Dear Victoria,
Thank you for the productive introductory call last week. As you know, our firm represents Northgate Telecommunications PLC ("Northgate") in connection with the proposed executive employment of Marcus Elliot Harding as Chief Executive Officer. I am writing to transmit the enclosed initial term sheet, which sets forth the proposed terms for Mr. Harding's CEO employment agreement. We view this as a starting point for what I expect will be a constructive dialogue between our respective clients and teams.
The enclosed term sheet has been prepared on behalf of Northgate and reflects the framework approved by the Remuneration Committee of the Board of Directors of Northgate Telecommunications PLC, chaired by Geoffrey Stanton, Lead Independent Director. The proposed terms have been developed with the benefit of an independent benchmarking analysis conducted by the Remuneration Committee's compensation consultant and take into account Northgate's obligations as a company listed on both the London Stock Exchange and the New York Stock Exchange, including applicable corporate governance standards and disclosure requirements.
For ease of reference, I wanted to provide a brief summary of the principal economic terms as a roadmap for your review:
- **Base Salary:** $1,750,000 per annum. - **Target Annual Incentive:** 175% of base salary ($3,062,500). - **Maximum Annual Incentive:** 300% of base salary ($5,250,000). - **Sign-On Cash Bonus (Make-Whole):** $5,000,000, subject to a 24-month clawback in the event of voluntary resignation. - **Sign-On Equity Grant (Make-Whole for Forfeited Marlowe Asset Management Digital Holdings Equity):** $18,400,000 in aggregate, consisting of $12,000,000 in restricted stock units ("RSUs") vesting ratably over three years and $6,400,000 in performance stock units ("PSUs") with three-year cliff vesting subject to total shareholder return and revenue growth hurdles. Together with the sign-on cash bonus, this component is intended to make Mr. Harding substantially whole for the estimated $23,400,000 in unvested equity he would forfeit at Marlowe Asset Management Digital Holdings, Inc. - **Annual Long-Term Incentive Target:** $9,000,000 per year (60% PSUs / 40% RSUs). - **Total Target Annual Compensation:** $13,812,500. - **Proposed Start Date:** October 1, 2024. - **Initial Term:** Five years (October 1, 2024 – September 30, 2029), with automatic one-year renewals thereafter unless either party provides 180 days' prior written notice of non-renewal.
The term sheet also addresses severance protections in both non-change-in-control and change-in-control contexts. In the event of a termination without cause or resignation for good reason outside of a change in control, the proposed severance multiple is 2x the sum of base salary and target annual incentive. In a change-in-control scenario, the severance multiple increases to 2.5x the sum of base salary and target annual incentive, with a double-trigger mechanism. Northgate proposes a best-net Section 280G cutback approach rather than a gross-up. The change-in-control definition covers acquisition of more than 50% of outstanding voting securities, certain mergers or consolidations resulting in a change in majority board composition or ownership, and the sale of substantially all of Northgate's assets. The term sheet additionally addresses indemnification and directors' and officers' liability insurance coverage consistent with Northgate's existing arrangements for its senior executive officers.
With respect to restrictive covenants, the term sheet includes a 24-month post-termination non-competition provision of worldwide scope, with an activity-based restriction relating to the telecommunications, telecommunications infrastructure, and enterprise SaaS sectors. It also includes a 24-month non-solicitation provision covering both employees and customers, as well as a six-month paid garden leave period at base salary. These provisions reflect Northgate's position on the appropriate scope of protection for a public-company CEO role of this nature, and we recognize that these terms may be an area of particular focus for your client.
I wanted to flag the proposed dual-contract architecture. The primary employment agreement would be with Northgate Telecommunications US, Inc. and would be governed by New York law. A secondary UK service agreement with Northgate Telecommunications PLC would address Mr. Harding's UK board duties and regulatory compliance obligations, including the requirements of the FCA's Senior Managers and Certification Regime (SM&CR). Northgate's UK employment counsel, Moorfield Bates LLP, is advising on the UK service agreement component and will be in a position to engage with your team on those provisions as discussions progress. The proposed arrangement contemplates an 80/20 US/UK time allocation, and Northgate will provide tax equalization for UK-source income.
On the benefits and perquisites side, the term sheet provides for participation in Northgate's 401(k) plan with a 6% employer match, a supplemental executive retirement plan ("SERP") contribution of $250,000 per year, enrollment in Northgate's executive health program, a car allowance of $25,000 per year, $2,000,000 in supplemental life insurance, and reimbursement for financial and tax planning services of up to $35,000 per year.
We hope that this proposal provides a strong foundation for productive discussions. We would welcome the opportunity for Hargrove & Liddell to review the term sheet with Mr. Harding and to provide us with any comments or a markup at your convenience. Once you and your client have had the opportunity to review the enclosed materials, we would suggest scheduling a call among counsel to discuss the term sheet in greater detail. We are happy to accommodate whatever timing works best for your team.
Please do not hesitate to reach out with any questions in the meantime. We look forward to working with you and Nathan on this matter.
With best regards,
Renata Vasquez Partner Calderwood & Harkness LLP 299 Park Avenue, 42nd Floor New York, NY 10171 T: (212) 558-4100 E: rvasquez@calderwoodharkness.com
**Attachment:** Initial Term Sheet — CEO Employment Agreement (Northgate Telecommunications PLC / Marcus Elliot Harding) — June 10, 2024 [initial-term-sheet-v1.docx]
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