ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION AND FOR THE PURPOSE OF PROVIDING LEGAL ADVICE
CALDERWOOD & HARKNESS LLP 299 Park Avenue, 42nd Floor New York, NY 10171
MEETING NOTES In-Person Principals Meeting — CEO Employment Negotiation
Northgate Telecommunications PLC Matter No. 1022-00004
Date of Meeting: August 26, 2024 Time: 10:00 a.m. – 1:45 p.m. (Eastern) Date of Preparation: August 26, 2024
Location: 600 Lexington Avenue, 38th Floor, New York, NY 10022 (Northgate Telecommunications US, Inc., US Operations Headquarters)
Prepared by: James Underwood, Associate, Calderwood & Harkness LLP
Matter: Northgate Telecommunications PLC — CEO Employment Agreement Negotiation
1. ATTENDEES
The following individuals were present in person at the meeting:
On Behalf of Northgate Telecommunications PLC ("NTP" or the "Company"):
• Dame Philippa Thornton-Hale — Chair of the Board of Directors, Northgate Telecommunications PLC
• Geoffrey Stanton — Lead Independent Director; Chair, Remuneration Committee, Northgate Telecommunications PLC
• Elaine Whitford — Senior Vice President & Group General Counsel, Northgate Telecommunications PLC
• Renata Vasquez — Partner, Calderwood & Harkness LLP (outside counsel to NTP)
• James Underwood — Associate, Calderwood & Harkness LLP (note-taker)
On Behalf of Marcus Elliot Harding ("Harding" or the "Candidate"):
• Marcus Elliot Harding — CEO Candidate (currently President & Chief Operating Officer, Marlowe Asset Management Digital Holdings, Inc.)
• Victoria Hargrove — Partner, Hargrove & Liddell LLP ("H&L") (personal counsel to Harding)
Not in Attendance (Noted for the Record):
The following individuals were not present at the meeting but are noted for the record:
• Bernard Crawford — Billing Partner, Calderwood & Harkness LLP — not present
• Devon Archer — Working Associate, Calderwood & Harkness LLP — not present
• Nathan Chu — Associate, Hargrove & Liddell LLP — not present
• Priya Narayanan — Chief People Officer, Northgate Telecommunications PLC — not present but available by telephone if needed during the session
• Dr. Rachel Whitmore — Managing Partner, Whitmore Hobson LLP (compensation consultant to NTP) — not present but on standby for consultation if needed
2. PURPOSE OF MEETING
This in-person principals meeting was convened at the request of both parties to attempt resolution of the two remaining critical open issues in the proposed Executive Employment Agreement (the "Agreement") between Northgate Telecommunications US, Inc. (as employer) and Marcus Elliot Harding (as incoming Chief Executive Officer). The meeting was scheduled following the circulation and redline exchange of Draft 2 of the Agreement, which was circulated by Calderwood & Harkness on August 12, 2024. Hargrove & Liddell returned its marked redline of Draft 2 on August 19, 2024, containing forty-two (42) remaining comments and open items.
The two core areas of impasse that the meeting was convened to address are: (1) the change in control severance provisions, as set forth in Section 7 of the draft Agreement; and (2) the restrictive covenant provisions, as set forth in Section 9 of the draft Agreement. While the majority of the Agreement's terms have been substantially agreed upon through the course of the negotiation, the parties have been unable to close the gap on these two areas through the prior rounds of negotiation.
The meeting was intended to provide direct engagement between the principals — specifically, Board representatives and the candidate personally — after five rounds of term-sheet negotiation conducted between June 24 and July 19, 2024, and two rounds of full-draft exchanges had failed to resolve the remaining disputes. Both sides acknowledged ahead of the meeting, through their respective counsel, that absent resolution or a clear path forward on the open issues at this session, the negotiation may not succeed and the parties may need to consider alternative courses of action.
3. BACKGROUND AND CONTEXT REVIEWED AT OPENING
3.1 Procedural History
At the opening of the meeting, Renata Vasquez provided a summary of the procedural history of the CEO search and negotiation process for the benefit of the principals and to ensure a shared understanding of the record. The following timeline was reviewed and confirmed by both sides as accurate:
• March 1, 2024: Kensington Partners Ltd. ("Kensington"), led by Antonia Blythe, was retained by the Board of Northgate Telecommunications PLC to conduct a comprehensive executive search for the position of Chief Executive Officer, following the planned retirement of Sir Alistair Kemble, KBE, the current CEO.
• May 15, 2024: The planned retirement of Sir Alistair Kemble was publicly announced by the Company. His retirement is effective December 31, 2024.
• May 22, 2024: Kensington presented its final shortlist of candidates to the Board of Directors and the Nomination and Governance Committee.
• May 28, 2024: The Board of Directors unanimously selected Marcus Elliot Harding as the preferred candidate for the CEO position, based on his track record of operational leadership, his expertise in enterprise SaaS platforms, and his strategic vision for converged telecommunications and digital services.
• May 30, 2024: Dame Philippa Thornton-Hale extended an informal verbal offer to Harding in a private telephone conversation. Harding expressed strong interest in the role, subject to the negotiation and agreement of definitive employment terms.
• June 4, 2024: Calderwood & Harkness LLP was engaged as outside counsel to NTP for the purpose of drafting and negotiating the executive employment agreement.
• June 10, 2024: Calderwood & Harkness circulated an initial term sheet setting forth proposed key compensation and governance terms for the CEO role.
• June 24, July 1, July 8, July 12, July 19, 2024: Five rounds of term-sheet negotiation calls were conducted between Calderwood & Harkness (on behalf of NTP) and Hargrove & Liddell (on behalf of Harding). Substantial agreement was reached on the core compensation elements at the July 8 call (Call #3), including base salary, annual incentive targets, long-term incentive structure, and sign-on equity and cash awards. However, the change in control provisions and restrictive covenant terms remained unresolved through all five calls.
• July 22, 2024: Draft 1 of the full Executive Employment Agreement was circulated by Calderwood & Harkness to Hargrove & Liddell.
• August 5, 2024: Hargrove & Liddell returned its redline of Draft 1 with eighty-eight (88) comments and proposed revisions.
• August 12, 2024: Draft 2 of the Agreement was circulated by Calderwood & Harkness, incorporating agreed revisions and reflecting NTP's responses to the eighty-eight comments received.
• August 19, 2024: Hargrove & Liddell returned its redline of Draft 2 with forty-two (42) remaining comments and open items. The CIC severance provisions and the restrictive covenant provisions remain the only material unresolved issues; all other terms are substantially agreed.
Vasquez confirmed that the foregoing timeline is accurate and that this in-person principals meeting was scheduled specifically to attempt to resolve the two remaining categories of open issues through direct engagement among the principals.
3.2 Agreed Terms
Both sides confirmed at the opening of the meeting that the following compensation and employment terms have been fully resolved and agreed upon, subject only to satisfactory resolution of the remaining open issues on CIC severance and restrictive covenants:
Base Compensation:
• Base salary: $1,750,000 per annum
Annual Cash Incentive:
• Target annual incentive: 175% of base salary ($3,062,500)
• Maximum annual incentive: 300% of base salary ($5,250,000)
Sign-On Cash Bonus (Make-Whole):
• Sign-on cash bonus: $5,000,000, subject to a twenty-four (24) month clawback in the event of voluntary resignation without Good Reason
Sign-On Equity Grant (Make-Whole for Forfeited Marlowe Asset Management Equity):
• Harding's forfeited unvested equity at Marlowe Asset Management Digital Holdings, Inc.: $23,400,000 (as verified by Whitmore Hobson LLP's independent valuation)
• Restricted Stock Units ("RSUs"): $12,000,000, vesting in equal installments of one-third per year over three years from the date of grant
• Performance Stock Units ("PSUs"): $6,400,000, subject to three-year cliff vesting, with vesting contingent upon achievement of total shareholder return ("TSR") and revenue growth performance hurdles as established by the Remuneration Committee
• Total sign-on equity: $18,400,000
• The equity shortfall of $5,000,000 relative to the Marlowe Asset Management forfeiture amount ($23,400,000 minus $18,400,000) is offset by the sign-on cash bonus of $5,000,000
Annual Long-Term Incentive:
• Annual LTI target value: $9,000,000 (60% PSUs / 40% RSUs)
Total Target Annual Compensation:
• Total target annual compensation (base + target bonus + LTI target): $13,812,500
Retirement Benefits:
• 401(k) plan with 6% employer match, subject to applicable IRS contribution limits
• Supplemental Executive Retirement Plan ("SERP"): $250,000 per year employer contribution
Perquisites:
• Annual car allowance: $25,000
• Executive health program
• Supplemental life insurance: $2,000,000 face value
• Financial and tax planning reimbursement: up to $35,000 per year
Term:
• Initial term: five (5) years, with automatic one-year renewals unless either party provides written notice of non-renewal at least one hundred eighty (180) days prior to the expiration of the then-current term
Non-CIC Severance:
• Agreed in principle at 2x (base salary + target annual incentive) = 2 × $4,812,500 = $9,625,000. This is the NTP position, which was accepted by Harding, subject to the CIC severance terms being satisfactory.
Non-Disparagement:
• Mutual, perpetual non-disparagement obligations, with appropriate carve-outs for truthful statements made in connection with legal proceedings, regulatory filings, and governmental investigations — agreed.
Indemnification and D&O Coverage:
• Full statutory indemnification under applicable law plus advancement of expenses — agreed
• Directors and officers liability insurance: Ashdown Surety & Insurance Co. policy, with limits of $50,000,000 per claim / $100,000,000 aggregate — agreed
Governing Law and Dual-Contract Architecture:
• Governing law for the primary agreement: State of New York
• Governing law for the secondary UK service agreement: England and Wales
• Dual-contract architecture: primary New York-governed Executive Employment Agreement with Northgate Telecommunications US, Inc., and a secondary UK service agreement with Northgate Telecommunications PLC, to be prepared by Moorfield Bates LLP (advising on the UK side)
Both parties confirmed that the foregoing terms are agreed and not subject to further negotiation, contingent upon satisfactory resolution of the two remaining open issues discussed below.
4. DISCUSSION OF OPEN ISSUE #1: CHANGE IN CONTROL PROVISIONS (SECTION 7)
The discussion of the change in control provisions consumed the majority of the morning session (approximately 10:20 a.m. through 12:15 p.m.) and addressed four sub-topics: the definition of "Change in Control," the CIC severance multiplier, the Section 280G tax treatment, and CIC equity acceleration and benefit continuation.
4.1 Definition of "Change in Control"
Vasquez opened the discussion by reviewing the areas of agreement on the definition of "Change in Control" as set forth in Section 7.1 of Draft 2. Both sides confirmed agreement on the following three triggering events:
(a) Acquisition of Voting Securities: The acquisition by any person or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership of more than fifty percent (50%) of the combined voting power of the then-outstanding voting securities of Northgate Telecommunications PLC.
(b) Merger or Consolidation: The consummation of a merger, consolidation, or similar business combination involving Northgate Telecommunications PLC, after which the shareholders of Northgate immediately prior to such transaction hold less than fifty percent (50%) of the combined voting power of the surviving or resulting entity.
(c) Sale of Substantially All Assets: 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.
These three triggering events were confirmed as agreed by both sides and are not subject to further negotiation.
Board Turnover Trigger — The Disputed Fourth Element:
The fourth element of the CIC definition — a "change in Board composition" trigger — remains in dispute. Hargrove reiterated Harding's demand for the inclusion of a Board turnover trigger, under which a Change in Control would be deemed to have occurred in the event that a majority of the members of the Board of Directors of Northgate Telecommunications PLC are replaced within any twelve (12) month period, and such replacement occurs without the approval or recommendation of the incumbent Board.
Harding personally stated that the inclusion of a Board composition trigger is important to him because, in his experience, significant shifts in Board composition can functionally alter corporate strategy and effectively marginalize a CEO without a traditional acquisition event occurring. He referenced his direct experience observing activist-driven Board reconstitutions in the telecommunications sector, noting that in such situations the incoming directors may pursue a fundamentally different strategic direction that renders the CEO's position untenable. Harding stated that he views this protection as essential for an incoming CEO who is being asked to commit to a multi-year strategic vision.
Stanton responded on behalf of the Board that the Remuneration Committee and the full Board view the Board turnover trigger as overreach and inconsistent with UK corporate governance norms. He noted specifically that the UK Corporate Governance Code encourages regular Board refreshment and orderly succession of directors, and that characterizing normal Board succession processes as a "change in control" would create perverse incentives, potentially entitling the CEO to full CIC severance merely because the Board undergoes planned renewal. Stanton further observed that the Board has a robust nomination process overseen by the Nomination and Governance Committee, chaired by Lucinda Farrow, and that directors are subject to annual re-election by shareholders in accordance with best practice under the UK Corporate Governance Code.
Dame Philippa Thornton-Hale stated unequivocally that the Nomination Committee (chaired by Lucinda Farrow) and the Board unanimously rejected the inclusion of a Board turnover trigger in the CIC definition during their review of the proposed terms. She noted that the Board's position on this point is firm and reflects the considered judgment of the independent directors.
Hargrove countered that Board turnover triggers are common in US public-company CEO employment agreements and that their inclusion represents a recognized governance protection for incoming senior executives. She argued that the trigger as proposed by Harding is narrowly tailored to activist-driven Board reconstitutions and does not capture ordinary Board succession conducted through the nomination process.
Stanton acknowledged the prevalence of such provisions in certain US agreements but noted that Northgate's dual-listing on the London Stock Exchange and the New York Stock Exchange subjects it to scrutiny under both UK and US governance frameworks. He observed that Thackeray Health IT ("ISS") and other proxy advisory firms are increasingly skeptical of broad CIC definitions in dual-listed companies, and that the inclusion of a Board turnover trigger could be perceived as an anti-shareholder provision that insulates management from accountability.
Status at Conclusion of This Sub-Topic: Deadlocked. Northgate refuses to include a Board turnover trigger in the CIC definition. Harding maintains that the trigger is important to him but indicated a willingness to consider a narrower formulation — for example, a trigger that would apply only in the event that a majority of the Board is replaced outside the normal nomination and election process (i.e., limited to activist-driven reconstitutions not recommended by the incumbent Board). Vasquez noted this potential narrowing for possible inclusion in the final compromise proposal. Stanton expressed skepticism regarding any formulation of a Board turnover trigger but did not categorically foreclose further discussion.
4.2 CIC Severance Multiplier
The discussion of the CIC severance multiplier was the most extended single topic of debate during the meeting and consumed approximately forty-five minutes.
Northgate's Position (as reflected in Draft 2 and the Board-approved parameters):
A severance multiplier of 2.5x (base salary plus target annual incentive), yielding a cash severance payment of:
2.5 × ($1,750,000 + $3,062,500) = 2.5 × $4,812,500 = $12,031,250
The severance would be payable upon a "qualifying termination" — defined as a termination by the Company without Cause or a resignation by Harding for Good Reason — occurring within twenty-four (24) months following a Change in Control (i.e., a double-trigger structure). Both sides have agreed on the double-trigger structure throughout the negotiation.
Harding's Position:
A severance multiplier of 3x (base salary plus target annual incentive), yielding a cash severance payment of:
3 × ($1,750,000 + $3,062,500) = 3 × $4,812,500 = $14,437,500
Harding agrees to the double-trigger structure.
Cash Severance Gap:
$14,437,500 − $12,031,250 = $2,406,250
Harding personally stated that a 3x CIC multiplier is "non-negotiable." He characterized the 3x multiplier as the market standard for incoming CEOs at companies of Northgate's size and complexity, noting that Northgate has a market capitalization of approximately £8.7 billion and annual revenue of approximately £4.26 billion. Harding further noted that his existing employment agreement with Marlowe Asset Management Digital Holdings, Inc. provides for a 3x CIC multiplier (calculated on base salary plus target bonus) with full acceleration of all unvested equity awards upon a CIC-triggered termination. He stated that accepting a lower multiplier at Northgate than what he currently has at Marlowe Asset Management would represent a step backward in his compensation protections and would be inconsistent with the career risk he is being asked to accept.
Stanton responded with a detailed presentation of the Board's analysis and the constraints under which the Remuneration Committee is operating:
(i) Proxy Advisory Analysis: Veltrano Proxy Advisors, Inc. (Sandra Kolb, Managing Director) was engaged by NTP in July 2024 to provide an independent analysis of the proposed CEO compensation package. Veltrano's analysis, delivered in late July 2024, warned that a 3x CIC multiplier combined with a full Section 280G tax gross-up would likely trigger a negative say-on-pay recommendation from ISS and potentially from Tarrant Partners LLC as well. Veltrano's assessment was that a 2.5x multiplier with a best-net cutback structure would be at the upper end of defensible range for a dual-listed company and would be significantly more likely to receive a favorable proxy advisory recommendation.
(ii) Recent Say-on-Pay History: NTP received 87.4% say-on-pay support at the Annual General Meeting held on April 18, 2024. While this level of support is solid, the Remuneration Committee is mindful that the new CEO package will be subject to a binding remuneration policy vote at the 2025 AGM under the UK Companies Act 2006, and that a significant increase in CIC severance terms could erode shareholder support.
(iii) Institutional Shareholder Sensitivity: NTP's top five institutional shareholders — Caledonian Asset Management (8.3% of outstanding shares), Pemberton Capital Group (6.7%), Thornbury Investment Trust (5.1%), Regis Global Equity Fund (4.4%), and Atlas Pension Fund (3.2%) — have expressed sensitivity to executive pay quantum in prior engagement meetings with the Board and the Remuneration Committee. Together, these five shareholders hold approximately 27.7% of the Company's outstanding shares. The Remuneration Committee is particularly attentive to the views of Caledonian Asset Management and Pemberton Capital Group, both of which have indicated through their governance teams that they would view a 3x CIC multiplier as above market for a FTSE company.
(iv) UK Governance Framework: The UK Corporate Governance Code 2024, at Provision 40, limits notice periods to twelve (12) months or less and encourages restraint in severance terms. A CIC severance payment of 2.5x already significantly exceeds prevailing market practice for UK-listed companies, where the norm is 1x to 2x base salary and bonus. The Board is not prepared to risk a negative say-on-pay vote in Harding's first year as CEO, which would undermine his credibility with investors and the Board.
Stanton concluded by stating that the Board's position at 2.5x reflects the maximum multiple that the Remuneration Committee believes is defensible to shareholders and proxy advisory firms, and that the Board is not currently authorized to move beyond 2.5x.
Hargrove countered that the relevant peer group for Harding's compensation benchmarking is US-listed telecommunications and technology companies of comparable revenue and market capitalization, not UK-listed FTSE 100 companies. She noted that Whitmore Hobson LLP's own peer-group benchmarking analysis, which was prepared at NTP's direction and shared with the Board, would support a 3x multiplier as falling within the competitive range for CEOs of US public companies in the relevant peer group. She further argued that Northgate derives a significant portion of its revenue from North American operations and that the candidate pool for the CEO role is composed primarily of US-based executives, making US compensation norms the more appropriate benchmark.
Stanton acknowledged the dual-market tension inherent in compensating a US-based CEO for a dual-listed company but stated that the Board must respect the governance expectations of both listing jurisdictions and cannot structure the compensation package as if the Company were listed solely in the United States.
During the discussion, Hargrove proposed a compromise multiplier of 2.75x, which would yield a cash severance payment of:
2.75 × $4,812,500 = $13,234,375
This would reduce the gap from $2,406,250 to $1,203,125 (relative to Harding's 3x position) while exceeding the NTP position by the same amount.
Vasquez noted the 2.75x proposal for the record. Stanton took the proposal under advisement but did not accept or reject it at the table. He noted that a 2.75x compromise had been raised previously at the July 12, 2024 term-sheet negotiation call (Call #4) and that the Board had not moved from its 2.5x position in response to that prior proposal. Stanton indicated that he would present the 2.75x option to the Remuneration Committee again in connection with the preparation of the final compromise proposal but could make no assurances regarding the Board's willingness to move from 2.5x.
Status at Conclusion of This Sub-Topic: Not resolved. Harding's stated minimum: 3x multiplier. Northgate's maximum authorized position: 2.5x multiplier. Cash severance gap: $2,406,250. Hargrove's compromise proposal of 2.75x remains on the table but has not been accepted by the Company. The matter will be addressed in the final compromise proposal.
4.3 Section 280G Tax Treatment (Gross-Up vs. Best-Net Cutback)
The discussion of the Section 280G tax treatment was identified by Vasquez as the most significant financial variable in the CIC negotiation — more significant, in dollar terms, than the multiplier gap.
Northgate's Position:
A "best-net" or "safe harbor" approach: In the event that any payments or benefits received by Harding in connection with a Change in Control would constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), such payments would be reduced (i.e., cut back) to one dollar ($1.00) below the applicable safe harbor limit (three times the "base amount" as defined in Section 280G of the Code, minus one dollar), but only if such reduction would produce a better after-tax result for Harding than receiving the full payment and bearing the twenty percent (20%) excise tax imposed under Section 4999 of the Code. If the full payment (after payment of the excise tax) would produce a better after-tax result, no cutback would apply.
Harding's Position:
A full Section 280G tax gross-up: In the event that any payments or benefits received by Harding in connection with a Change in Control are subject to the excise tax imposed by Section 4999 of the Code, Northgate would pay Harding an additional amount (the "Gross-Up Payment") sufficient to make Harding whole on an after-tax basis — i.e., after payment of the excise tax, federal and state income taxes on the Gross-Up Payment, and the excise tax on the Gross-Up Payment itself, Harding would be in the same after-tax position as if no excise tax had been imposed.
Vasquez presented the financial analysis underlying this issue, drawing on the Section 280G memorandum prepared by Devon Archer on July 25, 2024, which in turn relied on compensation data provided by Whitmore Hobson LLP:
(i) Base Amount Calculation: Harding's "base amount" under Section 280G — calculated as the average of his annualized includible compensation for federal income tax purposes (W-2 compensation) for the five taxable years ending before the Change in Control — was determined to be approximately $7,840,000, based on his W-2 compensation at Marlowe Asset Management Digital Holdings for the years 2019 through 2023.
(ii) Safe Harbor Threshold: Three times the base amount equals $23,520,000. The safe harbor limit (the maximum amount that can be paid without triggering the excise tax) is therefore $23,519,999 (one dollar less than three times the base amount).
(iii) Estimated Total Parachute Payments: Under Harding's proposed 3x CIC terms, the estimated total "parachute payments" (as defined in Section 280G) — including the CIC cash severance, the value of accelerated equity awards, and the value of continued benefits — would be approximately $38,200,000.
(iv) Excess Parachute Payment: The excess parachute payment (total parachute payments minus the base amount) would be approximately $38,200,000 − $7,840,000 = $30,360,000.
(v) Estimated Excise Tax: The excise tax at the twenty percent (20%) rate imposed by Section 4999 of the Code would be approximately $30,360,000 × 0.20 = $6,072,000.
(vi) Estimated Gross-Up Cost: The estimated cost to Northgate of providing a full tax gross-up (including grossing up the gross-up payment itself, and accounting for federal, state, and local income tax interactions) would be in the range of $4,200,000 to $6,800,000, depending on the assumptions used regarding marginal tax rates, state and local tax rates, and the interaction of the gross-up payment with the excise tax calculation.
(vii) Comparative After-Tax Analysis: Whitmore Hobson's analysis indicated that under a best-net cutback approach, Harding's after-tax position would be roughly equivalent to receiving the full payment and bearing the excise tax, with the cutback position slightly favored in most modeled scenarios. This means that the economic difference between the gross-up and the best-net cutback, from Harding's personal financial perspective, is relatively modest. The dispute over the gross-up is therefore largely a matter of principle and optics rather than pure economics for the executive.
Vasquez emphasized that the gross-up is the more significant financial variable for the Company: the potential gross-up exposure of $4.2 million to $6.8 million exceeds the cash multiplier gap of $2.4 million, and the gross-up exposure would increase further if the multiplier were increased to 3x.
Harding stated that he views the gross-up as a matter of principle. He characterized the excise tax under Section 4999 as a tax triggered by the Company's decision to engage in a Change in Control transaction — a decision over which the CEO has limited control. He stated that requiring the executive to bear the excise tax cost of a CIC event that the executive did not initiate is, in his view, fundamentally inequitable. He characterized the best-net cutback approach as "punishing the executive for the company's decision to sell or merge," and stated that a full tax gross-up is the appropriate mechanism to ensure the executive receives the negotiated severance amount without reduction.
Stanton responded that ISS's current policy treats Section 280G tax gross-ups as a "problematic pay practice" and that Veltrano Proxy Advisors had specifically warned in its July 2024 analysis that the inclusion of a full gross-up would be a flashpoint with institutional shareholders and would significantly increase the risk of a negative say-on-pay recommendation. Stanton noted that the trend among US public companies has been away from gross-ups and toward best-net cutback provisions, and that many of the companies in the peer group that still provide gross-ups have been subject to shareholder criticism.
Hargrove acknowledged the governance sensitivity surrounding tax gross-ups but argued that a significant number of US public companies continue to provide full gross-ups or modified gross-ups in CEO agreements, particularly for newly recruited external candidates who are accepting career risk. She noted that the gross-up is a negotiated term that reflects the Company's commitment to making the executive whole, and that the governance trend does not eliminate the legitimate business rationale for providing the protection.
Harding reiterated his position that a full Section 280G tax gross-up is "non-negotiable" for him. He stated that he would not accept a best-net cutback or any other formulation that does not provide full reimbursement for excise taxes.
Status at Conclusion of This Sub-Topic: Deadlocked. Northgate's position is that it will not provide a full Section 280G gross-up under any circumstances. Harding insists on a full gross-up as a condition of accepting the position. No compromise formulation was identified during the discussion. This issue will be addressed in the final compromise proposal.
4.4 CIC Equity Acceleration and Benefit Continuation
Equity Acceleration:
Both sides confirmed their agreement on the principle of full acceleration of all unvested equity awards upon a qualifying CIC termination (i.e., a double-trigger event in which a Change in Control is followed by a qualifying termination within twenty-four months). There is no dispute on the application of this principle to RSUs, which would vest in full upon the qualifying termination.
The remaining disagreement concerns the treatment of PSUs upon a qualifying CIC termination:
• Northgate's position: PSUs would vest upon a qualifying CIC termination on a pro-rata basis reflecting actual performance results through the date of the Change in Control, as determined by the Remuneration Committee based on available performance data.
• Harding's position: PSUs would vest upon a qualifying CIC termination at target performance (100%), regardless of actual performance through the CIC date.
Hargrove argued that PSU performance cannot be fairly measured at an arbitrary mid-cycle CIC date, particularly where the performance periods are three years in length and the CIC may occur early in the performance cycle before meaningful performance data is available. She stated that target vesting upon a CIC is standard practice in US executive agreements and provides certainty to the executive. Vasquez acknowledged that this is a secondary issue compared to the multiplier and gross-up disputes but flagged it for the record as an item that will need to be addressed in the final compromise proposal.
Benefit Continuation:
• Northgate's position: Twenty-four (24) months of COBRA continuation coverage following a qualifying CIC termination, with the Company paying the employer portion of the COBRA premiums, plus $50,000 in outplacement assistance.
• Harding's position: Thirty-six (36) months of full benefit continuation following a qualifying CIC termination — not limited to COBRA but including continued participation in all executive benefit programs (health, dental, vision, life insurance, disability, SERP, and executive health program) at active-employee rates.
The gap on this issue is twelve (12) months of incremental benefit continuation and the scope of benefits covered (COBRA only vs. full executive benefit program). This item was flagged by both sides as potentially bridgeable. Stanton indicated that the Board may have flexibility to extend the benefit continuation period to thirty (30) months if the other CIC issues (multiplier and gross-up) are resolved, but he did not commit to any specific movement at this time.
5. DISCUSSION OF OPEN ISSUE #2: RESTRICTIVE COVENANT PROVISIONS (SECTION 9)
The discussion of the restrictive covenant provisions began after a brief lunch recess (approximately 12:15 p.m. to 12:35 p.m.) and continued until approximately 1:30 p.m.
5.1 Non-Compete — Duration
Northgate's Position (as revised in Draft 2):
Eighteen (18) months post-termination. This represents a reduction from the Company's original proposal of twenty-four (24) months, which was included in Draft 1.
Harding's Position:
Twelve (12) months post-termination. Harding notes that his current non-compete agreement with Marlowe Asset Management Digital Holdings, Inc. has a duration of twelve (12) months post-termination, with a geographic scope limited to the United States. He is unwilling to accept a longer non-compete at Northgate than what he currently has at Marlowe Asset Management.
Hargrove argued that asking Harding to accept a longer non-compete than he currently has at Marlowe Asset Management is unreasonable, especially given the career risk inherent in leaving a well-established role at a $34 billion company to join a cross-border company undergoing a CEO transition. She stated that the non-compete period should be proportionate to the executive's ability to find comparable employment and that an eighteen-month restriction would effectively sideline Harding for a year and a half in a rapidly evolving industry where leadership opportunities are time-sensitive.
Vasquez responded that the CEO role at Northgate is more senior than the President and COO role at Marlowe Asset Management, and that the greater seniority and broader strategic scope of the Northgate CEO position justify longer and more comprehensive restrictive covenants. She noted that as CEO, Harding would have access to the Company's most sensitive confidential and competitive information — including strategic plans, customer relationships, pricing strategies, technology roadmaps, and M&A pipeline — and that a longer non-compete period is necessary to protect those legitimate business interests.
Stanton expressed the Board's strong preference for the longest enforceable non-compete period available under applicable law. He cited Northgate's competitive position in the converged telecommunications and SaaS markets, noting that the Company competes against well-capitalized global players and that the protection of confidential competitive information is essential to maintaining the Company's market position. Stanton stated that a twelve-month non-compete, in the Board's view, would provide inadequate protection for a company of Northgate's size and competitive exposure.
5.2 Non-Compete — Geographic Scope
Northgate's Position (as revised in Draft 2):
North America and Western Europe. This represents a significant reduction from the Company's original proposal of worldwide scope, which was included in Draft 1.
Harding's Position:
North America and Western Europe. Harding has agreed in principle to this geographic scope, subject to satisfactory resolution of the duration and activity definition components of the non-compete.
Status: The geographic scope is effectively agreed upon, conditioned on resolution of the duration and activity definition issues. Neither side raised objections to the North America and Western Europe formulation during the meeting.
5.3 Non-Compete — Activity / Scope Definition
The activity definition — i.e., the scope of competitive activities that would be prohibited during the non-compete period — remains a significant area of disagreement.
Northgate's Position:
Harding would be prohibited from engaging in employment by, or the provision of services (whether as an employee, consultant, director, officer, advisor, or otherwise) to, any company that derives more than fifteen percent (15%) of its consolidated revenue from: (a) telecommunications services, (b) telecommunications infrastructure, or (c) enterprise SaaS platforms serving telecommunications operators or communications service providers.
Harding's Position:
The non-compete would be limited to a narrower "scheduled-competitor" approach: Harding would be prohibited from joining only those companies specifically listed on a schedule to be attached to the Agreement. Harding has proposed a schedule of eight (8) named companies. The identities of the specific companies on the proposed schedule are not identified in these notes to preserve the confidentiality of the working draft.
Hargrove argued that the revenue-based activity test proposed by Northgate is overbroad and would capture a wide range of companies with de minimis telecommunications operations. She noted, by way of example, that large diversified technology companies — such as major cloud computing providers or global IT services firms — may derive more than fifteen percent of revenue from services that could be characterized as "enterprise SaaS platforms serving telecommunications operators," even though those companies are not direct competitors of Northgate in any meaningful sense. The scheduled-competitor approach, she argued, provides certainty to both parties and avoids the risk that the non-compete will be struck down by a court as unreasonably broad.
Vasquez responded that a scheduled-competitor approach has significant limitations. Such a schedule becomes stale over time and may fail to capture future competitors, new market entrants, or existing companies that pivot into the telecommunications or SaaS space during the non-compete period. The revenue-based test is dynamic and provides ongoing protection for Northgate's legitimate business interests without requiring periodic updates to the schedule. She argued that the fifteen-percent revenue threshold is a reasonable limitation that ensures the non-compete applies only to companies with meaningful competitive overlap with Northgate.
Underwood noted, at Vasquez's direction, that Calderwood & Harkness had flagged in an internal memorandum that a twenty-four month worldwide non-compete under a New York-governed agreement may face enforceability challenges under the reasonableness analysis applied by New York courts, which evaluate the duration, geographic scope, and scope of prohibited activity of the covenant in light of the employer's legitimate business interests and the hardship to the employee. Additionally, pending New York State legislation proposing a ban on non-compete agreements — which has received renewed attention in the state legislature — adds additional uncertainty regarding the enforceability of any non-compete provision, particularly one of extended duration.
Vasquez then communicated Calderwood & Harkness's recommended fallback position, which had been developed in consultation with the NTP legal team in advance of the meeting:
An eighteen (18) month non-compete, limited to North America and Western Europe, with a narrower activity definition that combines a revenue threshold with a short scheduled-competitor list — specifically, a prohibition on joining (a) any company listed on a schedule of named direct competitors (to be agreed upon), or (b) any other company that derives more than twenty-five percent (25%) of its consolidated revenue from the specified competitive activities. This hybrid approach would be paired with a six (6) month paid garden leave period running concurrently with the first six months of the non-compete period.
Hargrove stated that Harding could accept a twelve-month non-compete with the scheduled-competitor approach but would not agree to eighteen months under any activity definition, whether the revenue-based test, the scheduled-competitor approach, or a hybrid formulation. She reiterated that twelve months is Harding's maximum acceptable non-compete duration.
5.4 Garden Leave
Northgate's Position:
Six (6) months of paid garden leave at base salary only ($1,750,000 per annum ÷ 2 = $875,000 for the six-month garden leave period). During the garden leave period, Harding would remain an employee of the Company but would not be required to perform any duties. The garden leave period and the non-compete period would run concurrently for the first six months, with twelve (12) months of post-garden-leave non-compete restriction remaining. The total effective restriction period would be eighteen (18) months.
Harding's Position:
Twelve (12) months of garden leave at full compensation — meaning base salary plus a pro-rata target annual incentive — during the garden leave period. The garden leave period and the non-compete period would run fully concurrently, so that the total post-employment restriction would be only twelve (12) months, with Harding receiving compensation throughout the entire restriction period.
Harding stated that if the non-compete is set at eighteen months and the garden leave is only six months, he would effectively face twelve months of unpaid restriction during which he is barred from competitive employment but receives no compensation. He characterized this as inequitable and inconsistent with the principle that an employer should compensate an executive for the period during which the executive's ability to earn a livelihood is restricted.
Stanton responded that garden leave represents a significant cost to the Company and that extending it to twelve months at full compensation would result in a garden leave cost of approximately $4,812,500 (calculated as $1,750,000 base salary plus $3,062,500 pro-rata target bonus). He noted that this cost would be in addition to the severance payment itself and questioned whether the total cost of separation could be justified to shareholders.
Status at Conclusion of This Sub-Topic: Not resolved. There is a significant gap on both the duration and the compensation payable during the garden leave period. The Company has not indicated willingness to move to twelve months of garden leave, and Harding has not indicated willingness to accept six months. This issue will be addressed in the final compromise proposal.
5.5 Non-Solicitation
Northgate's Position:
Twenty-four (24) months post-termination non-solicitation obligation, applying to both employees and customers of the Company and its affiliates.
Harding's Position: