PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM
June 9, 2024
TO: James Underwood, Associate, Calderwood & Harkness LLP
FROM: Devon Archer, Associate, Calderwood & Harkness LLP
RE: Cross-Border Employment Structure — Dual US/UK Contract Architecture for Marcus Elliot Harding, Proposed CEO of Northgate Telecommunications PLC
MATTER: Northgate Telecommunications PLC — CEO Employment Negotiation
ENGAGEMENT NO.: 1022-00004
CLIENT: Northgate Telecommunications PLC
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I. Executive Summary
This memorandum analyzes the proposed dual-contract architecture for the incoming Chief Executive Officer of Northgate Telecommunications PLC ("NTP" or "Northgate"), Marcus Elliot Harding ("Harding"). The purpose of this analysis is to identify and address the principal structural, legal, tax, and regulatory issues that arise from the proposed arrangement, and to provide drafting recommendations to ensure that the two agreements operate as a coherent, integrated framework governing Harding's service to the Northgate group.
The core structure under consideration involves two separate agreements:
1. Primary Employment Agreement — between Harding and Northgate Telecommunications US, Inc. ("NTP US"), a Delaware corporation and wholly-owned US subsidiary of NTP, governed by the law of the State of New York; and
2. Secondary Service Agreement — between Harding and Northgate Telecommunications PLC, a public limited company incorporated in England and Wales (registered number 07381264), governed by the law of England and Wales.
Under this structure, Harding will serve as Group CEO of the entire NTP enterprise. His time will be split approximately 80% US-based, operating out of NTP's US Operations Headquarters located at 600 Lexington Avenue, 38th Floor, New York, NY 10022, and approximately 20% UK-based, operating out of NTP's registered office and UK headquarters at 45 Canary Wharf Tower, One Canada Square, London E14 5AB.
Harding is a United States citizen and a resident of the State of New York (14 Gramercy Park South, Apt. 12A, New York, NY 10003). He will remain a US tax resident throughout the term of his engagement with Northgate. He is currently employed as President and Chief Operating Officer of Marlowe Asset Management Digital Holdings, Inc., from which he is expected to transition.
The dual-contract structure is driven by a confluence of factors: (a) the need to satisfy UK regulatory requirements, including the Financial Conduct Authority's Senior Managers & Certification Regime ("SM&CR"); (b) UK corporate governance obligations applicable to Northgate as a London Stock Exchange-listed company (LON: NTP) that is cross-listed on the New York Stock Exchange (NYSE: NTPC); and (c) US employment law and federal and state tax considerations that favor Harding's primary employment relationship being with a US entity governed by New York law.
Moorfield Bates LLP — specifically, Simon Aldridge (partner) and Hannah Carmichael (associate), of 1 Moorgate, London EC2R 6AB — has been engaged as UK employment counsel to Northgate and will be responsible for drafting the UK service agreement. Calderwood & Harkness will draft the primary US employment agreement and will serve as coordinating counsel to ensure consistency between the two contracts and to prevent conflicts, gaps, or duplication in their terms.
This memorandum identifies the key structural issues, tax implications, social security treatment, regulatory compliance matters, and drafting recommendations that should guide the preparation of both agreements. It is intended to serve as a working framework for the drafting process and as a basis for the anticipated coordination call with Moorfield Bates.
II. Rationale for the Dual-Contract Structure
A. Corporate and Governance Considerations
Northgate Telecommunications PLC is a UK-headquartered publicly traded telecommunications company listed on the Premium Segment of the Main Market of the London Stock Exchange (ticker: NTP) and cross-listed on the New York Stock Exchange via American Depositary Receipts (ticker: NTPC). As a UK public limited company, Northgate is subject to the UK Companies Act 2006, the UK Corporate Governance Code 2024 (as published by the Financial Reporting Council), the Listing Rules of the Financial Conduct Authority, and the Disclosure Guidance and Transparency Rules.
A fundamental requirement of this regulatory and governance framework is that the CEO of a UK PLC must have a formal, contractual relationship with the UK parent entity. This is necessary for several reasons:
Statutory directorship. Harding will be appointed as a director of NTP PLC. As a director, he will owe the statutory duties set forth in sections 170 through 177 of the UK Companies Act 2006, including the duty to act within powers (section 171), the duty to promote the success of the company (section 172), the duty to exercise independent judgment (section 173), the duty to exercise reasonable care, skill and diligence (section 174), the duty to avoid conflicts of interest (section 175), the duty not to accept benefits from third parties (section 176), and the duty to declare interests in proposed transactions (section 177). These duties run to the UK parent company and can only be properly formalized in an agreement with that entity.
UK Corporate Governance Code. The UK Corporate Governance Code 2024 applies to Northgate on a "comply or explain" basis as a Premium Listed company. Provision 40 and related provisions impose specific requirements on directors' service contracts, including the principle that notice periods should not exceed twelve months. Provision 39 addresses the role of the Remuneration Committee in setting director remuneration. The Remuneration Committee is expected to have sight of, and approve, the terms of the CEO's service agreement with the UK parent. The existence of a formal UK service agreement is, as a practical matter, essential to demonstrate compliance with the Code.
Board and Remuneration Committee approval. The Board of NTP PLC, chaired by Dame Philippa Thornton-Hale, and the Remuneration Committee, chaired by Geoffrey Stanton (with members including Dame Philippa Thornton-Hale, Lucinda Farrow, and Dr. Tomás Herrera), will need to review and approve the terms of both the US employment agreement and the UK service agreement. Board approval of the director's service contract is required under section 188 of the UK Companies Act 2006 for any contract with a guaranteed term exceeding two years, and the Remuneration Committee must approve the remuneration package in its entirety for purposes of the Directors' Remuneration Report.
Independent compensation consultant. The Remuneration Committee's independent compensation consultant, Whitmore Hobson LLP (Dr. Rachel Whitmore, Managing Partner; 120 Broadway, Suite 3510, New York, NY 10271), should be consulted on how Harding's total compensation is allocated between the two agreements for purposes of UK remuneration reporting. The allocation between the US and UK agreements will have implications for how compensation is presented in the Directors' Remuneration Report, which is subject to a binding shareholder vote under the UK Companies Act 2006 (section 439A) and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
Scale and significance of the enterprise. For context, NTP's fiscal year 2023 revenue was £4.26 billion (approximately $5.43 billion), EBITDA was £1.14 billion (approximately $1.45 billion), market capitalization is approximately £8.7 billion (approximately $11.1 billion), and NTP employs a global workforce of approximately 22,500 persons across its operations in the United Kingdom, the United States, continental Europe, and the Asia-Pacific region. The CEO role spans a significant multinational enterprise, and the governance and regulatory obligations attendant to that role are correspondingly substantial.
B. Operational Considerations
From an operational standpoint, Harding's primary base of operations will be in New York at NTP's US Operations Headquarters. He will manage the day-to-day operations of the global Northgate group from the United States, where a significant portion of NTP's revenue-generating activities and growth initiatives are concentrated. Approximately 80% of his working time is expected to be spent in the United States.
Approximately 20% of his working time will be spent in the United Kingdom. This UK presence is necessary for several reasons:
• Board and committee meetings. Harding will attend regular meetings of the Board of Directors of NTP PLC, which are typically held at NTP's London headquarters. The Board currently meets at least eight times per year, with additional ad hoc meetings as needed.
• UK regulatory engagement. Harding will need to engage directly with UK regulatory bodies, including Ofcom and, to the extent applicable, the Financial Conduct Authority, in connection with NTP's regulated activities in the United Kingdom.
• Investor relations. Several of NTP's largest institutional shareholders are UK-based entities, and maintaining a regular UK presence is important for investor engagement. NTP's top institutional shareholders include Caledonian Asset Management (holding approximately 8.3% of outstanding shares), Pemberton Capital Group (approximately 6.7%), Thornbury Investment Trust (approximately 5.1%), and Atlas Pension Fund (approximately 3.2%). These shareholders expect direct engagement with the CEO, and such engagement is typically conducted in London.
• UK and European operations oversight. NTP's UK and European operations represent a significant portion of the group's overall business. Harding will be expected to exercise direct oversight of these operations, including regular visits to UK and European facilities and engagement with UK-based senior management.
The proposed start date for Harding's employment is October 1, 2024, although discussions have considered a potential adjustment to November 1, 2024, to accommodate Harding's transition from his current position at Marlowe Asset Management Digital Holdings, Inc. The choice of start date may also be influenced by the timeline for obtaining FCA approval if SM&CR is applicable (discussed in Section V below).
C. Tax and Social Security Considerations (Overview)
The tax and social security implications of the dual-contract structure are a central driver of its design. The core considerations, which are addressed in greater detail in Section VI of this memorandum, may be summarized as follows:
Avoidance of full UK taxation on global compensation. If Harding were employed solely under a single contract with the UK parent entity, NTP PLC, he would potentially be exposed to full UK income taxation on his entire compensation package as income from an employment with a UK employer. The UK income tax rate on earnings above £125,140 is currently 45% (for the 2024–25 tax year). While Harding would also owe US federal, New York State, and New York City income taxes as a US citizen and New York resident, the interaction of the two tax systems — even with relief under the US-UK Double Taxation Convention — could result in significant additional tax cost, administrative complexity, and cash flow timing issues. The dual-contract structure limits Harding's UK income tax exposure to UK-source income only — that is, income attributable to duties actually performed in the United Kingdom — which should be approximately 20% of his total compensation.
Insufficiency of a single US contract. Conversely, if Harding were employed exclusively under a single contract with NTP US, the US subsidiary, this would not satisfy the UK corporate governance and regulatory requirements described in Section II.A above. A UK PLC must have a formal contractual relationship with its CEO for purposes of UK company law, the UK Corporate Governance Code, the Listing Rules, and potentially the SM&CR regime.
Established approach. The dual-contract structure is a well-established and widely used approach for multinational executives who serve in leadership roles across jurisdictions. It is commonly employed by UK-listed companies with significant US operations and has been endorsed by major international tax and employment law practitioners as an appropriate means of managing the cross-border complexities inherent in such arrangements.
III. Primary Agreement: US Employment Agreement
A. Contracting Parties
The primary employment agreement will be entered into between the following parties:
• Employer: Northgate Telecommunications US, Inc. ("NTP US"), a corporation organized and existing under the laws of the State of Delaware, and a wholly-owned subsidiary of Northgate Telecommunications PLC. NTP US serves as the holding entity for NTP's US operations and is the entity through which Harding's day-to-day management of the global Northgate enterprise will primarily be conducted.
• Employee: Marcus Elliot Harding, an individual residing at 14 Gramercy Park South, Apt. 12A, New York, NY 10003.
The choice of NTP US as the contracting employer is consistent with Harding's primary place of employment in New York, his US citizenship and residency, and the objective of having the primary employment relationship governed by US (specifically, New York) law.
B. Governing Law
The US employment agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice-of-law or conflict-of-law rules or provisions that would cause the application of the laws of any other jurisdiction. New York is the appropriate governing law for several reasons:
• Harding's primary place of employment is at NTP's US Operations Headquarters at 600 Lexington Avenue, New York, NY 10022.
• Harding is a resident of New York.
• NTP US, while a Delaware corporation, maintains its principal offices in New York.
• The substantive employment law of New York is well-developed and provides a predictable and sophisticated framework for executive employment arrangements.
The agreement should provide that the courts of the State of New York located in the County of New York, and the United States District Court for the Southern District of New York, shall have exclusive jurisdiction over any disputes arising under or in connection with the US employment agreement. This is subject to a potential agreement to submit disputes to binding arbitration (discussed below), which the parties may negotiate as part of the broader deal terms. If an arbitration clause is included, it should specify JAMS or the American Arbitration Association as the arbitral body, with the seat of arbitration in New York, New York.
C. Scope of Duties Under the US Agreement
The US employment agreement will set forth Harding's position, reporting obligations, and principal responsibilities as follows:
Position. Harding will serve as Chief Executive Officer of the Northgate group of companies. His title will be "Group Chief Executive Officer" or such similar title as the Board of NTP PLC may determine. This reflects the fact that, although Harding's employment contract is with NTP US, his role spans the entire Northgate enterprise, including the UK parent and all of its subsidiaries and affiliates worldwide.
Reporting. Harding will report directly to the Board of Directors of Northgate Telecommunications PLC. He will not report to the board or officers of NTP US in his capacity as Group CEO. This reporting structure reflects the reality that the Group CEO role is a parent-level position, even though the employment contract is with the US subsidiary.
Primary responsibilities. Harding's primary responsibilities will include the day-to-day management and strategic leadership of the global NTP enterprise, including but not limited to: setting and executing the group's strategic direction; overseeing the operations of all business units and subsidiaries; managing the group's senior leadership team; representing the group to investors, regulators, customers, and other stakeholders; and such other duties as are customarily associated with the role of CEO of a publicly traded multinational corporation.
Primacy of the US agreement. The US agreement will be the "primary" agreement in the dual-contract structure. It should contain the majority — indeed, substantially all — of the material economic and substantive provisions governing Harding's engagement, including compensation, equity grants, severance and change-in-control provisions, restrictive covenant obligations, indemnification, and other key terms. Approximately 80% of Harding's working time is expected to be performed under, and in furtherance of, the obligations set forth in the US agreement.
D. Compensation Allocation
A critical element of the dual-contract architecture is the allocation of compensation between the two agreements. For both tax and administrative reasons, it is strongly recommended that all or substantially all of Harding's compensation be allocated to, and payable under, the US employment agreement. The proposed compensation package is as follows:
1. Base Salary
Base salary of $1,750,000 per annum, payable in accordance with NTP US's standard payroll practices (semi-monthly or bi-weekly). This amount should be set forth exclusively in the US employment agreement.
2. Annual Incentive Compensation (Bonus)
Target annual incentive of 175% of base salary, equal to $3,062,500 at target. Maximum annual incentive of 300% of base salary, equal to $5,250,000. The annual incentive will be based on performance metrics established by the Remuneration Committee of NTP PLC in consultation with the CEO. The terms of the annual incentive — including target, maximum, performance metrics, and payment timing — should be set forth in the US employment agreement.
3. Sign-On Cash Bonus (Make-Whole)
A sign-on cash bonus of $5,000,000, payable within 30 days of Harding's start date, designed as a partial make-whole for compensation forfeited upon his departure from Marlowe Asset Management Digital Holdings, Inc. This payment will be subject to a 24-month clawback provision in the event of Harding's voluntary resignation without good reason. The sign-on bonus should be documented exclusively in the US employment agreement.
4. Sign-On Equity Grants (Make-Whole)
Sign-on equity grants consisting of:
• Restricted Stock Units ("RSUs") with a grant-date value of $12,000,000, subject to three-year ratable vesting (one-third vesting on each of the first three anniversaries of the grant date); and
• Performance Stock Units ("PSUs") with a grant-date target value of $6,400,000, subject to three-year cliff vesting based on performance metrics to be established by the Remuneration Committee.
The total sign-on equity value is $18,400,000. Together with the $5,000,000 sign-on cash bonus, the total make-whole package is $23,400,000, which corresponds to the estimated value of Harding's forfeited unvested equity at Marlowe Asset Management Digital Holdings, Inc. (approximately $23,400,000 in unvested RSUs and PSUs).
5. Annual Long-Term Incentive ("LTI") Target
Annual LTI target of $9,000,000 per year, allocated 60% in PSUs and 40% in RSUs under the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan (the "2022 Plan"). As of the date of this memorandum, there are approximately 14,200,000 shares remaining in the equity pool under the 2022 Plan. Harding's sign-on equity grants plus first-year annual LTI grants would have a combined value of approximately $27,400,000, which, at the current ADR price of approximately $15.87, would require approximately 1,726,529 shares (or ADRs), representing approximately 0.25% of NTP's approximately 699,000,000 total shares outstanding. This dilution level is modest and should be within the range acceptable to institutional shareholders and proxy advisory firms.
Although all equity grants will be made under the 2022 Plan — which is a plan of the UK parent, NTP PLC — and will be formally approved and granted by the Board or Remuneration Committee of NTP PLC, the right to receive such grants and the economic terms (including grant-date value, vesting schedule, performance metrics, and treatment upon termination and change in control) should be set forth in the US employment agreement. This ensures that the US agreement serves as the single comprehensive document governing Harding's economic entitlements.
6. Retirement and Deferred Compensation
• 401(k) plan: Harding will be eligible to participate in NTP US's 401(k) plan, with a 6% employer matching contribution. Based on the current IRS annual contribution limit for employer matches and the applicable compensation cap, the estimated annual employer match is up to $105,000, subject to applicable IRS limits and plan terms.
• Supplemental Executive Retirement Plan ("SERP"): NTP US will make annual contributions of $250,000 to a non-qualified supplemental executive retirement plan for Harding's benefit. The SERP terms must comply with (or be exempt from) Section 409A of the Internal Revenue Code.
7. Perquisites and Benefits
The US employment agreement should provide for the following perquisites and benefits:
• Annual car allowance of $25,000;
• Participation in NTP US's executive health program, including annual comprehensive physical examination;
• Supplemental life insurance with a death benefit of $2,000,000, provided at NTP US's expense;
• Reimbursement for financial and tax planning services up to $35,000 per year (though, as discussed in Section VI.C below, we recommend that the cost of cross-border tax compliance be borne directly by NTP, separate from this reimbursement cap).
8. Recommendation on Allocation
It is strongly recommended that the compensation be structured so that all base salary, annual incentive, equity grants, sign-on payments, retirement contributions, and perquisites are allocated to and payable under the US employment agreement. The UK service agreement should either (a) provide for a separate nominal director's fee (in the range of £50,000 to £100,000 per annum, as discussed in Section IV.D below) or (b) state expressly that the director's remuneration is paid under the US employment agreement and no separate compensation is payable under the UK service agreement.
This approach simplifies payroll administration, reduces the quantum of compensation subject to UK PAYE and National Insurance Contributions, and avoids the need for complex allocation calculations each pay period. The Remuneration Committee and Whitmore Hobson LLP should be consulted to confirm that this allocation approach is consistent with UK remuneration reporting requirements.
E. Severance Provisions
1. Non-Change-in-Control Severance
The proposed severance terms for a termination without cause or a resignation for good reason (in the absence of a change in control) are as follows:
• Cash severance: 2x (base salary + target annual incentive) = 2 × ($1,750,000 + $3,062,500) = $9,625,000, payable in installments over a 24-month period following the date of termination (subject to Section 409A timing requirements);
• Pro-rata annual incentive for the year of termination, based on actual performance;
• 18 months of continued COBRA health coverage at NTP US's expense;
• 12 months of accelerated vesting on unvested time-based equity awards (RSUs).
These severance provisions should be contained exclusively in the US employment agreement. This avoids the creation of duplicative severance obligations and ensures that the severance terms are governed by a single body of law (New York) and subject to a single forum for dispute resolution.
2. Change-in-Control Severance
Change-in-control severance is currently proposed at 2.5x (base salary + target annual incentive) = 2.5 × ($1,750,000 + $3,062,500) = $12,031,250, payable in a lump sum (subject to Section 409A requirements). The CIC package also includes full accelerated vesting of all outstanding equity awards and a "best-net" cutback provision under Section 280G of the Internal Revenue Code.
The Section 280G analysis is based on Harding's "base amount" as defined in Section 280G(b)(3) — that is, his average annual W-2 compensation over the five calendar years preceding the change in control. Based on Harding's W-2 history at Marlowe Asset Management Digital Holdings for the period 2019–2023, his base amount is estimated at approximately $7,840,000. The safe harbor threshold (three times the base amount, minus one dollar) is therefore approximately $23,519,999. The best-net cutback provision would reduce Harding's total parachute payments to the safe harbor amount only if doing so would result in a greater after-tax benefit to Harding than receiving the full parachute payment and paying the 20% excise tax under Section 4999.
The definition of "change in control" — including the disputed Board turnover trigger that Harding's personal counsel, Hargrove & Liddell LLP, has demanded and that Northgate has so far rejected — should appear only in the US employment agreement. The UK service agreement should cross-reference the US agreement for change-in-control purposes and should not contain an independent CIC definition or independent CIC severance provisions. This is critical to avoiding a situation in which Harding could claim that a change in control has occurred under one agreement but not the other, or could claim severance under both agreements.
3. UK Service Agreement Cross-Reference
The UK service agreement should include an express provision stating that (a) severance, if any, is payable exclusively under the US employment agreement, (b) no severance or termination payment is payable under the UK service agreement, and (c) the termination of the UK service agreement does not give rise to any claim for damages, compensation, or payment in lieu of notice except to the extent required by mandatory provisions of UK law. Moorfield Bates should advise on the enforceability of such a disclaimer under English law, particularly in light of the risk that HMRC or an employment tribunal could characterize the UK arrangement as one of employment (discussed further in Section IV.C below).
F. Restrictive Covenant Provisions
The US employment agreement should contain the principal restrictive covenant obligations binding on Harding following the termination of his employment. The proposed restrictive covenant package includes the following:
1. Non-Competition. Northgate's initial proposal is for a 24-month worldwide non-compete. However, the enforceability of a 24-month non-compete under New York law presents significant concerns. New York courts have historically been skeptical of non-compete agreements that exceed 12 to 18 months in duration or that extend beyond the geographic areas in which the employer has a legitimate protectable interest. While there is no bright-line rule, and courts assess enforceability on a case-by-case basis considering reasonableness of scope, duration, and geographic reach, a 24-month worldwide non-compete for a CEO-level executive may be viewed as overbroad.
As a fallback position, we recommend considering a reduction to 18 months, with geographic scope limited to North America and Western Europe (the regions in which NTP has its most significant operations and competitive exposure). This would provide strong protection for NTP's legitimate interests while reducing the risk of unenforceability.
2. Non-Solicitation. A 24-month non-solicitation provision prohibiting Harding from soliciting or hiring NTP employees, and from soliciting NTP customers and business partners, is standard and generally enforceable under New York law if reasonably tailored.
3. Non-Disparagement. A mutual non-disparagement provision is recommended, prohibiting both Harding and NTP from making disparaging statements about the other following termination.
4. Garden Leave
Northgate has proposed a 6-month paid garden leave provision at base salary. Garden leave should be structured in the US employment agreement, with the garden leave period running concurrently with the non-compete period (i.e., the 6 months of garden leave would count toward the first 6 months of the 18- or 24-month non-compete period, not extend it). This structure enhances the enforceability of the post-termination non-compete by ensuring that Harding receives consideration during the restricted period.
5. UK Supplemental Restrictive Covenants
The UK service agreement may contain supplemental restrictive covenants tailored to UK enforceability requirements, as recommended by Moorfield Bates. UK courts apply their own independent reasonableness test to restrictive covenants, and a covenant governed by New York law may not be enforceable in the UK as a matter of UK public policy. However, care must be taken to avoid inconsistency between the US and UK restrictive covenants — if the duration, scope, or geographic reach differs between the two agreements, Harding could argue that the more permissive covenant applies, or that the existence of two different covenants demonstrates that the employer itself views the broader covenant as unreasonable. This issue requires careful coordination between Calderwood & Harkness and Moorfield Bates.
6. Existing Marlowe Asset Management Non-Compete
A separate but related issue is Harding's existing 12-month non-compete with Marlowe Asset Management Digital Holdings, Inc., which is US-scope and governed by Delaware law. The potential overlap between Harding's obligations to Marlowe Asset Management and his proposed obligations to NTP must be carefully analyzed. James Underwood's separate memorandum of June 9, 2024, on Harding's Marlowe Asset Management agreement addresses this issue in detail. The key question is whether Harding's commencement of employment with NTP would constitute a breach of his Marlowe Asset Management non-compete — and if so, whether NTP is prepared to indemnify Harding against any claims by Marlowe Asset Management (a provision that Harding's counsel at Hargrove & Liddell LLP has requested).
G. Section 409A Compliance
The US employment agreement must be carefully structured to comply with, or be exempt from, Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"). Section 409A imposes strict requirements on the timing of deferrals and distributions of nonqualified deferred compensation, and failure to comply with Section 409A can result in immediate income recognition, a 20% additional tax, and interest on underpayments.
The key Section 409A issues relevant to the US employment agreement include:
• Definition of "separation from service." Section 409A requires that payments triggered by a termination of employment be conditioned on a "separation from service" as defined in Treasury Regulation § 1.409A-1(h). The US agreement must use Section 409A-compliant terminology. In the dual-contract context, particular attention must be paid to whether a termination of the UK service agreement, without a concurrent termination of the US employment agreement, would constitute a "separation from service" — our recommendation, as discussed in Section VII.C, is that the two agreements be linked so that termination of one triggers termination of the other, which should eliminate this issue.
• Six-month delay for specified employees. If NTP or NTP US is a publicly traded corporation (which it is — NTP ADRs trade on the NYSE under the ticker NTPC), any payment of deferred compensation to a "specified employee" (as defined in Section 409A(a)(2)(B)(i)) upon separation from service must be delayed for six months from the date of separation. Harding will almost certainly be a "specified employee" given his position as CEO. The US agreement must include the requisite six-month delay provision for any payments that constitute nonqualified deferred compensation.
• Short-term deferral exception. Annual bonus payments may be structured to qualify for the "short-term deferral" exception under Treasury Regulation § 1.409A-1(b)(4), which exempts payments that are made by the 15th day of the third month following the end of the applicable service period. The US agreement should include payment timing provisions for the annual incentive that satisfy this exception.
• Treatment of sign-on equity grants. The sign-on RSU and PSU grants should be reviewed to confirm that they qualify for the "short-term deferral" exception or another applicable exemption from Section 409A. If the equity awards are settled in shares upon vesting with no deferral election, they should generally be exempt.
• Savings clause. The US agreement should include a standard Section 409A savings clause stating that the agreement is intended to comply with Section 409A (or be exempt from it) and shall be interpreted and construed accordingly. The agreement should also include a cooperation provision requiring both parties to take such actions as may be reasonably necessary to comply with Section 409A.
H. Indemnification and D&O Coverage
1. Contractual Indemnification
The US employment agreement should contain indemnification provisions under which NTP US agrees to indemnify Harding to the fullest extent permitted by law against all losses, claims, damages, liabilities, costs, and expenses (including attorneys' fees) arising out of or relating to his service as an officer, director, or employee of NTP US, NTP PLC, or any of their subsidiaries or affiliates. Delaware law, which governs NTP US as a Delaware corporation, is highly protective of director and officer indemnification rights. Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its officers and directors against expenses, judgments, fines, and amounts paid in settlement, subject to certain limitations for actions by or in the right of the corporation.
The indemnification provisions in the US agreement should also include advancement of expenses — that is, the obligation of NTP US to advance legal fees and expenses to Harding as they are incurred, subject to an undertaking by Harding to repay such amounts if it is ultimately determined that he is not entitled to indemnification.
2. D&O Insurance
Harding should be named as an insured under NTP's existing Directors and Officers liability insurance policy. NTP's primary D&O insurer is Ashdown Surety & Insurance Co., located at 70 Pine Street, New York, NY 10005. The current policy is policy number ASI-D&O-NTP-2024-4471, with limits of $50,000,000 per occurrence and $100,000,000 in the aggregate. The US employment agreement should include:
• A covenant by NTP US (and, if possible, by NTP PLC) to maintain D&O insurance coverage for Harding during his employment and for a period of not less than six years following his termination (or, alternatively, to purchase a "tail" or "run-off" policy at or before the time of termination);
• A requirement that Harding be named as an insured under the policy; and
• A representation that the current D&O policy covers claims arising from Harding's service as Group CEO and as a director of NTP PLC and its subsidiaries.
3. Cross-Reference to UK Indemnification
The US agreement should cross-reference any indemnification provisions contained in the UK service agreement and in NTP PLC's articles of association. Under English law, a company's ability to indemnify its directors is more limited than under Delaware law — section 232 of the UK Companies Act 2006 prohibits a company from exempting a director from liability for negligence, default, breach of duty, or breach of trust, although section 234 permits a company to provide "qualifying third party indemnity provisions" (indemnification against claims by third parties, excluding regulatory penalties and fines imposed in criminal proceedings). The UK service agreement and NTP PLC's articles should be reviewed to confirm that appropriate indemnification provisions are in place, and the US agreement should address the relationship between the US and UK indemnification rights to avoid gaps.
IV. Secondary Agreement: UK Service Agreement
A. Contracting Parties
The UK service agreement will be entered into between:
• Company: Northgate Telecommunications PLC, a public limited company incorporated in England and Wales under registered number 07381264, with its registered office at 45 Canary Wharf Tower, One Canada Square, London E14 5AB.
• Director: Marcus Elliot Harding.
B. Governing Law
The UK service agreement will be governed by and construed in accordance with the laws of England and Wales. The courts of England and Wales shall have exclusive jurisdiction over any disputes arising under or in connection with the UK service agreement, subject to the coordination and forum selection issues discussed in Section VII.E below.
C. Nature and Scope
The UK service agreement should be carefully structured as a "service agreement" reflecting Harding's role as a director and officer of the UK parent entity. To the extent possible, the agreement should not be drafted in the form of a traditional UK employment contract, as the goal is to avoid creating a separate, independent employment relationship with NTP PLC.
The substantive scope of the UK service agreement should encompass the following:
• Harding's duties and obligations as a director of NTP PLC, including his obligation to attend meetings of the Board of Directors and any Board committees on which he serves;
• His obligation to comply with the statutory duties of directors under the UK Companies Act 2006 (sections 170–177);
• His obligation to engage with UK regulators, including the FCA and Ofcom, as required in connection with NTP's regulated activities;
• His obligation to engage with UK-based investors and stakeholders;
• His oversight responsibilities for NTP's UK and European operations; and
• Approximately 20% of his total working time.
Employment characterization risk. The UK service agreement should state expressly that it is supplementary to the primary US employment agreement and does not create a separate, independent employment relationship between Harding and NTP PLC. However, this contractual characterization is not determinative under UK law. HMRC may characterize the relationship as one of employment for tax purposes, and an employment tribunal could characterize the relationship as employment for statutory rights purposes, depending on the substance of the arrangement and the application of relevant case law (including the multi-factor test for employment status, which considers factors such as control, personal service, and mutuality of obligation). This risk is inherent in any dual-contract structure and cannot be fully eliminated through contractual drafting alone. Moorfield Bates should advise on the degree of this risk in light of Harding's specific circumstances — in particular, his level of control and autonomy as Group CEO, the 20% time commitment, and the nature of the duties performed under the UK agreement.
D. Compensation Under the UK Agreement
As noted in Section III.D above, it is recommended that all or substantially all of Harding's compensation be allocated to and payable under the US employment agreement. Under the UK service agreement, two approaches are available:
1. Nominal director's fee. The UK service agreement could provide for a modest annual director's fee in the range of £50,000 to £100,000, reflecting the board service component of Harding's role. This fee would be subject to UK income tax (PAYE) and potentially UK National Insurance Contributions (NICs), but the quantum would be relatively modest. A nominal fee may be appropriate for optics and governance purposes — it provides visible consideration for the UK service agreement and is consistent with market practice for non-executive director fees at major UK PLCs, thereby supporting the characterization of the UK agreement as a director service agreement rather than a full employment contract.
2. No separate remuneration. Alternatively, the UK service agreement could state expressly that the director's compensation for all services — including services rendered to NTP PLC — is paid under the US employment agreement with NTP US, and that no separate remuneration is payable under the UK service agreement. This approach minimizes UK PAYE exposure but may raise questions about consideration for the UK agreement and about how the arrangement should be reported in the Directors' Remuneration Report.
Regardless of which approach is adopted, any compensation paid under the UK service agreement will be subject to UK income tax under PAYE and potentially UK NICs. The quantum should therefore be kept as low as possible, consistent with governance and legal requirements.
Remuneration reporting. The Remuneration Committee and Whitmore Hobson LLP should be consulted on how total compensation should be disclosed in NTP's Directors' Remuneration Report under the UK Companies Act 2006 (Part 15) and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). All compensation paid to Harding from all group entities — including NTP US, NTP PLC, and any other subsidiary — must be aggregated and disclosed. This includes base salary, annual incentive, equity awards, sign-on payments, retirement contributions, perquisites, and any other benefits. The disclosure requirements apply regardless of whether the compensation is formally allocated to the US or UK agreement.
E. Term and Termination
The UK Corporate Governance Code 2024, Provision 40, provides that notice periods for directors should be set at 12 months or less. This is a "comply or explain" requirement, and significant departures from this provision would need to be disclosed and justified in NTP's Annual Report.
The UK service agreement should therefore provide for a notice period of 12 months or less. This is potentially shorter than the effective notice period under the US employment agreement, which contemplates an initial term of 5 years (October 1, 2024 through September 30, 2029) with automatic 1-year renewals unless either party provides 180 days' notice of non-renewal. The US agreement's fixed initial term and renewal structure is a common feature of US CEO employment agreements and is not inconsistent with the UK Corporate Governance Code, provided that the UK service agreement itself contains a notice period that complies with the Code.
Linkage of termination. A critical drafting point is that termination of the UK service agreement must be linked to termination of the US employment agreement, and vice versa, to avoid a situation in which Harding ceases to be CEO under the US agreement but retains a live service contract with the UK parent, or in which Harding's UK service agreement is terminated while his US employment agreement remains in effect. Either scenario could create legal, governance, and operational complications.
The recommended drafting approach is to include a provision in each agreement stating that:
• Termination of the US employment agreement for any reason (whether by NTP US, by Harding, upon expiration, or otherwise) shall automatically and simultaneously terminate the UK service agreement; and
• Termination of the UK service agreement for any reason shall automatically and simultaneously terminate the US employment agreement.
This "linked termination" mechanism ensures that Harding's departure from one role necessarily results in his departure from the other, preventing the creation of an "orphan" contract.
F. UK Restrictive Covenants (Supplemental)
If the primary restrictive covenants are contained in the US employment agreement and governed by New York law, a question arises as to whether supplemental UK-law-governed restrictive covenants should also be included in the UK service agreement to enhance enforceability in UK and European courts.
UK courts apply their own independent reasonableness test to post-employment restrictive covenants. The starting point under English law is that a restraint of trade is void unless the employer can demonstrate that the covenant protects a legitimate business interest and goes no further than is reasonably necessary to protect that interest. A New York-governed non-compete may not be enforceable in the UK courts as a matter of UK public policy, and a UK court would likely apply its own substantive law to determine the enforceability of any restraint, regardless of the governing law clause in the US agreement.
Moorfield Bates should advise on whether parallel UK restrictive covenants are necessary and, if so, how to structure them to avoid inconsistency with the US agreement. If UK covenants are included, they should be carefully drafted to align with the US covenants in terms of definitions of restricted activities, competitive businesses, and protected relationships, while potentially differing in duration or geographic scope to the extent necessary to satisfy UK reasonableness requirements.
If Harding is considered to be employed under the UK service agreement (whether contractually or as a matter of UK law), garden leave rights should be included in the UK agreement. The garden leave provision in the UK agreement should be structured to run concurrently with the garden leave provision in the US agreement, and the UK agreement should provide NTP PLC with the express contractual right to place Harding on garden leave during his notice period.
G. Directors' Duties and Compliance
The UK service agreement should include provisions referencing and acknowledging Harding's statutory duties as a director of NTP PLC under the UK Companies Act 2006, specifically sections 170 through 177. These duties include:
• Duty to act within powers (section 171);
• Duty to promote the success of the company (section 172);
• Duty to exercise independent judgment (section 173);
• Duty to exercise reasonable care, skill and diligence (section 174);
• Duty to avoid conflicts of interest (section 175);
• Duty not to accept benefits from third parties (section 176); and
• Duty to declare interest in proposed transactions or arrangements (section 177).
The UK service agreement should also include an express obligation on Harding to comply with NTP PLC's articles of association, the Board's governance policies and procedures, the UK Corporate Governance Code (to the extent applicable to individual directors), and all applicable laws and regulations governing his conduct as a director and officer of a UK PLC listed on the London Stock Exchange.
V. FCA Senior Managers & Certification Regime (SM&CR) Compliance
A. Applicability
Northgate Telecommunications PLC holds regulated telecommunications licenses in the United Kingdom. The scope and nature of those licenses — and whether NTP PLC or any of its UK subsidiaries is an "authorized person" under the Financial Services and Markets Act 2000 ("FSMA") — will determine whether the FCA's Senior Managers & Certification Regime applies to the Northgate group and, specifically, to Harding's appointment as Group CEO.
Under the SM&CR, individuals performing "senior management functions" at firms authorized by the FCA (or the Prudential Regulation Authority) must be approved by the relevant regulator before they commence performing those functions. The CEO of a regulated firm would typically hold a Senior Management Function designation, most likely SMF1 (Chief Executive function) or, depending on the firm's structure and the nature of Harding's responsibilities, potentially SMF27 (Partner function, applicable in certain partnership structures). The precise designation would depend on the regulatory status and organizational structure of the relevant NTP entity.
The SM&CR applies to a broad range of financial services firms, including banks, insurers, investment firms, and certain payment services firms. Telecommunications companies are not typically FCA-regulated, but if NTP or any of its UK subsidiaries provides payment services, electronic money services, or other financial services that require FCA authorization, the SM&CR could apply to those entities. Additionally, if NTP's UK operations include any FCA-authorized subsidiaries, Harding's role as Group CEO may bring him within the scope of the SM&CR if he exercises control or influence over those subsidiaries.
B. Implications for Harding's Appointment
If NTP PLC or a UK subsidiary is an authorized person under FSMA, and Harding's role as Group CEO constitutes a "senior management function" with respect to that authorized entity, the following consequences would flow:
FCA pre-approval. Harding's appointment as Group CEO could not take effect (at least with respect to his role at the authorized entity) until the FCA has granted its approval. FCA approval of a senior management function holder typically takes 8 to 12 weeks from the date a complete application is submitted, although the timeline can vary depending on the complexity of the case and the FCA's workload.
Impact on start date. The proposed start date of October 1, 2024 (or the alternative date of November 1, 2024) could be affected if FCA pre-approval is required and the application has not yet been initiated. If SM&CR applies, the Form A application process should be commenced as soon as practicable to avoid a delay in Harding's ability to assume his full duties.
Condition precedent. The UK service agreement should include a condition precedent providing that the agreement (or at least those provisions relating to Harding's performance of regulated functions) is conditional upon FCA approval being obtained. If FCA approval is not obtained within a specified period, the parties should have the right to terminate the UK service agreement (and, by operation of the linked termination mechanism described in Section IV.E, the US employment agreement) without liability.
Form A application. Harding will be required to submit a Form A application to the FCA, which includes a comprehensive fitness and propriety assessment. The application requires, among other things: a detailed statement of Harding's qualifications and experience; a criminal record check (including a UK Disclosure and Barring Service check and any equivalent checks in other jurisdictions where Harding has resided); a credit check; disclosure of any regulatory actions, investigations, or proceedings in any jurisdiction; and a "statement of responsibilities" setting forth the specific responsibilities and functions that Harding will perform.
C. Ongoing Obligations
If the SM&CR applies to Harding, he will be subject to the Senior Managers Conduct Rules throughout the duration of his service. These include:
• Conduct Rule SC1: Acting with integrity;
• Conduct Rule SC2: Acting with due skill, care and diligence;
• Conduct Rule SC3: Being open and cooperative with the FCA, the PRA, and other regulators;
• Conduct Rule SC4: Taking reasonable steps to ensure that the business of the firm for which the individual is responsible is controlled effectively (the "duty of responsibility"); and
• Individual Conduct Rules 1–5: Rules applicable to all conduct rules staff, including acting with integrity and treating customers fairly.
The UK service agreement should include an acknowledgment by Harding of these obligations and a cooperation clause requiring Harding to provide all information and assistance reasonably requested by NTP in connection with SM&CR compliance, including the preparation of regulatory filings, the maintenance of a statement of responsibilities, and engagement with FCA supervisory activities.
Moorfield Bates LLP is advising on the SM&CR analysis and should be asked to provide a definitive assessment of whether NTP's specific UK regulatory permissions trigger SM&CR applicability for the Group CEO role. This assessment should be obtained as promptly as possible, given the potential impact on the timeline for Harding's appointment.