Dear Victoria,
I hope this message finds you well. On behalf of our client, Northgate Telecommunications PLC ("Northgate" or "NTP"), I am writing to transmit the attached revised draft of the Executive Employment Agreement between Northgate Telecommunications US, Inc. and Marcus Elliot Harding (the "Agreement" or "Draft 2"), dated August 12, 2024. For your convenience, I have also attached a blackline comparing Draft 1 (dated July 22, 2024) against Draft 2 so that you and your team can readily identify all changes.
We received and have carefully reviewed the detailed redline of Draft 1 that Hargrove & Liddell circulated on August 5, which contained 88 comments and proposed revisions. Draft 2 reflects Northgate's responses to each of those 88 comments. As I discuss in greater detail below, a substantial number of your proposed changes have been accepted or accommodated, and we hope the breadth of those concessions on non-material points demonstrates Northgate's good faith and genuine desire to reach a mutually acceptable agreement. That said, Draft 2 does maintain Northgate's position on certain key provisions where the Board's governance obligations and shareholder considerations constrain our flexibility. I thought it would be helpful to provide a summary of the principal areas of agreement and disagreement so that our respective clients can focus their attention on the issues that remain open.
**I. Accepted and Non-Material Changes**
Northgate has accepted a substantial number of Hargrove & Liddell's proposed revisions on matters that are non-material or that represent reasonable refinements to the Agreement. Without attempting an exhaustive listing, the categories of accepted changes include: clarifications to key definitions throughout the Agreement; refinements to the duties, responsibilities, and reporting provisions; adjustments to perquisite provisions, including financial and tax planning reimbursement of up to $35,000 per year and a $25,000 per year car allowance, each as previously agreed during term-sheet negotiations; the supplemental executive retirement plan ("SERP") language providing for $250,000 per year in supplemental executive retirement contributions; and certain technical improvements to the Section 409A compliance provisions. These accepted changes are reflected directly in Draft 2 and are visible in the blackline.
**II. Change in Control Severance (Section 7)**
This remains, as I am sure you would agree, the most significant area of disagreement between the parties. I want to address each sub-issue in turn, together with the rationale underlying Northgate's position, so that Mr. Harding and your team have full visibility into the considerations driving the Board's direction on these points.
*CIC Definition.* Draft 2 maintains Northgate's position that the change in control definition encompasses three triggering events: (a) the acquisition of more than 50% of NTP's outstanding voting securities; (b) a merger or consolidation in which NTP shareholders hold less than 50% of the voting power of the surviving entity immediately following the transaction; and (c) a sale of substantially all of NTP's assets. Northgate has carefully considered your proposed addition of a Board turnover trigger — i.e., a change in a majority of directors within any 12-month period — but is unable to accept it for the following reasons. First, this trigger is inconsistent with the norms of the UK Corporate Governance Code 2024, which are applicable to Northgate as a company listed on the London Stock Exchange and which contemplate regular Board refreshment as a matter of good governance. Second, a Board turnover trigger could be activated by routine director succession and refreshment processes that are in no sense hostile or adversarial, creating the potential for unintended consequences. Third, the Remuneration Committee, chaired by Geoffrey Stanton, has concluded that the inclusion of a Board turnover trigger would raise significant concerns among NTP's institutional shareholders.
*CIC Severance Multiplier.* Draft 2 maintains the 2.5x multiplier, yielding a CIC severance payment of $12,031,250 (calculated as 2.5 × ($1,750,000 base salary + $3,062,500 target annual incentive)). Northgate acknowledges Mr. Harding's preference for a 3x multiplier ($14,437,500) but is unable to move above 2.5x. There are several reasons for this. Veltrano Proxy Advisors, which Northgate has retained to assess shareholder and proxy advisory sensitivity with respect to executive compensation matters, has advised that a 3x CIC multiplier would likely trigger a negative recommendation from major proxy advisory firms — a risk the Board views as unacceptable. Northgate received 87.4% say-on-pay support at its April 18, 2024 Annual General Meeting, and the Board is acutely mindful of the need to preserve that level of support, particularly given that the incoming CEO's compensation package will be subject to a binding remuneration policy vote at the 2025 AGM. Additionally, based on the peer-group benchmarking analysis prepared by Whitmore Hobson LLP, a 2.5x multiplier is at the upper end of market practice for public company CEOs.
*Tax Treatment — Section 280G.* Draft 2 retains the best-net cutback (safe harbor) approach rather than the full excise tax gross-up that Mr. Harding has requested. Full gross-up provisions are increasingly disfavored by institutional shareholders and the major proxy advisory firms, and Northgate's Board does not believe it is prudent to include one in light of the 2025 AGM remuneration policy vote. Moreover, Whitmore Hobson's analysis indicates that under a best-net analysis, Mr. Harding's after-tax position under the cutback is roughly equivalent to — and may in fact be slightly more favorable than — the full-payment-plus-excise-tax outcome, given the estimated excise tax exposure. For context, based on preliminary Section 280G calculations using a base amount of approximately $7,840,000, the estimated excise tax exposure would be approximately $6,072,000. The safe harbor limit is $23,519,999, and I would note that the estimated aggregate parachute payments even under Northgate's proposal will require careful management to remain below that threshold.
*Double Trigger.* I am pleased to confirm that both sides remain in agreement on the double-trigger structure — i.e., the requirement that both a change in control and a qualifying termination occur before CIC severance becomes payable.
*Equity Acceleration on CIC.* Draft 2 provides for full acceleration of all unvested equity awards — both RSUs and PSUs — upon a qualifying CIC termination, with PSUs vesting at target performance levels. This is consistent with Mr. Harding's request on this sub-point.
**III. Restrictive Covenant Provisions (Section 9)**
The restrictive covenant provisions represent the second major area of disagreement, and Draft 2 reflects what Northgate considers to be significant movement from its initial position.
*Non-Compete Duration and Scope.* In response to your comments, Northgate has made the following concessions: the non-compete duration has been reduced from 24 months to 18 months post-termination; the geographic scope has been narrowed from worldwide to North America and Western Europe; and the activity definition has been refined so that it covers employment by, or the provision of services to, any company that derives more than 15% of its revenue from telecommunications services, telecommunications infrastructure, or enterprise SaaS platforms serving telecom operators. Northgate views this formulation as appropriately tailored to protect its legitimate business interests without being overly broad. We have considered but are unable to accept the "scheduled competitor" approach — i.e., limiting the restriction to a list of eight specifically named companies — as this would fail to protect against competitive risks from companies not yet identified or from new market entrants, which is a particularly acute concern in the telecommunications and enterprise SaaS sectors. I would note that we have carefully considered enforceability under New York law, including the reasonableness analysis applied by New York courts, and believe the revised 18-month duration with the North America and Western Europe geographic scope is both defensible and reasonable.
*Garden Leave.* Draft 2 provides for six months of paid garden leave at Mr. Harding's base salary rate ($1,750,000 per annum), running concurrently with the first six months of the 18-month non-compete period. This structure effectively reduces the post-employment non-compete restraint to 12 months following the completion of garden leave. Northgate acknowledges Mr. Harding's request for 12 months of garden leave at full compensation (base salary plus pro-rata bonus) but views that proposal as economically excessive.
*Non-Solicitation.* Draft 2 maintains a 24-month non-solicitation restriction covering both employees and customers of Northgate and its affiliates. Northgate considers the customer non-solicitation provision essential given the nature of the CEO role and the breadth and depth of the customer relationships that Mr. Harding would be expected to develop.
*Non-Disparagement.* I am pleased to confirm that both sides remain in agreement on a mutual, perpetual non-disparagement covenant, with appropriate carve-outs for legal proceedings and legally compelled disclosures.
**IV. Other Notable Points**
For completeness, I would note that all agreed compensation terms remain as established during the term-sheet negotiations and are reflected without change in Draft 2:
- Base salary: $1,750,000 - Target annual incentive: 175% of base salary ($3,062,500) - Maximum annual incentive: 300% of base salary ($5,250,000) - Sign-on cash bonus: $5,000,000 (subject to a 24-month clawback in the event of voluntary resignation) - Sign-on equity: $18,400,000 ($12,000,000 in RSUs vesting ratably over three years; $6,400,000 in PSUs cliff vesting at the end of year three) - Annual long-term incentive: $9,000,000 (60% PSUs / 40% RSUs) - Total target annual compensation: $13,812,500
With respect to non-CIC severance (i.e., termination without cause or resignation for good reason), Draft 2 provides for 2x the sum of base salary and target annual incentive ($9,625,000), plus a pro-rata bonus for the year of termination, 18 months of COBRA continuation coverage, and 12 months of accelerated equity vesting.
The Agreement provides for an initial term of five years, with a proposed start date of October 1, 2024, running through September 30, 2029, and automatic one-year renewals thereafter unless either party provides at least 180 days' advance notice of non-renewal. We understand that Mr. Harding may need additional time to complete his transition from Marlowe Asset Management Digital Holdings, and Northgate is willing to discuss moving the start date to November 1, 2024 to accommodate that process.
The Agreement is governed by New York law. I would also note that the UK service agreement — which will be prepared in coordination with Moorfield Bates LLP as NTP's UK counsel — will be addressed separately once the parties have finalized the primary employment agreement.
**V. Next Steps**
We would welcome your and Mr. Harding's review of Draft 2 and the accompanying blackline at your earliest convenience. Northgate continues to have a strong interest in bringing Mr. Harding on board as its next Chief Executive Officer, and the Board is eager to move forward toward a definitive agreement. We hope that the significant movement reflected in Draft 2 — particularly with respect to the restrictive covenant provisions — demonstrates the seriousness of that commitment and will facilitate the parties reaching agreement on the remaining open items.
I am happy to schedule a call at a mutually convenient time to discuss any questions or to work through the outstanding issues. If you and Nathan believe an in-person meeting would be more productive in advancing discussions, we are very willing to arrange that as well.
Thank you, Victoria. We look forward to hearing from you.
With best regards,
Renata Vasquez Partner Calderwood & Harkness LLP 299 Park Avenue, 42nd Floor New York, NY 10171 Tel: (212) 558-4000 Direct: (212) 558-4187 Email: rvasquez@calderwoodharkness.com
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