PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION Matter Ref: 1022-00004
Dear Elaine,
I am writing to provide a summary of the principal areas of agreement and divergence arising from Hargrove & Liddell's marked-up term sheet (v2), which we received on June 17 from Victoria Hargrove on behalf of Marcus Elliot Harding. Our objective is to equip you with a concise executive-level overview that you can use in briefing the Remuneration Committee — Geoffrey Stanton, Dame Philippa Thornton-Hale, Lucinda Farrow, and Dr. Tomás Herrera — before our first negotiation call with Hargrove & Liddell, currently scheduled for June 24.
James Underwood has prepared a detailed issue-by-issue analysis memorandum dated June 19, 2024, which is attached. That memo contains the full financial calculations and legal analysis supporting the recommendations below. This email is intended as the higher-level strategic summary.
I would ask that you obtain and relay the Remuneration Committee's direction on the key questions identified in Section 8 below by end of day June 21 or the morning of June 22 at the latest, so that the C&H team has adequate preparation time before the June 24 call.
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**1. AREAS OF AGREEMENT / NEAR-AGREEMENT**
Several material compensation terms in NTP's initial term sheet were accepted or only lightly marked by H&L, which suggests these items can be resolved without difficulty:
- **Base salary:** $1,750,000 — accepted by Harding. This represents a step-up from his current $1,450,000 at Marlowe Asset Management Digital Holdings. - **Target annual incentive:** 175% of base ($3,062,500) — accepted. - **Maximum annual incentive:** 300% of base ($5,250,000) — accepted. - **Annual LTI target:** $9,000,000/year (60% PSUs / 40% RSUs) — accepted. This is an increase from his current $7,500,000 Marlowe Asset Management LTI. - **Total target annual compensation:** $13,812,500 — substantially agreed. - **Sign-on cash bonus:** $5,000,000 — accepted in principle. H&L requested a reduction of the clawback period from 24 months to 12 months. We view this as a minor point and likely negotiable. - **Perquisites:** $25,000 car allowance, executive health program, $2,000,000 supplemental life insurance, financial/tax planning reimbursement — all accepted. H&L's only mark was a request to increase the tax/financial planning reimbursement cap from $35,000 to $50,000, which is de minimis. - **401(k):** 6% employer match — accepted. - **SERP:** $250,000/year supplemental executive retirement contribution — accepted. - **Term:** 5 years with automatic 1-year renewals; 180 days' notice for non-renewal — accepted. - **Proposed start date:** October 1, 2024. H&L flagged a possible need to push to November 1, 2024 to accommodate Harding's transition from Marlowe Asset Management. We do not view this as a deal point. - **Governing law:** New York — accepted. - **Indemnification / D&O coverage:** Accepted in principle. H&L requested confirmation of tail coverage under the Ashdown Surety & Insurance Co. D&O policy (policy ASI-D&O-NTP-2024-4471, $50M per occurrence / $100M aggregate). This should be straightforward to confirm. - **Non-disparagement:** Mutual, perpetual, with carve-outs for legal proceedings — agreed in principle.
The breadth of agreement on core compensation terms is encouraging and suggests that both sides are working from a fundamentally compatible framework on total annual compensation.
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**2. SIGN-ON EQUITY / MAKE-WHOLE — MODERATE DIVERGENCE**
**NTP's proposal:** $18,400,000 total sign-on equity, comprising $12,000,000 in RSUs vesting ratably over 3 years and $6,400,000 in PSUs cliff vesting at the end of 3 years subject to TSR and revenue growth hurdles.
**Harding's position (per H&L redline):** Harding requests a full make-whole of $23,400,000 in forfeited Marlowe Asset Management equity. He proposes either (a) increasing the sign-on equity by $5,000,000 to $23,400,000, or (b) alternatively, increasing the sign-on cash bonus to $10,000,000 (from $5,000,000) to close the $5,000,000 gap.
**Our assessment:** NTP's combined sign-on package (cash plus equity) already totals $23,400,000 ($5,000,000 cash + $18,400,000 equity), which precisely matches the forfeited Marlowe Asset Management equity value. Harding's argument is that the PSU component ($6,400,000) is at-risk and should not count dollar-for-dollar against the make-whole. This is a common negotiation point and not an unreasonable one — though it is ultimately a question of negotiating leverage rather than principle.
We recommend **holding firm on the total quantum** of $23,400,000 but potentially offering to shift a portion of PSU value to RSUs — for example, moving to a $14,000,000 RSU / $4,400,000 PSU allocation — to increase the certainty component of the make-whole. This would require Remuneration Committee approval and should be vetted with Dr. Rachel Whitmore at Whitmore Hobson for peer-group benchmarking implications.
**Equity pool impact:** The sign-on equity plus first-year annual LTI totals $27,400,000. At the current price of $15.87 per ADR, this translates to approximately 1,726,529 shares, or roughly 0.25% of the approximately 699 million shares outstanding — well within the 14.2 million shares remaining under the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan. Galloway & Partners has confirmed the ASC 718 / IFRS 2 accounting treatment.
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**3. SEVERANCE — TERMINATION WITHOUT CAUSE / RESIGNATION FOR GOOD REASON (NON-CIC) — SIGNIFICANT DIVERGENCE**
**NTP's proposal:** 2x (base + target bonus) = 2 × $4,812,500 = $9,625,000; pro-rata bonus for year of termination; 18 months COBRA continuation; 12 months accelerated vesting of unvested equity.
**Harding's counter-demand:** 2.5x (base + target bonus) = 2.5 × $4,812,500 = $12,031,250; full acceleration of all unvested equity; 24 months COBRA.
**Dollar gap:** The cash severance gap alone is $2,406,250 ($12,031,250 minus $9,625,000). Full equity acceleration adds significant additional exposure depending on the unvested equity at the time of termination.
**Our assessment:** Harding's 2.5x demand for non-CIC severance sits at the upper end of market practice for public company CEOs. We recommend **holding at 2x** but note that this is potentially a negotiable point if movement is needed on other fronts. We would suggest **reserving this as a possible concession** in exchange for concessions from Harding on the CIC provisions or restrictive covenants, where the stakes for NTP are considerably higher.
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**4. CHANGE IN CONTROL PROVISIONS — THE CORE AREA OF DIVERGENCE**
This is the area of greatest distance between the parties, spanning several interconnected sub-issues. I address each in turn.
**(a) Definition of "Change in Control"**
The parties have agreed on three standard triggering events: (i) acquisition of more than 50% of voting securities; (ii) merger or consolidation where NTP shareholders hold less than 50% of the post-transaction entity; and (iii) sale of substantially all assets.
The dispute concerns Harding's demand for inclusion of a fourth trigger: a **"Board turnover trigger"** — defined as a change in Board composition where a majority of directors are replaced within any 12-month period.
**Our assessment:** While a Board turnover trigger appears in some US executive agreements, it is unusual for UK-listed companies and would be **inconsistent with UK corporate governance norms**. It could be triggered inadvertently by routine Board refreshment or shareholder activism, creating unintended consequences and potential windfall payments. We **strongly recommend rejecting this provision**. I should note that this appears to be a hard position for H&L — Victoria Hargrove flagged it prominently in her June 17 transmittal email, which suggests they expect a fight on this point.
**(b) CIC Severance Multiplier**
Both sides have agreed on a **double-trigger** structure (i.e., qualifying termination following a CIC is required — CIC alone does not trigger severance). The divergence is on the multiplier:
- **NTP's proposal:** 2.5x (base + target bonus) = 2.5 × $4,812,500 = $12,031,250 - **Harding's demand:** 3x (base + target bonus) = 3 × $4,812,500 = $14,437,500 - **Cash gap:** $2,406,250
Harding's current Marlowe Asset Management agreement provides for 3x (base + bonus) on CIC, and he views his demand as simply maintaining his existing protection level. NTP's position at 2.5x is already at the upper boundary of what the UK Corporate Governance Code 2024 (Provision 40) and ISS guidelines would support for a UK-listed company.
**Our assessment:** We recommend **holding at 2.5x**. NTP's April 18, 2024 AGM say-on-pay vote achieved 87.4% support — a strong result, but not so overwhelming that the Company can afford to test investor patience with an outlier CIC multiplier. A 3x CIC multiplier, particularly when combined with Harding's demand for a full gross-up (discussed below), would very likely draw a negative recommendation from ISS and similar proxy advisory firms. Sandra Kolb at Veltrano Proxy Advisors has informally flagged this concern to us.
**(c) Section 280G Tax Treatment**
This is one of the most consequential items on the table.
- **NTP's proposal:** Best-net / safe harbor cutback. Under this approach, parachute payments would be reduced to the safe harbor limit ($23,519,999, based on Harding's 280G base amount of $7,840,000, derived from average Marlowe Asset Management W-2 income for 2019–2023) if the cutback produces a better after-tax result for the executive than paying the full amount plus the Section 4999 excise tax. - **Harding's demand:** Full 280G tax gross-up — NTP would reimburse Harding for any excise tax imposed under Section 4999.
**Estimated exposure:** Under Harding's proposed terms (3x CIC multiplier plus full equity acceleration plus benefits continuation), estimated total parachute payments would be approximately $38,200,000. The excess parachute payment would be $30,360,000 ($38,200,000 minus the $7,840,000 base amount). The estimated excise tax at 20% is $6,072,000. With income tax gross-up on the gross-up payment itself, total gross-up cost to NTP is estimated at **$4,200,000 to $6,800,000**.
**Our assessment:** The market trend has moved decisively away from gross-ups over the past decade, and ISS policy specifically flags tax gross-ups as problematic. Importantly, Whitmore Hobson's preliminary analysis indicates that under a best-net approach, Harding's after-tax position under the cutback versus full payment plus excise tax is **roughly equivalent** — meaning the gross-up is largely a matter of principle and optics rather than material economics to Harding personally. We **strongly recommend maintaining the best-net position**. This is one of the items most likely to trigger a negative proxy advisory reaction, and the economic argument for a gross-up is weak on the specific facts here.
**(d) CIC Equity Acceleration**
- **NTP's proposal:** Full acceleration of unvested equity on qualifying termination following CIC. - **Harding's demand:** Full acceleration including PSUs vesting at **target** (i.e., 100%), rather than pro-rata based on actual performance through the CIC date.
**Our assessment:** PSU vesting at target rather than pro-rata or actual performance through the CIC date is an aggressive ask, but it has some market support, particularly among larger-cap US companies. We recommend considering this as a **potential concession point** — it is less visible to proxy advisors than the multiplier or gross-up, and it provides Harding with meaningful value that may help close the gap on other items.
**(e) CIC Benefit Continuation**
- **NTP's proposal:** 24 months COBRA continuation; $50,000 outplacement. - **Harding's demand:** 36 months benefit continuation. - **Gap:** 12 months of additional benefit continuation.
**Our assessment:** This is relatively minor in dollar terms. It could serve as a **concession point** without significant cost or governance risk.
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**5. RESTRICTIVE COVENANT TERMS — THE SECOND CORE AREA OF DIVERGENCE**
The restrictive covenant package is the other area where the parties are materially apart. Given that the primary purpose of these covenants is to protect NTP's competitive position, the Remuneration Committee's guidance on risk tolerance here is important.
**(a) Non-Compete Duration**
- **NTP's proposal:** 24 months post-termination. - **Harding's counter:** 12 months post-termination, which matches his current Marlowe Asset Management non-compete (12 months, US geographic scope).
**Our assessment:** A 24-month non-compete is at the aggressive end for New York-governed agreements. We would also note the pending New York legislation that would ban non-competes entirely — while not yet enacted, its existence creates additional enforcement uncertainty that a court might consider. We **recommend 18 months as a fallback** compromise if needed.
**(b) Non-Compete Geographic Scope**
- **NTP's proposal:** Worldwide. - **Harding's counter:** North America and Western Europe only.
**Our assessment:** A worldwide scope may face enforceability challenges under New York law's reasonableness analysis, particularly for a telecom and enterprise SaaS executive. We recommend a **willingness to narrow to North America and Western Europe**, which covers NTP's core revenue-generating markets and is far more likely to survive judicial scrutiny.
**(c) Non-Compete Activity Definition**
- **NTP's proposal:** Employment by or services to any company deriving more than 15% of revenue from telecommunications services, telecommunications infrastructure, or enterprise SaaS platforms serving telecom operators. - **Harding's counter:** Narrowed to only "direct competitors" listed on a schedule of 8 named companies.
**Our assessment:** A scheduled-competitor approach provides certainty but may be under-inclusive and becomes stale over time as the competitive landscape evolves. The revenue-based test is more protective but may be viewed as overbroad. We recommend a **hybrid approach**: a revenue-based test with a higher threshold (e.g., 25% of revenue) plus a scheduled list of named competitors as a safe harbor. This gives NTP broad protection while providing Harding with clear guidance on which employers are unambiguously off-limits.
**(d) Garden Leave**
- **NTP's proposal:** 6 months paid garden leave at base salary only ($1,750,000 × 6/12 = $875,000). - **Harding's counter:** 12 months at full compensation (base plus pro-rata bonus); garden leave and non-compete to run concurrently, which would effectively reduce the post-departure non-compete to 0 months if a 12-month garden leave and 12-month non-compete overlap completely.
**Our assessment:** Harding's position would effectively eliminate any meaningful post-employment restrictive period beyond the garden leave period itself. We recommend: **6-month garden leave at base salary**, running concurrently with the first 6 months of the non-compete. If we move to an 18-month non-compete as recommended above, this would yield **12 months of effective restriction** (6 months garden leave plus 6 months of pure post-employment non-compete). This is a defensible and enforceable structure.
**(e) Non-Solicitation**
- **NTP's proposal:** 24 months; employees and customers. - **Harding's counter:** 18 months; employees only (no customer non-solicitation).
**Our assessment:** A customer non-solicitation covenant is standard for CEO-level agreements and we recommend **holding firm** on including it. However, we could potentially concede on duration, moving to **18 months** to align with any concession on non-compete duration, which would present a consistent and reasonable posture.
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**6. CROSS-BORDER STRUCTURE**
Briefly, I am pleased to report that the dual-contract architecture was not contested by H&L. The primary New York-governed agreement with Northgate Telecommunications US, Inc. and the secondary UK service agreement with Northgate PLC for UK board duties and FCA SM&CR compliance were accepted in principle, as were the 80/20 US/UK time split, the tax equalization provisions, and the US-UK Totalization Agreement structure. Simon Aldridge at Moorfield Bates LLP continues to advise on the UK service agreement, and we are coordinating with his team.
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**7. SUMMARY OF RECOMMENDATIONS AND REQUEST FOR REMUNERATION COMMITTEE GUIDANCE**
To summarize, the following are the key decision points on which we need the Remuneration Committee's direction before the June 24 call:
1. **CIC multiplier:** Hold at 2.5x, or authorize any movement toward 2.75x or 3x? 2. **280G tax treatment:** Confirm best-net / no gross-up as a firm position? 3. **Board turnover trigger:** Confirm rejection of this provision? 4. **Non-compete duration:** Hold at 24 months, or authorize a fallback to 18 months? 5. **Non-compete geographic scope:** Hold worldwide, or authorize narrowing to North America and Western Europe? 6. **Non-compete activity definition:** Maintain the revenue-based test (at 15% or a higher threshold), or authorize consideration of a hybrid / scheduled-competitor approach? 7. **Garden leave:** Hold at 6 months at base salary only? 8. **Sign-on equity mix:** Authorize any reallocation between RSUs and PSUs (e.g., $14,000,000 RSUs / $4,400,000 PSUs) to address the make-whole optics?
If possible, I would ask that you relay the Remuneration Committee's guidance by **end of day Friday, June 21** or **the morning of Saturday, June 22** at the latest, so that Bernard, James, and I have sufficient time to finalize our preparation and talking points for the Monday call.
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I am happy to schedule a call with you — and with Geoffrey Stanton and Dame Philippa if they would find it helpful — to walk through any of these points in more detail. Please let me know what works for your schedule.
The attached memorandum from James Underwood contains the detailed section-by-section analysis with full financial calculations, legal citations, and market data supporting the recommendations above.
As a reminder, this communication and the attached memorandum are protected by the attorney-client privilege and the work product doctrine. Please do not forward to anyone outside the privileged group without consulting with us first.
Best regards,
Renata Vasquez Partner Calderwood Harkness LLP 1301 Avenue of the Americas, 42nd Floor New York, NY 10019 T: (212) 555-0184
Attachment: Memorandum — Analysis of Hargrove & Liddell Redline: Key Departures and Recommended Responses (J. Underwood to R. Vasquez, dated June 19, 2024)
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