Contract analysis

I. Executive Summary On April 21, 2023, Whitfield Graves & Morrow LLP circulated Cedarpoint Systems Integration, Inc.'s ("Cedarpoint") redline markup of the first draft Master Services Agreement (the "MSA"), which Calderwood & Harkness had circulated on behalf of Northgate Americas, Inc. ("Northgate" or the "Client") on April 3, 2023. This memorandum provides a comprehensive analysis of Cedarpoint's proposed modifica

II. Indemnification Caps and Carve-Outs (MSA Article 11) A. Cedarpoint's Proposed Changes Cedarpoint's redline introduces several significant modifications to the indemnification framework set forth in Article 11 of our first draft MSA. Each proposed change is analyzed below.

1. Reduction of Aggregate Indemnification Cap. Our first draft set Cedarpoint's aggregate indemnification cap at 200% of aggregate fees paid or payable during the trailing twelve (12) months preceding the date on which the relevant claim first arises (the "Trailing 12-Month Fees"). At the annual contract value of $15,000,000, this would produce a Year 1 cap of $30,000,000. Cedarpoint's redline proposes reducing this

2. Elimination of Data Breach Carve-Out. Our first draft carved out four categories of claims from the aggregate indemnification cap, rendering them subject to uncapped liability exposure. These uncapped carve-outs applied to claims arising from: (a) intellectual property infringement; (b) willful misconduct or gross negligence; (c) data breach or unauthorized access to Northgate data; and (d) breach of confidentiali

3. Reciprocal Cap Modifications for Northgate. Our first draft set Northgate's aggregate indemnification cap at 100% of Trailing 12-Month Fees ($15,000,000 per year in Year 1), reflecting the asymmetric risk profile — Cedarpoint, as the service provider with access to Northgate's network and data, bears greater exposure. Northgate's uncapped carve-outs, as drafted, included willful misconduct and confidentiality brea

4. Reduction of Indemnification Survival Period. Our first draft provided for a thirty-six (36) month survival period for indemnification claims following expiration or termination of the MSA. Cedarpoint's redline proposes reducing this survival period to twenty-four (24) months. Cedarpoint's counsel did not provide a stated rationale for this reduction in the cover email accompanying the redline, though we expect th

III. Most Favored Nation Pricing Audit Rights (MSA Section 7.4 / Schedule 3) A. Cedarpoint's Proposed Changes The MFN provisions in Section 7.4 and the corresponding pricing schedule (Schedule 3) were designed to ensure that Northgate receives pricing no less favorable than that offered to other Cedarpoint customers of comparable scale. Cedarpoint's redline introduces several modifications that, taken together, would

1. Comparable Volume Threshold. Our first draft provided that Cedarpoint warrants that per-unit pricing for managed network services shall not exceed the lowest pricing offered to any customer with comparable volume, defined as customers with 200 or more managed nodes, measured over a trailing twelve (12) month benchmark period. Cedarpoint's redline proposes raising this comparable volume threshold from 200 or more m

2. Narrowing of MFN Scope. Our first draft applied the MFN warranty to all fee components under the MSA, including managed network services fees ($10,500,000 per year), ArcMesh platform license fees ($3,000,000 per year), and professional services fees ($1,500,000 per year). Cedarpoint's redline narrows the scope of the MFN provision to managed network services fees only, excluding the ArcMesh platform license fees a

3. Pricing Differential Threshold. Our first draft established that if an MFN audit reveals a pricing differential greater than 3%, Cedarpoint must issue a retroactive credit within forty-five (45) days of the audit finding and adjust prospective pricing within thirty (30) days. Cedarpoint's redline proposes increasing the pricing differential threshold from greater than 3% to greater than 7% before any credit obliga

4. Audit Cost Allocation. Our first draft provided that MFN audit costs would be borne by Cedarpoint if the audit reveals a pricing violation, and by Northgate if no violation is found. Cedarpoint's redline proposes that audit costs be borne by Northgate regardless of the outcome. This change eliminates the cost-shifting incentive that encourages Cedarpoint to maintain pricing discipline and discourages Northgate fro

IV. Change of Control Consent Mechanics (MSA Section 14 / Schedule 2) A. Cedarpoint's Proposed Changes The change of control provisions in Section 14 of the MSA, together with the related terms set forth in Schedule 2, are designed to protect Northgate against the assignment of this mission-critical services agreement to an entity that Northgate has not evaluated or approved. Cedarpoint's redline proposes several mod

1. Deletion of Board-Turnover Prong. Our first draft defined "change of control" using a comprehensive four-prong test: (i) acquisition by any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) of more than 50% of Cedarpoint's outstanding voting equity securities; (ii) merger, consolidation, or reorganization of Cedarpoint in which Cedarpoint is not

2. Shortened Notice Period. Cedarpoint's redline reduces the advance notice period for any change of control event from ninety (90) days prior to the anticipated closing of the transaction to forty-five (45) days prior to closing.

3. Shortened Election Period. Cedarpoint's redline narrows Northgate's election period — the window within which Northgate must determine whether to consent to the assignment or exercise its termination right — from sixty (60) days following receipt of the change of control notice to thirty (30) days following receipt of such notice.

4. Shortened Transition/Wind-Down Period. Cedarpoint proposes that, upon Northgate's election to terminate following a change of control, the transition and wind-down period be reduced from one hundred eighty (180) days to one hundred twenty (120) days.

5. Deemed Consent Provision. Cedarpoint introduces a new provision stating that if Northgate fails to respond within the election period (whether 60 days or the proposed 30 days), Northgate's consent to the assignment of the MSA to the successor entity is deemed granted. No such provision was included in our first draft; the absence of a response was intended to default to non-consent, consistent with the general pri

6. Paid Transition Assistance. Our first draft provided that transition assistance following a change-of-control termination would be provided by Cedarpoint at no additional cost to Northgate. Cedarpoint's redline proposes that transition assistance be provided at Cedarpoint's then-standard professional services rates. Given that Cedarpoint's current professional services billing rate is approximately $275 per hour f

V. Limitation of Liability (MSA Section 12) A. Cedarpoint's Proposed Changes Cedarpoint's redline introduces several changes to the limitation of liability framework in Section 12 of the MSA.

1. Confidentiality Breach Carve-Out. Our first draft included a mutual exclusion of consequential, incidental, special, and punitive damages, with carve-outs from the exclusion for three categories: (a) indemnification obligations under Article 11, (b) breach of confidentiality obligations under Section 13, and (c) IP infringement claims under Section 11.3. The practical effect of these carve-outs is that consequenti

2. Separate Aggregate Liability Cap. Our first draft did not include a separate, standalone limitation of liability cap, instead relying on the indemnification framework in Article 11 — with its 200% cap and uncapped carve-outs — as the primary mechanism for allocating and limiting financial exposure between the parties. Cedarpoint's redline proposes adding a new overall aggregate liability cap of 100% of fees paid o

VI. IP Infringement Defense Obligations (MSA Section 11.3) A. Cedarpoint's Proposed Changes Cedarpoint's redline modifies the intellectual property infringement provisions in Section 11.3 in several significant respects. 1. "Sole Remedy" Provision. Our first draft required Cedarpoint to indemnify, defend, and hold harmless Northgate against any and all third-party claims, suits, actions, or proceedings alleging that

2. Infringement Carve-Outs. Cedarpoint's redline introduces four carve-outs from its IP indemnification obligation. Under the proposed language, Cedarpoint has no obligation to indemnify Northgate for infringement claims to the extent arising from: (i) modifications to the ArcMesh platform or managed network services made by Northgate or at Northgate's direction without Cedarpoint's prior written approval; (ii) combi

3. Capping of IP Infringement Indemnification. Our first draft made IP infringement indemnification expressly uncapped — one of the four categories carved out from the aggregate indemnification cap under Article 11. Cedarpoint's redline deletes the language that exempts IP infringement indemnification from the aggregate cap, thereby subjecting IP infringement claims to the aggregate indemnification cap (which Cedarpo

VII. SLA Credit Structure (MSA Section 6 / Exhibit B) A. Cedarpoint's Proposed Changes The Service Level Agreement framework set forth in Section 6 and Exhibit B is a critical performance accountability mechanism under the MSA. Cedarpoint's redline proposes several changes that would substantially weaken this framework.

1. SLA Target Reduction. Our first draft established a monthly uptime SLA of 99.95% per node, measured on a calendar-month basis. This target reflects 21.56 minutes of permitted downtime per node per month, or approximately 4.38 hours per node per year. Cedarpoint's redline proposes lowering the target SLA from 99.95% to 99.90% monthly uptime per node, which would double the permitted downtime to 43.2 minutes per nod

2. Reduced Credit Tiers. Our first draft established a tiered service credit structure based on actual uptime performance relative to the SLA target, calculated as a percentage of the monthly managed services fee (based on a monthly run-rate of $1,250,000, derived from the $15,000,000 annual contract value divided by twelve). The tiers were as follows: Cedarpoint's redline modifies the credit structure as follows: Th

3. Reduced Annual Credit Cap. Our first draft set the aggregate annual SLA credit cap at 30% of annual managed services fees ($10,500,000 × 0.30 = $3,150,000). Cedarpoint's redline reduces this cap to 15% of annual managed services fees ($10,500,000 × 0.15 = $1,575,000) — a reduction of $1,575,000, or exactly half of Northgate's proposed cap.

4. Elimination of Material Breach Trigger. Our first draft included a material breach trigger provision: if Cedarpoint fails to achieve at least 99.50% monthly uptime in any three (3) consecutive calendar months, such failure constitutes a material breach of the MSA, entitling Northgate to terminate the MSA for cause pursuant to Section 16.2, with all associated termination rights and remedies. Cedarpoint's redline d

5. Sole and Exclusive Remedy. Cedarpoint's redline adds language providing that service credits issued under the SLA framework constitute Northgate's sole and exclusive remedy for Cedarpoint's failure to meet the SLA targets. This language would preclude Northgate from asserting breach of contract, indemnification, or other claims based on SLA failures, limiting Northgate's recourse to the service credits alone.

6. Scheduled Maintenance Exclusion. Cedarpoint's redline adds a provision excluding scheduled maintenance windows from the uptime calculation. Under the proposed language, Cedarpoint may schedule up to eight (8) hours of maintenance per month, during which downtime is not counted toward the SLA measurement. Combined with the lowered SLA target (99.90%), this exclusion could significantly increase the total permissibl

VIII. Other Notable Redline Changes In addition to the six primary categories of changes analyzed above, Cedarpoint's redline contains several additional modifications of note that should be addressed in the second draft. A. Term and Renewal (MSA Section 2) Cedarpoint proposes changing the MSA from a simultaneous signing and closing structure to a deferred closing thirty (30) days after the date of execution. Under o

1. Reduced Escrow Deposit. Cedarpoint proposes reducing the annual wind-down escrow deposit from 5% of annual contract value ($750,000 per year) to 3% of annual contract value ($450,000 per year). This would reduce the aggregate escrow cap over the five-year initial term from $3,750,000 to $2,250,000 — a reduction of $1,500,000 in available security.

2. Modified Release Conditions. Our first draft provided that escrowed funds would be released to Cedarpoint upon natural expiration of the MSA, provided that no event of default or termination for cause has occurred. Cedarpoint's redline proposes that escrowed funds be released upon the earlier of (a) expiration of the initial term without termination for cause, or (b) twelve (12) months after the last service credi