REVISED TERM SHEET (v4)
CEO EMPLOYMENT AGREEMENT
Incorporating Agreements Reached During July 8, 2024 Negotiation Call
July 10, 2024
Prepared by: James Underwood, Calderwood & Harkness LLP Matter No.: 1022-00004
Parties:
Northgate Telecommunications PLC / Northgate Telecommunications US, Inc. (collectively, "Northgate" or the "Company")
and
Marcus Elliot Harding ("Executive")
CONFIDENTIAL — FOR DISCUSSION PURPOSES ONLY — NOT A BINDING AGREEMENT
This term sheet reflects the agreed terms and remaining open items arising from the July 8, 2024 negotiation call between Calderwood & Harkness LLP (on behalf of Northgate) and Hargrove & Liddell LLP (on behalf of Executive). This revised term sheet (v4) supersedes the prior versions dated June 14, 2024 (v1), June 21, 2024 (v2), and June 28, 2024 (v3), and incorporates all substantive agreements reached on the July 8 call as well as subsequent correspondence through July 10, 2024. Items marked with brackets [ ] indicate alternatives that remain under active negotiation and require resolution before the parties can proceed to the preparation and execution of a definitive employment agreement. Nothing in this term sheet shall be deemed to constitute a binding obligation of either party, and any definitive arrangement shall be subject to the conditions set forth at the conclusion of this term sheet.
Right-click to update Table of Contents
Section 1: Parties
1.1 Employer
The employer under the primary US employment agreement shall be Northgate Telecommunications US, Inc., a Delaware corporation and wholly-owned subsidiary of Northgate Telecommunications PLC, a public limited company incorporated in England and Wales under registered number 07381264.
US Headquarters: 600 Lexington Avenue, 38th Floor, New York, NY 10022
UK Headquarters: 45 Canary Wharf Tower, One Canada Square, London E14 5AB, United Kingdom
Public Listings: London Stock Exchange (ticker: LON: NTP); New York Stock Exchange, American Depositary Receipts (ticker: NYSE: NTPC)
For purposes of this term sheet, references to "Northgate," the "Company," or the "Employer" refer collectively to Northgate Telecommunications PLC and Northgate Telecommunications US, Inc., except where the context requires reference to a specific entity, in which case the applicable entity shall be identified. The definitive employment agreement will be executed by Northgate Telecommunications US, Inc. as the employing entity, with Northgate Telecommunications PLC joining as a party for the limited purposes of guaranteeing certain obligations and confirming the Board appointment provisions.
1.2 Executive
Marcus Elliot Harding, an individual currently serving as President & Chief Operating Officer of Marlowe Asset Management Digital Holdings, Inc.
Residence: 14 Gramercy Park South, Apt. 12A, New York, NY 10003
Executive is currently employed by Marlowe Asset Management Digital Holdings, Inc. under an employment agreement dated March 1, 2021, which includes certain restrictive covenant obligations. Executive has represented through counsel (Victoria Hargrove, Hargrove & Liddell LLP) that he will be able to commence employment with Northgate without violation of any obligations to his current employer, subject to timely delivery of notice and completion of any applicable transition period. Northgate has requested and Executive has agreed to provide copies of Executive's current employment agreement and any applicable restrictive covenant agreements for review by Calderwood & Harkness LLP prior to execution of the definitive agreement.
1.3 UK Service Agreement
The parties acknowledge and agree that a separate UK service agreement will be entered into between Executive and Northgate Telecommunications PLC for the purpose of governing Executive's UK board duties and ensuring compliance with applicable UK regulatory requirements, including the Financial Conduct Authority's Senior Managers & Certification Regime (SM&CR). The UK service agreement will be prepared by Moorfield Bates LLP (Simon Aldridge, lead partner) and will be governed by the laws of England and Wales. This term sheet governs the primary US employment relationship, and the terms of the UK service agreement shall be consistent with and subordinate to the terms of the primary US employment agreement except as required by mandatory provisions of English law or FCA regulations.
Section 2: Position and Duties
2.1 Title
Executive shall serve as Chief Executive Officer of Northgate Telecommunications PLC and as President and Chief Executive Officer of Northgate Telecommunications US, Inc. Executive shall hold both titles concurrently throughout the term of employment. The definitive agreement will provide that Executive may also be appointed to serve as an officer or director of one or more subsidiaries or affiliates of Northgate, without additional compensation, as reasonably requested by the Board from time to time, provided that such service does not materially increase Executive's duties or interfere with Executive's ability to perform his primary responsibilities.
2.2 Reporting
Executive shall report directly and exclusively to the Board of Directors of Northgate Telecommunications PLC (the "Board"). The current Chair of the Board is Dame Philippa Thornton-Hale. No officer, employee, or committee of the Company other than the full Board shall have authority to direct or supervise Executive's performance of his duties.
2.3 Board Membership
Executive shall be appointed to the Board of Directors of Northgate Telecommunications PLC promptly upon commencement of employment, and in no event later than the first regularly scheduled Board meeting following the Start Date. During the term of employment, the Board shall recommend Executive for election or re-election as a director at each annual general meeting of shareholders at which Executive's seat is subject to election. Upon termination of employment for any reason, Executive shall promptly resign from the Board and from all officer and director positions held with Northgate and its affiliates, unless otherwise requested in writing by the Board.
2.4 Principal Location
Executive's principal place of employment shall be the Company's US headquarters located at 600 Lexington Avenue, 38th Floor, New York, NY 10022. It is anticipated that Executive will devote approximately eighty percent (80%) of his working time and duties to activities conducted in the United States and approximately twenty percent (20%) of his working time and duties to activities conducted at the Company's London headquarters and other international locations. Executive acknowledges that the position requires significant domestic and international travel, consistent with the demands of a global publicly listed telecommunications and SaaS company.
2.5 Duties and Exclusivity
Executive shall devote his full business time, attention, skill, and best efforts to the performance of his duties. Executive shall not engage in any other business activity, whether or not for compensation, without the prior written consent of the Board, provided that Executive may (a) serve on up to two (2) outside boards of directors of non-competing public or private companies, subject to prior Board approval; (b) engage in charitable and community activities; and (c) manage personal investments, in each case to the extent such activities do not interfere with the performance of Executive's duties. Executive's duties shall include all customary responsibilities of a chief executive officer of a publicly listed telecommunications and enterprise SaaS company, including strategic planning, operational oversight, investor relations, capital allocation, talent management, regulatory engagement, and such other duties as the Board may assign from time to time that are consistent with Executive's position and title.
2.6 Regulatory Compliance
Executive shall comply with the FCA Senior Managers & Certification Regime (SM&CR) to the extent applicable to Executive's role as a director and/or senior manager of Northgate Telecommunications PLC, and shall cooperate with the Company's regulatory and compliance teams in connection with any regulatory filings, certifications, or approvals required in connection with Executive's appointment.
Status: AGREED (per July 8, 2024 call).
Section 3: Term
3.1 Initial Term
The initial term of employment shall be five (5) years, commencing on [October 1, 2024] [November 1, 2024 — to accommodate Executive's transition from Marlowe Asset Management Digital Holdings, Inc.] (the "Start Date") and continuing through [September 30, 2029] [October 31, 2029], unless earlier terminated in accordance with the provisions set forth in Sections 7 and 8 of this term sheet (the "Initial Term").
3.2 Automatic Renewal
Following the expiration of the Initial Term, the term of employment shall automatically renew for successive periods of one (1) year each (each, a "Renewal Term"), unless either party provides written notice of non-renewal to the other party not less than one hundred eighty (180) days prior to the expiration of the then-current Initial Term or Renewal Term, as applicable. For the avoidance of doubt, a notice of non-renewal shall not constitute a termination by the Company without Cause or a resignation by Executive for Good Reason, and shall not give rise to any severance or other termination benefits unless Executive's employment is actually terminated under circumstances described in Sections 7 or 8.
3.3 Start Date
The parties have not yet reached agreement on the Start Date. Northgate has proposed October 1, 2024 as the Start Date. Executive has requested that the Start Date be extended to November 1, 2024 to allow sufficient time for an orderly transition of Executive's responsibilities at Marlowe Asset Management Digital Holdings, Inc., including a transition period of no less than sixty (60) days following delivery of his resignation notice. Northgate has indicated its willingness to consider the November 1 date, subject to confirmation from the Nominating Committee that the extended timeline is compatible with the Board's succession planning and public announcement calendar. This item remains under discussion.
Status: Start Date under discussion. Remainder of Section 3 AGREED (per July 8, 2024 call).
Section 4: Compensation
4.1 Base Salary
Executive shall receive an annual base salary of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000), payable in accordance with Northgate's standard payroll practices for senior executives (currently bi-weekly). Executive's base salary shall be subject to annual review by the Remuneration Committee of the Board (the "Remuneration Committee"), currently chaired by Geoffrey Stanton. In no event shall Executive's base salary be reduced below the initial level of $1,750,000 per annum without Executive's prior written consent, it being understood that any such reduction without consent would constitute an event triggering Good Reason under Section 7.4 of this term sheet.
Status: AGREED (per July 8, 2024 call).
4.2 Annual Incentive Compensation (Bonus)
Executive shall be eligible to receive an annual incentive bonus for each fiscal year during the term of employment, subject to the following terms:
(a) Target Bonus. Executive's target annual bonus shall be equal to one hundred seventy-five percent (175%) of Executive's then-current Base Salary. Based on the initial Base Salary of $1,750,000, the initial target annual bonus equals $3,062,500.
(b) Maximum Bonus. Executive's maximum annual bonus shall be equal to three hundred percent (300%) of Executive's then-current Base Salary. Based on the initial Base Salary of $1,750,000, the initial maximum annual bonus equals $5,250,000.
(c) Performance Metrics. The specific performance goals, targets, and metrics applicable to each fiscal year's annual bonus shall be established by the Remuneration Committee in consultation with Executive, generally within the first ninety (90) days of each fiscal year. Performance metrics are expected to include a combination of financial, operational, and strategic objectives, which may include (without limitation) revenue growth, adjusted EBITDA, free cash flow, customer acquisition and retention metrics, and individual leadership objectives.
(d) Pro-Ration. In the event of a partial year of service (including Executive's first year of employment), the annual bonus shall be pro-rated based on the number of days of active employment during such fiscal year divided by 365.
(e) Payment Timing. The annual bonus, if earned, shall be paid no later than March 15 of the year following the applicable performance year, subject to compliance with Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A").
Status: AGREED (per July 8, 2024 call).
4.3 Long-Term Incentive Awards (Annual LTI)
Executive shall be eligible to receive annual long-term incentive awards with a target grant value of Nine Million Dollars ($9,000,000), subject to the following terms:
(a) Award Mix. Annual LTI grants shall consist of sixty percent (60%) Performance Stock Units ("PSUs") and forty percent (40%) Restricted Stock Units ("RSUs"), or such other allocation as may be approved by the Remuneration Committee, provided that the total annual target grant value shall not be less than $9,000,000 without Executive's written consent.
(b) RSU Vesting. RSUs shall vest ratably over a three-year period, with one-third (1/3) of each annual RSU grant vesting on each of the first, second, and third anniversaries of the applicable grant date, subject to Executive's continued employment through each applicable vesting date except as otherwise provided in Sections 7 and 8.
(c) PSU Vesting. PSUs shall cliff vest at the end of a three-year performance period, subject to the achievement of performance conditions established by the Remuneration Committee at the time of grant. It is anticipated that performance conditions will include total shareholder return ("TSR") relative to a peer group and revenue growth hurdles, with the specific metrics to be determined by the Remuneration Committee for each three-year cycle.
(d) Plan Governing Document. All equity awards shall be granted under the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan (as may be amended from time to time, the "Omnibus Plan") and shall be subject to the terms and conditions of such plan and the applicable award agreements.
(e) First Annual Grant. Executive's first annual LTI grant shall be made within thirty (30) calendar days following the Start Date.
Status: AGREED (per July 8, 2024 call).
4.4 Total Target Annual Compensation
The table below summarizes Executive's total target annual compensation under this term sheet:
For reference, Executive's current total target annual compensation at Marlowe Asset Management Digital Holdings, Inc. is approximately $11,125,000, comprised of a base salary of $1,400,000, a target annual bonus of $2,100,000 (150% of base), and annual LTI of $7,625,000. The proposed total target annual compensation under this arrangement represents an increase of approximately $2,687,500, or approximately 24.2%, over Executive's current total target annual compensation.
Section 5: Sign-On / Make-Whole Awards
5.1 Sign-On Cash Bonus
Executive shall receive a sign-on cash bonus in the amount of Five Million Dollars ($5,000,000), payable in a single lump sum within thirty (30) calendar days following the Start Date, subject to the following conditions:
(a) Clawback. If Executive voluntarily resigns his employment with the Company without Good Reason (as defined in Section 7.4) within twenty-four (24) months following the Start Date, Executive shall repay to the Company one hundred percent (100%) of the gross sign-on cash bonus within thirty (30) days of the date of such resignation. The Company shall have the right to offset the clawback amount against any amounts otherwise due to Executive, to the extent permitted by applicable law.
(b) Purpose. The sign-on cash bonus is intended as a partial make-whole for unvested equity awards that Executive will forfeit upon resignation from Marlowe Asset Management Digital Holdings, Inc. Based on the information provided by Executive's counsel, Executive's estimated forfeited unvested equity at Marlowe Asset Management Digital Holdings, Inc. is approximately $23,400,000, consisting of unvested RSUs and PSUs with remaining vesting dates through March 2027.
Status: AGREED (per July 8, 2024 call).
5.2 Sign-On Equity Grants
In addition to the sign-on cash bonus, Executive shall receive the following sign-on equity grants on or within thirty (30) calendar days following the Start Date:
(a) Sign-On RSU Grant. A grant of RSUs with an aggregate grant-date fair market value of Twelve Million Dollars ($12,000,000), vesting ratably over three years, with one-third (1/3) of the grant vesting on each of the first, second, and third anniversaries of the grant date, subject to Executive's continued employment through each applicable vesting date except as otherwise provided in Sections 7 and 8.
(b) Sign-On PSU Grant. A grant of PSUs with an aggregate grant-date fair market value of Six Million Four Hundred Thousand Dollars ($6,400,000), cliff vesting at the end of a three-year performance period subject to achievement of TSR and revenue growth performance hurdles to be established by the Remuneration Committee at the time of grant, consistent with the performance conditions applicable to Executive's annual LTI PSU grants.
(c) Total Sign-On Equity. The total sign-on equity grant value is Eighteen Million Four Hundred Thousand Dollars ($18,400,000).
(d) Governing Plan. All sign-on equity grants shall be made under the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan and shall be subject to the terms and conditions of such plan and the applicable award agreements.
(e) Share Calculation. The number of shares underlying each sign-on equity grant shall be determined based on the grant-date fair market value of Northgate ADR shares. For reference, the closing price of Northgate ADR shares on June 4, 2024 was $15.87 per share. Based on this reference price:
• Sign-On RSU Grant: $12,000,000 ÷ $15.87 ≈ 756,143 shares
• Sign-On PSU Grant (at target): $6,400,000 ÷ $15.87 ≈ 403,276 shares
• First Annual LTI Grant: $9,000,000 ÷ $15.87 ≈ 567,109 shares
• Combined Sign-On Equity + First Year Annual LTI: $27,400,000 ÷ $15.87 ≈ 1,726,528 shares
(f) Dilution and Share Availability. The combined sign-on equity and first annual LTI grant of approximately 1,726,528 shares represents approximately 0.25% of Northgate Telecommunications PLC's approximately 699 million outstanding ordinary shares. The remaining equity pool under the 2022 Omnibus Incentive Plan is approximately 14,200,000 shares, which provides sufficient capacity for these grants as well as anticipated grants to other participants.
Make-Whole Reconciliation:
The total sign-on package of $23,400,000 (cash and equity combined) has been designed to equal Executive's estimated forfeited unvested equity at Marlowe Asset Management Digital Holdings, Inc. of $23,400,000, thereby providing Executive with a complete make-whole for the economic value of the equity awards he will forfeit upon departure from his current employer.
Status: AGREED (per July 8, 2024 call).
Section 6: Benefits and Perquisites
6.1 Retirement Benefits
Executive shall be eligible to participate in the following retirement benefit programs:
(a) 401(k) Plan. Executive shall participate in the Northgate US 401(k) Retirement Savings Plan on the same terms and conditions as other senior executives, including the Company's employer matching contribution of six percent (6%) of eligible compensation, subject to applicable Internal Revenue Service contribution limits. Based on Executive's base salary, the maximum annual employer match is estimated at approximately $105,000 per year (subject to applicable IRS limits on compensation and contributions under Sections 401(a)(17) and 415 of the Internal Revenue Code).
(b) Supplemental Executive Retirement Plan. In addition to the 401(k) plan, the Company shall make annual contributions of Two Hundred Fifty Thousand Dollars ($250,000) to a non-qualified supplemental executive retirement plan (the "SERP") for the benefit of Executive. SERP contributions shall be made within sixty (60) days of the end of each fiscal year and shall vest in accordance with the SERP plan document. The SERP shall be structured in compliance with Section 409A.
Status: AGREED (per July 8, 2024 call).
6.2 Perquisites. Executive shall be entitled to the following perquisites during the term of employment:
(a) Automobile Allowance. An annual automobile allowance of Twenty-Five Thousand Dollars ($25,000), payable in monthly installments.
(b) Executive Health Program. Participation in the Company's executive health program, which includes comprehensive annual physical examinations and associated health screenings at a facility to be selected by Executive.
(c) Supplemental Life Insurance. The Company shall provide supplemental life insurance coverage in the amount of Two Million Dollars ($2,000,000), with the beneficiary to be designated by Executive.
(d) Financial and Tax Planning. The Company shall reimburse Executive for the cost of professional financial planning, tax preparation, and tax advisory services, up to a maximum of Thirty-Five Thousand Dollars ($35,000) per fiscal year, upon submission of appropriate documentation.
Status: AGREED (per July 8, 2024 call).
6.3 Insurance and Indemnification
(a) D&O Insurance. The Company shall maintain directors' and officers' liability insurance coverage for Executive under Northgate's existing D&O policy with Ashdown Surety & Insurance Co. (Policy No. ASI-D&O-NTP-2024-4471), which currently provides coverage of $50,000,000 per occurrence and $100,000,000 in the aggregate. The Company shall maintain such coverage (or substantially equivalent coverage) throughout the term of Executive's employment and for a period of not less than six (6) years following Executive's cessation of service (the "Tail Period"). The Company shall not amend, reduce, or cancel such coverage during the Tail Period without Executive's prior written consent.
(b) Indemnification. The Company shall indemnify Executive to the fullest extent permitted by applicable law (including the laws of Delaware, New York, and England and Wales, as applicable) and the articles of association and bylaws of Northgate Telecommunications PLC and Northgate Telecommunications US, Inc. The parties shall execute a separate indemnification agreement concurrently with the definitive employment agreement, which shall provide for, among other things, the advancement of legal expenses and costs incurred by Executive in connection with any proceeding arising from or related to Executive's service as an officer or director of the Company or any of its affiliates.
(c) Tail Coverage. The Company's obligation to maintain D&O tail coverage for the Tail Period shall survive termination of Executive's employment for any reason, including termination for Cause.
Status: AGREED (per July 8, 2024 call).
6.4 Tax Equalization
The Company shall provide Executive with tax equalization for any UK-source income arising from Executive's performance of duties in the United Kingdom. The tax equalization program shall be designed to ensure that Executive bears no greater income tax burden as a result of his UK duties than he would have borne if all of his compensation had been earned entirely from US-source income. The Company shall engage a nationally recognized accounting firm (currently Beck Morriven CPAs LLP) to prepare Executive's annual tax equalization calculations and to administer the tax equalization program. In addition, the parties shall utilize the US-UK Social Security Totalization Agreement to obtain a certificate of coverage exempting Executive from dual social security contributions to the extent permitted by applicable treaty provisions.
Status: AGREED (per July 8, 2024 call).
Section 7: Termination Provisions (Non-Change in Control)
7.1 Termination by the Company Without Cause / by Executive for Good Reason
In the event that Executive's employment is terminated by the Company without Cause (as defined in Section 7.2) or by Executive for Good Reason (as defined in Section 7.4), and such termination does not occur within twenty-four (24) months following a Change in Control (in which case Section 8 shall govern), Executive shall be entitled to the following severance benefits, subject to Executive's execution and non-revocation of a general release of claims in a form reasonably satisfactory to the Company within the applicable consideration and revocation period (not to exceed sixty (60) days following the date of termination):
(a) Cash Severance Payment. — UNRESOLVED
[Northgate Proposal: A lump-sum severance payment (or installment payments, as determined for Section 409A compliance) equal to two times (2x) the sum of Executive's then-current Base Salary and Target Bonus. Based on the current Base Salary of $1,750,000 and Target Bonus of $3,062,500, the non-CIC cash severance under Northgate's proposal would equal 2 × $4,812,500 = $9,625,000.]
[Executive Demand: A lump-sum severance payment (or installment payments, as determined for Section 409A compliance) equal to two and one-half times (2.5x) the sum of Executive's then-current Base Salary and Target Bonus. Based on the current Base Salary of $1,750,000 and Target Bonus of $3,062,500, the non-CIC cash severance under Executive's proposal would equal 2.5 × $4,812,500 = $12,031,250.]
(b) Pro-Rata Annual Bonus. Executive shall receive a pro-rata annual bonus for the fiscal year in which the date of termination occurs, based on actual performance against the applicable performance goals, payable at the same time as bonuses are paid to other senior executives (but in no event later than March 15 of the year following the year of termination).
(c) Equity Acceleration. — UNRESOLVED
[Northgate Proposal: Twelve (12) months of accelerated vesting of all unvested equity awards (RSUs and PSUs) held by Executive as of the date of termination. PSUs subject to accelerated vesting would vest based on actual performance as of the most recently completed measurement period, pro-rated for the applicable portion of the performance period elapsed.]
[Executive Demand: Full acceleration of all unvested equity awards (RSUs and PSUs) held by Executive as of the date of termination. PSUs subject to full acceleration would vest at target performance level.]
(d) COBRA Continuation. — UNRESOLVED
[Northgate Proposal: The Company shall subsidize Executive's COBRA continuation coverage for a period of eighteen (18) months following the date of termination, at the same cost-sharing levels as in effect immediately prior to the date of termination.]
[Executive Demand: The Company shall subsidize Executive's COBRA continuation coverage for a period of twenty-four (24) months following the date of termination, at the same cost-sharing levels as in effect immediately prior to the date of termination.]
(e) Payment Terms. All cash severance payments shall be paid in installments over the applicable severance period in accordance with the Company's standard payroll schedule, subject to compliance with Section 409A of the Internal Revenue Code. If Executive is a "specified employee" within the meaning of Section 409A at the time of his separation from service, any payments that constitute "nonqualified deferred compensation" under Section 409A and that would otherwise be payable during the first six (6) months following Executive's separation from service shall be accumulated and paid in a lump sum on the first business day following the six-month anniversary of Executive's separation from service, together with interest at the applicable federal rate.
(f) Release Requirement. All severance payments and benefits described in this Section 7.1 are conditioned upon Executive's execution and non-revocation of a general release of claims in a form reasonably satisfactory to the Company. The form of the release shall be substantially agreed upon and attached as an exhibit to the definitive employment agreement.
Status: UNRESOLVED — bracketed alternatives shown above for cash severance multiplier, equity acceleration, and COBRA continuation duration.
7.2 Termination by the Company for Cause
In the event that Executive's employment is terminated by the Company for Cause, Executive shall not be entitled to any severance payment, pro-rata bonus, or acceleration of unvested equity awards. Executive shall be entitled to receive only his Accrued Obligations, which shall consist of: (i) earned but unpaid Base Salary through the date of termination; (ii) accrued but unused vacation or paid time off, to the extent payable under Company policy; (iii) unreimbursed business expenses incurred prior to the date of termination and submitted in accordance with Company policy; and (iv) any vested benefits under the Company's employee benefit plans, payable in accordance with the terms of such plans.
Definition of "Cause." For purposes of this term sheet, "Cause" shall mean the occurrence of any of the following:
(i) Executive's material breach of the employment agreement, including the restrictive covenant provisions set forth in Section 9;
(ii) Executive's conviction of, or plea of guilty or nolo contendere to, a felony or any crime involving moral turpitude;
(iii) Executive's willful misconduct or gross negligence in the performance of his duties that causes, or is reasonably likely to cause, material harm to the Company or its reputation;
(iv) Executive's commission of fraud, embezzlement, misappropriation, or other act of dishonesty involving the Company or its assets; or
(v) Executive's material violation of the Company's written policies, including its Code of Business Conduct and Ethics, anti-corruption policy, and securities trading policy.
In the case of clauses (i), (iii), and (v) above, the Company shall provide Executive with written notice specifying in reasonable detail the acts or omissions constituting Cause, and Executive shall have a period of thirty (30) calendar days following receipt of such notice to cure the identified breach or deficiency (if capable of cure). If Executive fails to cure within such thirty-day period, the Company may terminate Executive's employment for Cause effective upon the expiration of such cure period. No cure period shall be required in the case of clauses (ii) and (iv).
Status: AGREED in principle (per July 8, 2024 call). Precise definition language to be finalized in the definitive employment agreement.
7.3 Resignation Without Good Reason
In the event that Executive voluntarily resigns his employment without Good Reason (as defined in Section 7.4), Executive shall not be entitled to any severance payment, pro-rata bonus, or acceleration of unvested equity awards. Executive shall be entitled to receive only his Accrued Obligations (as defined in Section 7.2).
(a) Notice Period. Executive shall provide the Company with not less than ninety (90) days' prior written notice of his intention to resign. The Company, in its sole discretion, may elect to waive all or a portion of the notice period, in which case Executive's employment shall terminate on the date specified by the Company, and Executive shall receive his Base Salary through the last day of the waived notice period (but shall not be entitled to any severance or other termination benefits).
(b) Sign-On Cash Bonus Clawback. If Executive voluntarily resigns his employment without Good Reason within twenty-four (24) months of the Start Date, the sign-on cash bonus clawback provisions set forth in Section 5.1 shall apply, and Executive shall be obligated to repay one hundred percent (100%) of the gross sign-on cash bonus.
Status: AGREED (per July 8, 2024 call).
7.4 Definition of "Good Reason"
For purposes of this term sheet, "Good Reason" shall mean the occurrence, without Executive's prior written consent, of any of the following:
(i) A material reduction in Executive's Base Salary, Target Bonus percentage, or annual LTI target grant value below the levels established in Sections 4.1, 4.2, and 4.3, respectively;
(ii) A material diminution in Executive's duties, authority, or responsibilities, including a change in Executive's reporting structure such that Executive no longer reports directly to the Board, or the removal of Executive from the Board;
(iii) The relocation of Executive's principal place of employment to a location more than fifty (50) miles from 600 Lexington Avenue, New York, NY 10022, without Executive's prior written consent; or
(iv) A material breach by the Company of any provision of the employment agreement.
Notice and Cure. Executive must provide the Company with written notice specifying in reasonable detail the event or condition constituting Good Reason within thirty (30) days following Executive's first becoming aware of such event or condition. The Company shall have a period of thirty (30) calendar days following receipt of such notice to cure the identified event or condition. If the Company fails to cure within such thirty-day cure period, Executive may resign for Good Reason at any time within sixty (60) calendar days following the expiration of the cure period by providing written notice to the Company. Executive's failure to provide notice within the required time period, or failure to resign within the sixty-day window following the expiration of the cure period, shall constitute a waiver of Executive's right to resign for Good Reason with respect to the applicable event or condition.
Status: AGREED in principle (per July 8, 2024 call). Precise definition language to be finalized in the definitive employment agreement.
7.5 Death or Disability
In the event of Executive's death or Disability (as defined below) during the term of employment, Executive (or Executive's estate or beneficiaries, as applicable) shall be entitled to receive:
(a) All Accrued Obligations (as defined in Section 7.2);
(b) A pro-rata annual bonus for the fiscal year in which the date of death or Disability occurs, based on actual performance, payable at the same time as bonuses are paid to other senior executives;
(c) Twelve (12) months of accelerated vesting of all unvested equity awards (RSUs and PSUs) held by Executive as of the date of death or Disability.
For purposes of this term sheet, "Disability" shall mean Executive's inability to perform the essential functions of his position, with or without reasonable accommodation, for a period of one hundred eighty (180) consecutive days, or for a total of two hundred seventy (270) days in any twelve (12)-month period, as determined by a physician mutually agreed upon by the Company and Executive (or Executive's legal representative).
Status: AGREED (per July 8, 2024 call).
Section 8: Change in Control Provisions — UNRESOLVED
8.1 Definition of "Change in Control"
For purposes of this term sheet, a "Change in Control" shall mean the occurrence of any of the following events:
(a) Acquisition of Voting Securities. The acquisition by any person, entity, or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) of beneficial ownership of more than fifty percent (50%) of the outstanding voting securities of Northgate Telecommunications PLC;
(b) Merger or Consolidation. The consummation of a merger, consolidation, statutory share exchange, or similar business combination involving Northgate Telecommunications PLC, following which the holders of the voting securities of Northgate Telecommunications PLC immediately prior to such transaction hold less than fifty percent (50%) of the voting power of the surviving or resulting entity; or
(c) Asset Sale. The sale, lease, exchange, or other disposition of all or substantially all of the assets of Northgate Telecommunications PLC in one transaction or a series of related transactions.
Board Turnover Trigger — DISPUTED:
[Executive Demand: Include as a fourth trigger: (d) A change in the composition of the Board of Directors of Northgate Telecommunications PLC such that a majority of the directors serving on the Board are replaced within any twelve (12)-month period, other than directors whose election or nomination for election was approved by a vote of a majority of the directors then comprising the "incumbent Board" (the "Board Turnover Trigger"). Executive's counsel has argued that this provision is a standard element of Change in Control definitions in US public company employment agreements, is necessary to protect Executive in the event of a hostile or contested board election campaign, and is consistent with the definition used in Northgate's 2022 Omnibus Incentive Plan.]
[Northgate Position: The Board Turnover Trigger is excluded. The Remuneration Committee (per Geoffrey Stanton) has characterized this provision as overreach that is inconsistent with UK corporate governance norms and the expectations of Northgate's institutional shareholders. The Board notes that the inclusion of a board turnover trigger could have the effect of deterring shareholder activism and contested director elections, and is concerned about the signal such a provision would send to proxy advisory firms and institutional investors, particularly given the upcoming 2025 AGM binding remuneration policy vote.]
Status: UNRESOLVED — bracketed alternatives.
8.2 CIC Severance (Double Trigger)
Both parties agree that the Change in Control severance provisions shall be structured on a "double trigger" basis, meaning that severance benefits under this Section 8.2 shall be payable only if (i) a Change in Control occurs and (ii) Executive's employment is terminated by the Company without Cause or Executive resigns for Good Reason, in each case within twenty-four (24) months following the date of the Change in Control.
In the event of a qualifying termination following a Change in Control, Executive shall be entitled to the following:
(a) CIC Cash Severance. — UNRESOLVED
[Northgate Proposal: A lump-sum cash severance payment equal to two and one-half times (2.5x) the sum of Executive's then-current Base Salary and Target Bonus. Based on the current Base Salary of $1,750,000 and Target Bonus of $3,062,500, the CIC cash severance under Northgate's proposal would equal 2.5 × $4,812,500 = $12,031,250.]
[Executive Demand: A lump-sum cash severance payment equal to three times (3x) the sum of Executive's then-current Base Salary and Target Bonus. Based on the current Base Salary of $1,750,000 and Target Bonus of $3,062,500, the CIC cash severance under Executive's proposal would equal 3 × $4,812,500 = $14,437,500.]
Gap between proposals: $14,437,500 − $12,031,250 = $2,406,250.
Note: During a follow-up call on July 12, 2024, Executive's counsel (Victoria Hargrove, Hargrove & Liddell LLP) proposed a compromise multiplier of 2.75x, which would yield CIC cash severance of 2.75 × $4,812,500 = $13,234,375. Northgate's outside counsel (Renata Vasquez, Calderwood & Harkness LLP) took this proposal under advisement but no agreement was reached. This compromise alternative remains available for further discussion.
(b) CIC Equity Acceleration. Both parties agree that, upon a qualifying termination following a Change in Control, all unvested equity awards (RSUs and PSUs) held by Executive shall fully accelerate and become immediately vested and exercisable.
[Northgate Proposal: PSUs subject to acceleration shall vest based on actual performance measured as of the most recently completed measurement period, pro-rated for the portion of the performance period elapsed through the date of the Change in Control.]
[Executive Demand: PSUs subject to acceleration shall vest at target performance level (100%), without pro-ration, regardless of actual performance as of the date of the Change in Control.]
(c) Pro-Rata Annual Bonus. Executive shall receive a pro-rata annual bonus for the fiscal year in which the date of termination occurs, calculated at target performance level, payable in a lump sum within thirty (30) days of the date of termination.
(d) CIC Benefit Continuation. — UNRESOLVED
[Northgate Proposal: The Company shall subsidize Executive's COBRA continuation coverage for a period of twenty-four (24) months following the date of termination, at the same cost-sharing levels as in effect immediately prior to the date of termination.]
[Executive Demand: The Company (or its successor) shall provide Executive with benefit continuation for a period of thirty-six (36) months following the date of termination, including medical, dental, and vision coverage substantially comparable to the coverage in effect immediately prior to the date of termination or, if COBRA is exhausted, through a separately purchased individual policy at the Company's expense.]
(e) Outplacement Services. The Company shall provide Executive with executive outplacement services through a mutually agreed-upon provider, at a cost not to exceed Fifty Thousand Dollars ($50,000). Executive has not objected to this provision.
Status: UNRESOLVED — bracketed alternatives shown above for CIC cash severance multiplier, PSU acceleration methodology, and benefit continuation duration. Outplacement provision agreed.
8.3 Section 280G Tax Treatment — UNRESOLVED
This is a critical unresolved issue.
[Northgate Proposal: "Best-Net" / Safe-Harbor Cutback. If any payments or benefits to Executive would constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code, such payments shall be reduced (a "cutback") to the extent necessary so that no portion thereof would constitute an "excess parachute payment" under Section 280G, but only if such reduction would result in a greater after-tax benefit to Executive than if the full amount were paid and Executive were required to pay the excise tax imposed by Section 4999 of the Internal Revenue Code (the "best-net" approach). The Company would not provide any tax gross-up payment to reimburse Executive for excise taxes imposed under Section 4999.
The safe harbor limit applicable to Executive, based on Executive's "base amount" (defined as the average annualized compensation from Marlowe Asset Management Digital Holdings, Inc. includable in Executive's gross income for the five-year period 2019–2023), is calculated as follows:
• Base Amount: $7,840,000
• Safe Harbor Limit (3 × Base Amount − $1): $23,519,999
Under the best-net approach, if the total parachute payments exceed $23,519,999 and the cutback produces a better after-tax result for Executive, payments would be reduced to the safe harbor limit.]
[Executive Demand: Full Section 280G Tax Gross-Up. If any payments or benefits to Executive would constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code, the Company shall pay Executive an additional amount (a "gross-up payment") sufficient to place Executive in the same after-tax position he would have been in had no excise tax under Section 4999 been imposed. The gross-up payment shall include reimbursement for the excise tax, all federal, state, and local income taxes imposed on the gross-up payment itself, and any penalties or interest. The gross-up payment shall be calculated by a nationally recognized accounting firm selected by the Company and shall be paid within thirty (30) days following the date on which the excise tax becomes due.]
Financial Impact Analysis:
The financial implications of the two proposals are set forth below:
An independent analysis prepared by Whitmore Hobson LLP (Northgate's tax advisors) has concluded that, under the current facts and assumptions, the "best-net" cutback approach and the full payment with excise tax approach produce roughly equivalent after-tax results for Executive, with the cutback slightly favored in certain scenarios. Accordingly, the gross-up is largely a matter of principle and optics rather than economic substance for Executive.
ISS and Shareholder Sensitivity:
Veltrano Proxy Advisors, Inc. (Northgate's proxy solicitation firm) has advised that a full tax gross-up provision would be "problematic" under current proxy advisory firm policies. Both Thackeray Health IT (ISS) and Tarrant Partners LLC have adopted policies disfavoring excise tax gross-ups and have indicated that such provisions would likely trigger a negative recommendation on the Company's say-on-pay proposal. Northgate received 87.4% shareholder support on its advisory say-on-pay resolution at the April 18, 2024 Annual General Meeting. Aggressive CIC terms — particularly a full tax gross-up — risk materially reduced shareholder support at the 2025 AGM, at which Northgate is required under the UK Companies Act 2006 to submit a binding remuneration policy resolution. A failed binding remuneration policy vote would require the Board to revise its remuneration policy and seek shareholder approval at a further general meeting, creating significant governance disruption and reputational risk.
UK Corporate Governance Code Considerations:
Provision 40 of the UK Corporate Governance Code states that notice or contract periods for directors should be set at one year or less, and any payments in lieu of notice or termination should reflect this principle. While the UK Code operates on a "comply or explain" basis and does not have direct legal force, departures from the Code must be disclosed and explained in the Company's annual report. CIC severance at 2.5x or 3x annual compensation significantly exceeds the UK market norm of 1x to 2x for executive directors, and the Remuneration Committee (per its Chair, Geoffrey Stanton) has expressed the view that the ISS, Tarrant Partners LLC, and broader shareholder concerns are paramount and must be weighed heavily in any resolution of this issue.
Status: UNRESOLVED — bracketed alternatives. This is identified as a core impasse.