PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
August 23, 2024
FROM: Renata Vasquez, Partner, Calderwood & Harkness LLP
TO: Elaine Whitford, SVP & Group General Counsel, Northgate Telecommunications PLC Geoffrey Stanton, Lead Independent Director & Chair, Remuneration Committee, Northgate Telecommunications PLC
RE: Preparation for August 26, 2024 In-Person Principals Meeting — Marcus Elliot Harding CEO Employment Negotiation
MATTER NO.: 1022-00004
COPIES: Bernard Crawford, Calderwood & Harkness LLP (for information) James Underwood, Calderwood & Harkness LLP (for information)
I. PURPOSE AND BACKGROUND
This memorandum is prepared for the purpose of advising and preparing Northgate Telecommunications PLC ("NTP" or "Northgate" or the "Company") principals in advance of the in-person principals meeting scheduled for Monday, August 26, 2024, at 10:00 AM EDT, to be held at Northgate Telecommunications US, Inc., 600 Lexington Avenue, 38th Floor, New York, NY 10022 (the "Meeting"). The purpose of the Meeting is to attempt to bridge the remaining gaps in the ongoing negotiation of a CEO employment agreement with Marcus Elliot Harding ("Harding") through direct principal-to-principal engagement, and to determine whether a deal is achievable or whether negotiations should be terminated.
Attendees for Northgate: Dame Philippa Thornton-Hale (Chair of the Board), Geoffrey Stanton (Lead Independent Director; Chair, Remuneration Committee), Elaine Whitford (SVP & Group General Counsel), and Renata Vasquez (Calderwood & Harkness LLP, outside counsel). James Underwood of Calderwood & Harkness LLP will attend in person in a note-taking capacity and will not participate in substantive discussions unless specifically called upon by the Northgate principals.
Attendees for Harding: Marcus Elliot Harding (CEO candidate; currently President & Chief Operating Officer of Marlowe Asset Management Digital Holdings, Inc. (NYSE: VDHI)), and Victoria Hargrove (Partner, Hargrove & Liddell LLP, Harding's personal counsel).
Negotiation History. Negotiations between NTP and Harding have been ongoing since June 4, 2024, when the Board authorized the Remuneration Committee to enter into formal discussions following Harding's expression of interest through Kensington Partners (Antonia Blythe, Managing Director, executive search). Since that date, the parties have engaged in five rounds of term-sheet negotiation between June 24 and July 19, 2024, involving detailed telephonic exchanges among counsel, the Remuneration Committee, and Harding's personal counsel. A first draft of the formal employment agreement ("Draft 1") was circulated by Calderwood & Harkness to Hargrove & Liddell on July 22, 2024. Hargrove & Liddell returned a redline of Draft 1 containing eighty-eight (88) substantive comments on August 5, 2024. Calderwood & Harkness prepared and circulated a revised draft ("Draft 2") on August 12, 2024, incorporating those of Harding's comments that were acceptable to the Company and proposing revised language on contested points. Hargrove & Liddell returned a redline of Draft 2 on August 19, 2024, containing forty-two (42) remaining comments. That most recent redline is the baseline from which the August 26 Meeting will proceed.
State of Play. The parties have reached agreement on the substantial majority of compensation elements, including base salary, annual bonus targets and maximums, sign-on cash and equity grants (make-whole), annual long-term incentive grants, retirement benefits, perquisites, contract term, dual contract structure, indemnification and D&O coverage, non-disparagement, Section 409A compliance, and governing law. However, the parties remain at impasse on two critical areas: (1) change in control ("CIC") severance provisions, and (2) restrictive covenant obligations (principally, the non-compete and non-solicitation). A secondary open issue exists with respect to non-CIC severance, which is discussed in Section V below.
Goal of the Meeting. The goal of the August 26 Meeting is to attempt to bridge the remaining gaps through direct principal-to-principal engagement — specifically, through the personal involvement of Dame Philippa Thornton-Hale and Geoffrey Stanton on the NTP side, and Marcus Elliot Harding personally on the candidate side — before determining whether a deal is achievable or negotiations should be terminated. This memorandum sets forth recommended talking points, authorized concession parameters, and absolute red lines for the NTP principals at the Meeting.
II. SUMMARY OF AGREED TERMS
Before turning to the open issues, it is important to recapitulate the terms on which the parties have already reached agreement. This summary serves two purposes: first, it provides context for the discussions at the Meeting and demonstrates how far the negotiation has progressed; second, it may be useful as a framing device at the Meeting itself, to remind both sides of the significant value NTP has already committed to offer and the substantial concessions that have been made by both parties to date. The agreed terms are as follows:
Base Salary. $1,750,000 per annum. Agreed.
Target Annual Bonus. 175% of base salary, equal to $3,062,500 per annum. Agreed.
Maximum Annual Bonus. 300% of base salary, equal to $5,250,000 per annum. Agreed.
Sign-On Cash Bonus (Make-Whole). $5,000,000, payable within thirty (30) days of the start date, subject to a twenty-four (24) month clawback in the event of voluntary resignation without Good Reason. Agreed.
Sign-On Equity (Make-Whole for Forfeited Marlowe Asset Management Digital Holdings Equity). The sign-on equity grant is designed to compensate Harding for equity forfeited upon departure from Marlowe Asset Management Digital Holdings, Inc. The grant consists of:
• Restricted Stock Unit ("RSU") grant with a grant-date value of $12,000,000, vesting ratably over three (3) years (one-third per year on each anniversary of the grant date). Agreed.
• Performance Stock Unit ("PSU") grant with a grant-date value of $6,400,000, cliff vesting at the end of three (3) years, subject to achievement of Total Shareholder Return ("TSR") and revenue growth performance hurdles to be established by the Remuneration Committee. Agreed.
• Total sign-on equity value: $18,400,000. Agreed.
It should be noted that Harding's estimated forfeiture of unvested equity at Marlowe Asset Management Digital Holdings upon resignation is approximately $23,400,000. The shortfall of $5,000,000 between the estimated forfeiture and the sign-on equity grant is effectively offset by the $5,000,000 sign-on cash bonus, bringing the total make-whole package to $23,400,000 — dollar-for-dollar replacement of the Marlowe Asset Management forfeiture.
Annual Long-Term Incentive ("LTI") Grant Target. $9,000,000 per year, consisting of sixty percent (60%) PSUs and forty percent (40%) RSUs, subject to the terms and conditions of the NTP 2023 Omnibus Incentive Plan and individual award agreements to be approved by the Remuneration Committee. Agreed.
Total Target Annual Compensation. $13,812,500, calculated as follows: $1,750,000 (base salary) + $3,062,500 (target annual bonus) + $9,000,000 (annual LTI grant target). Agreed. This represents an increase of $2,687,500, or approximately 24.2%, over Harding's current total target annual compensation at Marlowe Asset Management Digital Holdings of $11,125,000.
Retirement Benefits. 401(k) plan participation with a six percent (6%) employer match, subject to applicable IRS contribution limits, plus a supplemental executive retirement plan ("SERP") contribution of $250,000 per year. Agreed.
Perquisites. The following perquisites have been agreed:
• Annual automobile allowance of $25,000;
• Enrollment in the NTP executive health program (annual comprehensive physical examination and related services);
• Supplemental life insurance coverage of $2,000,000 (employer-paid premium);
• Reimbursement of financial, tax, and estate planning services, up to $35,000 per year.
Agreed.
Term. Five (5) years, commencing on the proposed start date of October 1, 2024, and continuing through September 30, 2029, with automatic one-year renewals thereafter unless either party provides at least one hundred eighty (180) days' prior written notice of non-renewal. Agreed in principle. The parties have acknowledged that the start date may shift to November 1, 2024, to accommodate Harding's transition obligations at Marlowe Asset Management Digital Holdings, including cooperation with an orderly handoff to a successor COO.
Dual Contract Structure. Harding's employment will be structured through two separate agreements: (i) a primary employment agreement governed by New York law between Harding and Northgate Telecommunications US, Inc. (the Company's US operating subsidiary), and (ii) a secondary UK service agreement between Harding and Northgate Telecommunications PLC, reflecting an anticipated eighty/twenty (80/20) time split between the United States and the United Kingdom. The arrangement will include full tax equalization and will be structured in compliance with the US-UK Totalization Agreement for social security purposes. Moorfield Bates LLP is advising NTP on the UK side of the arrangement, and the UK service agreement will be prepared by Moorfield Bates following conclusion of the US agreement. Agreed in principle.
Indemnification and D&O Coverage. Harding will receive standard form indemnification from NTP consistent with the Company's existing indemnification agreements with its directors and officers, and will be named as an insured under the Company's directors' and officers' liability insurance policy maintained by Ashdown Surety & Insurance Co. (Policy No. ASI-D&O-NTP-2024-4471), which provides coverage of $50,000,000 per occurrence and $100,000,000 in the aggregate. Agreed.
Non-Disparagement. The agreement will contain mutual, perpetual non-disparagement covenants, with standard carve-outs for statements made in connection with legal proceedings, regulatory investigations, and responses to lawful subpoenas. Agreed.
Section 409A Compliance. The agreement will contain standard provisions designed to ensure compliance with Section 409A of the Internal Revenue Code, including six-month delay provisions for specified employees, separation-from-service definitions, and anti-acceleration rules. Agreed.
Governing Law. The primary employment agreement will be governed by the laws of the State of New York, without regard to conflict-of-laws principles. The secondary UK service agreement will be governed by English law. Agreed.
In summary, the parties have reached agreement on terms representing total target annual compensation of $13,812,500 and sign-on value of $23,400,000 ($5,000,000 cash + $18,400,000 equity). These are substantial commitments by NTP and reflect the Board's genuine enthusiasm for Harding as the Company's next CEO. The remaining open issues, while significant, should be viewed against this backdrop of meaningful progress.
III. OPEN ISSUE #1: CHANGE IN CONTROL PROVISIONS
A. Summary of Current Positions
The CIC provisions remain the most contentious area of negotiation. The parties are in disagreement on multiple elements: the definition of "Change in Control" itself, the CIC severance multiplier, the Section 280G tax treatment, and the duration of benefit continuation following a CIC termination. Each is addressed below.
Definition of "Change in Control." The parties have agreed on three of the four prongs of the CIC definition:
(a) Acquisition of Voting Securities. Acquisition by any person, entity, or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) of more than fifty percent (50%) of the combined voting power of NTP's then-outstanding voting securities. Agreed.
(b) Merger or Consolidation. Consummation of a merger, consolidation, or similar business combination involving NTP, unless the holders of NTP's voting securities immediately prior to such transaction hold at least fifty percent (50%) of the voting power of the surviving or resulting entity immediately following such transaction. Agreed.
(c) Asset Sale. Sale, lease, exchange, or other disposition of all or substantially all of NTP's assets. Agreed.
The disputed element concerns a fourth prong:
(d) Board Turnover Trigger (Disputed). Harding has demanded inclusion of a fourth CIC trigger: a change in the composition of the Board of Directors such that a majority of the directors serving as of the effective date of the agreement are replaced within any twelve (12) month period, unless the appointment or election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors as of the effective date (or whose appointment or election was previously so approved). NTP has rejected this provision in both Draft 1 and Draft 2.
Harding's rationale for the Board turnover trigger, as articulated by Hargrove in her August 5 cover letter, is that it provides protection against a hostile takeover or activist-driven Board reconstitution that effectively constitutes a change in control without triggering the acquisition, merger, or asset-sale prongs. Harding contends that without this trigger, a well-financed activist investor could effectively seize control of the Company through a proxy contest, replace the Board, and terminate him — all without triggering CIC protections.
Northgate's objection is fourfold: (i) the Board turnover trigger is inconsistent with UK corporate governance norms; (ii) it could be triggered by routine Board refreshment or planned director succession, particularly given NTP's commitment under the UK Corporate Governance Code to progressive Board renewal; (iii) it creates a perverse incentive for the executive to resist legitimate Board turnover, including Board changes driven by shareholders exercising their governance rights; and (iv) it is unprecedented at NTP, as no prior CEO or other executive officer has been granted a Board turnover CIC trigger.
CIC Severance (Double Trigger — Agreed in Principle). The parties have agreed that CIC severance will be structured as a "double trigger" — that is, a qualifying termination of employment (termination without Cause or resignation for Good Reason) must occur within twenty-four (24) months following a CIC event in order to trigger severance. However, the quantum and terms of such severance remain disputed:
Northgate's position (as reflected in Draft 2):
• Cash severance equal to 2.5× the sum of base salary and target annual bonus (2.5 × $4,812,500 = $12,031,250), payable in a lump sum within sixty (60) days following the date of termination.
• Full acceleration of all unvested equity awards, with RSUs vesting immediately and PSUs vesting at target performance levels.
• Twenty-four (24) months of continued health insurance coverage through COBRA, with the Company paying the employer portion of the premium.
• $50,000 in outplacement services.
• Tax treatment: "best-net" safe harbor approach under Section 280G of the Internal Revenue Code. Under this approach, if Harding's total parachute payments (as defined in Section 280G) would exceed 2.99× his "base amount" (i.e., the safe harbor limit of $23,519,999, based on Harding's estimated base amount of $7,840,000), the payments would be reduced (cut back) to the safe harbor limit — but only if such cutback results in a better after-tax outcome for Harding than paying the full amount subject to the 20% excise tax under Section 4999. No gross-up of the excise tax would be provided.
Harding's position (as reflected in the H&L redline of Draft 2):
• Cash severance equal to 3× the sum of base salary and target annual bonus (3 × $4,812,500 = $14,437,500), payable in a lump sum within sixty (60) days following the date of termination.
• Full acceleration of all unvested equity awards, with RSUs vesting immediately and PSUs vesting at target performance levels. (This element is consistent with NTP's position.)
• Thirty-six (36) months of continued benefit coverage — not limited to COBRA, but full benefit continuation (medical, dental, vision, life insurance, disability) at active-employee rates.
• Full Section 280G tax gross-up: if any portion of Harding's payments constitutes an "excess parachute payment" subject to the 20% excise tax under Section 4999, the Company would make an additional payment to Harding sufficient to place him in the same after-tax position as if no excise tax had been imposed. No cutback.
• Inclusion of the Board turnover trigger in the CIC definition (as described above).
Quantified Gaps. The quantified differences between the parties' positions are as follows:
CIC Cash Severance Gap: $14,437,500 (Harding) − $12,031,250 (NTP) = $2,406,250.
Benefit Continuation Gap: Thirty-six (36) months of full benefit continuation (Harding) versus twenty-four (24) months of COBRA continuation (NTP). In addition, Harding's position requires full benefit continuation rather than COBRA-only coverage, which creates additional cost and administrative complexity.
Tax Gross-Up Exposure: This is the most significant financial variable. The estimated potential gross-up cost to NTP under Harding's proposal is between $4,200,000 and $6,800,000, depending on the precise parachute payment calculation. The key inputs to this estimate are:
• Harding's Section 280G "base amount" (calculated as the average of his W-2 compensation at Marlowe Asset Management Digital Holdings for the five-year period 2019–2023): $7,840,000.
• Safe harbor limit (2.99 × base amount): $23,519,999 (rounded).
• Estimated total parachute payments under Harding's proposal (including 3× cash severance, accelerated equity, sign-on equity acceleration, and other benefits): approximately $38,200,000.
• Excess parachute payment: $38,200,000 − $7,840,000 = $30,360,000.
• Estimated excise tax under Section 4999 (20% of excess parachute payment): $6,072,000.
• Under Harding's full gross-up proposal, NTP would be obligated to pay this excise tax amount plus an additional gross-up to cover income taxes on the gross-up payment itself, bringing the total estimated exposure to between $4,200,000 and $6,800,000 depending on Harding's effective marginal tax rate and the precise composition of the parachute payments. (The range reflects sensitivity analysis performed by Calderwood & Harkness in consultation with Whitmore Hobson LLP.)
Board Turnover Trigger: This remains a binary disagreement — included versus excluded — and does not lend itself to a quantified compromise.
B. Talking Points for Northgate Principals
The following talking points are recommended for use by Dame Philippa Thornton-Hale and Geoffrey Stanton at the Meeting. They are organized by issue.
On the 2.5× CIC Multiplier:
• The 2.5× CIC multiplier offered by NTP is at the upper end of market practice for public company CEO agreements. It reflects the Board's sincere desire to provide Harding with meaningful protection in a CIC scenario while remaining within the bounds of responsible corporate governance.
• Cascade Management Consulting' most recent benchmark policy guidelines generally flag CIC multipliers at or above 3× as a concern in evaluating say-on-pay proposals. While ISS does not impose a blanket prohibition on 3× multipliers, the combination of a 3× multiplier with a full Section 280G tax gross-up — which is what Harding is requesting — would almost certainly trigger a negative say-on-pay recommendation from both ISS and Tarrant Partners LLC. Veltrano Proxy Advisors (Sandra Kolb, Senior Vice President, Governance Advisory), which has been retained by NTP to provide informal proxy advisory guidance in connection with this negotiation, has confirmed this assessment. Ms. Kolb has advised, based on her review of the proposed package terms, that a 3× CIC multiplier combined with a full tax gross-up would place NTP in the highest-risk category for a negative say-on-pay recommendation in connection with the 2025 Annual General Meeting.
• This is not an abstract concern. NTP received 87.4% say-on-pay support at its April 18, 2024 Annual General Meeting — a strong result, but one that reflects the votes of a shareholder base that is increasingly focused on executive Ostrander Strategy Partners. Under the UK Companies Act 2006, the 2025 AGM will include a binding vote on NTP's remuneration policy. A negative ISS or Tarrant Partners LLC recommendation in the context of a new CEO hire could materially erode that support and create reputational risk for the Board.
• NTP's key institutional shareholders — including 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%) — are governance-focused investors with established policies regarding CIC severance. Several of these investors have publicly stated positions opposing CIC multipliers in excess of 2.5× for new CEO agreements.
• It should also be noted that NTP's UK listing subjects it to the UK Corporate Governance Code 2024, including Provision 40, which provides that notice periods for executive directors should be set at twelve (12) months or less. While CIC severance is conceptually distinct from notice period severance, the spirit of the Code — which emphasizes restraint and proportionality in executive pay — counsels against CIC packages that significantly exceed prevailing norms.
• Whitmore Hobson LLP (Dr. Rachel Whitmore, independent compensation consultant retained by the Remuneration Committee), has performed a comprehensive peer-group benchmarking analysis of CIC provisions across a comparator group of twenty-two (22) US-listed and dual-listed telecommunications, enterprise SaaS, and digital infrastructure companies with revenue between $3 billion and $12 billion. The analysis confirms that a 2.5× CIC multiplier is defensible and falls between the 70th and 80th percentile of the comparator group. A 3× multiplier would place NTP at or above the 90th percentile — an outlier position that would be difficult to defend to shareholders and proxy advisory firms.
On the Section 280G Tax Gross-Up:
• There has been a strong and sustained market trend away from Section 280G excise tax gross-ups in new public company executive agreements. The vast majority of new CEO employment agreements entered into by S&P 500 and FTSE 100 companies in the past five years use either a "best-net" approach (as proposed by NTP) or a "modified cutback" approach. The inclusion of a full tax gross-up in a new 2024 CEO agreement would be a retrograde step that is inconsistent with evolving governance standards.
• Whitmore Hobson's analysis demonstrates that, under the "best-net" methodology proposed by NTP, the cutback and full-payment scenarios are roughly economically equivalent for Harding on an after-tax basis. Specifically, because of the interaction between the 20% Section 4999 excise tax and the deductibility limitations under Section 280G, Harding's after-tax proceeds under a cutback to the safe harbor limit are within approximately $200,000 to $400,000 of his after-tax proceeds under a full-payment-plus-excise-tax scenario (without gross-up). The gross-up, therefore, is largely a matter of principle and optics rather than meaningful after-tax economics for Harding. We recommend offering to walk through this analysis with Harding and Hargrove at the Meeting, as it may defuse the issue if Harding has not fully considered the after-tax math.
• ISS policy explicitly identifies excise tax gross-ups as "problematic pay practices" in its evaluation of say-on-pay proposals. The inclusion of a gross-up is likely to be identified as a standalone negative factor in any ISS analysis of NTP's remuneration policy.
• From NTP's perspective, a full Section 280G tax gross-up creates an uncapped contingent liability. The estimated gross-up cost of $4,200,000 to $6,800,000 is based on current compensation levels and assumptions about the composition of parachute payments; in practice, the actual liability could be higher depending on the timing of the CIC event, the level of equity vesting, and other variables. This creates an unpredictable financial exposure that is inconsistent with sound financial management and prudent risk allocation.
On the Board Turnover Trigger:
• This is a provision that NTP must firmly reject. The Board turnover trigger is outside market norms for UK-listed companies and is uncommon even among US-listed companies. Its inclusion in the CIC definition would create a situation in which the CEO could claim CIC severance protection in circumstances where no actual change in the ownership or control of the Company has occurred — for example, in connection with routine Board refreshment, planned director succession, or shareholder-initiated governance changes.
• The trigger is particularly problematic in the context of NTP's UK listing. Under the UK Corporate Governance Code, Boards are expected to engage in progressive Board renewal, with directors serving limited terms and the Nomination Committee actively managing succession. A Board turnover CIC trigger could deter the Board from refreshing its composition out of concern that doing so would trigger CIC severance obligations to the CEO, thereby undermining the Board's independence and its compliance with the Code.
• The trigger also creates an inherent conflict of interest: a CEO who benefits from Board stability has a perverse incentive to resist changes to Board composition, even where such changes are in the best interests of shareholders. This is antithetical to sound corporate governance.
• Finally, it is worth noting that Harding's current employment agreement at Marlowe Asset Management Digital Holdings does not include a Board turnover CIC trigger. Calderwood & Harkness has reviewed a copy of Harding's existing Marlowe Asset Management agreement (obtained through the due diligence process) and confirmed that the CIC definition in that agreement is limited to acquisition, merger, and asset-sale triggers — substantially similar to the three prongs that the parties have already agreed upon for the NTP agreement. Harding's request for a Board turnover trigger in the NTP agreement therefore represents an enhancement beyond his current protections, not a preservation of existing rights.
On Benefit Continuation (24 vs. 36 Months):
• Twenty-four (24) months of COBRA continuation is consistent with market practice and the maximum statutory COBRA period of eighteen (18) months (with NTP voluntarily extending coverage by six months beyond the statutory period).
• Thirty-six (36) months of full benefit continuation — as Harding proposes — would require NTP to provide a non-COBRA benefit extension for the third year, which creates significant administrative complexity and potential issues under ERISA and the applicable benefit plan documents. NTP's group health plan does not currently accommodate extended benefit continuation beyond COBRA, and modification of the plan to permit such continuation would require separate Board and plan fiduciary approval.
• The incremental cost of moving from twenty-four (24) to thirty-six (36) months of benefit continuation is modest in the context of the overall package (estimated at $35,000 to $55,000 per year for executive-level health, dental, and vision coverage), but the administrative burden and precedent-setting effect are disproportionate to the value.
C. Recommended Concessions and Fallback Positions
Based on Calderwood & Harkness's assessment of the negotiation dynamics, the enforceability landscape, and the Board's governance obligations, we recommend the following concession parameters for the CIC provisions:
CIC Multiplier — No concession recommended. NTP should hold firm at 2.5×. This position is already at the upper range of defensible market practice, and any movement upward — even to the 2.75× compromise that Hargrove floated on the July 12 conference call — would undermine the Remuneration Committee's stated position and signal to Harding and Hargrove that further concessions are available. A 2.75× multiplier would also place NTP closer to the ISS "concern" threshold and weaken the Company's position with proxy advisory firms and institutional shareholders.
Section 280G Tax Treatment — No concession recommended. NTP should hold firm on the "best-net" cutback approach with no gross-up. This is a Board-level red line based on ISS and shareholder guidance, and it reflects the Company's commitment to governance best practices. As noted above, the after-tax economics of the best-net approach are substantially equivalent for Harding, which means this issue can be addressed on the merits rather than treated as a negotiation trade.
Board Turnover Trigger — No concession recommended. Absolute red line. The Board turnover trigger should not be included in the CIC definition under any circumstances. This is a governance principle, not a financial issue, and conceding on it would set a precedent that the Board would find difficult to manage going forward.
Benefit Continuation — Possible concession. If a goodwill gesture is needed to demonstrate NTP's willingness to move on secondary issues in exchange for Harding's concessions on the three points above, the Company could offer to extend benefit continuation from twenty-four (24) months to thirty (30) months, effectively splitting the difference. However, this concession should only be offered in the context of Harding's agreement to the 2.5× multiplier, best-net tax treatment, and exclusion of the Board turnover trigger. It should not be offered as a standalone concession. The estimated incremental cost of moving from twenty-four (24) to thirty (30) months is approximately $17,500 to $27,500 — a negligible amount relative to the overall package value.
PSU Treatment on CIC — Possible concession. The parties have already agreed that PSUs will vest at target performance levels upon a qualifying CIC termination. As an additional signal of good faith, NTP could offer to modify this provision so that PSUs vest at the greater of (i) target performance or (ii) actual performance through the most recently completed measurement period preceding the CIC event (if measurable). This enhancement has no incremental cost to NTP in most scenarios (because actual performance is frequently at or below target at the time of a CIC), but it demonstrates flexibility and responsiveness to Harding's concern about receiving fair value for earned performance.
D. Red Lines (Non-Negotiable)
The following positions are non-negotiable and should not be conceded under any circumstances at the August 26 Meeting:
1. No CIC multiplier above 2.5×. The maximum CIC cash severance is $12,031,250 (2.5 × $4,812,500).
2. No Section 280G tax gross-up. The agreement must use the "best-net" safe harbor approach with a cutback to the safe harbor limit if the cutback produces a better after-tax result for Harding. No gross-up of the Section 4999 excise tax will be provided.
3. No Board turnover trigger in the definition of Change in Control. The CIC definition must be limited to acquisition, merger/consolidation, and asset-sale triggers.
IV. OPEN ISSUE #2: RESTRICTIVE COVENANT PROVISIONS
A. Summary of Current Positions
The restrictive covenant provisions — principally the non-compete and non-solicitation — represent the second major area of impasse. These provisions are important to NTP for both protective and governance reasons: a CEO of a global telecommunications and enterprise SaaS company will be privy to the Company's most sensitive strategic plans, customer relationships, product roadmaps, and M&A pipeline, and NTP has a legitimate interest in restricting Harding's ability to deploy that knowledge on behalf of a competitor immediately upon departure.
Non-Compete.
Northgate's position (as reflected in Draft 2 — already a concession from Draft 1):
• Duration: Eighteen (18) months following the date of termination of employment. This represents a reduction from the twenty-four (24) month term included in the initial term sheet and in Draft 1, and was offered as a concession in Draft 2.
• Geographic Scope: Worldwide.
• Activity Scope: Employment by, or provision of consulting or advisory services to, any company that derives more than fifteen percent (15%) of its annual consolidated revenue from (i) telecommunications services, (ii) telecommunications infrastructure, or (iii) enterprise software-as-a-service ("SaaS") platforms serving telecommunications operators.
• Garden Leave: Six (6) months at base salary only ($1,750,000 × 6/12 = $875,000), with the garden leave period running concurrently with the first six (6) months of the non-compete period. During the garden leave period, Harding would remain a Company employee, would receive base salary, and would be available for consultation, but would not be required to perform active duties. Following the expiration of the six-month garden leave, the remaining twelve (12) months of the non-compete would be "unfunded" — that is, Harding would not receive compensation from NTP during that period.
Harding's position (as reflected in the H&L redline of Draft 2):
• Duration: Twelve (12) months following the date of termination of employment, matching the duration of his existing non-compete at Marlowe Asset Management Digital Holdings.
• Geographic Scope: Limited to North America and Western Europe.
• Activity Scope: Narrowed to employment by or provision of services to "direct competitors" of NTP, to be identified on a schedule of eight (8) named companies to be mutually agreed upon by the parties.
• Garden Leave: Twelve (12) months at full compensation (base salary plus pro-rata target annual bonus), with the garden leave and non-compete periods running fully concurrently. Under this formulation, the entire twelve-month non-compete period would be "funded" by garden leave, and there would be no period of post-employment restriction without compensation.
Key Gaps on Non-Compete:
• Duration: Eighteen (18) months (NTP) versus twelve (12) months (Harding) — a six-month gap.
• Geographic Scope: Worldwide (NTP) versus North America and Western Europe only (Harding).
• Activity Definition: Revenue-based test with a fifteen percent (15%) threshold (NTP) versus a scheduled list of eight (8) named competitors (Harding).
• Garden Leave Duration and Compensation: Six (6) months at base salary ($875,000) (NTP) versus twelve (12) months at full compensation (base + pro-rata bonus, approximately $4,812,500) (Harding). The difference in garden leave cost is approximately $3,937,500. Moreover, Harding's proposal for fully concurrent garden leave and non-compete periods would effectively eliminate any meaningful post-employment restriction without compensation, undermining the protective purpose of the non-compete.
Non-Solicitation.
• Northgate's position: Twenty-four (24) months; covering both employees and customers of NTP and its affiliates.
• Harding's position: Eighteen (18) months; covering employees only — Harding has objected to the inclusion of a customer non-solicitation provision.
B. Talking Points for Northgate Principals
On Non-Compete Duration:
• Eighteen (18) months is a reasonable and defensible term for the CEO of a global telecommunications and SaaS company. The competitive sensitivity of the CEO role at NTP — which involves direct oversight of strategic planning, M&A activity, product development roadmaps, key customer relationships, and competitive intelligence — warrants a non-compete period that extends beyond the typical twelve-month floor.
• Harding will be privy to NTP's most sensitive proprietary and strategic information, including customer contracts and pricing, product roadmaps, technology architecture decisions, M&A pipeline targets and valuations, and long-range strategic plans. Twelve (12) months is insufficient to protect these interests, as strategic plans and competitive intelligence typically retain their sensitivity for at least eighteen (18) to twenty-four (24) months.
• Harding's current non-compete at Marlowe Asset Management Digital Holdings is twelve (12) months, but his role at NTP will be materially more senior — CEO versus COO — and NTP operates in a more competitive segment of the market with a broader global footprint. It is not unreasonable for a more senior role to carry a longer non-compete.
• Importantly, the six-month garden leave at base salary provides paid coverage during the first six (6) months of the non-compete period. The "unfunded" portion of the non-compete is therefore only twelve (12) months (from month seven through month eighteen). This twelve-month unfunded period is consistent with Harding's current non-compete at Marlowe Asset Management, which is twelve months and, to our knowledge, entirely unfunded. NTP's proposal is therefore more favorable to Harding than his current arrangement, not less.
On Geographic Scope:
• NTP is a global enterprise with approximately 22,500 employees across operations in North America, Europe, Asia-Pacific, the Middle East, and Latin America. In FY2023, NTP generated revenue of £4.26 billion (approximately $5.43 billion at average exchange rates), of which approximately 52% was derived from North America, 28% from Europe, 14% from Asia-Pacific, and 6% from other regions. A CEO departing NTP could cause competitive harm in any of these markets.
• However, it should be acknowledged that Harding's role will be primarily US-based, with an 80/20 time split between New York and London. His day-to-day operational involvement in Asia-Pacific and other regions will be more limited than his involvement in North America and Europe.
• Calderwood & Harkness's internal enforceability assessment has concluded that a New York-governed worldwide non-compete for a CEO — while not per se unenforceable — may be subject to a reasonableness challenge under New York law. New York courts apply a reasonableness analysis that considers, among other factors, the geographic scope of the restriction in relation to the geographic scope of the employer's business and the executive's responsibilities. While NTP's global operations provide a colorable basis for a worldwide restriction, there is meaningful risk that a court could narrow the geographic scope on enforceability grounds. This concern is relevant to our fallback position analysis but should not be raised at the Meeting with Harding or Hargrove.
On Activity Definition:
• NTP's revenue-based test (fifteen percent (15%) threshold) provides an objective, measurable standard for determining whether a prospective employer qualifies as a restricted entity. It is applied at the entity level based on publicly available financial data (or, for private companies, on the best available information). This approach is preferred over a scheduled-competitor approach because it is self-executing, does not become stale over time, and is not subject to gamesmanship through corporate restructuring or rebranding.
• A scheduled-competitor approach — particularly one limited to only eight (8) companies — creates immediate challenges. First, the parties must agree on which companies belong on the schedule, which is itself a negotiation that could delay execution. Second, the schedule would need to be updated periodically to account for market changes (new entrants, mergers, acquisitions, name changes, shifts in business focus), and there is no reliable mechanism for doing so after the agreement is executed. Third, an eight-company list is easily gamed: a competitor not on the list could hire Harding without restriction, and Harding could argue that a company's removal from the schedule (e.g., through acquisition or business model evolution) eliminates the restriction.
• However, as discussed in the concession analysis below, the activity definition may be an area for compromise if agreement can be reached on duration and geographic scope — which are more important from a protective standpoint.
On Garden Leave:
• Six (6) months of garden leave at base salary is generous by market standards. Garden leave is not universal in US CEO agreements (it is more common in UK agreements, reflecting UK employment law norms), and where it is provided, it typically runs at base salary only, not at full compensation.
• Harding's proposal for twelve (12) months of garden leave at full compensation (base salary plus pro-rata target annual bonus) would cost NTP approximately $4,812,500 — compared to $875,000 under NTP's proposal. This represents an incremental cost of approximately $3,937,500 for a provision that, as structured by Harding, effectively eliminates any meaningful post-employment restriction. If the garden leave runs concurrently with the entire non-compete period and provides full compensation throughout, Harding has no economic incentive to comply with the non-compete (because he is being paid his full compensation regardless), and there is no unfunded period during which the non-compete creates a meaningful deterrent.
• NTP's proposal — six months of garden leave running concurrently with the first six months of an eighteen-month non-compete — strikes an appropriate balance: it provides Harding with six months of paid transition time while preserving twelve months of meaningful post-employment restriction.
On Non-Solicitation:
• Customer non-solicitation is a standard feature of C-suite employment agreements and is essential to protect NTP's key enterprise client relationships. As CEO, Harding will develop deep personal relationships with NTP's most significant customers, and those relationships represent substantial goodwill belonging to the Company.
• Twenty-four (24) months is consistent with market practice for customer non-solicitation obligations applicable to senior executives.
• Harding's objection to the customer non-solicitation — which appears to be based on the argument that it constrains his ability to generate business at a future employer — is understandable but does not outweigh NTP's legitimate interest in protecting the customer relationships that Harding will develop while serving as CEO at NTP's expense and on NTP's behalf.
Enforceability Concern (For Northgate Principals' Awareness Only — Do Not Raise with Harding or Hargrove):
Calderwood & Harkness's internal enforceability analysis has identified certain risks with NTP's current Draft 2 non-compete provision that the Northgate principals should be aware of, although these concerns should not be disclosed to Harding's side at or in connection with the Meeting:
• A twenty-four-month worldwide non-compete (as proposed in Draft 1) was assessed as having moderate-to-high enforceability risk under New York law. The reduction to eighteen months in Draft 2 reduced but did not eliminate this risk.
• An eighteen-month worldwide non-compete under a New York-governed agreement, as applied to a CEO, is within the range of restrictions that New York courts have enforced — but the worldwide scope creates vulnerability to a judicial narrowing of the geographic restriction to the areas where Harding personally conducted business or had direct operational responsibility.
• Pending New York legislation (A.1278/S.3100), which would prohibit non-compete agreements for employees earning above a specified salary threshold, has not been enacted as of the date of this memorandum, but if enacted in a form that applies to CEO-level agreements, it could render the non-compete unenforceable in its entirety. While the current version of the bill is unlikely to pass in its current form during the 2024 legislative session, it creates additional background risk that counsels in favor of a non-compete provision that is narrowly tailored and defensible.
• Based on this analysis, the recommended fallback position — if necessary to close the non-compete negotiation — is an eighteen-month non-compete limited to North America and Western Europe, with a narrower activity definition, paired with six months of garden leave running concurrently with the first six months of the non-compete period. This formulation is well within the range of restrictions that New York courts have upheld and addresses the most significant enforceability vulnerabilities.
C. Recommended Concessions and Fallback Positions
Geographic Scope — Concession recommended if Harding concedes on duration. If Harding agrees to an eighteen (18) month non-compete duration (or above), NTP should be prepared to limit the geographic scope from worldwide to North America and Western Europe. This is a significant concession, but it addresses legitimate enforceability concerns identified in Calderwood & Harkness's internal analysis, and it covers the two regions from which NTP derives approximately eighty percent (80%) of its revenue. Limiting geographic scope while maintaining an eighteen-month duration represents a stronger overall protective position than a twelve-month worldwide restriction, because courts and arbitrators are more likely to enforce a geographically limited non-compete for a longer duration than a worldwide restriction for any duration.
Activity Definition — Concession recommended. NTP should be willing to consider a hybrid approach to the activity definition: maintain the fifteen percent (15%) revenue test as the primary objective standard, but supplement it with a scheduled competitor list (to be mutually agreed upon) as an illustrative guide. The scheduled list would not limit the scope of the restriction (which would be defined by the revenue test) but would provide clarity and certainty to both parties regarding the companies that are clearly within the scope of the non-compete. Alternatively, if Harding agrees to eighteen (18) months and a geographic limitation to North America and Western Europe, NTP should be willing to use a scheduled competitor list alone as the basis for the activity restriction — provided that the list contains at least fifteen (15) to twenty (20) companies and is subject to annual updating by mutual agreement (or, if the parties cannot agree on updates, by an independent determination process).
Garden Leave Compensation — Concession recommended. NTP should be willing to increase the garden leave compensation from base salary only to base salary plus a pro-rata portion of the target annual bonus, for the six-month garden leave period. This would increase the garden leave cost from $875,000 to approximately $2,406,250 (calculated as $1,750,000 × 6/12 + $3,062,500 × 6/12 = $875,000 + $1,531,250 = $2,406,250). This concession should be offered only in the context of a broader package deal on the non-compete and should not be made unilaterally. NTP should not agree to extend the garden leave period from six (6) months to twelve (12) months under any circumstances.
Non-Solicitation — Concession recommended. NTP should be willing to reduce the non-solicitation period from twenty-four (24) months to eighteen (18) months, provided that Harding agrees to include both employees and customers within the scope of the restriction. If Harding insists on an employees-only non-solicitation (no customer restriction), NTP should hold at twenty-four (24) months on employees as a trade for the elimination of the customer component — although this is a less favorable outcome, and the inclusion of a customer non-solicitation is a stated red line.
Fallback Position (Last Resort — Requires Board Approval During or After Meeting). If the negotiation on restrictive covenants cannot be resolved within the parameters set forth above, NTP's final fallback position on the non-compete — which would require real-time or post-Meeting Board approval — is as follows:
• Eighteen (18) month non-compete duration;
• Geographic scope limited to North America and Western Europe;
• Narrowed activity definition using a combination of (i) a scheduled competitor list containing at least fifteen (15) companies, mutually agreed and updated annually, and (ii) the fifteen percent (15%) revenue test as a catch-all;
• Six (6) month garden leave at base salary plus pro-rata target annual bonus, running concurrently with the first six (6) months of the non-compete;
• Eighteen (18) month non-solicitation covering both employees and customers.
This fallback position represents the most NTP can offer while maintaining the minimum protective covenants that the Board and the Remuneration Committee have identified as essential. If Harding is unwilling to agree to terms at or within these parameters, the restrictive covenant impasse should be escalated to the Board for a decision on whether to proceed with a weaker covenant package or terminate negotiations.
D. Red Lines (Non-Negotiable)
The following positions are non-negotiable on the restrictive covenant provisions:
1. Non-compete duration must be at least eighteen (18) months. Twelve (12) months is insufficient for a CEO of NTP's scale and competitive position and does not provide adequate protection for the Company's strategic and proprietary interests.
2. Non-compete must include geographic restrictions covering at least North America and Western Europe. A restriction limited to a single country (e.g., the United States alone) would be insufficient to protect NTP's competitive interests in its two largest revenue-generating regions.
3. Garden leave must not exceed six (6) months in duration. Garden leave beyond six months is economically excessive and undermines the deterrent effect of the non-compete by fully funding the restriction period.
4. Customer non-solicitation must be included. An employees-only non-solicitation is insufficient to protect NTP's enterprise client relationships.
V. NON-CIC SEVERANCE — SECONDARY OPEN ISSUE
A secondary area of disagreement exists with respect to the non-CIC severance provisions — that is, the severance payable to Harding in the event of a termination without Cause or resignation for Good Reason outside the context of a Change in Control.
Northgate's position (Draft 2):
• Cash severance equal to 2× the sum of base salary and target annual bonus (2 × $4,812,500 = $9,625,000), payable in a lump sum within sixty (60) days following the date of termination.
• Pro-rata annual bonus for the year in which termination occurs, based on actual performance and paid at the time bonuses are paid to other senior executives.
• Eighteen (18) months of COBRA continuation, with the Company paying the employer portion of the premium.
• Twelve (12) months of accelerated vesting of unvested equity awards (RSUs and PSUs), with PSUs vesting at target for the accelerated tranche.
Harding's position (H&L redline of Draft 2):
• Cash severance equal to 2.5× the sum of base salary and target annual bonus (2.5 × $4,812,500 = $12,031,250), payable in a lump sum within sixty (60) days following the date of termination.
• Full acceleration of all unvested equity awards (RSUs and PSUs), with PSUs vesting at target.
• Twenty-four (24) months of COBRA continuation.
Quantified Gap:
• Cash severance gap: $12,031,250 (Harding) − $9,625,000 (NTP) = $2,406,250.
• Equity acceleration gap: Full acceleration of all unvested equity (Harding) versus twelve (12) months of accelerated vesting (NTP). The value of this gap depends on the timing of termination and the amount of unvested equity outstanding at that time, but could be substantial — particularly in the first two to three years of the agreement, when the sign-on equity grants and initial annual LTI grants are still vesting.
• COBRA gap: Twenty-four (24) months (Harding) versus eighteen (18) months (NTP).
Assessment. This issue is secondary to the CIC and restrictive covenant impasses. Calderwood & Harkness's assessment is that if the CIC and non-compete issues can be resolved, the non-CIC severance is more likely to fall into place as part of a comprehensive package agreement. Harding's 2.5× non-CIC request is high but not outside the range of outcomes that could be bridged; the equity acceleration gap is more concerning but is amenable to a structured compromise.
Recommended Position. Hold at 2× on the cash multiple. However, NTP should signal willingness to enhance the equity acceleration component as a possible trade for Harding's movement on CIC severance or non-compete terms. Specifically, NTP could offer one of the following enhanced equity acceleration formulas:
• Eighteen (18) months of accelerated vesting (up from twelve months in Draft 2); or
• Pro-rata acceleration based on time served through the date of termination relative to the applicable vesting period (e.g., if Harding has served two years of a four-year vesting period at the time of termination, fifty percent (50%) of the unvested tranche would accelerate).
Either of these enhancements demonstrates meaningful flexibility on an issue that is important to Harding without conceding on the cash multiple, which is the more costly and precedent-setting element.