PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
Elaine,
I am writing to forward the email I received earlier today from Victoria Hargrove at Hargrove & Liddell LLP, formally rejecting Northgate's final compromise proposal of September 3 on behalf of Marcus Elliot Harding. The full text of Ms. Hargrove's email appears below.
While this outcome is disappointing, I cannot say it is unexpected. The positions Mr. Harding staked out at the August 26 principals meeting at 600 Lexington Avenue left very little daylight between the parties, and today's response confirms that the gap has not narrowed.
**Summary of Harding's "Non-Negotiable" Positions**
Ms. Hargrove characterized all four of the following items as non-negotiable on Mr. Harding's behalf:
1. **Change in Control Severance Multiplier.** Harding insists on 3x (base salary plus target bonus), yielding CIC cash severance of 3 × $4,812,500 = $14,437,500. Northgate's final offer was 2.5x, or $12,031,250. The gap on CIC cash severance alone is $2,406,250.
2. **Section 280G Tax Gross-Up.** Harding demands a full excise tax gross-up rather than the best-net cutback Northgate proposed. Based on our estimates — total parachute payments under Harding's proposal of approximately $38.2 million against a base amount of $7,840,000, yielding excess parachute payments of roughly $30.36 million — the estimated excise tax exposure is approximately $6.07 million, with gross-up exposure to the company in the range of $4.2 million to $6.8 million depending on final parachute payment calculations.
3. **Board Turnover Trigger.** Harding insists on inclusion of a provision deeming a change in control to have occurred upon replacement of a majority of directors within any 12-month period. As you know, Northgate has consistently rejected this as overreach and as inconsistent with UK corporate governance norms.
4. **Restrictive Covenant — Non-Compete Duration and Scope.** Harding will accept only a 12-month non-compete limited to a scheduled list of eight direct competitors. Northgate's final concession was 18 months across North America and Western Europe with a revenue-based activity test (companies deriving more than 15% of revenue from telecom services, telecom infrastructure, or enterprise SaaS platforms serving telecom operators).
**Our Assessment**
In Calderwood & Harkness's assessment, no further negotiation is likely to be productive. Ms. Hargrove's characterization of all four items as "non-negotiable" leaves no meaningful room for additional compromise on the Harding side.
Northgate has already moved significantly from its opening positions over the course of this negotiation — five rounds of term-sheet calls between June 24 and July 19, two full drafts of the employment agreement, the August 26 principals meeting, and the final compromise proposal of September 3. The remaining gaps are not incremental; they reflect fundamental differences in the parties' views on appropriate governance and compensation structures.
As we have discussed throughout this process, the ISS and proxy advisory concerns raised by Veltrano Proxy Advisors, together with the UK Corporate Governance Code constraints — particularly Provision 40 and prevailing market norms on severance multiples for UK-listed companies — make it impractical for Northgate to accept Mr. Harding's terms without exposing the company to a likely negative say-on-pay recommendation and significant shareholder backlash. The 87.4% support at the April 18, 2024 AGM, while passing, leaves limited margin for a compensation package of this magnitude and structure.
I would also note that the Whitmore Hobson analysis demonstrated that the after-tax outcomes under a best-net cutback versus full payment with excise tax are roughly equivalent for Mr. Harding personally. The gross-up demand was largely a matter of principle and optics rather than material economic benefit to the candidate. His unwillingness to concede even this point signals an inflexibility that, in our judgment, makes further negotiation unproductive.
**Recommendation**
Calderwood & Harkness recommends that the Board formally resolve to terminate negotiations with Marcus Elliot Harding. We suggest the Board convene promptly to authorize termination and direct the issuance of a formal termination notification to Hargrove & Liddell. I understand a Board call may already be in the process of being scheduled; if so, we would recommend this item be placed on the agenda.
We stand ready to prepare both the termination letter and a supporting Board resolution upon authorization.
**Immediate Next Steps**
Assuming the Board elects to proceed with termination, the following items will need to be addressed:
- **Formal Termination Letter.** We will prepare a draft letter from me to Ms. Hargrove formally terminating negotiations, requesting the return or destruction of all confidential materials exchanged during the process, and reminding the parties of their surviving confidentiality obligations.
- **Board Resolution.** We will prepare a draft written resolution for the Board's adoption authorizing the termination of negotiations.
- **Kensington Partners Notification.** Following Board action, Antonia Blythe at Kensington Partners should be notified so the CEO search can resume. As you will recall, the third tranche of Kensington's £1,200,000 search fee was never paid, since no placement occurred. The terms of resumption of the search will need to be discussed with Ms. Blythe.
- **Public Disclosure.** I will separately provide guidance on whether Northgate has any disclosure obligation under SEC, NYSE, or FCA rules regarding the failed negotiation. My preliminary view is that no obligation exists, since no definitive agreement was reached and Mr. Harding's candidacy was never publicly disclosed. I will confirm this analysis in writing.
- **Confidentiality and Document Handling.** It will be important to ensure all parties' compliance with confidentiality obligations regarding both the negotiation and Mr. Harding's candidacy. This applies internally as well as to the Harding side.
- **Interim CEO Planning.** Given Sir Alistair Kemble's retirement date of December 31, 2024, you may wish to begin considering interim CEO arrangements — whether extending Sir Alistair's tenure or appointing an internal interim such as Jonathan Briggs — to ensure continuity while the search resumes.
I am available to discuss by phone this evening or first thing tomorrow morning. If the Board call is confirmed for September 10, both Jim Underwood and I are available to participate.
Ms. Hargrove's rejection email follows below.
Best regards,
Renata Vasquez Partner Calderwood & Harkness LLP One Manhattan West, New York, NY 10001 rvasquez@calderwoodharkness.com Matter Ref: 1022-00004
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**— Forwarded Message —**
From: Victoria Hargrove To: Renata Vasquez Date: September 9, 2024, 11:23 AM EDT Subject: RE: Harding — Northgate Final Compromise Proposal (September 3, 2024)
Renata,
Thank you for your patience in allowing Mr. Harding and me time to carefully review Northgate's revised proposal dated September 3.
After thorough consideration, I must inform you that Mr. Harding is unable to accept the proposal as presented. While Mr. Harding continues to hold Northgate Telecom and its Board in the highest regard, and while he appreciates the good faith demonstrated throughout these discussions, the September 3 proposal does not meet his minimum requirements on several core terms.
Specifically, the following items remain non-negotiable for Mr. Harding:
1. A change in control severance multiplier of 3x base salary plus target bonus; 2. A full Section 280G excise tax gross-up, rather than a best-net cutback; 3. Inclusion of a board turnover trigger (majority replacement within any 12-month period) in the change in control definition; and 4. A non-compete limited to 12 months and restricted to the eight scheduled direct competitors previously identified.
Mr. Harding views each of these provisions as reflecting the appropriate market standard for a role of this scope and significance, and he is not in a position to make further concessions on any of these points.
I regret that we have been unable to reach agreement despite the considerable effort invested by both sides. Mr. Harding has asked me to convey his personal respect for Ms. Whitford and the Northgate Board, and his hope that the company's leadership transition proceeds smoothly.
Please let me know how you and your client would like to proceed.
Regards,
Victoria Hargrove Partner Hargrove & Liddell LLP vhargrove@hargroveliddell.com
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*CONFIDENTIALITY NOTICE: This email and any attachments are privileged and confidential attorney-client communications of Calderwood & Harkness LLP, sent on behalf of our client. This communication is protected by the attorney-client privilege, the work product doctrine, and applicable rules of professional conduct. If you are not the intended recipient, please notify the sender immediately and delete all copies. Any unauthorized review, use, disclosure, or distribution is prohibited. Matter Ref: 1022-00004.*