Elaine,
I wanted to provide you with a substantive status update on the Harding CEO employment negotiation (Matter 1022-00004) and, more importantly, preview what we expect to see when Hargrove & Liddell returns their redline of the Executive Employment Agreement.
**I. Current Status**
As you know, we circulated Draft 1 of the Executive Employment Agreement to Victoria Hargrove at Hargrove & Liddell LLP on July 22. Hargrove acknowledged receipt and indicated that she is reviewing the draft with Harding. We expect to receive H&L's redline on or around August 5, 2024.
Draft 1 reflects Northgate's positions on all open items as we discussed, incorporating the agreed terms from both the July 8 and July 19 negotiation calls.
**II. Summary of Agreed / Non-Controversial Terms**
For context, during the term-sheet phase — across five negotiation calls between June 24 and July 19 — the parties reached agreement on several significant compensation elements. These are reflected in Draft 1 and are not expected to draw material objection:
- **Base salary:** $1,750,000 per annum - **Target annual incentive:** 175% of base ($3,062,500) - **Maximum annual incentive:** 300% of base ($5,250,000) - **Sign-on cash bonus:** $5,000,000 (make-whole component, subject to 24-month clawback) - **Sign-on equity:** $18,400,000 total ($12,000,000 in RSUs vesting ratably over 3 years; $6,400,000 in PSUs cliff vesting at end of 3 years) - **Annual LTI target:** $9,000,000 (60% PSUs / 40% RSUs) - **Total target annual compensation:** $13,812,500 - **SERP contribution:** $250,000/year - **Perquisites:** car allowance, executive health program, supplemental life insurance, financial/tax planning reimbursement
This is a strong package, and to their credit, both sides moved efficiently through the compensation elements during the term-sheet phase. The real friction, as we anticipated, lies elsewhere.
**III. Anticipated Areas of Pushback — Section 7 (Change in Control)**
This is where we expect the most significant opposition. I want to flag three specific sub-issues:
**A. CIC Severance Multiplier**
Draft 1 provides a 2.5x multiplier on base plus target bonus, yielding cash CIC severance of $12,031,250 (2.5 × $4,812,500), subject to double trigger. Harding has consistently demanded 3x, which would yield $14,437,500 (3 × $4,812,500). The gap is $2,406,250 in cash severance alone.
Hargrove previewed during the July 12 call that Harding views the 3x multiplier as essential, citing his existing 3x CIC provision at Marlowe Asset Management Digital Holdings. We should expect this to be among the first and most firmly marked redlines.
**B. Section 280G Tax Treatment**
Draft 1 includes a best-net cutback (safe harbor) under Section 280G — no tax gross-up. Harding demands a full 280G excise tax gross-up.
Devon Archer's detailed 280G analysis, completed on July 25, provides the following estimates: Harding's base amount is approximately $7,840,000 (based on his average Marlowe Asset Management W-2 compensation for 2019–2023), yielding a safe harbor limit of $23,519,999. Under Harding's demanded 3x CIC terms, estimated total parachute payments would be approximately $38,200,000, generating excess parachute payments of roughly $30,360,000 and an estimated excise tax of approximately $6,072,000.
Importantly, Whitmore Hobson's preliminary analysis suggests that the after-tax outcomes under a best-net cutback versus full payment with the excise tax are roughly equivalent for Harding — meaning the gross-up demand is more about principle and optics than a material economic difference to him. However, the potential cost to Northgate of providing a full gross-up is significant: $4.2 million to $6.8 million depending on the final parachute payment calculation. This is not a trivial concession.
**C. Board Turnover Trigger in CIC Definition**
Draft 1 defines "change in control" to include: (i) acquisition of more than 50% of voting securities, (ii) merger or consolidation where NTP shareholders hold less than 50% post-transaction, and (iii) sale of substantially all assets. Harding demands a fourth trigger: change in Board composition where a majority of directors are replaced within any 12-month period.
We expect H&L to redline the CIC definition to add this Board turnover trigger. As you will recall, the Remuneration Committee — per Geoffrey Stanton's direction conveyed to us on June 22 — has rejected this trigger as inconsistent with UK corporate governance norms. This remains a binary disagreement, and I do not see an obvious middle ground.
**IV. Anticipated Areas of Pushback — Section 9 (Restrictive Covenants)**
This is the second major area of expected contention.
**A. Non-Compete Duration and Scope**
Draft 1 provides a 24-month post-termination non-compete, worldwide in scope, with restricted activity defined as employment by any company deriving more than 15% of revenue from telecommunications services, infrastructure, or enterprise SaaS platforms serving telecom operators.
Harding's position, consistently maintained throughout the term-sheet phase, is a 12-month non-compete limited to North America and Western Europe, with restricted activity confined to a schedule of eight named direct competitors only.
I should note that Devon Archer's June 6 enforceability memorandum flagged that a 24-month worldwide non-compete in a New York-governed agreement may face enforceability challenges under New York's reasonableness analysis, and that pending New York legislation could further limit enforceability if enacted.
My recommendation remains as we have previously discussed: the 24-month worldwide position in Draft 1 is a strong opening, but it is likely not sustainable. Our previously identified fallback — 18 months, North America plus Western Europe, with a narrower activity definition and 6-month garden leave running concurrently — remains the recommended compromise position if and when Northgate needs to move.
**B. Garden Leave**
Draft 1 includes 6 months of paid garden leave at base salary only. Harding demands 12 months at full compensation (base plus pro-rata bonus), with garden leave and the non-compete running concurrently. Under his construct, the post-garden-leave non-compete period would effectively be reduced to zero months, or at most to a 12-month total restrictive period. This issue will need to be addressed in tandem with the non-compete duration discussion.
**C. Non-Solicitation**
Draft 1 provides a 24-month non-solicitation of both employees and customers. We expect Harding to push for 18 months covering employees only, with no customer non-solicitation restriction. This is a less critical gap and likely bridgeable.
**V. Other Areas — Lower-Risk Pushback**
We may also see comments on several secondary issues:
- **Non-CIC severance:** Draft 1 provides 2x (base + target bonus) = $9,625,000; Harding previously sought 2.5x = $12,031,250. - **Equity acceleration on non-CIC termination:** Draft 1 provides 12 months of accelerated vesting; Harding seeks full acceleration. - **COBRA continuation:** Draft 1 provides 18 months; Harding has sought 24 months.
These are meaningful gaps, but they are secondary to the CIC and restrictive covenant issues and may prove easier to negotiate if the principal issues are resolved.
**VI. ISS / Proxy Advisory / Shareholder Context**
I want to remind you of the governance sensitivity surrounding these issues. Veltrano Proxy Advisors' analysis from July 2024 indicated that a 3x CIC multiplier would likely be flagged by ISS as a concern, and that a full 280G tax gross-up is "problematic" under current ISS policy. Veltrano recommended capping the CIC multiplier at 2.99x with a best-net cutback to avoid a negative say-on-pay recommendation.
Northgate received 87.4% support on say-on-pay at the April 18, 2024 AGM. While that is a reasonable result, it is not overwhelming, and there is limited headroom for a package that departs significantly from market norms.
Additionally, while the UK Corporate Governance Code 2024 Provision 40 — which limits executive notice periods to 12 months — is technically distinct from the CIC severance multiplier, the overall quantum of the package will be evaluated by UK shareholders in the context of these norms. Any new CEO package will be subject to a binding remuneration policy vote at the 2025 AGM. These are real constraints.
**VII. Recommendation — Prepare the Board for Possible Impasse**
Elaine, I want to be candid. I recommend that you begin socializing with Geoffrey Stanton and the Remuneration Committee the possibility that this negotiation may not reach agreement, particularly if Harding's positions on CIC and restrictive covenants remain unchanged after the Draft 1 redline.
I believe the Board should begin considering its response options:
(a) **Authorize further concessions** — with a clear understanding of the ISS and shareholder risks that would entail; (b) **Propose a principals-level meeting** — between Stanton and Harding directly, or between Stanton and a small delegation, to attempt to break the impasse; or (c) **Prepare to terminate negotiations** and resume the search through Kensington Partners.
I remain hopeful that the redline will reveal areas of flexibility we have not yet seen. However, the term-sheet phase exchanges — and the July 12 call in particular — suggest that Harding's positions on the 3x CIC multiplier, the full gross-up, and the Board turnover trigger are deeply held. We should be prepared accordingly.
**VIII. UK Service Agreement Coordination**
Briefly, we continue to coordinate with Simon Aldridge and Hannah Carmichael at Moorfield Bates LLP on the secondary UK service agreement. This workstream has been paused pending resolution of the primary US agreement terms. UK-specific issues — FCA SM&CR compliance, dual-contract architecture, and tax equalization — remain on track and are not expected to be contentious.
**IX. Next Steps**
- We will await H&L's redline of Draft 1 (expected around August 5). - Upon receipt, we will prepare a detailed issue-by-issue analysis and recommendation memorandum for your review. - In the meantime, I would ask that you flag any preliminary Board-level guidance on flexibility — or lack thereof — on the CIC and restrictive covenant terms so that we can prepare the response to the redline efficiently.
I am available for a call to discuss any of the above at your convenience. Please do not hesitate to reach out.
Best regards,
Renata Vasquez Partner Calderwood & Harkness LLP 1301 Avenue of the Americas, 42nd Floor New York, NY 10019 Tel: (212) 555-3840 rvasquez@calderwoodharkness.com
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