Renata,
Thank you for your August 8 email summarizing Hargrove & Liddell's redline of Draft 1 and identifying the key departures. Your team's analysis — together with the August 7 memorandum from James Underwood categorizing the 88-comment redline — was extremely helpful in framing the issues for Board-level discussion.
I have now discussed the open items at length with Geoffrey Stanton, Chair of the Remuneration Committee, and consulted briefly with Dame Philippa Thornton-Hale as well. The Remuneration Committee's position on the critical items is firm, and I am conveying their direction below so that you have precise parameters for Draft 2.
**1. Change in Control Severance**
*CIC Multiplier.* The Board's ceiling is **2.5x** (base salary plus target bonus), yielding maximum CIC cash severance of $12,031,250. Northgate will not agree to a 3x multiplier under any circumstances.
Geoffrey was emphatic on this point. He referenced ISS guidelines and the analysis we commissioned from Sandra Kolb at Veltrano Proxy Advisors — both indicate that a 3x CIC multiplier coupled with a full gross-up would very likely trigger a negative say-on-pay recommendation at the 2025 AGM. As you know, we received 87.4% say-on-pay support at the April 18, 2024 AGM. Geoffrey views that as adequate but not an overwhelmingly comfortable margin, and he is unwilling to jeopardize it with an aggressive CIC package. He also specifically referenced feedback relayed by Kensington Partners from Caledonian Asset Management — our 8.3% holder — indicating that they would look unfavorably on excessive CIC provisions.
*Tax Treatment / Section 280G.* No full excise tax gross-up. The Board's firm position is **best-net cutback** — i.e., payments capped at the safe harbor limit of $23,519,999 if the cutback produces a better after-tax result for Harding than full payment with excise tax. I understand from your prior analysis that Whitmore Hobson's preliminary modeling shows the best-net cutback and full-payment-with-excise-tax yield roughly equivalent after-tax outcomes for Harding, which means this issue is more about optics and principle than actual dollars. That said, Geoffrey's view is unequivocal: agreeing to a gross-up sets a bad precedent for the company and would be seized upon by proxy advisory firms. The estimated gross-up exposure of $4.2M–$6.8M that you flagged in your August 8 email is not a cost the Board is prepared to absorb.
*Board Turnover Trigger.* **Rejected.** The Board will not include a change in Board composition trigger (majority of directors replaced within 12 months) in the definition of "change in control." Geoffrey considers this inconsistent with UK corporate governance norms and views it as effectively giving Harding a veto over normal Board refreshment. Dame Philippa shares this view strongly — she considers it an intrusion on the Board's governance prerogatives. The agreed CIC triggers remain: (a) acquisition of more than 50% of voting securities; (b) merger or consolidation where NTP shareholders hold less than 50% post-transaction; and (c) sale of substantially all assets.
*Double Trigger.* Confirmed. Both sides agree CIC severance requires both a change in control and a qualifying termination (without cause or for good reason). No issue here.
**2. Restrictive Covenants**
*Non-Compete Duration.* The Board is willing to reduce from 24 months (as set out in the initial term sheet and Draft 1) to **18 months** post-termination as a final concession. They will not go to 12 months. Geoffrey and the Board view 18 months as the minimum necessary to protect Northgate's competitive position, given the breadth of strategic information to which a Group CEO is exposed. I note that your team's internal analysis flagged enforceability concerns under New York law for a 24-month worldwide non-compete; 18 months with narrower scope should be considerably more defensible.
*Geographic Scope.* The Board is willing to narrow from worldwide to **North America and Western Europe**. These are the markets where Northgate derives the vast majority of its revenue and where competitive harm would be most acute. However, the Board will not accept Harding's proposed limitation to only a scheduled list of eight named competitors — this is too narrow and fails to account for new entrants or companies that may become competitors during the restriction period.
*Activity Scope.* I authorize you to narrow the activity definition somewhat from the current formulation ("any company that derives >15% of revenue from telecommunications services, telecommunications infrastructure, or enterprise SaaS platforms serving telecom operators"). We are willing to discuss reasonable refinements, but the restriction must remain activity-based rather than a fixed schedule of competitors.
*Garden Leave.* Maintain at **6 months at base salary only**. The Board will not agree to 12 months at full compensation (base plus pro-rata bonus) as Harding demands. We are willing to have the 6-month garden leave period run concurrently with the first 6 months of the 18-month non-compete period.
*Non-Solicitation.* Maintain at **24 months** covering both employees and customers. We are not willing to drop the customer non-solicitation component.
**3. Authorization to Prepare Draft 2**
Please proceed with preparing Draft 2 of the Executive Employment Agreement incorporating the positions set out above. Where H&L's redline comments are non-material, please accept them where appropriate — I defer to your and James Underwood's judgment based on the categorization in the August 7 memorandum.
I would ask that Draft 2 reflect the non-compete concessions (18 months, North America and Western Europe) prominently. I want it to be clear that Northgate is making meaningful movement on the restrictive covenant issues. Please circulate Draft 2 to me for a final review before you send it across to Hargrove & Liddell.
**4. Timing and Process**
If at all possible, I would like to have Draft 2 in hand by **Monday, August 12**. I have a standing call with Geoffrey on Friday afternoons and would like to be able to report that Draft 2 has been sent.
I should note that if H&L's response to Draft 2 does not show meaningful movement on the CIC and restrictive covenant issues, I may recommend a principals meeting to attempt to break the impasse. Geoffrey has indicated he would be willing to attend in person, and Dame Philippa may participate as well.
One additional item: could you let me know whether you have been in touch with Simon Aldridge at Moorfield Bates regarding the UK service agreement? I want to ensure that workstream is not neglected even as the US agreement negotiations are consuming the bulk of our attention.
Thank you again to you and the team for the thorough work on the redline analysis. The clear framing of the financial impacts was particularly useful in my discussions with the Board — it allowed us to move to firm positions quickly rather than debating abstractions.
I will be available over the weekend if you have questions as you prepare Draft 2. Do not hesitate to reach out.
Best regards,
Elaine Whitford Senior Vice President & Group General Counsel Northgate Telecommunications PLC
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