upon a resignation without Good Reason.
If the resignation without Good Reason occurs within 24 months of the start date, the sign-on cash bonus clawback described in Section 7 of this memorandum shall be triggered, requiring the Executive to repay the full $5,000,000 sign-on cash bonus.
The Company shall have the right, upon receipt of the Executive's notice of resignation, to waive all or any portion of the 90-day notice period and accelerate the Executive's last day of employment, provided that such acceleration shall not convert the resignation into a termination without Cause and shall not entitle the Executive to severance.
Open Points: None.
9.4: Death and Disability (Draft 1 §6.5). Status: Elaborated / New
Draft 1 includes provisions governing the termination of employment upon the Executive's death or Disability. These provisions were not addressed in the term sheet and represent new additions consistent with market practice for senior executive agreements.
Death: Upon the Executive's death during the term of employment, the Executive's estate or designated beneficiary shall be entitled to: (a) accrued and unpaid obligations; (b) a pro-rata Annual Bonus for the fiscal year of death, calculated at target; (c) pro-rata vesting of unvested time-based equity awards (RSUs) through the date of death; (d) pro-rata vesting of unvested PSUs based on target performance (or, for performance periods that are more than 50% complete, based on actual performance through the most recent measurement date); and (e) a lump-sum payment equal to 12 months of the Executive's base salary ($1,750,000), payable within 30 days of the date of death.
Disability: Upon termination of the Executive's employment due to Disability, the Executive shall be entitled to: (a) accrued and unpaid obligations; (b) a pro-rata Annual Bonus for the fiscal year of termination, calculated at target; (c) pro-rata vesting of unvested time-based equity awards (RSUs) through the date of termination; (d) pro-rata vesting of unvested PSUs based on target performance (or, for performance periods that are more than 50% complete, based on actual performance through the most recent measurement date); and (e) continued payment of the Executive's base salary for a period of 12 months following the date of termination (reduced by any disability insurance benefits received by the Executive under Company-provided disability plans), payable in accordance with the Company's regular payroll schedule.
Open Points: None anticipated. These provisions are standard and consistent with market practice.
Section 10: Change in Control Provisions (Draft 1 §7) — CORE DISPUTED SECTION
Term Sheet Reference: ¶7 ("Change in Control")
Status: NTP Position — EXPECT SIGNIFICANT H&L PUSHBACK
This section addresses the most significant area of disagreement between the parties. Draft 1 reflects Northgate's positions on all bracketed items relating to the Change in Control provisions, including the definition of "Change in Control," the CIC severance multiplier, and the Section 280G tax treatment. Each of these sub-issues has been the subject of extensive discussion during the term sheet negotiations without resolution, and we anticipate that H&L's redline of Draft 1 will contain substantial comments and counterproposals on this entire section.
10.1: Definition of "Change in Control" (Draft 1 §7.1). Both sides have agreed on three triggers that should be included in the definition of "Change in Control":
(a) Acquisition of voting securities: The acquisition by any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) of beneficial ownership of more than 50% of the total combined voting power of the then-outstanding voting securities of Northgate Telecommunications PLC;
(b) Merger or consolidation: The consummation of a merger, consolidation, statutory share exchange, or similar transaction involving Northgate Telecommunications PLC, unless, immediately following such transaction, the holders of Northgate PLC's voting securities immediately prior to the transaction hold at least 50% of the total combined voting power of the voting securities of the surviving or resulting entity (or its ultimate parent);
(c) Asset sale: The sale, transfer, or other disposition of all or substantially all of the assets of Northgate Telecommunications PLC and its subsidiaries, taken as a whole, to any person or group that is not an Affiliate of Northgate PLC.
The dispute centers on a proposed fourth trigger demanded by Harding:
(d) Board composition change (the "Board turnover trigger"): A change in the composition of the Board of Northgate Telecommunications PLC such that the individuals who constitute the Board as of the commencement date of the Agreement (the "Incumbent Board") cease to constitute a majority of the Board within any 12-month period; provided, however, that any individual who becomes a director subsequent to the commencement date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board.
Term sheet v4 presented the definition as a bracketed item: [three triggers only / four triggers including Board turnover]. Draft 1 excludes the Board turnover trigger, reflecting Northgate's position.
Northgate's position, as communicated by Geoffrey Stanton (Chair of the Remuneration Committee) and endorsed by the full Board, is that the Board turnover trigger is inappropriate and overreaching for the following reasons: (i) it is inconsistent with UK corporate governance norms, under which Board refreshment and succession planning are encouraged by the UK Corporate Governance Code and are viewed as a matter of good governance rather than a change in control event; (ii) the trigger could be activated by routine Board refreshment (e.g., the retirement of multiple long-serving directors and their replacement by new independent directors), which would not represent a change in the control or strategic direction of the Company; and (iii) the trigger would effectively give the Executive a veto over Board composition changes by threatening to activate expensive CIC p