MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
TO: Renata Vasquez, Partner
FROM: James Underwood, Associate
DATE: June 19, 2024
RE: Analysis of Hargrove & Liddell Redline of Initial Term Sheet (v2) — Key Departures and Recommended Responses
MATTER: Northgate Telecommunications PLC — CEO Employment Agreement (Marcus Elliot Harding)
MATTER NO.: 1022-00004
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I. Executive Summary
This memorandum provides a comprehensive section-by-section analysis of the marked-up term sheet (v2) returned by Hargrove & Liddell LLP ("H&L"), through lead partner Victoria Hargrove, on June 17, 2024, on behalf of Marcus Elliot Harding ("Harding"), in response to the initial term sheet circulated by Calderwood & Harkness LLP on behalf of Northgate Telecommunications PLC ("NTP" or the "Company") on June 10, 2024 (the "NTP v1 Term Sheet"). The redline was received in the early evening on June 17 and has been reviewed in detail against the NTP v1 Term Sheet and all supporting analyses prepared by this firm, Whitmore Hobson LLP, and Veltrano Proxy Advisors in connection with this engagement.
H&L's redline proposes material revisions across substantially all sections of the term sheet. Having reviewed the entirety of the markup, I have identified the most significant departures as falling into two categories of concern:
(i) Change in Control Severance Provisions. H&L has proposed a series of interlocking changes to the CIC provisions that, taken together, represent a fundamentally different economic profile from NTP's initial proposal. These include an increase of the CIC cash severance multiplier from 2.5x to 3x, the addition of a Board turnover trigger to the CIC definition, a request for a full Section 280G tax gross-up in lieu of NTP's proposed best-net safe harbor cutback, extended benefit continuation from 24 to 36 months, and modified PSU vesting mechanics. The aggregate incremental cost of these changes, when combined, could reach $6.8 million or more in gross-up costs alone, in addition to a $2.4 million increase in cash severance.
(ii) Restrictive Covenant Provisions. H&L has proposed to reduce the non-compete duration from 24 months to 12 months, narrow the geographic scope from worldwide to North America and Western Europe, replace the revenue-based activity definition with a narrow scheduled-competitor approach, and fundamentally restructure the garden leave provision to 12 months at full compensation running concurrently with the non-compete — effectively eliminating any period of active, unpaid non-competition. The economic cost of the garden leave restructuring alone represents a $3.9 million delta.
This memorandum categorizes each departure by level of significance — Critical, Material, or Minor/Non-Material — and provides, for each section, (a) a restatement of NTP's original position, (b) a description of H&L's proposed revision, (c) an assessment of the nature and magnitude of the departure, (d) a financial impact estimate where quantifiable, and (e) a recommended response posture.
Bottom Line: The two critical areas — change in control and restrictive covenants — represent substantial economic gaps and, more importantly, reflect fundamentally different negotiating philosophies. H&L's CIC proposals appear designed to replicate and in certain respects exceed the protections Harding currently enjoys under his Marlowe Asset Management Digital Holdings employment agreement, without apparent regard for NTP's distinct governance framework as a premium-listed company on the London Stock Exchange. The restrictive covenant proposals effectively seek to neutralize NTP's competitive protections by collapsing the non-compete and garden leave periods into a single overlapping window. Resolution of these core disputes will require Board-level direction on the extent of permissible concessions, as they implicate shareholder relations, proxy advisory reaction, and the Company's posture under the UK Corporate Governance Code.
I recommend that this memorandum be circulated to Elaine Whitford for Remuneration Committee review in advance of the first negotiation call with Victoria Hargrove, currently scheduled for June 24, 2024. The Remuneration Committee should provide specific direction on the four critical hold-firm items identified herein before we engage in substantive negotiations.
II. Methodology and Organization
This analysis was prepared by comparing the H&L redline (v2, received June 17, 2024) against Calderwood & Harkness's initial term sheet (v1, circulated June 10, 2024). The analysis is organized section-by-section, tracking the structure of the NTP v1 Term Sheet to facilitate ease of reference for all parties.
For each section of the term sheet, this memorandum includes:
(a) NTP's Original Proposed Term — a restatement of the provision as set forth in the NTP v1 Term Sheet;
(b) H&L's Proposed Revision — a description of the changes reflected in H&L's redline;
(c) Nature and Magnitude of Departure — an assessment of whether the departure is substantive or cosmetic, and its significance to the overall negotiation, categorized as Critical, Material, or Minor/Non-Material;
(d) Financial Impact — where quantifiable, an estimate of the incremental cost to NTP or incremental benefit to Harding represented by H&L's proposed revision; and
(e) Recommended Response — a recommendation as to whether NTP should accept, negotiate/compromise, or hold firm/reject the proposed revision, together with supporting rationale and, where applicable, a suggested fallback position.
In preparing this analysis, I have drawn upon the following reference materials:
• Whitmore Hobson LLP peer-group benchmarking data (Dr. Rachel Whitmore's report dated May 28, 2024), which analyzes compensation arrangements for CEOs at eighteen comparably-sized global telecommunications and enterprise SaaS companies;
• Veltrano Proxy Advisors' informal analysis of likely ISS and Tarrant Partners LLC reaction to various compensation structures under consideration (informal read dated June 14, 2024, with supplemental commentary received June 18, 2024);
• UK Corporate Governance Code 2024, Provision 40, which addresses remuneration policy for directors of UK-listed companies, including guidance on severance payments, notice periods, and the use of discretion by remuneration committees;
• Our prior research memorandum on Section 280G of the Internal Revenue Code, including base amount calculations, safe harbor analysis, and excise tax exposure (prepared by Miranda Chen, June 3, 2024);
• Our prior research memorandum on change in control market practices and severance multiplier benchmarking (prepared by James Underwood, May 30, 2024); and
• Our prior research memorandum on non-compete enforceability under New York law, including analysis of pending legislative developments and recent case law trends (prepared by David Gallagher, June 6, 2024).
All financial estimates herein are preliminary and subject to refinement as negotiations progress and additional information regarding Harding's historical compensation and tax profile becomes available.
III. Section-by-Section Analysis
A. Employment Term and Start Date
NTP Proposal (v1): Five-year initial term commencing October 1, 2024, and ending September 30, 2029, with automatic one-year renewal periods unless either party provides written notice of non-renewal at least 180 days prior to the end of the then-current term.
H&L Redline (v2): H&L accepted the five-year initial term and the automatic renewal structure without modification. However, H&L proposed two changes to this section. First, H&L requested that the start date be moved from October 1, 2024, to November 1, 2024, to allow Harding additional time to complete his transition from his current role as Chief Executive Officer of Marlowe Asset Management Digital Holdings, Inc. According to H&L's cover letter, Harding's separation from Marlowe Asset Management is expected to be finalized no earlier than mid-October 2024, and Harding wishes to ensure an orderly handoff to Marlowe Asset Management's incoming leadership team. Second, H&L proposed reducing the notice period for non-renewal from 180 days to 120 days, characterizing the 180-day period as unnecessarily lengthy for a bilateral notice provision.
Significance: Minor.
Financial Impact: Negligible. The one-month delay in start date may affect the pricing date for Harding's sign-on equity grants if those grants are tied to the start date. If the NTP ADR price appreciates between October 1 and November 1, 2024, Harding would receive fewer shares for the same dollar value; conversely, if the price depreciates, he would receive more shares. This is a timing issue, not a substantive economic concession, and the pricing mechanics can be addressed in the definitive agreement.
Recommended Response: We recommend accommodating the November 1, 2024 start date. This is a reasonable request given Harding's current obligations to Marlowe Asset Management, and NTP should demonstrate flexibility on non-substantive items early in the negotiation to build goodwill. Importantly, NTP's outgoing CEO, Sir Alistair Kemble, has announced his retirement effective December 31, 2024. A November 1 start date still provides a two-month overlap period during which Harding and Sir Alistair can work together on transition matters, which is adequate for a well-planned succession.
With respect to the non-renewal notice period, we recommend maintaining the 180-day period as proposed by NTP. This notice period is aligned with UK Corporate Governance Code norms, which emphasize the importance of adequate lead time for Board succession planning. A 180-day notice period gives both the Board and the executive sufficient time to plan for leadership transition without disrupting corporate operations. The 120-day period proposed by H&L, while not unreasonable in the abstract, provides materially less planning time and is below the typical range for CEO agreements at UK-listed companies.
B. Position, Duties, and Reporting
NTP Proposal (v1): Harding would serve as Chief Executive Officer and as a member of the Board of Directors of Northgate Telecommunications PLC. He would report directly and exclusively to the Board. The role would be headquartered at NTP's US Operations headquarters at 600 Lexington Avenue, 38th Floor, New York, NY 10022, with an anticipated time split of approximately 80% in the United States and 20% in the United Kingdom. The employment structure would follow a dual-contract model, with a primary New York-governed employment agreement with Northgate Telecommunications US, Inc. (the US operating subsidiary) and a secondary UK service agreement with Northgate Telecommunications PLC (the parent company), reflecting the dual-listed governance structure and applicable regulatory requirements.
H&L Redline (v2): H&L accepted the title, reporting structure, and headquarters location without modification. H&L also accepted the dual-contract structure in principle, subject to review of the UK service agreement by Harding's UK counsel. H&L proposed three additions to this section:
First, H&L requested the inclusion of an express commitment that NTP will nominate Harding for election to the Board of Directors at each annual general meeting during the employment term, and will use its best efforts to support his election.
Second, H&L added language providing that Harding shall exercise "sole and exclusive" authority as Chief Executive Officer, and that the Board shall not create any co-CEO, office-of-the-CEO, or similar shared-authority arrangement during the employment term without Harding's prior written consent.
Third, H&L requested that the 80/20 time-split percentages be described as "approximate" and explicitly stated as not creating an obligation on Harding to spend any minimum amount of time in the United Kingdom in any given period.
Significance: Minor to Moderate. None of these proposals alter the fundamental economic terms of the arrangement, but the "approximate" time-split language requires careful analysis in light of cross-border tax and regulatory considerations.
Financial Impact: None directly.
Recommended Response: The Board nomination commitment is standard in CEO employment agreements and reflects the reality that the Board intends to elect its CEO as a director. We recommend accepting this provision. However, we suggest replacing H&L's "best efforts" formulation with a commitment to "recommend" Harding for election and to include Harding on the Company's slate of nominees, as this is more consistent with corporate governance norms and avoids any implication that the Board is ceding its fiduciary discretion regarding director nominations.
The "sole and exclusive" CEO authority language is a reasonable protection for any incoming chief executive and can be accepted with minor drafting refinements. We suggest adding language clarifying that this provision does not restrict the Board's authority to delegate specific operational matters to other senior executives in the ordinary course, consistent with the Board's fiduciary duties.
With respect to the time-split language, we recommend describing the split as "approximately 80/20" in the employment agreement. However, we flag that this modification requires consultation with Moorfield Bates LLP (Simon Aldridge, NTP's UK counsel) before it is finalized. Specifically, Aldridge should advise on whether the use of "approximate" language — as opposed to a defined minimum UK presence requirement — creates any complications under (a) the UK statutory residence test for individual income tax purposes, or (b) the FCA's Senior Managers and Certification Regime ("SM&CR"), under which Harding's role as CEO of a UK-listed financial services-adjacent company may carry specific regulatory obligations requiring a minimum level of UK presence. We would not want to inadvertently create a contractual framework that is inconsistent with Harding's regulatory obligations or that generates adverse tax consequences for either party.
C. Base Salary
NTP Proposal (v1): Annual base salary of $1,750,000, payable in accordance with NTP's standard payroll practices.
H&L Redline (v2): H&L accepted the proposed base salary of $1,750,000 without modification. H&L added two provisions: first, a requirement that base salary be reviewed annually by the Remuneration Committee, and second, a "no reduction" floor providing that Harding's base salary may not be reduced below $1,750,000 (or such higher amount as may be established through annual review) at any time during the employment term. H&L further proposed that any increase to base salary established through the annual review process would become the new minimum floor for all compensation calculations, including bonus targets, severance multipliers, and equity award values.
Significance: Minor.
Financial Impact: None at the outset. The ratchet provision — under which any salary increase becomes a new floor for all compensation calculations — could have a compounding effect over the five-year initial term if base salary is increased in successive years. For example, if base salary were increased by 5% annually, by Year 5 the base salary would be approximately $2,127,000, and the target bonus at 175% would be approximately $3,722,000, compared to $3,062,500 at the initial base. However, this ratchet mechanism is standard market practice in CEO employment agreements and reflects the reasonable expectation that compensation levels established through annual review should not be retroactively reduced.
Recommended Response: Accept. This provision is market-standard for CEO agreements at companies of NTP's size and complexity. The no-reduction floor and ratchet mechanism are nearly universal in comparable arrangements. We note that Harding's current base salary at Marlowe Asset Management Digital Holdings is $1,450,000, so the proposed NTP base salary of $1,750,000 represents a 20.7% increase, which is within the competitive range recommended by Whitmore Hobson LLP's peer-group analysis (which identified a median base salary of $1,650,000 and a 75th percentile of $1,850,000 for the comparator group).
D. Annual Cash Incentive (Bonus)
NTP Proposal (v1): Annual cash incentive with a target bonus opportunity of 175% of base salary ($3,062,500 at current base) and a maximum bonus opportunity of 300% of base salary ($5,250,000 at current base). Performance metrics and weightings for each fiscal year would be established by the Remuneration Committee in its sole discretion, consistent with NTP's annual operating plan and strategic objectives.
H&L Redline (v2): H&L accepted the target and maximum bonus percentages of 175% and 300%, respectively, without modification. H&L proposed three changes to the bonus provisions:
First, H&L requested a guaranteed minimum bonus for the first full fiscal year of Harding's employment equal to 100% of base salary ($1,750,000). H&L's rationale, as stated in the cover letter, is that Harding is joining NTP mid-cycle and will not have had the opportunity to influence the performance metrics or business plan for the first fiscal year, making it inappropriate to subject him to full downside performance risk for a period during which he has limited ability to affect outcomes.
Second, H&L requested that annual performance metrics be established "in consultation with" the CEO, rather than solely by the Remuneration Committee. H&L characterized this as ensuring that the CEO has meaningful input into the goal-setting process, arguing that effective performance management requires alignment between the Board's expectations and the CEO's strategic vision.
Third, H&L added a provision requiring pro-rata bonus payment upon any termination of employment, including voluntary resignation without Good Reason, calculated based on the number of days elapsed in the fiscal year through the date of termination.
Significance: Moderate. The first-year guaranteed minimum is a common feature of incoming CEO agreements and does not raise significant concerns. The "consultation" language is manageable with appropriate drafting. However, the pro-rata bonus on voluntary resignation without Good Reason is a meaningful departure from standard practice and could create a perverse incentive structure.
Financial Impact: The guaranteed minimum first-year bonus of $1,750,000 creates a certain obligation for NTP in the first fiscal year, but as a practical matter, an incoming CEO's first-year bonus is typically at or above target as a matter of Board discretion, so the economic impact is likely minimal. The pro-rata bonus on voluntary resignation without Good Reason could cost up to $3,062,500 (a full year's target bonus) in a worst-case scenario where Harding resigns late in a fiscal year. More realistically, if Harding resigns mid-year, the exposure would be approximately $1.5 million.
Recommended Response: We recommend accepting the first-year guaranteed minimum bonus of 100% of base salary ($1,750,000). This is a common accommodation for incoming CEOs who are joining mid-cycle and is consistent with the arrangements we have seen at peer companies in the Whitmore Hobson data set. We suggest limiting the guarantee to the first full fiscal year only (not extending to subsequent years) and conditioning it on Harding's active employment through the end of the first fiscal year (or, alternatively, through the date of bonus payment in the following year, subject to the typical "employed on payment date" requirement).
With respect to the "consultation" language on performance metrics, we recommend accepting the concept but modifying the drafting. Rather than "in consultation with" the CEO, we suggest "after receiving input from the CEO," which conveys the same practical commitment to CEO involvement in the goal-setting process while preserving the Remuneration Committee's ultimate authority to establish performance metrics in its discretion. This distinction matters both as a governance matter and because the UK Corporate Governance Code places responsibility for remuneration policy with the remuneration committee, not with the individual executive.
We recommend rejecting the pro-rata bonus on voluntary resignation without Good Reason. In a voluntary resignation scenario where Harding leaves of his own accord — not prompted by a constructive termination — NTP should not be obligated to pay a pro-rata bonus. This provision is not standard market practice for voluntary resignations absent Good Reason, and it reduces the economic friction associated with departure, which runs counter to NTP's retention objectives. We recommend limiting the pro-rata bonus to termination without Cause and resignation for Good Reason only, which are the circumstances in which the executive is departing involuntarily or due to employer-caused conditions.
E. Sign-On Cash Bonus (Make-Whole)
NTP Proposal (v1): A sign-on cash bonus of $5,000,000, payable within 30 days following the start date of employment. The sign-on bonus would be subject to a 24-month clawback provision requiring full repayment if Harding voluntarily resigns from employment within 24 months of the start date.
H&L Redline (v2): H&L accepted the $5,000,000 sign-on cash bonus amount without modification. H&L proposed three changes to the clawback provision:
First, H&L requested that the clawback period be reduced from 24 months to 12 months, arguing that 24 months is excessive for a sign-on payment designed to compensate for forfeited Pemberton Investors.
Second, H&L requested that the clawback apply only to voluntary resignation without Good Reason, not to resignation for Good Reason. H&L argued that a resignation for Good Reason is effectively an employer-caused departure — triggered by material adverse changes in the executive's role, compensation, or working conditions — and that requiring repayment in such circumstances would be inequitable.
Third, H&L requested that the clawback amount be subject to pro-rata reduction over the clawback period, such that the repayment obligation decreases ratably over time. Under NTP's 24-month proposal, this would mean a reduction of 1/24th of the sign-on bonus for each completed month of employment; under H&L's proposed 12-month period, the reduction would be 1/12th per month.
Significance: Moderate.
Financial Impact: The combination of a shorter clawback period and pro-rata reduction substantially diminishes NTP's recoupment protection. Under NTP's original proposal, if Harding voluntarily resigns at month 13, NTP would be entitled to recover the full $5,000,000. Under H&L's proposed terms (12-month clawback, pro-rata reduction), if Harding resigns at month 13, NTP would recover zero — the clawback period would have expired. Even under a compromise structure (24-month clawback with pro-rata reduction), the exposure at month 13 would be $5,000,000 × (11/24) = $2,291,667 — meaning NTP would recover approximately $2.3 million rather than the full $5 million. The worst-case delta between NTP's original proposal and H&L's proposal occurs at month 13: $5,000,000 under NTP's proposal versus $0 under H&L's.
Recommended Response: We recommend maintaining the 24-month clawback period, which provides NTP with meaningful recoupment protection through the critical early years of Harding's tenure when the risk of departure is highest. A 24-month clawback period is well within market norms for sign-on payments of this magnitude.
However, we recommend accepting the pro-rata reduction concept. A pro-rata reduction structure is both commercially reasonable and consistent with the underlying purpose of the sign-on payment, which is to compensate Harding for forfeited Pemberton Investors. As Harding completes each month of service with NTP, the rationale for full recoupment diminishes proportionally. A 1/24th monthly reduction is a fair and administrable approach.
We also recommend accepting the carve-out for resignation for Good Reason. This concession is commercially reasonable because a Good Reason resignation — by definition — is precipitated by a material breach or adverse change by the employer. If NTP materially reduces Harding's responsibilities, relocates his position without consent, or fails to pay him in accordance with the agreement, requiring him to repay a sign-on bonus designed to compensate for his decision to join NTP would be inequitable and would likely be challenged in any ensuing litigation.
These concessions are non-controversial and should be communicated to H&L as areas of agreement early in the negotiation to establish a constructive tone.
F. Sign-On Equity Grants (Make-Whole for Forfeited Marlowe Asset Management Equity)
NTP Proposal (v1): Sign-on equity grants consisting of two components: (a) a restricted stock unit ("RSU") grant with a grant-date value of $12,000,000, vesting in three equal annual installments of $4,000,000 on each of the first three anniversaries of the grant date; and (b) a performance stock unit ("PSU") grant with a grant-date target value of $6,400,000, cliff vesting at the end of three years, subject to achievement of specified total shareholder return ("TSR") and revenue growth performance hurdles to be established by the Remuneration Committee. Total sign-on equity value: $18,400,000. This sign-on equity package was designed to work in conjunction with the $5,000,000 sign-on cash bonus to provide a combined make-whole value of $23,400,000, matching Harding's estimated forfeiture of $23,400,000 in unvested Marlowe Asset Management equity.
H&L Redline (v2): H&L proposed several modifications to the sign-on equity provisions, which collectively represent a material departure from NTP's initial proposal:
First, H&L requested that the total sign-on equity value be increased from $18,400,000 to $23,400,000, to achieve a full dollar-for-dollar make-whole of forfeited Marlowe Asset Management equity through equity alone. Under H&L's proposal, the $5,000,000 sign-on cash bonus would be treated as a separate inducement payment, not as a component of the Marlowe Asset Management make-whole. This effectively increases the total sign-on package (cash plus equity) from $23,400,000 to $28,400,000 — an increment of $5,000,000.
Second, H&L proposed an RSU/PSU allocation of 70% RSUs ($16,380,000) and 30% PSUs ($7,020,000), as compared to NTP's implied allocation of approximately 65% RSUs and 35% PSUs.
Third, H&L requested that the PSU performance hurdles for the sign-on grant be set no higher than the "target" achievement levels established under Harding's existing Marlowe Asset Management PSU program, arguing that the sign-on PSUs are make-whole compensation and should not impose more stringent performance requirements than the awards they are designed to replace.
Fourth, H&L added a provision requiring full acceleration of all sign-on equity grants upon any termination without Cause or for Good Reason, whether or not in connection with a change in control. This is addressed more fully in Sections I and J below.
Significance: Material.
Financial Impact: The most significant financial impact is the requested increase in total sign-on compensation from $23,400,000 to $28,400,000. If accepted, NTP would bear an additional $5,000,000 in compensation cost. From a share usage perspective, sign-on equity of $23,400,000 at the NTP ADR closing price of $15.87 per share as of June 4, 2024, would require approximately 1,474,480 shares (compared to approximately 1,159,420 shares under NTP's $18,400,000 proposal — a delta of approximately 315,060 shares). When combined with the first-year annual LTI grant of $9,000,000 (approximately 567,107 shares at $15.87), total Year 1 equity grant usage would be approximately 2,041,587 shares, or approximately 0.29% of NTP's approximately 699 million shares outstanding. This remains within the 14.2 million share pool available under the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan, but represents a meaningful draw against that pool.
The RSU/PSU split (70/30 vs. 65/35) has modest financial implications. A higher RSU allocation reduces the performance-contingent component and increases the portion of the grant that vests based solely on continued employment, which marginally increases the expected cost to NTP since RSU vesting is binary (service-based) while PSU vesting can range from 0% to 200% of target depending on performance.
Recommended Response: We recommend resisting the increase of sign-on equity from $18,400,000 to $23,400,000. NTP's position — that the sign-on cash bonus and sign-on equity together constitute the full make-whole package — is economically sound and defensible. The combined value of $5,000,000 in cash plus $18,400,000 in equity equals $23,400,000, which matches Harding's estimated Marlowe Asset Management forfeiture on a dollar-for-dollar basis. H&L's attempt to re-characterize the sign-on cash as separate from the make-whole would result in total sign-on compensation exceeding the forfeiture amount by $5,000,000 — a 21.4% premium — which is not justified on make-whole principles.
Moreover, we should note in discussions with H&L that the cash/equity allocation in NTP's proposal actually favors Harding from a tax perspective. The $5,000,000 cash payment is taxable upon receipt as ordinary income, but Harding receives the full amount immediately, whereas the equivalent value in equity would be subject to vesting risk and illiquidity. Harding's ability to invest the $5,000,000 cash immediately provides him with a liquidity and reinvestment advantage that makes the overall package worth at least as much as (and arguably more than) a pure-equity make-whole.
On the RSU/PSU split, the difference between 70/30 and NTP's approximately 65/35 is not material and can be discussed as part of the overall negotiation. We do not recommend making this a point of contention.
With respect to PSU performance hurdles, we recommend maintaining that the hurdles must be set by the Remuneration Committee in a manner consistent with the shareholder-approved terms of the 2022 Omnibus Incentive Plan. Benchmarking the sign-on PSU hurdles to Harding's existing Marlowe Asset Management program is inappropriate because the two companies operate in different markets, have different growth profiles, and are subject to different shareholder-approved plan parameters. We should be prepared to discuss this with H&L, but the ultimate determination must rest with the Remuneration Committee.
The full acceleration request for sign-on equity upon non-CIC termination is addressed in Section I (Non-CIC Severance) below.
G. Annual Long-Term Incentive (LTI) Grants
NTP Proposal (v1): Annual long-term incentive grants with a target aggregate grant-date value of $9,000,000, allocated 60% to performance stock units and 40% to restricted stock units. Annual grants would be made on terms and conditions consistent with the Northgate Telecommunications PLC 2022 Omnibus Incentive Plan and subject to the review and approval of the Remuneration Committee.
H&L Redline (v2): H&L accepted the $9,000,000 annual LTI target value. H&L proposed three modifications:
First, H&L requested that the annual LTI grant be expressed as a guaranteed contractual commitment — a minimum annual grant of $9,000,000 — rather than a discretionary grant subject to annual Remuneration Committee approval. Under H&L's proposal, the Remuneration Committee would retain the authority to increase the LTI target above $9,000,000 but would not have discretion to reduce the grant below that level during the employment term.
Second, H&L requested that the $9,000,000 target be subject to annual review for potential increase, consistent with the annual salary review process.
Third, H&L proposed a 50/50 PSU/RSU allocation rather than NTP's proposed 60/40.
Significance: Moderate. The guaranteed-grant concept represents a shift from Board discretion to contractual obligation, which has governance implications for NTP's Remuneration Committee and may attract scrutiny from institutional shareholders and proxy advisory firms.
Financial Impact: If the annual LTI is expressed as a contractual guarantee of $9,000,000, the Remuneration Committee would lose the flexibility to reduce or suspend LTI grants in a downside scenario (e.g., if the Company's financial condition deteriorates materially). Over the five-year initial term, guaranteed annual LTI grants of $9,000,000 represent a minimum committed equity compensation of $45,000,000, compared to a potentially lower amount if the Remuneration Committee retained full discretion. The 50/50 PSU/RSU split (compared to 60/40) slightly reduces the performance-contingent component, resulting in a modestly higher expected cost to NTP (since RSUs always vest at 100% if service is completed, while PSUs can vest at 0-200% of target).
Recommended Response: The annual LTI grant can be expressed as a minimum target of $9,000,000, subject to the Remuneration Committee's discretion to increase (but not decrease) the grant value below that floor. This formulation is increasingly common in CEO employment agreements at companies of NTP's size. We recommend accepting this concept with language that preserves the Remuneration Committee's authority over grant terms, performance metrics, and vesting schedules. We should ensure that the agreement is clear that the $9,000,000 minimum applies to the grant-date value of the awards, and that actual realized compensation may be higher or lower depending on stock price performance and, for PSUs, achievement of performance metrics.
On the PSU/RSU split, we recommend holding at 60/40 initially but treating this as a negotiable concession point. Whitmore Hobson's peer-group analysis shows a median PSU/RSU split of approximately 55/45 among the comparator companies, so H&L's proposed 50/50 is within the market range. If concession is needed to achieve agreement on higher-priority items, moving from 60/40 to 55/45 or 50/50 is a reasonable trade.
The annual review for potential increase is a standard feature and can be accepted, subject to the Remuneration Committee's sole discretion regarding the amount and timing of any increase.
H. Retirement, Benefits, and Perquisites
NTP Proposal (v1): Standard executive benefits package, including: (a) participation in NTP's 401(k) plan with a 6% employer match (estimated annual employer contribution of up to $105,000, subject to IRS contribution limits); (b) annual supplemental executive retirement plan ("SERP") contribution of $250,000; (c) car allowance of $25,000 per year; (d) enrollment in NTP's executive health program; (e) supplemental life insurance with a $2,000,000 death benefit; and (f) reimbursement of financial and tax planning expenses up to $35,000 per year.
H&L Redline (v2): H&L accepted the 401(k), SERP, executive health program, and supplemental life insurance provisions without modification. H&L proposed the following changes to the perquisite provisions:
First, H&L requested an increase to the car allowance from $25,000 to $35,000 per year.
Second, H&L requested an increase to the financial and tax planning reimbursement cap from $35,000 to $50,000 per year. H&L noted that Harding's compensation structure — which involves dual US/UK employment, cross-border tax obligations, and complex equity compensation — will require more extensive tax advisory services than a purely domestic arrangement.
Third, H&L requested the addition of a personal umbrella liability insurance reimbursement benefit of up to $15,000 per year.
Fourth, H&L requested a contractual commitment to first-class air travel for all business-related travel during the employment term.
Significance: Minor. These are incremental perquisite adjustments with limited economic significance relative to the overall compensation package.
Financial Impact: The aggregate incremental annual cost of all proposed perquisite changes is approximately $40,000 per year, broken down as follows: car allowance increase ($10,000), financial/tax planning reimbursement increase ($15,000), and umbrella insurance reimbursement ($15,000). Over the five-year initial term, the total incremental cost would be approximately $200,000. The first-class air travel provision does not have a directly quantifiable cost, as it depends on the frequency and destinations of business travel; however, NTP's existing executive travel policy already provides for business-class international travel and first-class domestic travel for senior executives, so the incremental cost is likely modest.
Recommended Response: These are low-cost items that can be conceded in exchange for movement on material issues. We recommend the following:
• Car allowance: Accept an increase to $30,000 per year (splitting the difference between NTP's $25,000 and H&L's $35,000).
• Financial/tax planning reimbursement: Accept an increase to $45,000 per year. H&L's point about the complexity of Harding's cross-border tax situation is well-taken, and this is a cost-effective benefit that reduces the risk of tax compliance errors.
• Umbrella insurance reimbursement: Accept at $15,000 per year. This is a de minimis cost item.
• First-class air travel: We recommend accepting first-class travel for international flights, which is consistent with NTP's existing executive travel policy for C-suite officers. We suggest confirming this with Priya Narayanan (Chief People Officer) to ensure alignment with NTP's current policies and to avoid creating a precedent that differs materially from the treatment of other senior executives.
In the context of the overall negotiation, these perquisite items can serve as useful demonstrations of NTP's willingness to accommodate reasonable requests, which may facilitate more constructive discussions on the material and critical items.
I. Severance — Termination Without Cause / Resignation for Good Reason (Non-CIC)
— MATERIAL DEPARTURE —
NTP Proposal (v1): Upon termination of employment by NTP without Cause or by Harding for Good Reason, in either case not in connection with a Change in Control, Harding would be entitled to the following severance benefits: (a) cash severance equal to 2x the sum of base salary and target bonus (2 × ($1,750,000 + $3,062,500) = 2 × $4,812,500 = $9,625,000), payable in installments over 24 months; (b) a pro-rata annual cash incentive for the year of termination, calculated based on actual performance through the date of termination; (c) continued health insurance benefits under COBRA for 18 months following the date of termination; and (d) 12 months of accelerated vesting of unvested equity awards (both RSUs and PSUs), with PSUs vesting at actual performance levels to the extent determinable, or at target if performance is not yet measurable.
H&L Redline (v2): H&L proposed significant enhancements to the non-CIC severance provisions across all four components:
First, H&L increased the cash severance multiplier from 2x to 2.5x, resulting in total cash severance of 2.5 × ($1,750,000 + $3,062,500) = 2.5 × $4,812,500 = $12,031,250.
Second, H&L requested that the pro-rata annual bonus be calculated at the target level rather than based on actual performance, irrespective of actual results through the date of termination.
Third, H&L extended the COBRA continuation period from 18 months to 24 months.
Fourth — and most significantly — H&L replaced NTP's 12-month accelerated vesting provision with full acceleration of all unvested equity awards, including both sign-on grants and annual LTI grants. Under H&L's proposal, upon a qualifying non-CIC termination, all outstanding and unvested RSUs and PSUs (regardless of grant date or remaining vesting period) would immediately vest in full.
Significance: Material. The combination of the increased cash multiplier and full equity acceleration represents a substantial departure from NTP's initial proposal and, more importantly, from market norms for non-CIC severance.
Financial Impact: The financial impact of H&L's non-CIC severance proposal compared to NTP's initial proposal can be broken down as follows:
• Cash severance gap: $12,031,250 (H&L) − $9,625,000 (NTP) = $2,406,250 incremental cash cost.
• COBRA extension: An additional 6 months of COBRA continuation, with an estimated incremental cost of approximately $25,000 to $40,000, depending on the applicable premium rates and the plan in which Harding and his dependents are enrolled.
• Equity acceleration differential: This is the most significant variable. The difference between full acceleration and 12-month acceleration depends critically on the timing of termination and the number of unvested equity tranches outstanding at that time.
In a worst-case scenario — termination early in Year 2, after the first sign-on RSU tranche has vested but before any subsequent tranches have vested — the equity acceleration differential could be enormous. At that point, Harding would have the following unvested equity:
• Sign-on RSUs: $8,000,000 (two remaining annual tranches of $4,000,000)
• Sign-on PSUs: $6,400,000 (cliff vesting not yet occurred)
• Year 1 Annual LTI RSUs: approximately $3,600,000 (40% of $9,000,000)
• Year 1 Annual LTI PSUs: approximately $5,400,000 (60% of $9,000,000)
Total unvested equity: approximately $23,400,000
Under NTP's 12-month acceleration, only the tranches scheduled to vest within the next 12 months would accelerate — approximately $9,000,000 in value. Under H&L's full acceleration, all $23,400,000 would vest immediately. The delta in this scenario would be approximately $14,400,000.
In a more favorable scenario — termination in Year 4, after most sign-on equity has vested — the differential narrows significantly, as fewer unvested tranches would be outstanding. But the early-termination scenario represents the realistic downside exposure that NTP must consider.
Recommended Response: We recommend maintaining the 2x cash severance multiplier for non-CIC terminations. NTP's 2x multiplier is consistent with UK Corporate Governance Code 2024 Provision 40, which establishes a norm of 12-month notice periods for executive directors and discourages payments in excess of that norm absent exceptional circumstances. NTP's 2x multiplier is already at the higher end of market practice for non-CIC termination — effectively providing Harding with 24 months of total cash compensation (base plus target bonus) — and an increase to 2.5x would place NTP's severance provisions significantly above the median for both US and UK comparator companies.
We further note that under H&L's proposed terms, the non-CIC cash severance multiplier (2.5x) would be equal to NTP's proposed CIC multiplier (2.5x), eliminating any differentiation between non-CIC and CIC severance levels. This is unusual and undermines the economic logic of distinguishing between these two categories. The CIC multiplier should be higher than the non-CIC multiplier because a CIC termination involves the additional element of a change-of-ownership transaction, which typically warrants enhanced severance protections. If both multipliers are equalized at 2.5x, there is no incremental CIC premium, which in turn strengthens H&L's case for a higher CIC multiplier (3x) — a position we address in Section J below.
On the pro-rata bonus, we recommend maintaining the "actual performance" standard rather than conceding to "target." The purpose of the pro-rata bonus is to compensate the executive for the portion of the year during which he was employed, and actual performance is the most accurate measure of the value generated during that period. A target-level guarantee eliminates any connection between pay and performance for the year of termination, which is inconsistent with NTP's pay-for-performance philosophy.
The COBRA extension from 18 to 24 months is a low-cost concession (estimated incremental cost: $25,000–$40,000) and can be conceded.
On equity acceleration, we strongly recommend maintaining 12 months of accelerated vesting (rather than full acceleration) for non-CIC terminations. Full acceleration of equity should be reserved for the CIC context, where it serves a specific purpose: protecting the executive's equity interests in connection with a change-of-ownership transaction. Providing full acceleration in non-CIC contexts is inconsistent with market practice and eliminates one of NTP's most important retention tools — the executive's unvested equity, which incentivizes continued service.
We note that Harding's current Marlowe Asset Management agreement provides full equity acceleration only in connection with a CIC termination, not in connection with a non-CIC termination without Cause. H&L's request for full acceleration in non-CIC contexts therefore exceeds the protections Harding currently enjoys, which undercuts the "matching" rationale that pervades many of H&L's other proposals.
J. Change in Control Provisions
— CRITICAL DEPARTURE — Core Impasse Area #1 —
The CIC provisions represent the most complex and economically significant area of departure in H&L's redline. I address each component in turn below.
J.1. Definition of "Change in Control"
NTP Proposal (v1): "Change in Control" was defined to include: (a) acquisition by any person or group of more than 50% of the outstanding voting securities of NTP; (b) consummation of a merger, consolidation, or similar business combination in which the shareholders of NTP immediately prior to the transaction hold less than 50% of the voting power of the surviving or resulting entity; and (c) sale, transfer, or other disposition of all or substantially all of the assets of NTP and its subsidiaries, taken as a whole.
H&L Redline (v2): H&L accepted triggers (a), (b), and (c) without substantive modification. H&L added a fourth trigger:
(d) A change in the composition of the Board of Directors such that a majority of the directors serving on the Board at any time during any consecutive 12-month period are individuals who were not members of the Board at the beginning of such 12-month period and whose appointment, election, or nomination was not approved by a vote of at least a majority of the directors who were members of the Board at the beginning of such period (the "Board Turnover Trigger").
Significance: Critical. The Board Turnover Trigger is the single most aggressive provision in the H&L redline and, in the view of this firm, represents a bright-line issue for NTP.
Analysis: The Board Turnover Trigger is conceptually problematic for several reasons:
First, it could be activated in the absence of any actual change-of-ownership transaction. Normal Board refreshment cycles — including the retirement and replacement of directors in the ordinary course, changes in Board composition driven by shareholder engagement or corporate governance best practices, or the election of new directors in contested or uncontested elections — could trigger a "Change in Control" under this definition if a majority of directors are replaced within any 12-month window. This creates the prospect of CIC severance entitlements arising from Board governance decisions that have nothing to do with M&A activity.
Second, the provision is particularly concerning in the context of shareholder activism. If an activist investor — such as a hedge fund or activist fund — succeeds in electing a majority slate of directors through a proxy contest, this would trigger a Change in Control under H&L's definition, even though no acquisition or merger has occurred and no change in the ownership of the company's equity has taken place. Harding would be entitled to full CIC severance (potentially exceeding $14 million in cash alone, plus full equity acceleration) in a scenario where the Company's equity holders have merely exercised their right to elect new directors. This is inconsistent with fundamental principles of corporate governance and shareholder democracy.
Third, the Board Turnover Trigger is inconsistent with the governance framework under which NTP operates as a premium-listed company on the London Stock Exchange. The UK Corporate Governance Code and related guidance from the Financial Reporting Council emphasize regular Board refreshment and succession planning as elements of good governance. A CIC trigger that treats Board refreshment as a change in control runs directly counter to these principles.
Fourth, Veltrano Proxy Advisors has specifically flagged that ISS considers Board turnover triggers to be overreaching in the context of publicly listed companies. ISS's Compensation Policies FAQ (updated November 2023) states that Board composition changes unrelated to M&A transactions should not serve as CIC triggers in executive compensation agreements. Tarrant Partners LLC has adopted a similar position.
Recommended Response: Reject the Board Turnover Trigger. This is a bright-line issue for the NTP Board. Both Dame Philippa Thornton-Hale (Chair of the Remuneration Committee) and Geoffrey Stanton (Chair of the Board) have specifically considered and rejected this provision in the pre-negotiation strategy discussions. In the June 24 call with H&L, we should explain clearly and directly that the three traditional CIC triggers — acquisition of voting control, merger/consolidation, and asset sale — are comprehensive and cover all genuine change-of-ownership scenarios. We should emphasize the incompatibility of the Board Turnover Trigger with the UK Corporate Governance Code and ISS/Tarrant Partners LLC guidelines, and note that inclusion of such a provision would likely generate negative commentary in the proxy advisory reports for NTP's next AGM.
This is not a point on which we are prepared to negotiate or compromise. If H&L presses on this issue, we should communicate that the Board has considered it and determined that it is not acceptable, and redirect the conversation to areas where productive compromise is possible.
J.2. CIC Severance Trigger (Single vs. Double Trigger)
NTP Proposal (v1): Double-trigger CIC severance, requiring both (i) the occurrence of a Change in Control and (ii) a qualifying termination of employment (termination without Cause or resignation for Good Reason) within 12 months following the Change in Control.
H&L Redline (v2): H&L accepted the double-trigger structure. H&L proposed extending the post-CIC qualifying termination window from 12 months to 24 months, arguing that management changes following a CIC may not occur immediately and that a 12-month window is insufficient to capture constructive terminations that develop gradually over the post-CIC integration period.
Significance: Moderate. The agreement on double-trigger is an important positive development. The duration of the post-CIC window is a secondary issue.
Analysis: The double-trigger requirement is consistent with ISS and Tarrant Partners LLC expectations, current market practice, and NTP's governance framework. ISS considers single-trigger CIC severance — where the executive receives severance upon the occurrence of the CIC itself, regardless of whether employment is terminated — to be a problematic pay practice. The parties' agreement on double-trigger eliminates a potentially contentious issue.
The duration of the post-CIC window is a secondary negotiating point. A 12-month window is on the shorter end of market practice; a 24-month window is on the longer end. The majority of CEO agreements in the Whitmore Hobson peer group utilize windows of 18 to 24 months.
Recommended Response: An 18-month post-CIC qualifying termination window is a reasonable compromise between the two positions and is consistent with the central tendency of market practice. We recommend proposing 18 months in the revised term sheet.
J.3. CIC Cash Severance Multiplier
NTP Proposal (v1): Cash severance upon a CIC qualifying termination equal to 2.5x the sum of base salary and target bonus: 2.5 × ($1,750,000 + $3,062,500) = 2.5 × $4,812,500 = $12,031,250.
H&L Redline (v2): H&L proposed increasing the CIC cash severance multiplier from 2.5x to 3x: 3 × ($1,750,000 + $3,062,500) = 3 × $4,812,500 = $14,437,500.
Cash Gap: $14,437,500 − $12,031,250 = $2,406,250.
Significance: Critical.
Analysis: H&L's demand for a 3x CIC multiplier is anchored in Harding's current Marlowe Asset Management agreement, which provides 3x CIC severance. From H&L's perspective, this is a "matching" request — they will argue that Harding should not be asked to accept a lower CIC protection at NTP than he currently enjoys at Marlowe Asset Management.
However, there are several important reasons why a simple matching approach is not appropriate:
First, NTP is a UK-listed company subject to governance norms and shareholder expectations that differ materially from those applicable to Marlowe Asset Management, which is a privately held US company. The UK Corporate Governance Code, while not directly restricting CIC multiples, establishes a general framework of restraint in executive remuneration that influences shareholder expectations and proxy advisory assessments.
Second, ISS proxy advisory policy generally flags CIC severance arrangements that exceed 3x the sum of base salary and target bonus (or, in some methodologies, 3x total annual cash compensation). While a 3x multiplier technically falls within the ISS threshold rather than exceeding it, it sits precisely at the level that triggers heightened scrutiny. When combined with other elements of the CIC package — particularly a full tax gross-up — the aggregate CIC benefit is likely to exceed the thresholds that would trigger a negative ISS recommendation.
Third, Veltrano Proxy Advisors' informal analysis (dated June 14, 2024, with supplemental commentary received June 18, 2024) specifically warned that a 3x CIC multiplier combined with a full Section 280G gross-up would likely result in a negative say-on-pay recommendation from ISS at NTP's next AGM. NTP received 87.4% shareholder support on its say-on-pay resolution at the April 18, 2024 AGM — a solid but not overwhelming level of support. Geoffrey Stanton's view, which I understand he has communicated to Renata, is that this level of support leaves insufficient cushion to absorb a negative ISS recommendation without risk of failing the say-on-pay vote.
Fourth, Whitmore Hobson's peer-group data shows a median CIC severance multiplier of 2.5x among the 18 comparator companies in the analysis. Only 3 of the 18 companies in the peer group provide a 3x CIC multiplier, and all three are US-domiciled companies without a UK listing. NTP's proposed 2.5x multiplier is squarely at the market median.
Fifth, NTP's top five institutional shareholders — Caledonian Asset Management (8.3%), Pemberton Capital Group (6.7%), Thornbury Investment Trust (5.1%), Regis Global Equity Fund (4.4%), and Atlas Pension Fund (3.2%) — collectively hold approximately 27.7% of outstanding shares and tend to follow ISS recommendations on compensation matters. A negative ISS recommendation on say-on-pay would create a meaningful risk of a failed or narrowly-passing vote, which would have broader reputational and governance implications for the Company.
Recommended Response: Hold firm at 2.5x. The Remuneration Committee has reviewed the 2.5x multiplier and has approved it as the maximum authorized CIC cash severance multiplier for this negotiation. In the June 24 call, we should communicate to H&L that 2.5x is NTP's final position on this point, supported by market data (peer-group median), proxy advisory expectations (ISS threshold considerations), and Board-level governance determinations. We should cite the specific concerns raised by Veltrano and the shareholder composition analysis to demonstrate that a 3x multiplier creates unacceptable governance and shareholder-relations risk for the Company.
If H&L presses strongly on this point, we should note that NTP's 2.5x CIC multiplier is still a premium over NTP's 2x non-CIC multiplier, providing Harding with meaningful incremental CIC protection. The 2.5x multiplier is also at the top of the range recommended by ISS for UK-listed companies.
J.4. CIC Equity Acceleration
NTP Proposal (v1): Full acceleration of all unvested equity awards (both RSUs and PSUs) upon a CIC qualifying termination (i.e., double-trigger). For PSUs, vesting would occur at actual performance levels if the performance period is complete or if actual performance can be measured through the date of the CIC; for incomplete performance periods where actual performance cannot be meaningfully measured, PSUs would vest at target.
H&L Redline (v2): H&L accepted full acceleration of all unvested equity upon CIC qualifying termination. H&L proposed two modifications:
First, H&L requested that PSUs vest at the target level regardless of actual performance — even if actual performance is measurable and is below target. H&L's position is that the CIC transaction itself disrupts the performance measurement period and makes any assessment of "actual" performance unreliable and potentially manipulable.
Second, H&L added a "price protection" provision requiring that the equity value for acceleration purposes be calculated at the higher of (x) the per-share price paid in the CIC transaction and (y) the average closing price of NTP ADRs for the 30 trading days immediately preceding the public announcement of the CIC transaction. This provision is designed to protect Harding against a scenario in which the CIC transaction price reflects a discount to recent trading levels — for example, in a distressed sale or a take-private at a depressed valuation.
Significance: Material.
Financial Impact: The PSU vesting modification could result in a higher payout if actual performance is below target at the time of the CIC. For example, if actual TSR and revenue growth metrics are tracking at 75% of target at the time of the CIC, vesting at target rather than actual would increase the PSU payout by approximately 33% of the target value. On a PSU portfolio with a target value of $10 million (combining sign-on and annual LTI PSUs), this differential could be $2.5 million or more, depending on the number of open performance periods at the time of the CIC.
The price protection provision adds a more modest exposure. It would be material only in a scenario where the CIC transaction price is below the 30-day trailing average — i.e., a distressed or discounted transaction. In a typical premium-to-market CIC transaction, the transaction price would exceed the trailing average, making the provision moot. The practical significance is limited, but it does create a one-directional ratchet that always resolves in Harding's favor.
Recommended Response: We recommend conceding on PSU vesting at target for incomplete performance periods. This is an arguably reasonable position: when a CIC transaction occurs in the middle of a three-year performance period, the performance metrics are inherently disrupted. The acquiring entity will have its own strategy, financial targets, and operating model, making it practically difficult — and arguably unfair — to measure performance against NTP-specific metrics that the acquiror may not honor. Target vesting in this context is a defensible standard and is consistent with the approach used by the majority of companies in the Whitmore Hobson peer group.
However, for performance periods that are complete or substantially complete (e.g., performance measured through the end of the most recently completed fiscal year), we recommend maintaining vesting at actual performance. This preserves the pay-for-performance linkage for periods where meaningful performance data exists.
On price protection, we recommend pushing back. This provision is unu