PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
September 16, 2024
FROM: Renata Vasquez, Partner Calderwood & Harkness LLP 299 Park Avenue, 42nd Floor New York, NY 10171
TO: Elaine Whitford, SVP & Group General Counsel Northgate Telecommunications PLC
Geoffrey Stanton, Lead Independent Director & Chair, Remuneration Committee Northgate Telecommunications PLC
RE: Lessons Learned — Analysis of Negotiation Breakdown and Recommendations for Future CEO Searches
MATTER: Northgate Telecommunications PLC — CEO Employment Negotiation (Marcus Elliot Harding)
MATTER NO.: 1022-00004
PRIVILEGE DESIGNATION: This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation and in connection with the provision of legal advice. It contains the mental impressions, conclusions, opinions, and legal theories of Calderwood & Harkness LLP attorneys and should not be disclosed to any third party without prior consultation with Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection.
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I. PURPOSE AND EXECUTIVE SUMMARY
The purpose of this memorandum is to provide a comprehensive post-mortem analysis of the collapsed CEO employment negotiation with Marcus Elliot Harding ("Harding" or the "Candidate"), to identify the root causes of the negotiation breakdown, and to offer actionable recommendations for the Board of Directors (the "Board") and management team of Northgate Telecommunications PLC ("Northgate," "NTP," or the "Company") to improve both the process and the likelihood of a successful outcome in future CEO search and compensation negotiations. This memorandum is intended to serve as a candid assessment of what occurred, what could have been done differently, and what structural and procedural improvements should be adopted going forward.
Summary of Engagement. Calderwood & Harkness LLP ("C&H") was engaged on June 4, 2024, to negotiate and draft an executive employment agreement for the incoming Chief Executive Officer position at Northgate. The engagement followed the Nomination Committee's unanimous recommendation of Harding as the preferred candidate on May 28, 2024, and Dame Philippa Thornton-Hale's informal verbal offer on May 30, 2024. The negotiation ran from June 10, 2024 — the date the initial term sheet was circulated to the Candidate's personal counsel — through September 12, 2024 — the date the Board adopted a formal resolution to terminate negotiations. Over the course of approximately 100 days, the parties conducted five rounds of term-sheet negotiation calls, exchanged two full drafts of the employment agreement with accompanying redlines, convened an in-person principals meeting on August 26, 2024, and transmitted a final best-and-final compromise proposal on September 3, 2024.
Outcome. Negotiations collapsed at the term-sheet stage on two interlocking issues — change in control severance provisions and restrictive covenant obligations — when the parties were unable to bridge fundamental differences in position. Harding's counsel, Victoria Hargrove of Hargrove & Liddell LLP ("H&L"), formally rejected Northgate's final compromise proposal on September 9, 2024, characterizing Harding's positions on these issues as "non-negotiable." Following a Board call on September 10, 2024, the Board unanimously resolved to terminate negotiations, and a formal resolution was adopted on September 12, 2024. Notification of the termination was delivered to Harding and his counsel on the same date.
Key Takeaway. In the assessment of Calderwood & Harkness, the breakdown of negotiations was foreseeable — and, indeed, was foreshadowed — given the early identification of the Candidate's non-negotiable positions on change in control severance and restrictive covenant terms. The core tension was structural: Harding's expectations were anchored to US-market CEO compensation norms and his existing Marlowe Asset Management Digital Holdings agreement, while Northgate was constrained by the UK Corporate Governance Code 2024, ISS and Tarrant Partners LLC proxy advisory policies, and the expectations of a predominantly UK and European institutional shareholder base. These competing frameworks were not adequately surfaced or reconciled before the informal verbal offer was extended on May 30, 2024. Earlier and more structured alignment between the Board's governance constraints and the Candidate's expectations could have either resolved the impasse sooner — saving both parties significant time and resources — or avoided the expenditure of approximately $495,625 in C&H fees and disbursements alone, plus substantial additional costs for search, compensation consulting, proxy advisory, UK counsel, and auditor fees, on a negotiation that was unlikely to succeed.
The balance of this memorandum sets forth the detailed background and timeline of the negotiation, identifies and analyzes the specific deal-breakers, examines root causes of the breakdown, acknowledges aspects of the process that functioned well, and provides ten concrete recommendations for the Board's consideration as it resumes the CEO search process.
II. BACKGROUND AND TIMELINE
A. CEO Search Process
Northgate's Nomination Committee, chaired by Lucinda Farrow, retained Kensington Partners Ltd. ("Kensington") on March 1, 2024, to conduct a comprehensive external search for Northgate's next Chief Executive Officer. Antonia Blythe, Managing Director at Kensington, served as the lead engagement partner for the search. The engagement followed the Nomination Committee's determination, made in consultation with Dame Philippa Thornton-Hale (Chair of the Board) and the outgoing CEO, Sir Alistair Kemble, that the Company's next phase of strategic development — including the planned expansion of its enterprise SaaS platform and the integration of recently acquired fiber-optic infrastructure assets in continental Europe — required a CEO with deep operational experience in both traditional telecommunications and next-generation digital services.
Sir Alistair Kemble publicly announced his retirement, effective December 31, 2024, on May 15, 2024, after eleven years as CEO. The announcement had been planned since early 2024 to allow sufficient time for an orderly succession process, although the Board recognized that the public nature of the announcement created an external timeline that would bear on the negotiation dynamics with any successor candidate.
Kensington presented a final shortlist of three candidates to the Nomination Committee on May 22, 2024. Following interviews and reference checks conducted between May 22 and May 28, the Nomination Committee recommended Marcus Elliot Harding as the preferred candidate on May 28, 2024. The full Board unanimously concurred with this recommendation on the same date. The two remaining candidates were notified that Harding had been selected as the preferred candidate but were not formally declined at that time; however, no substantive engagement with those candidates continued beyond May 28.
Dame Philippa Thornton-Hale extended an informal verbal offer to Harding on May 30, 2024, by telephone. The verbal offer communicated the Board's strong interest in Harding's candidacy, referenced broad compensation parameters (including an approximate base salary range and sign-on package), and expressed the expectation that definitive terms would be negotiated and documented over the ensuing weeks. Harding expressed strong interest in the opportunity, subject to agreement on definitive terms, and confirmed that he would engage his personal counsel, Victoria Hargrove, to conduct the negotiation on his behalf.
B. Candidate Profile
Marcus Elliot Harding, age 52, is currently the President and Chief Operating Officer of Marlowe Asset Management Digital Holdings, Inc. ("Marlowe Asset Management" or "VDHI"), a NYSE-listed technology and telecommunications company with an approximate market capitalization of $34 billion as of the date of this memorandum. Harding has a 28-year career spanning both traditional telecommunications operations and enterprise digital services. Prior to joining Marlowe Asset Management in 2017, he served as Executive Vice President, Global Operations at Meridian Wireless Corp. from 2010 to 2017, where he led the operational integration of Meridian's $8.2 billion acquisition of AsiaCell Partners. Before Meridian, Harding held progressively senior operating roles at BellStar Communications and Centurion Networks.
Harding is widely credited within the industry with leading Marlowe Asset Management's strategic pivot from legacy infrastructure services to enterprise SaaS, during which period Marlowe Asset Management's SaaS annual recurring revenue ("ARR") grew from approximately $120 million to $1.8 billion over seven years — a compound annual growth rate of approximately 47%. His candidacy was viewed by Kensington and the Nomination Committee as uniquely suited to Northgate's strategic priorities given this demonstrated ability to execute a digital transformation within a large-scale telecommunications enterprise.
At the time of the negotiation, Harding's current total target compensation at Marlowe Asset Management was approximately $11,125,000, comprising the following elements:
In addition, Harding held unvested equity awards at Marlowe Asset Management with an estimated forfeiture value of approximately $23,400,000 at the time of the negotiation. This figure — which represented the value Harding would forfeit by departing Marlowe Asset Management before the scheduled vesting dates — was a critical driver of the sign-on equity package negotiated between the parties and was ultimately agreed upon (at $18,400,000 in RSUs and PSUs) without significant controversy.
Harding's existing employment agreement with Marlowe Asset Management, which was reviewed by C&H upon engagement, included the following provisions relevant to this analysis:
• Change in control severance: 3x (base + target bonus), with full acceleration of all unvested equity awards, payable upon a qualifying termination within 24 months following a change in control (double trigger).
• Section 280G tax treatment: full excise tax gross-up.
• Post-termination non-compete: 12 months, limited to the United States.
• Post-termination non-solicitation: 18 months, employees and customers.
These existing terms served as Harding's negotiating baseline throughout the process, as detailed further in Section III below.
Harding was represented throughout the negotiation by Victoria Hargrove, founding partner of Hargrove & Liddell LLP ("H&L"), a boutique executive compensation law firm in New York. Hargrove has represented Harding since 2017 and is known within the executive compensation bar as an experienced and assertive advocate. Nathan Chu, a senior associate at H&L, provided supporting legal work on the engagement.
C. Engagement Timeline
The following is a detailed chronological summary of the key events in the negotiation:
June 3, 2024: Conflicts cleared by Calderwood & Harkness's conflicts committee. No conflicts identified with respect to Harding, Marlowe Asset Management Digital Holdings, Hargrove & Liddell, or any related party.
June 4, 2024: C&H formally engaged by Northgate to serve as lead U.S. employment counsel for the negotiation and drafting of the CEO employment agreement. Moorfield Bates LLP ("Moorfield Bates"), led by Simon Aldridge and Hannah Carmichael, was consulted on UK employment law matters and the proposed dual-contract architecture (under which Harding would be employed primarily through Northgate Telecommunications US, Inc., a Delaware corporation, with a secondary service agreement with the UK parent company to satisfy UK regulatory and governance requirements).
June 10, 2024: C&H circulated the initial term sheet (v1) to H&L, reflecting the Board-approved compensation parameters as established by the Remuneration Committee. The term sheet addressed all material elements of the proposed employment arrangement, including base salary, annual bonus, long-term incentive awards, sign-on compensation, change in control severance, termination provisions, restrictive covenants, indemnification, and perquisites.
June 17, 2024: H&L returned a marked-up redline of the term sheet, reflecting significant revisions to the change in control and restrictive covenant sections. The redline also proposed modifications to several other provisions, including the bonus clawback mechanism and the Board seat requirement, but the most material departures from Northgate's initial positions related to the CIC severance multiplier (3x vs. Northgate's proposed 2x), the inclusion of a Board turnover trigger in the CIC definition, a full Section 280G gross-up, and a reduction of the non-compete period from 24 months to 12 months with narrower activity and geographic scope definitions.
June 24, 2024 (Term-Sheet Call #1): First negotiation call. Participants: Vasquez, Crawford, and Underwood (C&H); Whitford (NTP); Hargrove and Chu (H&L). Discussion focused on prioritizing open issues and establishing a framework for resolution. Both sides agreed to attempt to resolve non-CIC, non-restrictive-covenant issues first. Initial positions on the two core impasses were articulated but not substantively negotiated.
July 1, 2024 (Term-Sheet Call #2): Second negotiation call. Progress made on base salary (agreed at $1,750,000), target bonus percentage (agreed at 175% of base), maximum bonus (agreed at 300% of base), and annual LTI target (agreed at $9,000,000). Sign-on cash ($5,000,000) and sign-on equity ($18,400,000) were discussed and substantially agreed in principle. CIC and restrictive covenant issues remained open.
July 8, 2024 (Term-Sheet Call #3): Third negotiation call. Agreement reached on all non-CIC, non-restrictive-covenant terms, including SERP ($250,000 per year), perquisites package, relocation assistance, and the dual-contract architecture. The parties agreed to circulate a clean summary of agreed terms and to focus the remaining calls exclusively on the two outstanding impasses. At this point, the Remuneration Committee's approved CIC multiplier was 2x (base + target bonus); the Committee had not yet authorized an increase.
July 12, 2024 (Term-Sheet Call #4): Fourth negotiation call. Northgate increased its CIC severance proposal from 2x to 2.5x (base + target bonus), with the authorization of the Remuneration Committee (resolution dated July 11, 2024). Harding's side maintained its demand for 3x. Discussion of the Board turnover trigger commenced; H&L provided a detailed rationale for its inclusion, citing precedent at three comparator companies. Northgate's side expressed preliminary concerns but deferred a definitive response pending further analysis.
July 19, 2024 (Term-Sheet Call #5): Fifth and final term-sheet negotiation call. Northgate formally rejected the Board turnover trigger and the Section 280G gross-up. Northgate offered a revised restrictive covenant proposal: 18-month non-compete (reduced from 24 months), North America and Western Europe geographic scope (reduced from worldwide), with the existing activity definition. H&L communicated that Harding's positions on the CIC multiplier, gross-up, and Board turnover trigger were firm. The call concluded without resolution on either impasse. The parties agreed to proceed to a full draft of the employment agreement to attempt to resolve the remaining issues in the context of the complete document.
July 22, 2024: Draft 1 of the employment agreement circulated by C&H to H&L. The draft was approximately 62 pages and incorporated all agreed terms plus Northgate's positions on the outstanding issues.
August 5, 2024: H&L returned its redline of Draft 1, containing 88 comments. The overwhelming majority of H&L's material objections related to Section 7 (Change in Control) and Section 9 (Restrictive Covenants). Other comments addressed technical and drafting matters, most of which were non-controversial.
August 12, 2024: Draft 2 circulated by C&H, incorporating Northgate's responses to H&L's comments. Northgate made certain additional concessions in Draft 2, including the reduction of the non-compete period to 18 months and the narrowing of geographic scope, as well as technical improvements to the equity acceleration mechanics. The CIC multiplier remained at 2.5x; the best-net safe harbor cutback was retained; and the Board turnover trigger was excluded.
August 19, 2024: H&L returned its redline of Draft 2, containing 42 remaining comments. The comment count had been reduced by approximately half, reflecting resolution of numerous technical and drafting issues. However, the two core impasses — CIC severance (multiplier, gross-up, and Board turnover trigger) and restrictive covenant duration and scope — persisted without movement.
August 26, 2024: In-person principals meeting held at 600 Lexington Avenue, 38th Floor, New York, New York. Attendees for Northgate: Dame Philippa Thornton-Hale (Board Chair), Geoffrey Stanton (Chair, Remuneration Committee), Elaine Whitford (SVP & Group General Counsel), and Renata Vasquez (C&H). Attendees for Harding: Marcus Elliot Harding and Victoria Hargrove (H&L). The meeting lasted approximately three and a half hours. Both sides presented their positions directly and candidly. The impasse was explicitly acknowledged. The parties agreed to make one final effort to bridge the gap through a written compromise proposal to be prepared by Northgate's side. Harding expressed his personal admiration for Northgate and his desire to find a resolution, but reiterated that his positions on the CIC terms reflected deeply held principles about executive protection that he was not prepared to compromise. Hargrove stated clearly that her client would not accept a CIC severance multiplier below 3x or any arrangement that did not include a full Section 280G gross-up.
September 3, 2024: Final compromise proposal (term sheet v5-Final) transmitted by C&H to H&L. The proposal represented Northgate's best-and-final offer: a CIC multiplier of 2.5x with full equity acceleration (including PSUs at target, a concession from Northgate's prior position of pro-rata PSU acceleration), 24 months COBRA continuation and $50,000 outplacement, best-net safe harbor cutback on Section 280G, no Board turnover trigger, an 18-month non-compete with North America and Western Europe geographic scope with a modestly broadened activity definition, 6-month garden leave at base salary running concurrently with the first 6 months of the non-compete, and a 21-month non-solicitation (increased from 24 months to 21 months as a gesture).
September 9, 2024: H&L formally rejected the final compromise proposal on behalf of Harding. Hargrove's letter characterized Harding's positions as "non-negotiable" and stated that Harding remained interested in the role but could not accept terms that represented a material step backward from his existing arrangements at Marlowe Asset Management. The letter noted Harding's appreciation for the Board's engagement and expressed hope that the parties might find a path forward, but the substance of the rejection was unambiguous.
September 10, 2024: Board call convened at 7:00 p.m. Eastern Time. Attendees: Dame Philippa Thornton-Hale, Geoffrey Stanton, Lucinda Farrow, Dr. Tomás Herrera, Elaine Whitford, and Renata Vasquez (C&H, by invitation). Vasquez presented a summary of the final positions, the economic gap, and the governance risks associated with acceding to Harding's terms. The Board unanimously directed that negotiations be terminated.
September 12, 2024: Board resolution formally adopted, authorizing the termination of negotiations with Harding and directing the Nomination Committee to resume the search process. Formal notification of termination delivered by C&H to H&L on the same date.
Total engagement duration: Approximately 100 days (June 4 through September 12, 2024).
D. Advisors Involved
The following advisors were engaged by or consulted by Northgate in connection with the Harding CEO negotiation:
III. IDENTIFICATION OF DEAL-BREAKERS
The negotiation ultimately collapsed on two interlocking categories of provisions: (A) change in control severance provisions, and (B) restrictive covenant obligations. Within each category, multiple sub-issues contributed to the overall impasse. This section sets forth each area of disagreement in detail, including the final positions of both sides, the economic and governance implications, and the reasons each position was held.
A. Change in Control Severance Provisions — The Primary Impasse
The change in control ("CIC") severance provisions were the most significant area of disagreement and the primary driver of the negotiation's collapse. The impasse comprised four interrelated sub-issues: the CIC definition, the severance multiplier, the Section 280G tax treatment, and the overarching governance and shareholder constraints that limited Northgate's flexibility.
1. CIC Definition. The parties achieved agreement on three of the four proposed triggering events constituting a "change in control" under the employment agreement. Both sides agreed that a CIC should be triggered by: (a) the acquisition by any person or group of more than 50% of the outstanding voting securities of Northgate; (b) a merger, consolidation, or similar business combination in which Northgate's shareholders immediately prior to the transaction hold less than 50% of the voting power of the surviving or resulting entity; and (c) the sale, transfer, or disposition of all or substantially all of Northgate's assets.
The disagreement centered on Harding's demand for the inclusion of a fourth trigger: a change in Board composition where a majority of the members of the Board of Directors are replaced within any 12-month period (the "Board turnover trigger"). Harding and his counsel argued that this trigger was necessary to protect against scenarios in which an activist investor or hostile acquirer effectively took control of the company by replacing the Board through a proxy contest or negotiated settlement without triggering any of the three agreed transactional triggers. H&L cited Board turnover triggers in the CIC definitions of three publicly disclosed employment agreements at comparator companies (two US-listed and one dual-listed) as precedent.
Northgate's Board rejected the Board turnover trigger on three independent grounds. First, the Board viewed the provision as inconsistent with UK corporate governance norms, where Board refreshment — including substantial turnover in a relatively short period — is an expected and encouraged aspect of good governance rather than an event warranting a windfall payment to the CEO. The UK Corporate Governance Code emphasizes regular Board evaluation and refreshment, and a trigger that treated such refreshment as a de facto change in control was seen as fundamentally at odds with these principles. Second, the Board was concerned that the Board turnover trigger could result in a CIC payment in circumstances that did not involve any actual change in corporate control — for example, in the ordinary course of Board succession planning if several directors reached the end of their terms simultaneously. Third, and perhaps most critically, the Board identified a moral hazard risk: in a proxy contest scenario, a CEO with a Board turnover trigger has a financial incentive to resist or undermine the company's defense of the proxy contest, since a successful challenge to Board composition would trigger a multi-million-dollar severance payment.
This issue remained a binary, unresolvable disagreement throughout the negotiation. Neither side was willing to compromise: Harding viewed the Board turnover trigger as an essential protection, while the Board viewed it as an unacceptable governance risk. No intermediate formulation — such as requiring that the Board turnover result from a hostile or unsolicited action rather than routine succession — was proposed by either side in a manner that gained traction, in part because the definitional complexities of distinguishing "hostile" Board changes from "routine" ones presented drafting challenges that neither side's counsel believed could be adequately resolved.
2. CIC Severance Multiplier. The CIC severance multiplier was the most economically significant point of disagreement. The parties' final positions were as follows:
Northgate's final position: 2.5x (base salary + target bonus), equaling 2.5 × $4,812,500 = $12,031,250 in cash severance. In addition, full acceleration of all unvested time-based equity awards, pro-rata acceleration of performance-based equity awards (PSUs) at target performance (subsequently revised to full target acceleration in the September 3 final compromise proposal), 24 months of COBRA health benefit continuation, and $50,000 in outplacement services. The severance was conditioned on a double trigger — meaning that both a CIC event and a qualifying termination (termination without Cause or resignation for Good Reason) within 24 months following the CIC event would be required to trigger the payment.
Harding's demand: 3x (base salary + target bonus), equaling 3 × $4,812,500 = $14,437,500 in cash severance. In addition, full acceleration of all unvested equity awards, including PSUs at target (not pro-rata), 36 months of health and welfare benefit continuation (not limited to COBRA), and outplacement services. Double trigger was agreed in principle, though H&L's redline of Draft 1 included certain modifications to the Good Reason definition that would have expanded its scope.
The cash gap between the two positions was $14,437,500 minus $12,031,250, or $2,406,250. The additional gap on benefit continuation (36 months at full benefits versus 24 months of COBRA continuation) represented a further cost differential that was not precisely quantified but was estimated by Whitmore Hobson at approximately $85,000–$120,000 depending on the benefits elected.
Harding's position on the multiplier was firmly anchored to his existing Marlowe Asset Management employment agreement, which provided a 3x (base + target bonus) CIC severance with full equity acceleration. From Harding's perspective, accepting a 2.5x multiplier at Northgate would represent a material step backward in his contractual protections — an outcome he was unwilling to accept when leaving a role in which he was well-compensated, highly regarded, and under no pressure to depart. Hargrove repeatedly communicated that Harding would not agree to any CIC multiplier below the level he currently enjoyed, and that the 3x multiplier was a baseline expectation, not a negotiating position from which he intended to retreat.
Northgate's Board, guided by the Remuneration Committee and the advice of C&H, Whitmore Hobson, and Veltrano Proxy Advisors, concluded that a 2.5x multiplier represented the maximum level that could be credibly defended before institutional shareholders and proxy advisory firms, given the constraints of the UK Corporate Governance Code and the Company's governance commitments. This assessment is detailed further in subsection 4 below.
3. Section 280G Tax Treatment. Section 280G of the Internal Revenue Code imposes a 20% excise tax on "excess parachute payments" — compensation payments contingent on a change in control that, together with other CIC-related payments, exceed three times the executive's "base amount" (generally, the average W-2 compensation over the five preceding calendar years). The tax is borne by the executive, and Section 4999 imposes the excise tax directly on the individual. Employers may (but are not required to) agree to "gross up" the executive — that is, to make an additional payment sufficient to cover the excise tax and the income taxes on the gross-up payment itself, so that the executive is made whole on an after-tax basis.
Northgate's position: Best-net safe harbor cutback under Section 280G. Under this approach, no tax gross-up would be provided. Instead, if the total parachute payments to Harding exceeded the safe harbor limit, the payments would be reduced (cut back) to the safe harbor limit only if such cutback would produce a better after-tax result for Harding than payment of the full amount with the excise tax. If the full payment (net of excise tax) produced a better after-tax result, then the full payment would be made without any cutback or gross-up. The safe harbor limit was calculated at $23,519,999 (3 × $7,840,000 base amount − $1).
Harding's demand: Full Section 280G excise tax gross-up. Under this approach, Northgate would pay Harding an additional amount sufficient to cover the 20% excise tax under Section 4999, plus the income and employment taxes on the gross-up payment itself, ensuring that Harding received the full economic benefit of his CIC severance without any reduction for the excise tax. The estimated potential gross-up cost to Northgate was $4,200,000–$6,800,000, depending on the precise calculation of parachute payments at the time of any future CIC event.
Dr. Rachel Whitmore of Whitmore Hobson LLP conducted a detailed analysis of the Section 280G implications. The analysis established the following key figures:
Whitmore Hobson's analysis further concluded that, under the best-net analysis, the cutback and full-payment scenarios produced roughly equivalent after-tax outcomes for Harding. This was because the magnitude of the excess parachute payment was sufficiently large that the cutback scenario (reducing payments to the safe harbor limit) would have eliminated a substantial portion of the CIC cash severance, making the full-payment-with-excise-tax scenario marginally more favorable. In practical terms, this meant that the gross-up demand was largely symbolic and principled rather than economically determinative for Harding — the difference between the gross-up scenario and the best-net scenario, from Harding's after-tax perspective, was relatively modest. Nevertheless, Harding viewed the full gross-up as a fundamental protection that reflected the employer's commitment to making the executive whole in a CIC scenario, and he characterized it as a matter of principle that he was unwilling to concede.
From Northgate's perspective, the Section 280G gross-up presented two distinct problems. First, the potential cash exposure of $4,200,000–$6,800,000 was significant in its own right. Second, and more important from a governance perspective, both ISS and Veltrano Proxy Advisors had flagged tax gross-ups as "problematic" under current governance policies. Sandra Kolb of Veltrano specifically advised that a full Section 280G excise tax gross-up would likely trigger a negative say-on-pay recommendation from ISS and would be viewed as a governance concern by Tarrant Partners LLC, irrespective of the CIC multiplier level. The Board concluded that providing a gross-up — even if the economic difference to Harding was modest — would send a signal to institutional shareholders and proxy advisory firms that was inconsistent with Northgate's governance commitments.
4. Governance and Shareholder Constraints. The Board's positions on the CIC multiplier, gross-up, and Board turnover trigger were not merely negotiating tactics; they reflected genuine constraints arising from Northgate's governance framework and shareholder dynamics. These constraints merit detailed discussion because they represent a structural reality that will apply equally to any future CEO search.
UK Corporate Governance Code 2024, Provision 40. The Code limits executive notice periods to 12 months or less and provides that the Remuneration Committee should consider what compensation commitments (including pension contributions and all other elements) directors' terms of appointment would give rise to in the event of early termination. While the Code does not prescribe a specific CIC severance multiplier, the principle underlying Provision 40 — that exit payments should not reward failure and should be limited to what is necessary — creates a strong presumption against CIC severance packages at the upper end of the US-market range. Market practice for UK-listed companies is generally 1x–2x (base + target bonus) for CIC severance, making Northgate's 2.5x proposal already significantly above the UK norm. A 3x multiplier would have placed Northgate well beyond UK market practice and would have required extensive justification in the Directors' Remuneration Report.
Northgate's Say-on-Pay History. At the April 18, 2024 Annual General Meeting, Northgate received 87.4% shareholder support on its advisory say-on-pay vote. While this represented a comfortable margin, Geoffrey Stanton and the Remuneration Committee were acutely aware that the 2025 AGM would include a binding remuneration policy vote — not merely an advisory vote — and that any policy that contemplated a 3x CIC multiplier with a full excise tax gross-up would face significantly heightened scrutiny. A binding policy vote failure would prevent the Company from implementing the proposed CEO compensation arrangement, creating both legal and reputational risk.
ISS and Tarrant Partners LLC Policies. Veltrano Proxy Advisors (Sandra Kolb) advised in July 2024 — and reiterated in connection with the final compromise proposal — that ISS's current voting guidelines generally flag CIC severance exceeding 3x as a governance concern and that CIC severance at exactly 3x, when combined with a full Section 280G excise tax gross-up, would be viewed as exceeding the acceptable threshold under ISS's analytical framework. Kolb's specific recommendation was to cap the CIC multiplier at 2.99x with a best-net cutback, but the Remuneration Committee determined that even 2.99x presented unacceptable governance risk given the full excise tax gross-up demand and the Board turnover trigger, and elected to hold firm at 2.5x.
Institutional Shareholder Expectations. Northgate'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 holding approximately 27.7% of outstanding shares — are predominantly UK and European institutional investors with well-known governance policies on executive compensation. Several of these shareholders have publicly stated policies opposing excise tax gross-ups, and at least two (Caledonian and Thornbury) have internally circulated voting guidelines that flag CIC severance above 2x for heightened scrutiny. The Board was sensitive to these shareholders' expectations and concluded that the risk of a negative recommendation from ISS, combined with the potential for organized opposition from these core shareholders, made Harding's demands untenable from a governance perspective.
B. Restrictive Covenant Provisions — The Second Impasse
The restrictive covenant provisions represented the second major area of irreconcilable disagreement. While the CIC provisions were the more economically significant impasse, the restrictive covenant dispute was arguably the more frustrating because it implicated Northgate's legitimate interest in protecting its competitive position following a CEO departure — an interest that Northgate's Board and management viewed as fundamentally non-negotiable in its own right.
1. Non-Compete Duration. Northgate's initial position: 24-month post-termination non-compete. This position was informed by the view that a departing CEO of a company of Northgate's scale and strategic complexity would have detailed knowledge of long-term strategic plans, customer relationships, technology roadmaps, and competitive positioning that would remain competitively sensitive for at least two years following departure. C&H's initial draft proposed this as a starting point, with the expectation that some reduction might be necessary to bridge the gap.
Northgate's revised position (Draft 2 / final compromise): 18-month post-termination non-compete. This reduction was made as a concession in Draft 2 (August 12, 2024) and was maintained in the final compromise proposal.
Harding's demand: 12-month post-termination non-compete, matching the duration of his existing non-compete with Marlowe Asset Management. Harding's position was that 12 months was the market standard for a CEO-level non-compete, that a longer restriction would unduly limit his career mobility, and that there was no justification for imposing a restriction more onerous than what he currently faced.
The gap at the time of termination was 6 months (18 months vs. 12 months). While a 6-month difference may appear modest, it was viewed by both sides as significant in principle: for Northgate, 18 months represented the minimum period necessary to protect its strategic planning cycle, while for Harding, any period beyond 12 months was viewed as excessive and punitive.
2. Non-Compete Geographic Scope. Northgate's initial position: Worldwide. This reflected Northgate's status as a global telecommunications company with operations and competitive interests across multiple continents.
Northgate's revised position (Draft 2 / final compromise): North America and Western Europe. This concession was made in recognition of the enforceability concerns discussed in subsection 6 below and to narrow the restriction to the geographic markets where Northgate's competitive interests were most directly implicated.
Harding's demand: Initially narrower than worldwide; ultimately, Harding accepted the North America and Western Europe formulation once Northgate moved off its worldwide position. This sub-issue was effectively resolved by Northgate's concession, although Harding's original preference — communicated informally — was for an even narrower formulation limited to the specific markets in which Northgate directly operates (approximately 14 countries).
3. Non-Compete Activity Definition. The activity definition — specifying what types of competitive activity would be prohibited during the restricted period — proved to be a more stubborn disagreement than either side initially anticipated.
Northgate's position: The non-compete would prohibit Harding from accepting employment with, or providing consulting or advisory services to, any company that derives more than 15% of its consolidated revenue from (i) telecommunications services, (ii) telecommunications infrastructure, or (iii) enterprise SaaS platforms serving telecommunications operators. This formulation was designed to be broad enough to capture the range of companies that could directly benefit from Harding's knowledge of Northgate's strategy and operations, while providing a revenue-based safe harbor to exclude companies with only incidental telecommunications activities.
Harding's demand: The non-compete should be limited to "direct competitors" listed on a schedule of eight named companies. H&L provided a proposed Schedule A listing the following eight companies: Marlowe Asset Management Digital Holdings, Meridian Wireless Corp., Centurion Networks Holdings, Eurotel Communications Group, Pacifica Telecom International, SummitBridge Digital, CloudTower Systems, and Apex Global Connectivity. Harding's position was that a named-competitor schedule provided certainty and predictability, and that the 15% revenue threshold was overly broad and could inadvertently capture technology companies with only incidental telecommunications operations.
Northgate viewed the scheduled-competitor approach as fundamentally inadequate for three reasons. First, the schedule would become outdated as competitors were acquired, merged, rebranded, or spun off, or as new market entrants emerged. Second, the schedule could be easily circumvented by a determined executive seeking to join a competitor not on the list. Third, the schedule did not capture the broader category of companies — including private equity-backed platforms and emerging digital-native operators — that could gain a competitive advantage from a former Northgate CEO's knowledge but that did not exist or were not identified at the time the schedule was drafted.
Neither side proposed a hybrid formulation (e.g., a named-competitor schedule combined with a broader activity-based restriction) that gained traction during the negotiation, though in retrospect such a hybrid approach might have represented a viable middle ground.
4. Garden Leave. The garden leave provisions represented a significant and complex area of disagreement that interacted directly with the non-compete duration dispute.
Northgate's final proposal: Six months of paid garden leave at base salary only, equaling $1,750,000 ÷ 12 × 6 = $875,000. The garden leave period would run concurrently with the first six months of the 18-month non-compete, resulting in a total of 18 months of post-termination restriction, of which the first six months would be compensated through garden leave and the final 12 months would be uncompensated (beyond any severance otherwise payable).
Harding's demand: Twelve months of garden leave at full compensation (base salary plus pro-rata target bonus), with the garden leave period running concurrently with the non-compete. Under Harding's formulation — combining 12 months of garden leave with a 12-month non-compete, both running concurrently — the practical effect would have been that Harding received 12 months of fully compensated garden leave, during which the non-compete ran its course, with zero additional months of uncompensated post-termination restriction. In other words, Harding's proposal would have resulted in a structure in which he was paid full compensation during the entire restricted period, with no "at risk" period of restriction that was not covered by garden leave pay.
Northgate objected to this formulation on the grounds that it would eliminate any genuine deterrent effect of the non-compete. In Northgate's view, the purpose of a post-termination non-compete is to impose a meaningful restriction on the executive's competitive activities, and a structure under which the executive is fully compensated for the entire duration of the restriction — while being free to pursue any non-competitive activities and enjoy an extended paid absence — does not serve that purpose. Northgate proposed instead that the 6-month garden leave run concurrently with the first 6 months of the 18-month non-compete, yielding 12 months of post-garden-leave restriction during which Harding would be subject to the non-compete but would not receive garden leave pay. Harding rejected this structure.
5. Non-Solicitation. Northgate's position: 24-month post-termination non-solicitation covering both employees and customers of Northgate and its affiliates.
Harding's demand: 18-month post-termination non-solicitation covering employees only, with no customer non-solicitation component. Harding's counsel argued that a customer non-solicitation was unduly burdensome for a CEO who would not have direct customer relationships comparable to a sales executive, and that the non-compete itself provided adequate protection against customer diversion.
This was a secondary disagreement. While the parties were unable to close the gap on the non-solicitation provisions, both sides acknowledged during the August 26 principals meeting that the non-solicitation terms alone were unlikely to have constituted a deal-breaker if the CIC and non-compete issues had been resolved. Accordingly, the non-solicitation dispute is appropriately characterized as a contributing factor to the overall breakdown rather than an independent root cause.
6. Enforceability Concerns. Independent of the negotiation dynamics, C&H flagged in internal analysis memoranda circulated to the deal team and to Elaine Whitford that certain of Northgate's proposed restrictive covenant provisions faced enforceability challenges under applicable law.
The proposed employment agreement was to be governed by New York law (consistent with the dual-contract architecture under which Harding's primary employment would be through the Delaware-incorporated US subsidiary). Under New York's well-established reasonableness analysis for restrictive covenants (derived from the Court of Appeals' framework in Vane Kaplan CPAs LLP Seidman v. Hirshberg and its progeny), a non-compete is enforceable only if it is (i) no greater than necessary to protect the employer's legitimate interests, (ii) not unduly burdensome to the employee, and (iii) not harmful to the public. New York courts have historically scrutinized non-competes exceeding 12–18 months in duration, particularly those with broad geographic scope, and have not hesitated to narrow or invalidate overly broad restrictions.
C&H also noted the pending New York state legislation (Senate Bill S3100A) proposing a comprehensive ban on non-compete agreements for employees in New York. While this legislation had not been enacted as of the date of the negotiation (and had been vetoed by the Governor in a prior session), the legislative trend toward restricting non-competes added further uncertainty to the enforceability of any restriction exceeding 12–18 months.
In light of these concerns, C&H's recommended fallback position — which was largely adopted in Northgate's final compromise proposal — was an 18-month non-compete limited to North America and Western Europe, with a narrower (though not named-competitor) activity definition, paired with a 6-month garden leave period running concurrently with the first 6 months of the restriction. This formulation balanced enforceability considerations against Northgate's legitimate competitive protection interests. However, even this revised structure was rejected by Harding, who maintained his insistence on a 12-month non-compete with the named-competitor schedule and concurrent fully compensated garden leave.
C. Summary of Impasse Economics
The following table summarizes the economic and structural gaps between the parties' final positions on the two deal-breaking issues:
Total estimated economic gap on CIC terms: approximately $6,600,000–$9,200,000 (cash severance gap plus potential gross-up exposure plus benefit continuation differential).
The restrictive covenant gap is not readily quantifiable in dollar terms but was fundamental to Northgate's post-departure protection of its competitive position. The Board viewed the combination of the CIC and restrictive covenant impasses as creating a package of terms that would be simultaneously too expensive, too governance-risky, and too permissive of post-departure competition to be acceptable.
IV. ANALYSIS OF ROOT CAUSES
Having identified the specific deal-breakers, this section examines the structural and procedural factors that contributed to the negotiation's failure. Understanding these root causes is essential to avoiding a similar outcome in the resumed search.
A. Misalignment Between Candidate Expectations and Board Governance Constraints
The fundamental root cause of the negotiation breakdown was a structural misalignment between Harding's baseline compensation expectations and the governance constraints applicable to Northgate as a UK primary-listed public company. This misalignment was embedded in the negotiation from the outset but was not adequately surfaced or addressed before the process gained momentum.
Harding's negotiating baseline was his existing Marlowe Asset Management employment agreement. His operating premise — communicated explicitly by Hargrove and implicitly through every counterproposal — was that no material term of his Northgate agreement should be worse than his current deal. This is not an unreasonable posture for a sitting President and COO at a $34 billion market-cap company who is under no pressure to leave: a candidate in that position can reasonably expect to be made whole for the compensation and protections he is forfeiting. The 3x CIC multiplier with full excise tax gross-up is within the range of market practice for US-listed companies of comparable size, and Harding's existing non-compete (12 months, US-only) reflected a common US market formulation.
Northgate, however, operates under a fundamentally different governance framework. As a company with a primary listing on the London Stock Exchange — and, critically, facing a binding remuneration policy vote at the 2025 AGM — Northgate is subject to the UK Corporate Governance Code 2024, which imposes more stringent constraints on executive compensation design than the US public company framework. The Remuneration Committee, advised by Whitmore Hobson and Veltrano Proxy Advisors, determined that CIC severance of 3x (base + target bonus) with a full excise tax gross-up would exceed the acceptable threshold under the ISS voting guidelines applicable to UK-listed companies and would risk a negative recommendation that could imperil the binding remuneration policy vote. These constraints are real, consequential, and structurally different from the governance environment in which Harding has spent his career.
The tension between US-market CEO compensation norms and UK governance expectations was, in C&H's assessment, the single most significant driver of the negotiation's failure. It was structural rather than tactical — neither side was being unreasonable within its own frame of reference, but the two frames of reference were fundamentally incompatible on the specific provisions at issue. Critically, this structural tension was not adequately surfaced or addressed before the informal verbal offer was extended on May 30, 2024. By the time the full picture emerged — through the detailed exchange of positions in the term-sheet redlines beginning June 17 — both sides had invested significant time and reputational capital, making it more difficult for either party to acknowledge the impasse and disengage.
B. Late Identification of Non-Negotiable Positions
A related but distinct process failure was the late identification of Harding's true non-negotiable positions. While H&L's initial redline on June 17, 2024, clearly signaled significant divergence on CIC and restrictive covenant terms, the redline — as is typical in legal negotiations — presented a range of positions without explicitly identifying which were true walk-away points and which were aggressive opening positions susceptible to compromise.
The extent to which the 3x CIC multiplier, the full excise tax gross-up, and the Board turnover trigger were genuinely non-negotiable — as opposed to aspirational positions from which Harding might retreat — only became definitively clear at the August 26 principals meeting, when Harding himself stated that these positions reflected "deeply held principles about executive protection." This was confirmed in H&L's September 9 rejection letter, which characterized the positions as "non-negotiable."
It would not have been possible to compel Harding or his counsel to disclose walk-away positions at the outset of the negotiation — experienced negotiators do not voluntarily narrow their own negotiating range. However, earlier and more targeted diligence could have surfaced the relevant information. Specifically, a detailed review of Harding's existing Marlowe Asset Management agreement — which was obtained by C&H upon engagement but was not available to the Nomination Committee or the Remuneration Committee at the time the preferred candidate was selected on May 28 — would have identified the 3x CIC multiplier, the full excise tax gross-up, and the 12-month non-compete as Harding's contractual baseline. Combined with the Remuneration Committee's own assessment of its governance constraints, this information would have flagged the likely impasse before the Board committed to Harding as its preferred candidate.
C. Insufficient Pre-Offer Alignment on Compensation Parameters
The informal verbal offer extended by Dame Philippa Thornton-Hale on May 30, 2024 — two days after the Board unanimously concurred with the Nomination Committee's recommendation — preceded the engagement of outside counsel (June 4) and did not address the specific terms that ultimately proved irreconcilable. While the verbal offer was appropriately described as "subject to definitive terms," it created a degree of institutional momentum and mutual expectation that made it psychologically and reputationally difficult for either side to walk away early in the negotiation.
The Remuneration Committee's approved framework — the parameters within which C&H was authorized to negotiate — was developed without detailed knowledge of Harding's existing Marlowe Asset Management package or his personal red lines. The Remuneration Committee set its initial CIC multiplier at 2x (base + target bonus), subsequently increased to 2.5x on July 11 when it became clear that 2x was insufficient to sustain the negotiation. However, the Committee's maximum authorized position (2.5x, best-net cutback, no Board turnover trigger) was established based on what was defensible from a governance perspective, without reference to whether these parameters were achievable with this particular candidate.
By the time the full picture of Harding's expectations emerged — through the June 17 redline and the subsequent negotiation calls — the Board and Harding had each invested significant time and reputational capital. The Board had publicly identified its preferred successor (though not by name to the market, the selection was known within governance circles and to major shareholders through informal engagement). Harding had engaged personal counsel, invested time in multiple negotiation calls and drafting sessions, and begun private discussions with his own Board at Marlowe Asset Management about his potential departure. The sunk costs on both sides created inertia that prolonged the negotiation beyond the point at which a reasonable assessment of the probabilities of success would have counseled disengagement.
D. Cross-Border Governance Complexity
The dual-listing structure of Northgate — primary listing on the London Stock Exchange with NYSE-traded American Depositary Receipts — created overlapping and, in significant respects, conflicting governance regimes. The proposed employment agreement was to be governed by New York law, with Harding's primary employment through Northgate Telecommunications US, Inc. (a Delaware corporation). However, the UK Corporate Governance Code 2024 applies at the parent company level to Northgate Telecommunications PLC, and the Remuneration Committee's obligations under the Code — including the requirement to submit the remuneration policy for a binding shareholder vote — cannot be avoided through the use of a US subsidiary as the contracting employer.
This created a structural tension that pervaded the negotiation. Harding, as a US-based executive who has spent his entire career at US-listed companies, viewed his compensation terms through the lens of US market norms. His existing Marlowe Asset Management agreement reflected prevailing practice among large-cap US public companies, where 3x CIC multipliers, full excise tax gross-ups, and 12-month non-competes are common, if not standard. He had no prior experience with the UK Corporate Governance Code, the binding remuneration policy vote mechanism, or the ISS voting guidelines applicable to UK-listed issuers. From his perspective, Northgate's governance constraints were self-imposed limitations that the Board could waive if it chose to — a view that, while understandable, fundamentally misapprehends the binding nature of the UK governance framework.
The dual-contract architecture — under which Harding would have been simultaneously an employee of the US subsidiary (for compensation and employment law purposes) and a director and officer of the UK parent company (for governance and regulatory purposes) — added further complexity. Moorfield Bates advised that certain provisions of the proposed employment agreement (including the garden leave mechanics and the restrictive covenant structure) would need to comply with English law principles applicable to the UK parent company service agreement, even though the primary employment contract was to be governed by New York law. This created drafting challenges that, while ultimately manageable, consumed significant advisor time and added to the complexity of the negotiation.
E. Process Duration and Momentum Loss
The negotiation lasted approximately 100 days, from C&H's engagement on June 4 through the Board resolution to terminate on September 12, 2024. This duration was excessive relative to the complexity of the issues and contributed to the breakdown in several respects.
First, the extended timeline allowed momentum to dissipate. In the early weeks of the negotiation, both sides were energized by the prospect of completing the deal and expressed optimism that the open issues could be resolved. By mid-August, the psychological dynamic had shifted: both sides had settled into their positions, the novelty of the negotiation had faded, and the parties were engaging in increasingly rote exchanges of familiar arguments.
Second, the duration worked asymmetrically against Northgate. Harding remained employed at Marlowe Asset Management throughout the negotiation and had no forcing mechanism to compromise. His status quo was comfortable and well-compensated. He faced no career risk from a failed negotiation — if the Northgate deal collapsed, he would continue in his current role without any adverse consequence. By contrast, Northgate faced the ticking clock of Sir Alistair Kemble's December 31, 2024 retirement. The proposed October 1, 2024 start date slipped under discussion to November 1, 2024, reducing urgency on Harding's side while increasing it on Northgate's. This asymmetry in time pressure weakened Northgate's negotiating leverage as the process progressed.
Third, the extended process imposed significant direct costs. Total professional fees incurred by Northgate for the failed negotiation with Harding amounted to $495,625 in C&H fees and disbursements alone (detailed in Section VII below). Kensington Partners' third-tranche search fee (£400,000, contingent on successful placement) was never paid, but the first two tranches (£800,000) were sunk costs. Additional fees were incurred with Moorfield Bates, Whitmore Hobson, Veltrano Proxy Advisors, and Galloway & Partners, which are separately invoiced by those firms. Beyond direct costs, the opportunity cost of the elapsed 100-day period is substantial: Northgate now faces the challenge of identifying and securing a new CEO candidate within approximately three and a half months before Sir Alistair Kemble's announced retirement date.
V. WHAT WORKED WELL
While this memorandum necessarily focuses on the shortcomings that contributed to the negotiation's failure, intellectual honesty requires acknowledgment of the aspects of the process that functioned effectively. These strengths should be preserved and built upon in future engagements.
A. Efficient Resolution of Non-Controversial Terms
The negotiation team successfully reached agreement on all non-CIC, non-restrictive-covenant terms by the July 8 negotiation call — the third call in the series — representing only 34 days from the initial term-sheet circulation. This was an efficient outcome given the complexity and scale of the compensation package under discussion. The agreed terms included:
The efficiency of this resolution reflected strong preparation by the C&H and Whitmore Hobson teams, including thorough peer-group benchmarking that p