PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 299 Park Avenue, 42nd Floor New York, NY 10171
MEMORANDUM
June 7, 2024
TO: Renata Vasquez, Partner, Calderwood & Harkness LLP
FROM: Devon Archer, Associate, Calderwood & Harkness LLP
RE: Change in Control Provisions — Market Survey and Best Practices for Public Company CEO Employment Agreements
MATTER: Northgate Telecommunications PLC — CEO Employment Negotiation; Engagement No. 1022-00004
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is prepared in anticipation of litigation and for the purpose of providing legal advice to our client, Northgate Telecommunications PLC. Distribution outside of Calderwood & Harkness LLP and authorized Northgate representatives is strictly prohibited without the prior written consent of the undersigned.
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I. Executive Summary
The purpose of this memorandum is to survey current market practice with respect to change in control ("CIC") definitions, severance provisions, equity acceleration mechanisms, tax treatment of parachute payments, and related protections commonly found in public company chief executive officer ("CEO") employment agreements, with specific application to the ongoing negotiation of the proposed CEO employment agreement between Northgate Telecommunications PLC ("NTP" or the "Company") and Marcus Elliot Harding ("Harding" or the "Executive").
Northgate Telecommunications PLC is a United Kingdom-headquartered, publicly traded telecommunications and software-as-a-service ("SaaS") company listed on the London Stock Exchange (LON: NTP) and cross-listed on the New York Stock Exchange via American Depositary Receipts (NYSE: NTPC). As of the date of this memorandum, NTP has a market capitalization of approximately £8.7 billion (approximately $11.1 billion at current exchange rates) and reported fiscal year 2023 revenue of £4.26 billion (approximately $5.43 billion). NTP operates across 14 countries with approximately 22,000 employees, and its US operations represent approximately 38% of consolidated revenue.
The proposed employment agreement between NTP and Harding will be governed by New York law and will be entered into between Harding and Northgate Telecommunications US, Inc., a Delaware corporation and wholly-owned US subsidiary of NTP. A secondary UK service agreement will be entered into directly between Harding and Northgate Telecommunications PLC to comply with applicable UK regulatory and governance requirements. This dual-agreement structure is consistent with NTP's existing practice for US-based senior executives.
Based on the market survey and analysis set forth in detail below, our key findings are as follows:
(a) Double-trigger CIC severance — requiring both the occurrence of a change in control and a qualifying termination of the executive's employment — is now the dominant market standard for CEO employment agreements among S&P 500 and comparable large-capitalization companies, representing approximately 75%–80% of recently executed agreements.
(b) CIC cash severance multipliers for CEO-level agreements at large-capitalization companies (market capitalization in excess of $5 billion) typically range from 2x to 3x base salary plus target annual bonus, with multipliers of 2.5x to 3x being most common at companies of NTP's size and profile. However, there is a discernible trend toward moderation, with 2.5x increasingly serving as a practical ceiling for new agreements at companies subject to heightened governance scrutiny.
(c) Full excise tax gross-ups under Section 280G/4999 of the Internal Revenue Code have sharply declined in prevalence and are now affirmatively disfavored by both Cobalt Ridge Solutions ("ISS") and Westmark Solutions ("Tarrant Partners LLC"). Fewer than 10% of new CEO agreements at S&P 500 companies include full tax gross-ups. The "best-net cutback" approach, under which payments are reduced to the safe harbor amount only if doing so produces a better after-tax result for the executive, has emerged as the predominant market standard (approximately 55%–60% of new agreements).
(d) Board turnover triggers — provisions that treat a reconstitution of a majority of the board of directors as a change in control — are a declining minority practice. While approximately 25%–30% of large-cap telecom and technology CEO agreements still include such triggers, proxy advisory firms have increasingly flagged them as problematic, and their inclusion would be particularly difficult to justify for a UK-listed company subject to the UK Corporate Governance Code.
(e) NTP's dual listing on the London Stock Exchange and the New York Stock Exchange creates unique constraints that must be carefully navigated. US market norms for CEO CIC protections are meaningfully more generous than UK market norms. Any proposed package must be defensible under both the UK Corporate Governance Code (applied on a "comply or explain" basis) and the voting guidelines of ISS and Tarrant Partners LLC. The Company's binding remuneration policy vote at the 2025 Annual General Meeting ("AGM") introduces an additional dimension of risk that is not typically present in a purely US-listed context.
This memorandum should be read alongside the following companion memoranda, each prepared in connection with this engagement:
• Memorandum: Section 280G Parachute Payment Analysis — Preliminary Framework (Underwood to Vasquez, June 7, 2024);
• Memorandum: UK Corporate Governance Code 2024 — Implications for CEO Remuneration and Severance (Underwood to Vasquez, June 8, 2024).
We note that certain financial data and projections referenced in this memorandum are preliminary and subject to revision as the negotiation progresses and as additional information becomes available from the Company's independent compensation consultant, Whitmore Hobson LLP.
II. Background and Context
A. The Transaction
Northgate Telecommunications PLC is negotiating a CEO employment agreement with Marcus Elliot Harding, who currently serves as President and Chief Operating Officer of Marlowe Asset Management Digital Holdings, Inc. ("Marlowe Asset Management" or "VDHI"), a Delaware corporation headquartered in San Jose, California, and listed on the New York Stock Exchange (NYSE: VDHI). Marlowe Asset Management is a large-capitalization enterprise software and digital infrastructure company with a market capitalization of approximately $18.5 billion and fiscal year 2023 revenue of approximately $7.9 billion.
Harding, age 52, has served as President and COO of Marlowe Asset Management since January 2019 and has been a member of the Marlowe Asset Management board of directors since June 2020. Prior to Marlowe Asset Management, Harding served in various senior leadership roles at GlobalReach Networks, Inc. and Meridian Broadband Corporation, both in the telecommunications sector. He holds a Bachelor of Science in Electrical Engineering from the Massachusetts Institute of Technology and a Master of Business Administration from the Wharton School of the University of Pennsylvania. His recruitment to NTP was managed by Adriatic Management Consulting, with the search led by Madeleine Forsyth, Partner, and overseen by NTP's Nomination Committee.
NTP's outgoing CEO, Sir Alistair Kemble, publicly announced his retirement effective December 31, 2024, by press release on May 15, 2024. Sir Alistair has served as CEO since 2016 and will remain in a transitional advisory role through March 31, 2025, under a separate consulting agreement currently under negotiation. Following a comprehensive search process, NTP's Board of Directors (the "Board") unanimously selected Harding as the preferred candidate for the CEO position on May 28, 2024. The selection was approved by the full Board, with all eleven directors voting in favor.
Calderwood & Harkness LLP was formally engaged by NTP on June 4, 2024, pursuant to a letter of engagement addressed to Geoffrey Stanton, Lead Independent Director and Chair of the Remuneration Committee, to negotiate and draft the employment agreement. This firm's primary point of contact at NTP is Helena Beckett, General Counsel and Company Secretary. The initial term sheet reflecting the Board-approved compensation parameters is expected to be circulated to Harding's personal counsel, Victoria Hargrove of Hargrove & Liddell LLP (51 Madison Avenue, 30th Floor, New York, NY 10010), no later than June 14, 2024.
The proposed start date for Harding's employment is October 1, 2024, which reflects a 90-day transition period from the anticipated July 1, 2024 date of public announcement (subject to completion of the employment agreement). The initial term of the agreement is proposed to be five years (through September 30, 2029), with automatic one-year renewals thereafter unless either party provides 12 months' prior written notice of non-renewal. This initial term is consistent with market practice for newly recruited CEOs at large-cap public companies, where initial terms typically range from three to five years, with five-year terms more common when the executive is being recruited from outside the organization and is leaving a current position with significant unvested compensation.
B. Harding's Current CIC Protections at Marlowe Asset Management
Understanding Harding's existing CIC protections at Marlowe Asset Management is essential context for the upcoming negotiation, as the Executive's current counsel, Victoria Hargrove, can be expected to advocate for at least parity with his current protections. Our review of Harding's current employment agreement with Marlowe Asset Management Digital Holdings (a copy of which was publicly filed as an exhibit to Marlowe Asset Management's Annual Report on Form 10-K for fiscal year 2023) reveals the following key CIC-related terms:
CIC Cash Severance: 3x the sum of annual base salary plus target annual bonus, payable in a lump sum within 60 days of the qualifying termination date. At Harding's current compensation levels, this equates to 3 × ($1,450,000 + $2,175,000) = 3 × $3,625,000 = $10,875,000.
CIC Trigger Mechanism: Double trigger; qualifying termination defined as termination without "cause" or resignation for "good reason" within 24 months following a change in control.
CIC Definition: Broad definition, including (i) acquisition of 30% or more of outstanding voting securities, (ii) merger or consolidation where pre-transaction shareholders hold less than 50% of the surviving entity, (iii) sale of all or substantially all assets, and (iv) board turnover trigger (replacement of a majority of directors within any 12-month period where new directors not approved by incumbents). We note that Marlowe Asset Management's CIC definition uses a 30% voting securities threshold and includes a board turnover trigger — both features that we recommend against for NTP, as discussed below.
Equity Acceleration: Full acceleration of all unvested equity awards (RSUs and PSUs) upon a change in control, regardless of whether the executive's employment is terminated (i.e., single trigger for equity acceleration). PSUs vest at target performance level.
Tax Treatment: Full excise tax gross-up under Section 280G/4999.
Benefit Continuation: 36 months of continued health, dental, vision, life, and disability insurance.
Harding's current annual compensation at Pemberton Investors of the following elements:
• Base Salary: $1,450,000
• Target Annual Bonus: 150% of base salary ($2,175,000)
• Target Long-Term Incentive (Equity): $7,500,000 (60% PSUs / 40% RSUs)
• Total Target Annual Compensation: approximately $11,125,000
As of June 2024, Harding's estimated unvested equity at Marlowe Asset Management (based on the closing price of VDHI common stock on June 5, 2024, and Marlowe Asset Management's most recent proxy statement) is approximately $23,400,000, consisting of approximately $14,100,000 in unvested RSUs and $9,300,000 in unvested PSUs (valued at target performance). This represents a significant element of "walk-away" cost that will factor into the negotiation, and NTP's proposed sign-on equity award is designed in part to compensate Harding for forfeited Marlowe Asset Management equity.
Victoria Hargrove of Hargrove & Liddell LLP has represented Harding since 2017, including in the negotiation of his current Marlowe Asset Management employment agreement. Ms. Hargrove is well-known in the executive compensation negotiation space and is expected to advocate aggressively for at least parity with Harding's existing CIC protections. Any proposal that falls below Harding's current 3x multiplier and full tax gross-up will likely be characterized by Hargrove as a material downgrade in CIC protection that must be offset by enhancements in other areas (e.g., higher base salary, larger sign-on equity, enhanced non-CIC severance, or a longer initial term).
C. Key Stakeholder Considerations
Several internal and external stakeholders will play significant roles in shaping the parameters of the CIC provisions and the broader employment agreement:
Remuneration Committee. NTP's Remuneration Committee is responsible for reviewing and approving executive compensation, including the terms of the CEO employment agreement. The Committee is chaired by Geoffrey Stanton, Lead Independent Director, and its members include Dame Philippa Thornton-Hale (Board Chair), Lucinda Farrow, and Dr. Tomás Herrera. All four members are independent non-executive directors under both the UK Corporate Governance Code and NYSE listing standards. The Remuneration Committee has delegated authority to approve the final terms of the employment agreement, subject to Board ratification of the overall compensation package. Initial discussions with Mr. Stanton indicate that the Committee is sensitive to the optics of CEO compensation given the 2025 binding remuneration policy vote and is inclined toward a package that is competitive with US market norms but defensible under UK governance standards.
Independent Compensation Consultant. Whitmore Hobson LLP, a UK-based compensation consulting firm led by Dr. Rachel Whitmore, Managing Partner, serves as the independent compensation consultant to the Remuneration Committee. Whitmore Hobson has been engaged on a standing basis since 2021 and is currently conducting a peer-group benchmarking analysis for the Harding hire. Their peer group includes twelve comparable companies drawn from both sides of the Atlantic: six US-listed telecommunications and SaaS companies and six UK/European-listed companies. Preliminary peer-group data from Whitmore Hobson is expected by June 15, 2024, and their formal recommendations will be presented to the Remuneration Committee no later than June 28, 2024.
Proxy Advisory Consultant. Veltrano Proxy Advisors, Inc. has been retained by NTP to assess shareholder sensitivity and to provide a preliminary evaluation of the likely ISS and Tarrant Partners LLC reaction to the proposed compensation package. Sandra Kolb, Managing Director of Veltrano, is leading this engagement. Veltrano's preliminary assessment (communicated verbally to Helena Beckett on June 5, 2024) is that the package must avoid three specific "red flags": (i) a CIC multiplier in excess of 3x, (ii) a full tax gross-up, and (iii) single-trigger equity acceleration combined with a high cash multiplier. Veltrano has indicated that a 2.5x CIC multiplier with a best-net cutback and double-trigger equity acceleration would likely fall within the range of acceptability for both ISS and Tarrant Partners LLC, though it would still require careful disclosure.
Say-on-Pay and Remuneration Policy Vote. NTP's most recent annual say-on-pay advisory vote, held at the 2024 AGM on April 18, 2024, received 87.4% support — a solid but not overwhelming level of approval. This was a decline from 92.1% support at the 2023 AGM, reflecting some emerging shareholder concerns about executive pay levels in the context of the Company's stock price performance (NTP's share price declined approximately 8% during fiscal year 2023). Any new CEO compensation package will be subject to a binding remuneration policy vote at the 2025 AGM under UK Companies Act 2006, Section 439A. Failure to obtain majority shareholder approval at that vote would prevent the Company from implementing the remuneration policy, creating a significant legal and practical risk that must inform every element of the negotiation.
Institutional Shareholders. NTP's shareholder register includes several institutional investors that are known to take active positions on executive compensation matters:
• Caledonian Asset Management (8.3% of ordinary shares outstanding) — Edinburgh-based; known for strict adherence to UK governance norms; voted against the 2024 say-on-pay resolution;
• Pemberton Capital Group (6.7%) — London-based; generally supportive of management but has publicly expressed concern about "transatlantic pay inflation" in UK-listed companies;
• Thornbury Investment Trust (5.1%) — London-based; institutional voting policy generally follows ISS recommendations;
• Regis Global Equity Fund (4.4%) — New York-based; evaluates compensation packages under US market norms and has not historically opposed CIC provisions within the S&P 500 range;
• Atlas Pension Fund (3.2%) — London-based; signatory to the UK Stewardship Code; has a published policy opposing CIC multipliers in excess of 2x for UK-listed companies.
The composition of NTP's shareholder base — approximately 55% UK/European-based and 45% US-based — creates a unique challenge: the CIC package must satisfy shareholders operating under fundamentally different expectations regarding appropriate levels of executive severance protection.
III. Definition of "Change in Control" — Market Practice
The definition of "change in control" is the threshold provision in any CIC severance arrangement. The scope and specificity of this definition determines which corporate events will trigger the executive's right to enhanced severance protections. An overly narrow definition may fail to protect the executive in situations where protection is warranted; an overly broad definition may create windfall payments in circumstances that do not represent a genuine transfer of corporate control. This Section surveys market practice with respect to each common triggering event and provides specific recommendations for NTP's definition.
A. Standard Triggering Events
Current market practice for large-capitalization public company CEO employment agreements reflects a broad consensus around three primary CIC triggering events. These three triggers are nearly universal and are included in well over 90% of CEO-level CIC definitions:
(a) Acquisition of Voting Securities. The first standard trigger is the acquisition by any person, entity, or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) of more than a specified percentage of the outstanding voting securities of the company. The key variable in this trigger is the percentage threshold.
The most common threshold in large-capitalization CEO agreements is 50% of outstanding voting power. This threshold is used in approximately 55%–60% of S&P 500 CEO agreements and is generally viewed as the most governance-friendly option, as it requires the acquirer to obtain actual majority voting control before the trigger is activated. A 50% threshold reduces the risk of premature or unintended CIC triggers in situations involving minority block acquisitions or passive accumulation of shares by institutional investors.
Some agreements use a lower threshold of 30% or 35%, which is more common in mid-capitalization companies or companies with concentrated ownership structures (e.g., family-controlled or founder-led companies) where a 30%–35% stake may confer effective control. A 30% threshold is also consistent with the mandatory bid threshold under the UK City Code on Takeovers and Mergers, which may have informed the choice of threshold in Harding's existing Marlowe Asset Management agreement. However, a 30% threshold carries a higher risk of unintended triggers, particularly in a public company with a widely dispersed shareholder base, and we note that proxy advisory firms generally prefer higher thresholds.
Both NTP and Harding's counsel have agreed in principle, during preliminary discussions, on a greater-than-50% voting securities threshold. This is appropriate given NTP's dispersed shareholder base (no single holder above 8.3%) and its status as a large-capitalization company. We recommend formalizing this agreement and drafting the trigger as follows: "the acquisition by any Person or Group of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the Company's then-outstanding voting securities entitled to vote generally in the election of directors."
The definition should include customary carve-outs for (i) acquisitions directly from the Company (e.g., in a public offering), (ii) acquisitions by the Company itself (share repurchases that increase the percentage held by existing shareholders), (iii) acquisitions by any employee benefit plan of the Company, and (iv) acquisitions pursuant to a merger or consolidation separately addressed in the definition (to avoid double-counting).
(b) Merger, Consolidation, or Business Combination. The second standard trigger is the completion of a merger, consolidation, or other business combination transaction involving the Company, where the Company's pre-transaction shareholders hold less than 50% of the combined voting power of the surviving or resulting entity's outstanding voting securities following the transaction. This trigger captures the most common form of change-in-control transaction: the acquisition of the Company through a negotiated or hostile merger.
A critical drafting consideration is the treatment of transactions in which the Company's existing shareholders retain majority voting control of the surviving entity — sometimes referred to as "back-end" mergers or "mergers of equals." Most well-drafted CIC definitions include an exception for such transactions, on the theory that if the Company's shareholders continue to hold a majority of the surviving entity's voting power, no genuine change of control has occurred. We recommend including this exception.
Additionally, the definition should address the treatment of internal reorganizations and restructurings that involve mergers between the Company and its subsidiaries or between subsidiaries. Such transactions should generally be excluded from the CIC definition, as they do not represent a transfer of control to a third party. Language such as "provided, however, that a Business Combination shall not constitute a Change in Control if the Company's shareholders immediately prior to such Business Combination hold, directly or indirectly, more than 50% of the combined voting power of the outstanding voting securities of the surviving entity" is standard.
(c) Sale of Substantially All Assets. The third standard trigger is the sale, transfer, or other disposition of all or substantially all of the Company's assets to a person or entity that is not a subsidiary or affiliate of the Company. This trigger is designed to capture transactions in which the Company effectively transfers its entire business to a third party, even if the Company itself continues to exist as a legal entity (e.g., as a holding company with no operating assets).
The principal drafting issue is the definition of "substantially all." This phrase is inherently ambiguous, and its meaning has been the subject of extensive judicial interpretation. Some agreements specify a quantitative threshold — for example, assets representing 75% or more of the Company's total fair market value, or 75% or more of the Company's total gross assets, as determined on a consolidated basis. Other agreements leave the phrase undefined and rely on judicial interpretation, which introduces uncertainty but avoids potential over- or under-inclusiveness.
For NTP, we recommend defining "substantially all" as assets representing 75% or more of the Company's consolidated total assets, as reflected in the Company's most recent audited financial statements prepared in accordance with IFRS. This is consistent with the approach used in a majority of recently executed S&P 500 CEO agreements and provides a clear, objective threshold that reduces the risk of disputes. Both NTP and Harding's counsel have agreed in principle on the inclusion of this trigger, and no significant disagreement on the definition is anticipated.
B. Board Turnover Trigger (Incumbent Board / Board Composition Change)
A fourth trigger that appears in some CIC definitions is the "board turnover" or "incumbent board" trigger. Under this trigger, a change in control is deemed to occur if, within any specified period (typically 12 or 24 months), a majority of the members of the board of directors are replaced by directors whose appointment or election was not endorsed or approved by the incumbent board (defined as the board as constituted at the beginning of the measurement period, or as subsequently constituted by the addition of new directors approved by the incumbents).
Market Prevalence. The board turnover trigger was historically common in CEO employment agreements, particularly during the era of heightened hostile takeover activity in the 1990s and early 2000s. Our survey of 75 S&P 500 CEO employment agreements executed between 2021 and 2024 indicates that approximately 25%–30% of large-cap telecom and technology CEO agreements still include a board turnover trigger, down from approximately 55% a decade ago. The trend is clearly in the direction of elimination, driven by evolving shareholder expectations, proxy advisory firm criticism, and changing views about the appropriate scope of CIC protections.
Rationale for Inclusion. Proponents of the board turnover trigger argue that it provides essential protection to the executive in situations where corporate control effectively changes hands through a hostile proxy contest or activist-driven board reconstitution, even in the absence of a formal M&A transaction. In such situations, the new board may be expected to pursue a fundamentally different strategic direction, potentially including the replacement of existing senior management. Without a board turnover trigger, the executive would have no CIC protection in this scenario, even though the practical effect on the executive's employment security may be equivalent to a traditional change of control.
Arguments Against Inclusion. There are, however, significant countervailing considerations that weigh against inclusion of a board turnover trigger in NTP's CIC definition:
Shareholder Rights Concern. The board turnover trigger can be activated by legitimate shareholder activism or normal board refreshment programs, potentially entrenching management against the expressed wishes of shareholders. If shareholders exercise their right to elect new directors through the annual meeting process or a contested election, it is difficult to justify treating that exercise of shareholder democracy as an event that entitles the CEO to enhanced severance. The trigger may be perceived as a defensive mechanism that discourages healthy governance practices and insulates the CEO from accountability to shareholders.
UK Corporate Governance Perspective. The board turnover trigger is unusual and potentially problematic for UK-listed companies. The UK Corporate Governance Code places significant emphasis on board independence, diversity, and regular refreshment. Provision 40 and related guidance do not contemplate this type of trigger, and UK institutional shareholders generally view CIC protections that are triggered by board composition changes as inconsistent with the principles of good governance. The UK Investment Association's Principles of Remuneration make no provision for board turnover triggers and would likely view their inclusion as a departure from best practice requiring explanation to shareholders.
Proxy Advisory Firm Opposition. Both ISS and Tarrant Partners LLC have identified board turnover triggers as a problematic feature of CIC definitions. ISS's 2024 voting policy guidelines classify the board turnover trigger as an element of a "liberal" CIC definition, which is a negative factor in say-on-pay evaluations. Tarrant Partners LLC's 2024 proxy paper guidelines similarly flag liberal CIC definitions as a concern and may recommend against the say-on-pay proposal if the CIC definition is deemed overly broad.
Potential for Windfall. In cases of normal board succession — where directors retire at the end of their terms and are replaced by new directors who may not have been on the board long enough to count as "incumbents" — the board turnover trigger may result in unintended CIC payments. This is particularly true at companies with staggered board terms or companies undergoing planned governance transitions.
Application to NTP. Based on preliminary discussions with Victoria Hargrove, we anticipate that Harding will demand inclusion of a board turnover trigger — specifically, a provision treating as a CIC the replacement of a majority of the Board within any 12-month period where the new directors were not approved by the incumbent Board. This is consistent with the trigger included in Harding's existing Marlowe Asset Management agreement.
NTP's Board, through discussions with Mr. Stanton and Ms. Beckett, has expressed the view that the board turnover trigger represents overreach and is inconsistent with UK corporate governance norms. We concur with this assessment. NTP's dual listing on the London Stock Exchange and the NYSE subjects it to heightened governance scrutiny from both UK and US institutional shareholders, and the inclusion of a board turnover trigger would create unnecessary risk in the context of the 2025 binding remuneration policy vote.
Recommendation: Reject the board turnover trigger. NTP's CIC definition should be limited to the three standard triggers discussed above. If Hargrove presses this point aggressively, we may consider offering an alternative form of protection — such as enhanced severance in the event of termination without cause following a contested proxy election — that addresses the executive's legitimate concern about employment security without creating the governance risks associated with a formal CIC trigger. However, any such alternative would need to be carefully vetted with Veltrano Proxy Advisors and the Remuneration Committee before being proposed.
C. Other Less Common Triggers
For completeness, we briefly address several other less common CIC triggers that occasionally appear in CEO employment agreements:
Delisting from a Major Stock Exchange. A small number of agreements (fewer than 5% in our survey) include delisting from a major stock exchange as a CIC trigger. This trigger is designed to protect the executive in situations where the company goes dark or is involuntarily delisted, which may indicate financial distress or loss of public company status. However, this trigger is uncommon, is not supported by proxy advisory firm guidance, and would be particularly unusual for a company of NTP's size and stature. We do not recommend its inclusion.
Dissolution or Liquidation. Some agreements include the dissolution or liquidation of the company as a CIC trigger, typically as an adjunct to the asset sale trigger. While a plan of dissolution may precede or accompany a sale of substantially all assets, it can also occur in the context of a wind-down that does not involve a third-party acquirer. To the extent that the executive's employment is terminated in connection with a dissolution, the standard termination-without-cause provisions of the employment agreement (outside of the CIC context) would typically provide adequate protection. We do not recommend a standalone dissolution trigger.
Shareholder Approval of a Plan of Liquidation. A variant of the dissolution trigger is the approval by shareholders of a plan of complete liquidation or dissolution. This is sometimes grouped with the asset sale trigger and, standing alone, does not constitute a transfer of corporate control to a third party. We recommend against this trigger as a standalone event.
Recommendation: NTP's CIC definition should be limited to the three standard triggers: (i) acquisition of more than 50% of outstanding voting securities, (ii) merger, consolidation, or business combination where existing shareholders hold less than 50% of the surviving entity's voting power, and (iii) sale or disposition of assets representing 75% or more of the Company's consolidated total assets. No additional triggers should be included.
IV. Single Trigger vs. Double Trigger — Market Prevalence and Best Practice
A. Definition of Single Trigger vs. Double Trigger
The distinction between "single trigger" and "double trigger" CIC severance mechanisms is among the most significant structural choices in the design of CIC protections. The terms refer to the conditions that must be satisfied before CIC-enhanced severance benefits become payable:
Single Trigger. Under a single-trigger mechanism, CIC severance is payable solely upon the occurrence of a change in control, regardless of whether the executive's employment is terminated. The rationale for single-trigger provisions is that the change in control itself represents a fundamental alteration of the employment relationship — the executive agreed to work for the pre-CIC board and shareholders, not for the acquirer — and the executive should be compensated for the disruption and uncertainty associated with the transaction. Under a pure single-trigger approach, the executive would receive full CIC severance even if the executive continues in employment with the surviving entity following the CIC.
Double Trigger. Under a double-trigger mechanism, CIC severance is payable only if both of two conditions are met: (i) a change in control occurs, and (ii) the executive's employment is terminated without "cause" or the executive resigns for "good reason" within a specified period following the CIC (the "CIC window," typically 12 to 24 months). The rationale for the double-trigger approach is that CIC severance should be compensatory — designed to address the specific harm of involuntary job loss in the wake of a change in control — rather than a windfall triggered by a corporate event that may have no adverse impact on the executive's employment.
Modified Single Trigger. A hybrid approach, sometimes referred to as a "modified single trigger," provides full acceleration of equity awards upon the occurrence of a CIC (single trigger for equity) while requiring a qualifying termination for cash severance to become payable (double trigger for cash). The rationale for this approach is pragmatic: equity awards are typically cancelled, cashed out, or assumed in connection with a CIC transaction, and requiring a double trigger for equity acceleration may leave the executive with no practical ability to realize the value of unvested awards if the acquirer's equity is not publicly traded or if the assumed awards are subject to different vesting terms. However, if the acquirer assumes or replaces the equity awards on comparable terms, the need for single-trigger equity acceleration is diminished.
B. Market Trend Data
The trend toward double-trigger CIC severance has been among the most significant developments in executive compensation practice over the past decade. Our market survey data, supplemented by publicly available industry research, indicates the following:
• Single trigger prevalence has declined significantly and is now used in fewer than 15% of S&P 500 CEO employment agreements, down from approximately 40% in 2010. Single-trigger provisions are increasingly viewed as an anachronism and are actively opposed by proxy advisory firms and institutional shareholders.
• Double trigger is the clear market standard, used in approximately 75%–80% of S&P 500 CEO employment agreements. The double-trigger approach is strongly endorsed by ISS, Tarrant Partners LLC, the Council of Institutional Investors, and the UK Investment Association.
• Modified single trigger (single trigger for equity, double trigger for cash) is used in approximately 10%–15% of agreements, with somewhat higher prevalence in the technology sector and in private-equity-backed contexts where the acquirer's equity may not be publicly traded.
The proxy advisory firms have been a primary driver of this trend:
• ISS Policy (2024 Voting Guidelines): ISS considers single-trigger CIC provisions — whether for cash severance or equity acceleration — a negative factor in evaluating say-on-pay proposals. ISS's pay-for-performance methodology assigns negative weight to CIC provisions that provide for payouts without a qualifying termination. ISS has stated that "single-trigger change-in-control benefits that provide for full acceleration of equity and/or cash severance payouts without an actual or constructive termination of employment are problematic and may warrant a negative vote recommendation."
• Tarrant Partners LLC (2024 Proxy Paper Guidelines): Tarrant Partners LLC similarly disfavors single-trigger provisions and may recommend against the say-on-pay proposal if single-trigger CIC provisions are included for cash severance. Tarrant Partners LLC has noted that "change-in-control provisions that do not require a termination of employment as a condition to payout represent a transfer of shareholder value that is not tied to any demonstrable harm to the executive."
C. Application to NTP
Both NTP and Harding's counsel have agreed in principle on a double-trigger mechanism for CIC cash severance, and we regard this as the correct and necessary approach given NTP's dual listing and the composition of its shareholder base. A single-trigger mechanism for cash severance would create an unacceptable level of risk in the context of the 2025 binding remuneration policy vote and would almost certainly attract negative commentary from ISS and Tarrant Partners LLC.
With respect to equity acceleration, the treatment is more nuanced and is addressed in detail in Section VI below. For present purposes, we note that NTP should advocate for a double-trigger approach for equity acceleration as well, consistent with the emerging best-practice trend, while acknowledging that Harding will likely push for single-trigger equity acceleration based on the terms of his existing Marlowe Asset Management agreement.
Good Reason Definition. The definition of "Good Reason" in the CIC context requires careful drafting. An overly narrow definition of Good Reason may leave the executive without protection in situations where the acquirer constructively terminates the executive by degrading the terms of employment; an overly broad definition may allow the executive to claim Good Reason and trigger CIC severance in circumstances that do not represent a genuine adverse change. Based on our market survey, the following events are commonly included in the definition of Good Reason in CIC employment agreements:
(i) A material reduction in the executive's annual base salary (typically defined as a reduction of 10% or more, though some agreements use 5% or leave "material" undefined);
(ii) A material diminution in the executive's title, duties, authority, or reporting relationship (e.g., a requirement that the executive report to someone other than the board of directors, or a reduction from CEO to a lesser title);
(iii) A relocation of the executive's principal workplace by more than 50 miles from its location as of the date of the CIC (some agreements use 35 miles; 50 miles is most common);
(iv) A material reduction in the executive's target annual bonus opportunity or aggregate long-term incentive opportunity;
(v) A material breach of the employment agreement by the employer that is not cured within the applicable cure period.
We recommend requiring the executive to provide written notice of the Good Reason event within 60 days of its initial occurrence, with a 30-day cure period for the employer. If the employer fails to cure within the 30-day period, the executive must resign within 30 days following the expiration of the cure period in order to preserve the Good Reason resignation as a qualifying termination. These procedural requirements are standard and serve to prevent stale Good Reason claims.
Recommendation: Double-trigger mechanism with a 24-month post-CIC window for qualifying terminations; standard Good Reason definition including the five events listed above; 60-day notice requirement; 30-day employer cure period; 30-day resignation window following failure to cure.
V. CIC Severance Multiplier — Market Survey
A. Overview of Multiplier Ranges
Cash CIC severance at the CEO level is typically expressed as a multiple ("multiplier") of the sum of the executive's annual base salary plus target annual bonus (collectively, the "severance base"). This approach provides a simple, transparent formula that is easily understood by shareholders and proxy advisory firms and that directly links the severance payment to the executive's current level of cash compensation.
Our market survey of 75 S&P 500 CEO employment agreements executed between 2021 and 2024, supplemented by Whitmore Hobson LLP's peer-group benchmarking data and publicly available surveys from leading compensation consultancies, reveals the following distribution of CIC cash severance multipliers for CEO-level agreements at large-capitalization companies with market capitalizations in excess of $5 billion:
1x Multiplier. A 1x multiplier is uncommon for CEO-level agreements at US-listed companies, appearing in fewer than 5% of our survey sample. It is more typical for senior vice president or executive vice president-level positions, or for UK-only companies adhering strictly to the UK Corporate Governance Code's preference for notice periods of 12 months or less. While a 1x multiplier is the most governance-friendly option, it is generally insufficient to attract a CEO-caliber candidate from a competing employer that offers a higher multiplier.
2x Multiplier. A 2x multiplier is used in approximately 20%–25% of large-cap CEO agreements in our survey sample. This multiplier is more common in companies with strong UK governance influence, companies that have proactively adopted shareholder-friendly compensation practices, or companies that have recently reduced their multiplier in response to proxy advisory firm or shareholder pressure. A 2x multiplier is generally well-received by ISS and Tarrant Partners LLC and is unlikely to attract negative commentary on its own.
2.5x Multiplier. A 2.5x multiplier is used in approximately 15%–20% of agreements and represents a middle ground between US and UK market norms. This multiplier is increasingly viewed as a "sweet spot" for dual-listed companies or companies seeking to balance competitive recruitment considerations against governance constraints. It is generally within the range of acceptability for ISS and Tarrant Partners LLC, provided it is not combined with other problematic features (e.g., a full tax gross-up or single-trigger equity acceleration).
3x Multiplier. A 3x multiplier is used in approximately 35%–40% of S&P 500 CEO agreements and remains the single most commonly observed multiplier for new CEO hires at large-cap US companies. However, the prevalence of 3x multipliers has been declining in recent years, driven by proxy advisory firm scrutiny and the broader trend toward moderation in executive severance. A 3x multiplier is increasingly the subject of negative commentary from ISS, particularly when combined with other problematic features, though it does not automatically trigger a negative say-on-pay recommendation when standing alone.
Multipliers Above 3x. Multipliers in excess of 3x (e.g., 4x or 5x) are extremely rare, appearing in fewer than 5% of agreements in our survey sample. Such multipliers are universally criticized by proxy advisory firms and institutional shareholders and are likely to trigger a negative say-on-pay recommendation from ISS and/or Tarrant Partners LLC regardless of other mitigating factors.
B. Trends and Proxy Advisory Perspectives
The broader trend in CIC severance multipliers is clearly in the direction of moderation. While the 3x multiplier remains the most frequently observed single data point, the overall distribution is shifting downward, with an increasing share of new agreements using 2x or 2.5x multipliers. This trend is driven by several mutually reinforcing factors:
Declining Acceptance of 3x by Proxy Advisory Firms. ISS has increasingly flagged 3x multipliers as a concern in say-on-pay evaluations, particularly when the multiplier is combined with a full excise tax gross-up, single-trigger equity acceleration, or a liberal CIC definition (e.g., one that includes a board turnover trigger). Veltrano Proxy Advisors' preliminary analysis (provided by Sandra Kolb in a June 5, 2024 telephone conference with Helena Beckett and the undersigned) indicates that ISS generally flags CIC severance exceeding 3x the severance base as per se problematic, but that 3x standing alone — without a gross-up and with double-trigger provisions — is generally still within the range that will not automatically trigger a negative recommendation. However, a 3x multiplier combined with a full excise tax gross-up was identified by Veltrano as a combination that would almost certainly result in a negative recommendation, particularly for a UK-listed company.
UK Market Context. The UK Corporate Governance Code 2024, Provision 40, states that notice periods should be set at 12 months or less and that compensation commitments on termination should reflect best practice, including phased payment arrangements linked to mitigation. While CIC severance is technically separate from notice-period compensation, UK institutional shareholders and proxy advisors view excessive CIC multiples as inconsistent with the spirit and intent of the Code. UK FTSE 100 market practice for CIC severance typically ranges from 1x to 2x the severance base; multiples above 2x are uncommon and may trigger opposition from UK-based shareholders and the UK Investment Association.
Shareholder Concerns Specific to NTP. As discussed in Section II.C above, NTP's institutional shareholder base includes several UK-based asset managers — most notably Caledonian Asset Management (8.3%), Pemberton Capital Group (6.7%), and Atlas Pension Fund (3.2%) — that are likely to be sensitive to UK governance norms on executive severance. Caledonian, in particular, voted against NTP's 2024 say-on-pay resolution and has publicly advocated for more stringent limits on executive pay at UK-listed companies. A 3x CIC multiplier, while defensible under US market norms, may provoke opposition from these shareholders at the 2025 binding remuneration policy vote.
C. Financial Analysis for NTP
The following analysis applies the proposed severance base to the relevant multiplier ranges:
Severance Base. Under the proposed employment agreement, Harding's annual base salary will be $1,750,000 and his target annual bonus will be 175% of base salary, or $3,062,500. The severance base (base salary plus target bonus) is therefore $4,812,500.
NTP's Proposed Multiplier (2.5x):
2.5 × $4,812,500 = $12,031,250
Harding's Expected Demand (3x):
3 × $4,812,500 = $14,437,500
Gap:
$14,437,500 − $12,031,250 = $2,406,250
The gap of $2,406,250 between NTP's proposed position and Harding's expected demand is significant but not insurmountable. However, the significance of this gap extends beyond the dollar amount: Harding's current Marlowe Asset Management agreement provides a 3x CIC multiplier on a severance base of $3,625,000 ($1,450,000 base salary + $2,175,000 target bonus), yielding a CIC cash payment of $10,875,000. Under NTP's proposed 2.5x multiplier, Harding's CIC cash payment would be $12,031,250 — actually higher than his current Marlowe Asset Management payment, despite the lower multiplier, because of the higher severance base. This is an important point that should be emphasized in negotiations: Harding's absolute dollar level of CIC cash protection would increase under NTP's proposal, even at a 2.5x multiplier.
Conversely, Victoria Hargrove can be expected to characterize any multiplier below 3x as a downgrade in CIC protection on the ground that the multiplier itself — not just the dollar amount — is a measure of the executive's relative importance and the company's commitment to severance protection. This is a framing argument, but it is one that Hargrove has used effectively in past negotiations (based on our understanding from other matters involving Hargrove & Liddell LLP), and we should be prepared to respond to it.
D. Recommendation. Based on the foregoing analysis, we recommend the following negotiation posture with respect to the CIC cash severance multiplier:
Opening Position: 2x CIC Multiplier ($9,625,000). A 2x multiplier is consistent with UK governance best practice, is strongly supported by ISS and Tarrant Partners LLC, and is defensible with both US and UK institutional shareholders. While a 2x multiplier is below the median for S&P 500 CEO agreements, it is within the range of market practice and, when applied to NTP's proposed severance base, yields a dollar amount that exceeds many peer-company CIC payments at the 3x level due to the relatively high base salary and target bonus.
Expected Fallback: 2.5x CIC Multiplier ($12,031,250). A 2.5x multiplier represents a reasonable compromise between US market norms (where 2.5x–3x is common) and UK governance constraints (where 1x–2x is preferred). A 2.5x multiplier is supportable with ISS and Tarrant Partners LLC provided it is not combined with a full excise tax gross-up or single-trigger equity acceleration. This should be the maximum concession offered by NTP without express Board authorization.
Red Line: Do Not Exceed 2.5x Without Express Board Authorization. A 3x multiplier, particularly if combined with a full excise tax gross-up, would create a significant risk of a negative say-on-pay recommendation from ISS and/or Tarrant Partners LLC and would place the 2025 binding remuneration policy vote at serious risk. If Harding and Hargrove are unwilling to accept a 2.5x multiplier, the matter should be escalated to Mr. Stanton and the Remuneration Committee for further instruction before any higher figure is discussed.
VI. Equity Acceleration Upon Change in Control
A. Market Practice
The treatment of unvested equity awards upon a change in control is a critical economic element of the CIC package. Depending on the level of unvested equity held by the executive at the time of a CIC, the acceleration provisions can represent the single largest component of total CIC value — potentially exceeding the cash severance payment by a significant margin. Our market survey identifies four principal approaches to equity acceleration in CEO CIC agreements:
Full Acceleration (Single Trigger for Equity). Under this approach, all unvested equity awards — including both time-based RSUs and performance-based PSUs — vest immediately upon the occurrence of a CIC, regardless of whether the executive's employment is terminated. This approach was historically the dominant practice and remains relatively common, used in approximately 40%–50% of large-cap CEO agreements. Its persistence is attributable in part to practical considerations: in many CIC transactions, the acquirer cancels or cashes out the target company's equity awards, and absent acceleration, the executive may forfeit the value of unvested awards. However, this concern is mitigated when the acquirer assumes or replaces the awards on comparable terms.
Double-Trigger Acceleration. Under this approach, equity vests only upon a qualifying termination (without cause or for good reason) within the CIC window. If the executive continues in employment following the CIC, unvested equity continues to vest on its original schedule (or on the schedule of any replacement awards provided by the acquirer). This approach is increasingly favored by proxy advisory firms and institutional shareholders, as it ensures that acceleration occurs only when the executive has actually been harmed by the CIC. Double-trigger equity acceleration is used in approximately 35%–40% of large-cap CEO agreements, and its prevalence is increasing.
Partial Acceleration / Pro-Rata Vesting. Under this approach, unvested awards vest on a pro-rata basis based on the elapsed portion of the vesting period as of the CIC date (for time-based awards) or based on actual performance through the CIC date (for performance-based awards). This approach is used in approximately 10%–15% of agreements and is sometimes combined with a double-trigger element (e.g., pro-rata vesting upon CIC, with any remaining unvested portion subject to double-trigger acceleration).
Treatment of PSUs Upon CIC. The treatment of performance-based equity awards (PSUs) upon a CIC raises a distinct set of issues, as the performance conditions that govern vesting may not have been fully measured at the time of the CIC. The most common approaches are:
(i) Vesting at target performance level — the most common approach, used in approximately 45%–50% of agreements with PSU components;
(ii) Vesting based on actual performance through the CIC date — used in approximately 20%–25% of agreements; requires a mechanism for measuring partial-period performance, which may be straightforward for financial metrics (e.g., revenue, EBITDA) but more complex for relative total shareholder return ("rTSR") or other market-based metrics;
(iii) Vesting at the greater of target or actual performance — used in approximately 15%–20% of agreements; ensures that the executive is not disadvantaged by a mid-cycle CIC if actual performance is tracking above target;
(iv) Vesting at maximum performance level — rare (fewer than 5% of agreements); universally criticized by proxy advisory firms as providing a windfall.
B. Application to NTP
Proposed NTP Equity Awards. The proposed equity component of Harding's compensation at NTP consists of the following:
• Sign-On RSUs: $12,000,000 in time-based RSUs, vesting ratably over three years (one-third per year) from the grant date. This award is designed to compensate Harding for the estimated $23,400,000 in forfeited Marlowe Asset Management equity and is structured as a sign-on inducement.
• Sign-On PSUs: $6,400,000 in performance-based PSUs, with three-year cliff vesting. Performance metrics to be determined by the Remuneration Committee but expected to include a combination of revenue growth (50% weighting) and relative total shareholder return vs. a peer group (50% weighting), with a threshold/target/maximum payout range of 50%/100%/200%.
• Annual Long-Term Incentive ("LTI"): Target value of $9,000,000 per year, split 60% PSUs and 40% RSUs. The first annual LTI grant is expected to be made on or about the start date (October 1, 2024), with subsequent grants made annually in accordance with NTP's standard LTI grant cycle.
Harding's Expected Demand. Based on the terms of Harding's existing Marlowe Asset Management agreement and our understanding of Hargrove's typical negotiating posture, we expect Harding to demand full acceleration of all unvested equity awards (RSUs and PSUs) upon a CIC, with PSUs vesting at target performance level, regardless of whether the executive's employment is terminated (i.e., single trigger for equity acceleration). This is the approach used in Harding's Marlowe Asset Management agreement, and Hargrove will characterize any departure from it as a reduction in CIC protection.
NTP's Position. NTP should advocate for double-trigger equity acceleration consistent with the double-trigger approach for cash severance. The principal argument in favor of this position is consistency: if the rationale for double-trigger cash severance is that CIC benefits should be compensatory rather than a windfall, the same rationale applies with even greater force to equity acceleration, which can represent a far larger economic value than the cash severance payment. Additionally, ISS and Northpoint Industries evaluate equity acceleration provisions alongside cash severance in their say-on-pay analyses, and a single-trigger equity provision combined with double-trigger cash may be perceived as an end-run around the governance principles underlying the double-trigger approach.
However, we acknowledge that this position may be difficult to sustain in negotiations, given the prevalence of single-trigger equity acceleration (40%–50% of agreements) and Harding's existing protections at Marlowe Asset Management. If NTP is unable to achieve full double-trigger equity acceleration, a compromise position would be to provide for double-trigger acceleration in the event that the acquirer assumes or replaces the awards on substantially comparable terms, with automatic acceleration if the acquirer does not assume or replace (sometimes referred to as a "conditioned single trigger"). This approach, which ensures that the executive is not disadvantaged if the acquirer cancels the awards without providing equivalent replacement awards, is used in approximately 15%–20% of agreements and is generally viewed favorably by proxy advisory firms.
PSU Treatment. For PSUs, we recommend vesting at the greater of target performance or actual performance through the CIC date. This approach is more defensible with proxy advisory firms than automatic target vesting (which creates a windfall if actual performance is tracking below target) and more protective of the executive's interests than actual-only vesting (which penalizes the executive if the CIC occurs early in the performance period, before meaningful performance data is available). The "greater of" approach has gained significant traction in recent years and is increasingly viewed as the balanced middle ground.
Equity Pool Considerations. NTP's 2022 Omnibus Incentive Plan (the "Plan"), approved by shareholders at the 2022 AGM, has an aggregate of 14,200,000 shares remaining available for issuance. Based on the closing price of NTP's ordinary shares on the London Stock Exchange on June 5, 2024 (£12.45, or approximately $15.87 per share based on the GBP/USD exchange rate of 1.2743), the combined value of Harding's proposed sign-on equity ($18,400,000) and first-year LTI ($9,000,000) is approximately $27,400,000. Divided by the approximate share price of $15.87, this equates to approximately 1,726,529 shares, or approximately 0.25% of the approximately 699,000,000 ordinary shares outstanding. This level of dilution is within acceptable parameters and is unlikely to raise concerns with institutional shareholders or proxy advisory firms, which typically focus on overall equity plan dilution rather than individual grant levels.
Accounting Impact. Galloway & Partners LLP, NTP's independent auditor, has confirmed (through Clive Warburton, audit partner, in a communication to Helena Beckett on June 3, 2024) that the sign-on RSU grant ($12,000,000 fair value at grant date) would create approximately $4,000,000 per year in stock-based compensation expense over the three-year ratable vesting period under both ASC 718 (US GAAP) and IFRS 2 (International Financial Reporting Standards). The sign-on PSU grant ($6,400,000 at target) would create approximately $2,133,000 per year in compensa