PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
To: Renata Vasquez, Partner, Calderwood & Harkness LLP
From: James Underwood, Associate, Calderwood & Harkness LLP
Date: June 9, 2024
Re: Analysis of Marcus Elliot Harding's Existing Employment Agreement with Marlowe Asset Management Digital Holdings, Inc. — Key Terms and Implications for Northgate Telecommunications PLC CEO Negotiation
Matter No.: 1022-00004
Client: Northgate Telecommunications PLC
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I. Purpose and Scope
The purpose of this memorandum is to analyze the existing employment agreement (the "Marlowe Asset Management Agreement") between Marcus Elliot Harding ("Harding") and Marlowe Asset Management Digital Holdings, Inc. ("Marlowe Asset Management" or "VDHI"), a Delaware corporation headquartered at 200 Technology Way, Suite 4000, San Jose, California 95110 (NYSE: VDHI, current market capitalization approximately $34 billion), in order to identify the key contractual terms that will shape and constrain the negotiation of Harding's proposed employment agreement as Chief Executive Officer of Northgate Telecommunications PLC ("NTP" or the "Company"). This analysis is intended to provide a comprehensive reference for the negotiation team and to inform the strategic approach that Calderwood & Harkness LLP recommends NTP adopt in connection with the forthcoming term sheet and definitive documentation.
This memorandum is based upon a copy of Harding's current Marlowe Asset Management employment agreement, which was provided to us by NTP's General Counsel, Elaine Whitford, who received it through Kensington Partners Ltd. ("Kensington"), the retained executive search firm leading the CEO search engagement. Kensington's Managing Director, Antonia Blythe, obtained the agreement as part of the candidate diligence process, subject to Harding's express written consent for disclosure to NTP and its legal counsel. We have reviewed the agreement in its entirety, including all schedules, exhibits, and amendments thereto through the date hereof.
By way of background, Harding currently serves as President and Chief Operating Officer of Marlowe Asset Management, a position he has held since joining the company in September 2017. He is fifty-two years of age and has accumulated a twenty-eight-year career spanning the telecommunications and technology sectors. Prior to his tenure at Marlowe Asset Management, Harding served as Executive Vice President of Global Operations at Meridian Wireless Corporation from 2010 through 2017, where he was responsible for overseeing operations across thirty-seven countries and managing an operating budget in excess of $6 billion. His earlier career included senior leadership roles at two additional publicly traded telecommunications companies, providing him with deep industry expertise and a track record of large-scale operational management.
Harding is represented by personal legal counsel Victoria Hargrove of Hargrove & Liddell LLP, located at 51 Madison Avenue, 30th Floor, New York, New York 10010. Ms. Hargrove has represented Harding in employment matters since 2017, when she negotiated his initial COO package with Marlowe Asset Management, and she subsequently handled the 2020 amendment that elevated Harding to the combined President and COO role. Ms. Hargrove is a well-known practitioner in the executive compensation space, and her involvement will ensure that the negotiation on Harding's side is sophisticated, well-informed, and anchored to market precedent. We have had prior experience negotiating against Ms. Hargrove in unrelated matters and can expect a rigorous but professional process.
This analysis covers six principal areas, each of which is addressed in detail in the sections that follow:
1. Current Compensation Terms — including base salary, annual cash incentive, and long-term incentive awards, with a comparison to NTP's proposed compensation framework;
2. Equity Holdings and Unvested Awards — including the estimated aggregate forfeiture value of Harding's unvested Marlowe Asset Management equity and the proposed make-whole structure designed to bridge that forfeiture;
3. Change in Control Provisions — including CIC definitions, severance multipliers, equity acceleration mechanics, and the significant issue of the Section 280G tax gross-up;
4. Restrictive Covenant Obligations — including non-competition, non-solicitation, non-disparagement, and garden leave provisions, together with enforceability considerations;
5. Termination Provisions — including non-CIC severance, definitions of "Cause" and "Good Reason," and related benefits; and
6. Strategic Implications and Recommendations — identifying areas of likely quick agreement, areas of anticipated significant negotiation, and recommended positions for the Remuneration Committee.
The analysis herein is intended to serve as a working document for the negotiation team and should be read in conjunction with the appendices referenced in Section IX below, which provide detailed side-by-side comparisons, preliminary tax calculations, and definitional cross-references.
II. Summary of Harding's Current Compensation at Marlowe Asset Management
This section sets forth the principal elements of Harding's current compensation at Marlowe Asset Management, together with a comparison to the compensation that NTP proposes to offer in connection with the CEO appointment. The purpose of this comparison is to identify the magnitude and direction of economic movement for each compensation element, which will in turn inform our assessment of how Harding and his counsel are likely to evaluate the overall package.
A. Base Salary
Harding's current annual base salary at Marlowe Asset Management is $1,450,000. This base salary was most recently adjusted effective January 1, 2024, as part of Marlowe Asset Management's annual compensation review cycle, representing a 3.6% increase over his 2023 base salary of $1,400,000. The base salary level is consistent with Marlowe Asset Management's positioning of its President and COO compensation at the 75th percentile of its peer group.
NTP's proposed annual base salary for the CEO role is $1,750,000, representing an increase of $300,000, or approximately 20.7%, over Harding's current Marlowe Asset Management base. This step-up is consistent with the typical premium observed when an executive transitions from a COO or President role at one publicly traded company to a CEO role at another company of comparable or larger scale. NTP, with a current market capitalization of approximately £18.2 billion (approximately $23.1 billion at current exchange rates), is smaller than Marlowe Asset Management by market capitalization but substantially larger by revenue ($31.4 billion versus Marlowe Asset Management's $14.7 billion for the most recently completed fiscal year). The proposed base salary establishes a floor for the compensation framework and should not, in our assessment, be a material point of contention.
B. Annual Cash Incentive (Bonus)
Harding's target annual bonus under the Marlowe Asset Management Agreement is set at 150% of base salary, yielding a target annual bonus of $2,175,000 per annum. The Marlowe Asset Management bonus is determined based on a weighted combination of corporate performance metrics and individual performance objectives. Specifically, 70% of the bonus is tied to Marlowe Asset Management's corporate performance, measured against three equally weighted metrics: (i) year-over-year consolidated revenue growth, (ii) adjusted EBITDA margin, and (iii) software-as-a-service annual recurring revenue ("SaaS ARR") targets. The remaining 30% is tied to individual performance objectives established annually by Marlowe Asset Management's Compensation Committee. Maximum bonus payout under the Marlowe Asset Management plan is 200% of target, or $4,350,000.
NTP's proposed target bonus for the CEO role is 175% of base salary, yielding a target annual bonus of $3,062,500. The proposed maximum annual incentive is 300% of base salary, or $5,250,000. Both the higher target percentage and the higher maximum percentage represent meaningful enhancements relative to Harding's current arrangement. The absolute dollar increase in target bonus ($3,062,500 versus $2,175,000, a difference of $887,500) is significant and reflects both the higher base salary and the higher target percentage. The substantially higher maximum payout ($5,250,000 versus $4,350,000) provides additional upside that should be attractive to Harding.
Taken together, the NTP annual cash incentive structure represents a positive step-up from Harding's current arrangement and should be viewed favorably by Harding and his counsel. Performance metrics under NTP's annual incentive plan will be established by NTP's Remuneration Committee and will likely include revenue, adjusted EBITDA, and subscriber growth metrics, though the specific metrics and weighting remain to be determined and are outside the scope of this memorandum.
C. Long-Term Incentive (LTI)
Harding's annual long-term incentive target at Marlowe Asset Management is $7,500,000 per year, delivered through a combination of restricted stock units ("RSUs") and performance stock units ("PSUs"). The specific mix between RSUs and PSUs, as well as the vesting schedules applicable to each, vary by grant year. Based on our review of the grant summaries included as exhibits to the Marlowe Asset Management Agreement, Marlowe Asset Management's typical approach for Harding's grants has been approximately 50% RSUs (vesting ratably over four years, with 25% vesting on each anniversary of the grant date) and 50% PSUs (cliff vesting at the end of a three-year performance period, subject to achievement of total shareholder return and revenue growth targets). The annual LTI value of $7,500,000 places Harding at the 75th percentile of LTI compensation for COO-level executives at Marlowe Asset Management's peer companies, according to the proxy disclosure in Marlowe Asset Management's most recent definitive proxy statement (filed March 15, 2024).
NTP is proposing an annual LTI target of $9,000,000, with a mix of 60% PSUs and 40% RSUs. This represents an annual increase of $1,500,000 over Harding's current LTI target. The heavier weighting toward PSUs (60/40 versus Marlowe Asset Management's approximate 50/50 mix) reflects NTP's emphasis on performance-based compensation and alignment with best practices recommended by UK institutional investors and proxy advisory firms. The $1,500,000 LTI delta should be viewed favorably by Harding as reflecting the greater scope and responsibilities inherent in the Group CEO role, particularly given NTP's global operations spanning forty-two countries.
D. Total Target Annual Compensation
The table below summarizes Harding's total target annual compensation at Marlowe Asset Management as compared with NTP's proposed total target annual compensation:
The NTP proposed total target annual compensation of $13,812,500 represents a premium of $2,687,500, or approximately 24.2%, over Harding's current total target annual compensation of $11,125,000 at Marlowe Asset Management. This premium falls within the range that Whitmore Hobson LLP ("Whitmore Hobson"), NTP's independent compensation consultant (led by Dr. Rachel Whitmore), identified as appropriate for a CEO-level step-up in their peer-group benchmarking analysis completed in May 2024. Specifically, Whitmore Hobson's analysis of twenty-six comparable CEO transitions over the past five years found that the median premium for a COO-to-CEO transition at a publicly traded company was approximately 22%, with an interquartile range of 18% to 28%. The proposed 24.2% premium is thus squarely within the expected range and should withstand scrutiny from institutional shareholders and proxy advisory firms.
III. Unvested Equity at Marlowe Asset Management — Make-Whole Analysis
One of the most significant financial considerations in any CEO recruitment from a competing public company is the treatment of the candidate's unvested equity at the incumbent employer. When an executive voluntarily resigns to accept a new position, unvested equity awards at the prior employer are typically forfeited in their entirety, creating a substantial economic barrier to departure. The make-whole package offered by the recruiting company is designed to bridge this gap and eliminate the forfeiture as a deterrent to the executive's acceptance of the new role. This section analyzes Harding's estimated equity forfeiture at Marlowe Asset Management and evaluates NTP's proposed make-whole structure.
A. Estimated Forfeiture Value
Harding holds unvested equity awards at Marlowe Asset Management with an estimated aggregate forfeiture value of $23,400,000 as of the anticipated NTP start date of October 1, 2024. This figure encompasses unvested RSUs and PSUs from multiple grant years, specifically the annual grants made in March 2021, March 2022, March 2023, and March 2024, each valued at current Marlowe Asset Management share prices (NYSE: VDHI, closing price $112.47 as of June 7, 2024). The breakdown by grant year is as follows:
The estimated value has been rounded to $23,400,000 for planning purposes, reflecting minor fluctuations in Marlowe Asset Management's share price and the use of target-level assumptions for PSU awards. Upon Harding's voluntary resignation from Marlowe Asset Management to accept the NTP CEO role, all of these unvested awards would be forfeited under the standard vesting provisions of Marlowe Asset Management's 2019 Equity Incentive Plan, which requires continuous employment through each applicable vesting date. There is no provision in the Marlowe Asset Management Agreement or the equity plan for continued vesting following a voluntary resignation.
B. NTP's Proposed Make-Whole Structure
NTP has proposed a make-whole package consisting of both equity and cash components, structured as follows:
Sign-On RSU Grant: NTP proposes a sign-on RSU grant with a grant-date value of $12,000,000, vesting ratably over three years from Harding's start date (one-third per year, with each tranche vesting on the first, second, and third anniversaries of the start date). This grant would be made under NTP's 2022 Omnibus Incentive Plan and would be denominated in NTP American Depositary Receipts ("ADRs") traded on the NYSE under the symbol NTPC.
Sign-On PSU Grant: NTP proposes a sign-on PSU grant with a target grant-date value of $6,400,000, subject to cliff vesting at the end of a three-year performance period. The PSUs would be subject to performance hurdles based on NTP's relative total shareholder return ("TSR") versus a peer group index and absolute revenue growth targets over the performance period. Payout would range from 0% to 200% of target based on performance, with threshold performance required for any payout.
Total Sign-On Equity: The combined sign-on equity grants total $18,400,000 ($12,000,000 RSUs + $6,400,000 PSUs).
Sign-On Cash Bonus (Make-Whole Component): NTP proposes a one-time sign-on cash bonus of $5,000,000, payable within thirty (30) days of Harding's start date. This cash payment is subject to a twenty-four-month clawback provision requiring full repayment if Harding voluntarily resigns from NTP (other than for Good Reason) within twenty-four months of his start date.
Total Make-Whole Package: The aggregate make-whole package totals $23,400,000, composed of $18,400,000 in sign-on equity and $5,000,000 in sign-on cash.
C. Gap Analysis
On a headline basis, the make-whole package is designed to be dollar-for-dollar with Harding's estimated equity forfeiture at Marlowe Asset Management:
• Forfeited Marlowe Asset Management Equity: $23,400,000
• NTP Sign-On Equity: $18,400,000
• Equity-Only Gap: $23,400,000 − $18,400,000 = $5,000,000
• Sign-On Cash Bonus: $5,000,000
• Net Gap After Cash: $0
The $5,000,000 shortfall between the forfeited Marlowe Asset Management equity and the NTP sign-on equity is intentionally bridged by the sign-on cash bonus, so that the total make-whole equals the total estimated forfeiture value. While this arithmetic balance is elegant, several issues warrant attention and are likely to arise in negotiation:
Clawback on Sign-On Cash. The sign-on cash bonus of $5,000,000 is subject to a twenty-four-month clawback in the event Harding voluntarily resigns from NTP (other than for Good Reason). We anticipate that Ms. Hargrove will push back on this provision in one or more of the following ways: (i) seeking to reduce the clawback period from twenty-four months to twelve months; (ii) seeking to implement a pro-rata reduction in the clawback amount over the twenty-four-month period (e.g., 1/24th reduction for each completed month of service); or (iii) seeking to narrow the clawback triggers to exclude resignations following certain events that do not technically qualify as "Good Reason" under the agreement but that could be characterized as constructive changes in Harding's role.
PSU Performance Risk. The PSU component of the make-whole ($6,400,000 at target) is subject to cliff vesting at the end of three years and is contingent upon achievement of performance hurdles. The ultimate realized value of the PSU grant may differ materially from the $6,400,000 target value. If performance falls below threshold, the realized value could be zero; if performance is at maximum, the realized value could be as high as $12,800,000 (200% of target). This creates meaningful risk for Harding that his make-whole is not truly dollar-for-dollar in economic substance, particularly because his forfeited Marlowe Asset Management equity includes time-vesting RSUs whose value is not contingent on future performance. Ms. Hargrove may argue that the PSU component should be valued at above-target levels (e.g., 125% of target, or $8,000,000) to compensate Harding for this performance risk, or alternatively that a larger portion of the make-whole should be delivered in RSUs rather than PSUs.
Equity Pool Impact. NTP's 2022 Omnibus Incentive Plan currently has approximately 14,200,000 shares remaining in the authorized share reserve. The combined sign-on equity and first-year annual LTI grants for Harding would total approximately $27,400,000 ($18,400,000 sign-on + $9,000,000 annual LTI). At NTP's current ADR price of approximately $15.87, this would require approximately 1,726,529 ADRs, representing approximately 0.25% of NTP's approximately 699 million outstanding ordinary shares. This level of dilution is manageable and falls well within the annual burn rate guidelines established by major proxy advisory firms (ISS generally considers burn rates above 2.0% for S&P 500-equivalent companies to be excessive). The equity pool impact should not, in our assessment, be a limiting factor in this negotiation.
Accounting Treatment. Galloway & Partners LLP ("Galloway"), NTP's independent auditors (led by engagement partner Clive Warburton), have confirmed that the sign-on RSU grant would create approximately $4 million per year in compensation expense over the three-year vesting period under ASC 718 (U.S. GAAP) / IFRS 2 (as applicable to NTP's consolidated financial statements). The sign-on PSU grant would be expensed over the three-year performance period at its grant-date fair value using a Monte Carlo simulation model for the TSR component. The total incremental compensation expense attributable to the make-whole equity grants is estimated at approximately $6.1 million per year over the three-year vesting/performance period. This expense has been communicated to NTP's Chief Financial Officer, David Harrington, and is reflected in the preliminary financial impact analysis.
IV. Change in Control Provisions Under Marlowe Asset Management Agreement
The change in control ("CIC") provisions of Harding's Marlowe Asset Management Agreement represent one of the most significant areas of complexity and potential disagreement in the NTP negotiation. Harding's existing CIC protections are unusually robust, and we anticipate that he and Ms. Hargrove will seek to replicate or exceed these protections in the NTP agreement. This section analyzes the four principal components of Harding's CIC protections: the definition of "Change in Control," the CIC severance multiplier and benefits, CIC equity acceleration, and the Section 280G tax gross-up.
A. Definition of "Change in Control"
The Marlowe Asset Management Agreement defines "Change in Control" broadly, encompassing four triggering 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 more than 50% of the combined voting power of Marlowe Asset Management's then-outstanding voting securities;
(b) Merger or Consolidation. The consummation of a merger, consolidation, or similar business combination involving Marlowe Asset Management, unless the holders of Marlowe Asset Management's voting securities immediately prior to such transaction hold at least 50% of the combined voting power of the surviving or resulting entity immediately following the transaction;
(c) Asset Sale. The sale, transfer, or other disposition of all or substantially all of Marlowe Asset Management's assets; and
(d) Board Turnover. A change in the composition of the Board of Directors of Marlowe Asset Management such that a majority of the directors are replaced within any twelve-month period, unless the election or nomination of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such twelve-month period (the "Board Turnover Trigger").
The first three triggers — acquisition of voting securities, merger/consolidation, and asset sale — are standard and generally consistent with market practice for change in control definitions in executive employment agreements at publicly traded companies.
The Board Turnover Trigger, however, is notable and warrants particular attention. This trigger provides Harding with CIC protections even in circumstances short of a traditional acquisition or merger transaction. A successful proxy contest or activist campaign that results in the replacement of a majority of the Board within a twelve-month period would constitute a Change in Control under this definition, even if there is no change in the ownership of Marlowe Asset Management's equity. This is more expansive than standard market practice. While Board turnover triggers are not uncommon in equity plan definitions of CIC, they are less frequently included in individually negotiated employment agreements, and the twelve-month measurement period and simple majority threshold make this trigger relatively easy to satisfy.
Implication for NTP: Harding and his counsel will almost certainly seek to replicate this Board Turnover Trigger in the NTP agreement. The NTP Board of Directors, and specifically the Remuneration Committee chaired by Geoffrey Stanton, should be prepared for this demand and should determine its position in advance of the negotiation. From NTP's perspective, this trigger presents several concerns. First, NTP is a UK-listed company subject to the UK Corporate Governance Code 2024 and the expectations of UK institutional shareholders, who generally take a more conservative view of CIC protections than their U.S. counterparts. Second, the inclusion of a Board turnover trigger could create perverse incentives in the context of shareholder activism or contested elections, effectively giving the CEO a financial interest in opposing Board changes that shareholders may support. Third, the trigger could interact with NTP's dual-listing structure (London Stock Exchange and NYSE ADR) in ways that create unintended consequences. We recommend that the Remuneration Committee take the position that this trigger should not be included in the NTP agreement, recognizing that this is likely to be a point of significant contention.
B. CIC Severance — Multiplier and Benefits
Harding's Marlowe Asset Management Agreement provides for severance upon a qualifying termination following a Change in Control at a multiplier of 3x the sum of his base salary and target annual bonus:
• CIC severance = 3 × (Base Salary + Target Annual Bonus)
• At Marlowe Asset Management current compensation levels: 3 × ($1,450,000 + $2,175,000) = 3 × $3,625,000 = $10,875,000
If this same 3x multiplier were replicated at NTP's proposed compensation levels, the CIC severance would be:
• 3 × ($1,750,000 + $3,062,500) = 3 × $4,812,500 = $14,437,500
NTP has proposed a 2.5x multiplier for CIC severance, which at NTP's proposed compensation levels would yield:
• 2.5 × ($1,750,000 + $3,062,500) = 2.5 × $4,812,500 = $12,031,250
The gap between the 3x multiplier that Harding currently enjoys and NTP's proposed 2.5x multiplier is $14,437,500 − $12,031,250 = $2,406,250. While this dollar gap is meaningful, the more significant issue is the governance optics and shareholder reaction associated with a 3x CIC multiplier.
Governance Concerns. The 3x multiplier is at the upper end of market practice for CIC severance at publicly traded companies and will raise substantial governance concerns for NTP as a UK-listed company. Several considerations are relevant:
• Proxy Advisory Firm Sensitivity. Veltrano Proxy Advisors, Inc. (Sandra Kolb, Managing Director), which has been retained by NTP to assess shareholder sensitivity on executive compensation matters, has advised that Northgate Partners LLC ("ISS") generally flags CIC severance multiples exceeding 3x as problematic in its proxy voting recommendations. While 3x is technically at the boundary rather than above it, the combination of a 3x CIC multiplier with other aggressive CIC terms (such as a full 280G gross-up) would likely result in an adverse ISS recommendation on NTP's remuneration policy.
• NTP's Most Recent Say-on-Pay Vote. NTP's say-on-pay advisory vote at the April 18, 2024 Annual General Meeting received 87.4% support, which is a healthy but not overwhelming level of shareholder approval. A package perceived as excessively generous on CIC terms could erode shareholder support at the 2025 AGM, where any new CEO compensation package will be subject to a binding remuneration policy vote under the Companies Act 2006 and the UK Corporate Governance Code.
• UK Institutional Shareholder Expectations. The UK Corporate Governance Code 2024, Provision 40, provides that executive directors' notice periods should be set at one year or less, and that the Remuneration Committee should consider what compensation commitments their directors' terms of appointment would entail in the event of early termination. While CIC severance is technically distinct from notice period obligations, the underlying principle — that severance entitlements should be reasonable and not excessive — applies equally. UK institutional shareholders, including several of NTP's largest holders, have historically taken a more conservative view of CIC protections than U.S. institutional investors.
• NTP's Top Shareholders. NTP's principal shareholders, each of whom would have a voice in any binding remuneration policy vote, include Caledonian Asset Management (8.3% of outstanding ordinary shares), Pemberton Capital Group (6.7%), Thornbury Investment Trust (5.1%), Regis Global Equity Fund (4.4%), and Atlas Pension Fund (3.2%). Collectively, these five holders control 27.7% of outstanding shares. Their views on CIC severance multiples will be influential and should be informally sounded out, through Veltrano Proxy Advisors or directly, before NTP commits to a specific multiplier.
In addition to the cash severance multiplier, Harding's Marlowe Asset Management CIC severance package includes continuation of health and welfare benefits for a period of thirty-six months following termination, an executive outplacement allowance of $50,000, and full vesting of any employer contributions to Harding's supplemental executive retirement plan ("SERP").
C. CIC Equity Acceleration
The Marlowe Asset Management Agreement provides for full acceleration of all unvested equity upon a qualifying CIC termination. Both RSUs and PSUs vest in full immediately upon the occurrence of a qualifying termination following a Change in Control. Critically, PSUs vest at target level (100% of target units), regardless of actual performance against the applicable performance metrics as of the date of the CIC termination. There is no pro-rata adjustment based on actual performance to date, nor is there any adjustment based on the portion of the performance period that has elapsed.
This provision is structured as a "double trigger" arrangement, meaning that acceleration requires both: (i) the occurrence of a Change in Control event (as defined in Section IV.A above), and (ii) a qualifying termination of Harding's employment within a specified window following the CIC event. A qualifying termination includes termination by Marlowe Asset Management without Cause or resignation by Harding for Good Reason, in each case occurring within twenty-four months following the consummation of the Change in Control. The double-trigger structure is consistent with current market best practices and the expectations of proxy advisory firms, which have largely moved away from endorsing single-trigger acceleration provisions.
Implication for NTP: Harding and Ms. Hargrove will likely demand full acceleration at target for all equity, including PSUs, upon a qualifying CIC termination under the NTP agreement. NTP may prefer one of the following alternative approaches:
• Pro-Rata PSU Acceleration Based on Actual Performance. Under this approach, PSUs would vest upon a CIC termination, but only on a pro-rata basis reflecting the portion of the performance period that has elapsed, and at the level of actual performance against the applicable metrics as of the most recent measurement date. This approach is more conservative and aligns the executive's payout with actual shareholder value creation during the performance period.
• Acceleration at the Greater of Target and Actual Performance. Under this approach, PSUs would vest in full upon a CIC termination at the greater of (x) the target level and (y) the level of actual performance against the applicable metrics as of the most recent measurement date. This approach provides a floor at target while allowing the executive to benefit from above-target performance.
We recommend that NTP propose pro-rata PSU acceleration based on actual performance as its initial position, with acceleration at the greater of target and actual as a fallback concession if needed to reach agreement.
D. CIC Tax Treatment — Full 280G Gross-Up
The Marlowe Asset Management Agreement includes a provision for a full Section 280G tax gross-up. Under this provision, if any payments or benefits to Harding in connection with a Change in Control constitute "excess parachute payments" within the meaning of Internal Revenue Code Section 280G, Marlowe Asset Management is obligated to pay Harding an additional amount (the "Gross-Up Payment") sufficient to cover the 20% excise tax imposed under IRC Section 4999, together with any income and employment taxes on the Gross-Up Payment itself, so that Harding is placed in the same after-tax position he would have occupied if no excise tax had applied.
This provision is significant because the market trend among publicly traded companies has moved decisively away from full gross-up provisions and toward "best-net" cutback provisions. Under a best-net cutback, payments to the executive are reduced to the "safe harbor" amount (i.e., three times the executive's "base amount" less one dollar) if, and only if, the cutback would leave the executive in a better after-tax position than receiving the full payments and bearing the 20% excise tax. The best-net approach eliminates the company's obligation to fund the gross-up while protecting the executive from a perverse result in which the excise tax reduces the executive's after-tax income below what the executive would have received under a cutback. As of 2024, fewer than 15% of S&P 500 companies continue to provide full 280G gross-ups in new employment agreements.
The financial implications of a full gross-up at NTP's proposed compensation levels could be substantial. The following analysis sets forth a preliminary estimate:
• Harding's "Base Amount." Under Section 280G, the "base amount" is determined as the average of the executive's annualized includible compensation (i.e., W-2 compensation) for the five taxable years preceding the year in which the Change in Control occurs. Based on information provided by Kensington Partners, Harding's average W-2 compensation from Marlowe Asset Management for the period 2019 through 2023 was approximately $7,840,000.
• Safe Harbor Limit. The safe harbor limit under Section 280G is three times the base amount, less one dollar: 3 × $7,840,000 = $23,520,000; safe harbor limit = $23,519,999.
• Estimated Total Parachute Payments. Based on Harding's anticipated demands (3x CIC cash severance of $14,437,500 + full equity acceleration at an estimated in-the-money value dependent on NTP's share price + benefits continuation and other non-cash items), the estimated total parachute payments are approximately $38,200,000.
• Excess Parachute Payment. The excess parachute payment is the amount by which total parachute payments exceed the base amount: $38,200,000 − $7,840,000 = $30,360,000.
• Estimated Excise Tax. The excise tax under Section 4999 is 20% of the excess parachute payment: $30,360,000 × 0.20 = $6,072,000.
• Estimated Gross-Up Cost to NTP. The gross-up must cover not only the excise tax itself but also the income and employment taxes on the gross-up payment, creating a "tax-on-tax" effect. Depending on applicable marginal federal and state income tax rates and the precise methodology used to calculate the parachute payment (including the allocation of non-compete consideration under Section 280G(b)(4)(B)), the estimated gross-up cost to NTP is in the range of $4,200,000 to $6,800,000.
Interaction with Base Amount Calculation. It is important to note that the base amount is calculated using Harding's W-2 history at Marlowe Asset Management. If Harding transitions to NTP and a CIC event occurs during the initial years of his NTP employment, the base amount may still be calculated in whole or in part using his Marlowe Asset Management W-2 history (which reflects lower compensation than NTP's proposed package), resulting in a relatively low safe harbor limit compared to Harding's NTP-level compensation. This asymmetry increases the likelihood and magnitude of excess parachute payments, making the gross-up provision more costly for NTP than it might otherwise be.
Best-Net Analysis. Under a best-net cutback approach (which NTP should propose as its preferred alternative to the full gross-up), the total parachute payments would be reduced to the safe harbor limit of $23,519,999. Whitmore Hobson LLP's preliminary analysis suggests that Harding's after-tax position under a cutback scenario versus a full payment plus excise tax scenario would be roughly equivalent, with the cutback scenario slightly favored due to the avoidance of the excise tax and the marginal tax savings associated with the reduced income. The economic difference between the two approaches is estimated at less than $500,000 in Harding's favor under the cutback scenario. This means that the full gross-up is largely a matter of principle and optics rather than economic substance — Harding's counsel will frame it as a protection against the punitive nature of the excise tax and a continuation of Harding's existing contractual rights, while NTP will argue that the best-net approach produces a superior or equivalent economic result for Harding without exposing NTP to the gross-up cost.
This analysis is necessarily preliminary and is subject to refinement once the definitive terms of Harding's NTP compensation are established. A detailed Section 280G base amount calculation and safe harbor analysis is set forth in Appendix B.
V. Restrictive Covenant Obligations Under Marlowe Asset Management Agreement
Harding's Marlowe Asset Management Agreement contains several restrictive covenant obligations that will serve as the benchmark against which Harding and his counsel will evaluate NTP's proposed restrictive covenants. The restrictive covenants in executive employment agreements are often among the most heavily negotiated provisions, as they directly constrain the executive's future employment options and career flexibility. This section analyzes each restrictive covenant in the Marlowe Asset Management Agreement and assesses the implications for the NTP negotiation.
A. Non-Compete
Current Marlowe Asset Management Provision. The Marlowe Asset Management Agreement includes a non-competition covenant with the following parameters:
• Duration: Twelve (12) months following the termination of Harding's employment with Marlowe Asset Management, regardless of the reason for termination.
• Geographic Scope: United States only.
• Activity Restriction: During the restricted period, Harding is prohibited from being employed by, rendering services to, or holding a meaningful ownership interest in (exceeding 2% of any class of publicly traded securities) any "Competing Business." The term "Competing Business" is defined as any entity that directly competes with Marlowe Asset Management's core business lines, specifically (i) telecommunications infrastructure services (including wireline and wireless network deployment, management, and optimization) and (ii) enterprise software-as-a-service ("SaaS") solutions for the telecommunications industry.
The twelve-month duration and United States-only geographic scope of the Marlowe Asset Management non-compete are moderate by current market standards for C-suite executives and reflect the prevailing trend toward shorter and more narrowly tailored non-competition covenants. This trend is driven in part by an evolving and increasingly restrictive legal landscape governing non-competes, including proposed and enacted legislation at the state level that limits or prohibits non-competition agreements for employees, even at the executive level. Most notably, New York State has pending legislation that would significantly restrict or ban non-compete agreements for employees earning below a specified threshold, and while the current version of the legislation would likely exempt an executive at Harding's compensation level, the legislative trend signals a broader shift in enforceability norms that influences negotiating dynamics even where the legislation does not directly apply.
NTP's Proposed Non-Compete. NTP's initial proposal includes a non-competition covenant with a twenty-four-month duration and worldwide geographic scope, with a broadly defined activity restriction covering any entity that competes with NTP's telecommunications, media, or digital services business lines. This is significantly more restrictive than Harding's current Marlowe Asset Management non-compete on every dimension — duration (24 months vs. 12 months), geography (worldwide vs. US-only), and scope of restricted activity (broader definition encompassing media and digital services in addition to telecommunications).
Implication for NTP. The gap between NTP's proposed twenty-four-month worldwide non-compete and Harding's current twelve-month US-only non-compete is one of the widest points of divergence we anticipate in this negotiation. Harding will naturally benchmark any NTP non-compete against his existing Marlowe Asset Management obligation, and Ms. Hargrove will almost certainly argue that it would be unreasonable — and potentially unenforceable — for NTP to impose restrictions materially more burdensome than those Harding accepted as Marlowe Asset Management's COO, particularly given that the Marlowe Asset Management non-compete was negotiated at arm's length with a sophisticated counterparty and reflects the market equilibrium for an executive of Harding's stature.
Enforceability Considerations. A twenty-four-month worldwide non-compete under New York governing law (which is the governing law specified in NTP's proposed agreement) may face enforceability challenges under the reasonableness analysis applied by New York courts. New York courts evaluate non-competition covenants under a multi-factor test that considers: (i) whether the restraint is reasonable in duration; (ii) whether the geographic scope is no broader than necessary to protect the employer's legitimate interests; (iii) whether the scope of restricted activity is reasonably related to the employer's business; (iv) whether the restraint imposes an undue hardship on the employee; and (v) whether the restraint is harmful to the public interest. See Vane Kaplan CPAs LLP Seidman v. Hirshberg, 93 N.Y.2d 382 (1999); Scott, Stackrow & Co., C.P.A.'s, P.C. v. Skavina, 9 A.D.3d 805 (3d Dep't 2004). While New York courts have upheld non-competes of up to twenty-four months in duration for senior executives in some circumstances, a worldwide geographic scope without further limitation may be viewed as overbroad absent evidence that the executive had global responsibilities and that the employer's competitive interests are genuinely worldwide.
Recommended Fallback Position. We recommend that NTP prepare to move from its initial position of a twenty-four-month worldwide non-compete to a fallback position of an eighteen-month non-compete limited to North America and Western Europe, with a narrower activity definition focused specifically on telecommunications and digital communications services (excluding NTP's media and content businesses, which are a smaller portion of NTP's overall revenue and less likely to be the focus of Harding's future employment). This fallback should be paired with a six-month paid garden leave running concurrently with the first six months of the non-compete period, as discussed further in Section V.D below, which would effectively create a twelve-month operative non-compete following the conclusion of garden leave while providing Harding with continued compensation during the initial restricted period.
B. Non-Solicitation
The Marlowe Asset Management Agreement includes a twelve-month non-solicitation provision that prohibits Harding from directly or indirectly soliciting, inducing, or encouraging: (i) any employee of Marlowe Asset Management (at the level of vice president or above, or any employee with whom Harding had material contact during the final twenty-four months of his employment) to terminate his or her employment with Marlowe Asset Management; or (ii) any customer or client of Marlowe Asset Management (with whom Harding had a material business relationship during the final twenty-four months of his employment) to terminate or reduce its business relationship with Marlowe Asset Management.
NTP is proposing a twenty-four-month non-solicitation covering both employees (without a seniority threshold) and customers. We anticipate that Ms. Hargrove will push back on the twenty-four-month duration and seek a shorter period, likely eighteen months, which would represent a middle ground between NTP's proposal and Harding's current Marlowe Asset Management obligation. Additionally, Harding's counsel may seek to eliminate or significantly narrow the customer non-solicitation component, arguing that a CEO's relationships with customers are inherently broad and that an expansive customer non-solicitation would effectively function as a non-compete by a different name. NTP should be prepared to concede on the customer non-solicitation if necessary to reach agreement on the employee non-solicitation and non-compete terms, which are of greater practical importance.
C. Non-Disparagement
The Marlowe Asset Management Agreement contains a standard mutual non-disparagement provision, under which both Harding and Marlowe Asset Management agree not to make any public statements that disparage or are intended to damage the reputation of the other party. The provision is perpetual in duration (surviving termination of employment indefinitely) and includes carve-outs for: (i) truthful statements made in connection with legal proceedings, arbitration, or mediation; (ii) truthful statements made in response to inquiries from governmental or regulatory authorities; and (iii) truthful statements made in response to subpoenas or compulsory legal process.
This provision is largely non-controversial and consistent with standard market practice. NTP's proposed agreement includes a substantially similar mutual non-disparagement provision, and we do not anticipate that this will be a material point of negotiation. The provision should be replicable in the NTP agreement with only minor drafting adjustments.
D. Garden Leave
The Marlowe Asset Management Agreement does not include a garden leave provision. This is noteworthy because garden leave is a common feature of UK employment agreements and service contracts for directors of UK-listed companies, but is less prevalent in the United States, where employment relationships are more commonly "at-will" and post-employment restrictive covenants serve the function that garden leave serves in the UK context.
NTP is proposing a six-month paid garden leave provision, under which Harding would remain employed by NTP during the garden leave period and would continue to receive his base salary, but would not be required to perform services and would be excluded from NTP's offices and systems. During the garden leave period, Harding would remain subject to his duties of good faith and loyalty as an employee and would not be permitted to commence employment with any other entity.
We anticipate that Ms. Hargrove will seek modifications to this proposal in two respects. First, she is likely to demand that garden leave be compensated at full compensation — including base salary and a pro-rata target bonus — rather than at base salary only. The argument would be that garden leave effectively constrains Harding's ability to accept new employment during the garden leave period, and that compensation during garden leave should therefore reflect the full economic cost to Harding of the restraint. Second, she is likely to argue that garden leave should run concurrently with the non-compete period, such that the operative non-compete period following the conclusion of garden leave is reduced by the duration of the garden leave. For example, if NTP agrees to an eighteen-month non-compete and a six-month garden leave running concurrently, the effective post-garden-leave non-compete would be twelve months. This is, in our view, a reasonable structure and is consistent with the approach that Moorfield Bates LLP (Simon Aldridge), our UK co-counsel, has recommended for the UK service agreement component.
From NTP's perspective, the garden leave provision offers a valuable practical benefit: it provides NTP with a period during which Harding remains bound by his employment obligations (including confidentiality and non-competition during employment) while allowing NTP to manage the transition of Harding's responsibilities and protect against the risk of competitive harm. We recommend that NTP accept the principle of concurrency between garden leave and the non-compete and negotiate the compensation terms during garden leave as a separate point.
VI. Termination Provisions Under Marlowe Asset Management Agreement
This section analyzes the termination provisions of Harding's Marlowe Asset Management Agreement, including severance upon termination without Cause or resignation for Good Reason outside of a Change in Control context, the definitions of "Good Reason" and "Cause," and the treatment of equity and benefits upon termination. These provisions will serve as the baseline against which Harding's counsel will evaluate NTP's proposed termination terms.
A. Termination Without Cause / Resignation for Good Reason (Non-CIC)
The Marlowe Asset Management Agreement provides for severance upon termination by Marlowe Asset Management without Cause or resignation by Harding for Good Reason, in each case outside of a Change in Control context, at a multiplier of 2x the sum of base salary and target annual bonus:
• Non-CIC severance = 2 × (Base Salary + Target Annual Bonus)
• At Pemberton Investors levels: 2 × ($1,450,000 + $2,175,000) = 2 × $3,625,000 = $7,250,000
NTP proposes the same 2x multiplier for non-CIC severance, which at NTP's proposed compensation levels would yield:
• 2 × ($1,750,000 + $3,062,500) = 2 × $4,812,500 = $9,625,000
While the multiplier is the same, the absolute dollar value is $2,375,000 higher at NTP due to the higher base salary and target bonus. Nevertheless, we anticipate that Harding and Ms. Hargrove will seek to increase the non-CIC severance multiplier to 2.5x, which would yield:
• 2.5 × ($1,750,000 + $3,062,500) = 2.5 × $4,812,500 = $12,031,250
The gap between NTP's proposed 2x non-CIC severance and Harding's anticipated 2.5x demand is $12,031,250 − $9,625,000 = $2,406,250. Ms. Hargrove's argument will likely center on the risk Harding is assuming in leaving a well-established role at Marlowe Asset Management to join NTP — a company undergoing a CEO transition, with the attendant uncertainties regarding Board dynamics, strategic direction, and cultural fit. She may argue that the higher multiplier is warranted to protect Harding against the risk of a premature termination during the integration period.
In addition to the cash severance, NTP proposes the following ancillary termination benefits upon a non-CIC qualifying termination:
• Pro-Rata Bonus. A pro-rata target bonus for the fiscal year in which termination occurs, based on actual performance through the date of termination (or, if actual performance is not determinable at the time of termination, at target).
• COBRA Continuation. Continuation of group health benefits under COBRA for a period of eighteen (18) months following termination, at the employer's cost.
• Equity Acceleration. Twelve (12) months of accelerated vesting of unvested RSU awards; PSU awards would remain subject to actual performance and would vest on a pro-rata basis (based on the number of full months of employment during the performance period divided by the total number of months in the performance period) at the end of the performance period.
We anticipate that Harding's counsel will counter with the following enhanced termination benefits:
• Full Equity Acceleration. Full acceleration of all unvested RSUs and PSUs (with PSUs vesting at target), rather than twelve months of accelerated vesting for RSUs and pro-rata vesting for PSUs. This is a significant upgrade that NTP is unlikely to accept in full; a reasonable compromise may be eighteen months of accelerated RSU vesting and pro-rata PSU vesting at the greater of target and actual.
• Extended COBRA. Twenty-four (24) months of COBRA continuation rather than eighteen months.
• Executive Outplacement. An executive outplacement allowance (typically $25,000 to $50,000), which is not currently included in NTP's proposal.
B. Definition of "Good Reason"
The definition of "Good Reason" in the Marlowe Asset Management Agreement includes the following triggering events, each of which must remain uncured for a period of thirty (30) days following written notice from Harding to Marlowe Asset Management:
(a) A material reduction in Harding's annual base salary (defined as a reduction of more than 10% from the then-current level, unless such reduction is part of an across-the-board reduction applicable to all senior executives);
(b) A material diminution in Harding's duties, responsibilities, or title, including any reassignment to a position of materially lesser authority or the appointment of any individual to a position that is senior to Harding's position in the organizational hierarchy (other than the Chief Executive Officer);
(c) A relocation of Harding's principal place of employment by more than fifty (50) miles from its then-current location without Harding's prior written consent; and
(d) A material breach by Marlowe Asset Management of any provision of the employment agreement or any other written agreement between Harding and Marlowe Asset Management.
The Marlowe Asset Management Good Reason definition is generally standard and includes the typical triggering events found in executive employment agreements. However, in the context of the NTP negotiation, we anticipate that Harding's counsel may seek to expand the definition to include one or more additional triggers:
• Failure to Nominate for Board Membership. Harding's NTP CEO agreement will include a requirement that NTP nominate Harding for election to the Board of Directors at each annual general meeting during his employment. Ms. Hargrove may seek to add a Good Reason trigger for NTP's failure to so nominate Harding, or for Harding's failure to be elected to the Board (though the latter is generally not accepted, as the company cannot guarantee the outcome of a shareholder vote).
• Reduction in Total Target Compensation. Ms. Hargrove may argue that a material reduction in any element of Harding's total target compensation (not just base salary) should constitute Good Reason. For example, a significant reduction in the annual LTI target or a change in the bonus target percentage, even without a reduction in base salary, could materially reduce Harding's total compensation.
• Reporting Line Changes. Given that Harding would be the CEO of NTP, this trigger is less relevant, but Ms. Hargrove may seek to include a trigger related to changes in the Board's governance structure that effectively diminish the CEO's authority (e.g., the creation of an Executive Chairman role with overlapping responsibilities).
C. For Cause Termination
The Marlowe Asset Management Agreement defines "Cause" as including the following:
(a) Harding's conviction of, or plea of guilty or nolo contendere to, a felony or any crime involving fraud, dishonesty, or moral turpitude;
(b) Harding's willful misconduct or gross negligence in the performance of his duties that is materially injurious to Marlowe Asset Management;
(c) Harding's material breach of the employment agreement or any written company policy, if such breach remains uncured for thirty (30) days following written notice from Marlowe Asset Management;
(d) Harding's commission of fraud or embezzlement against Marlowe Asset Management; and
(e) Harding's willful failure to substantially perform his duties (other than due to physical or mental disability), if such failure remains uncured for thirty (30) days following written notice from Marlowe Asset Management.
This definition is generally non-controversial and consistent with standard market practice. The notice and cure provisions (thirty days for material breach and willful failure to perform) are standard and provide appropriate procedural protections for the executive. The definition can be closely replicated in the NTP agreement, though NTP may wish to add references to material violations of applicable law or regulatory requirements, given NTP's heavily regulated operating environment across multiple jurisdictions.
Upon a termination for Cause, Harding receives only accrued and unpaid base salary, accrued vacation, and vested benefits through the date of termination. No severance, bonus, or equity acceleration is payable.
VII. Other Notable Provisions
In addition to the principal compensation, equity, CIC, restrictive covenant, and termination provisions analyzed above, the Marlowe Asset Management Agreement contains several other provisions that are relevant to the NTP negotiation, though they are less likely to be significant points of contention.
A. Indemnification and D&O Coverage
The Marlowe Asset Management Agreement provides Harding with standard indemnification protections, including the right to indemnification and advancement of legal expenses to the fullest extent permitted by Delaware law (DGCL Section 145) in connection with any proceeding arising out of his service as an officer or director of Marlowe Asset Management. Harding is also covered under Marlowe Asset Management's directors' and officers' liability insurance policy.
NTP maintains D&O insurance through Ashdown Surety & Insurance Co. under policy number ASI-D&O-NTP-2024-4471, with limits of $50 million per occurrence and $100 million in the aggregate. Harding would need to be added as an insured under this policy upon commencement of employment. In addition, Harding will likely request a tail policy (also known as a "run-off" policy) providing coverage for claims arising from his service as CEO for a period of not less than six years following the termination of his employment, regardless of the reason for termination. Tail policies are standard in executive employment agreements for publicly traded companies and are routinely provided.
NTP should also provide Harding with an indemnification agreement consistent with the form used for NTP's existing directors and officers, which would be governed by English law with respect to his service as a director of NTP (a company incorporated in England and Wales) and by New York law with respect to any U.S. subsidiary service.
This provision is unlikely to be contentious and should be resolved through standard documentation.
B. Section 409A Compliance
The Marlowe Asset Management Agreement includes standard compliance provisions addressing Section 409A of the Internal Revenue Code, which governs the taxation of nonqualified deferred compensation arrangements. Key provisions include:
• A six-month delay in the payment of any severance or other amounts that constitute "nonqualified deferred compensation" to a "specified employee" (as defined under Section 409A), with accumulated payments made in a lump sum on the first business day following the expiration of the six-month period;
• Permitted payment timing provisions ensuring that each installment of severance is treated as a separate payment for purposes of Section 409A;
• A general interpretive provision requiring that the agreement be construed in a manner consistent with Section 409A to the maximum extent possible; and
• A representation that the agreement is not intended to provide for the deferral of compensation except to the extent that specific provisions are designated as nonqualified deferred compensation arrangements.
NTP's agreement must similarly comply with Section 409A, as Harding will be a U.S. taxpayer (he is a U.S. citizen domiciled in New York) and will be a "specified employee" of NTP by virtue of his CEO role. Section 409A compliance is primarily a drafting matter rather than a negotiation point, and our employment tax colleagues should review the final NTP agreement to ensure full compliance.
C. Clawback Provisions
The Marlowe Asset Management Agreement includes a clawback provision that is consistent with the SEC's final rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act's clawback requirements, as adopted by the NYSE as a listing standard. Under this provision, Marlowe Asset Management has the right to recover erroneously awarded incentive-based compensation from Harding in the event of a required accounting restatement, as mandated by SEC Rule 10D-1 and NYSE Listed Company Manual Section 303A.14.
NTP's agreement should include a substantially similar clawback provision, as NTP is listed on both the NYSE (ADR: NTPC) and the