1022-00008 · Northgate Telecommunications PLC · Negotiation & Drafting

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

TO: Colette Whitman, Responsible Partner, Calderwood & Harkness LLP

FROM: Christy Bauer, Lead Associate, Calderwood & Harkness LLP

DATE: May 22, 2023

RE: Analysis of Cedarpoint Systems Integration, Inc. Counter-Redline to Second Draft Master Services Agreement (Received May 19, 2023)

MATTER NO.: 1022-00008

CLIENT: Northgate Telecommunications PLC / Northgate Americas, Inc.

COUNTERPARTY: Cedarpoint Systems Integration, Inc.

COUNTERPARTY COUNSEL: Whitfield Graves & Morrow LLP (Douglas Fenn / Simone Alvarez)

cc: Garrett Simmons (Working Associate, Tax)

I. Executive Summary

On May 19, 2023, Whitfield Graves & Morrow LLP ("WGM") circulated Cedarpoint Systems Integration, Inc.'s ("Cedarpoint") counter-redline to our May 5, 2023 second draft of the Master Services Agreement (the "MSA") between Northgate Americas, Inc. ("Northgate" or the "Customer/Licensee") and Cedarpoint (the "Service Provider/Licensor"). This memorandum provides a detailed analysis of the counter-redline, assesses the legal and commercial risks associated with each open issue, and recommends negotiation positions and fall-back strategies in advance of the scheduled June 1, 2023 in-person negotiation session in New York.

The counter-redline accepts many of the revisions contained in our second draft — including the scope of services description, fee structure, IP licensing terms, confidentiality provisions, data security and privacy framework, insurance requirements, and governing law selection — but re-opens or introduces new positions on five significant areas:

(a) Most Favored Nation Pricing (Section 7.4 / Schedule 3): Cedarpoint now insists on converting the unilateral MFN obligation (running solely in Northgate's favor) into a mutual MFN, under which Northgate would also warrant that it does not procure comparable managed network services from any third-party provider at a price lower than the fees paid to Cedarpoint.

(b) Indemnification Cap (Section 11): Cedarpoint proposes reducing its aggregate indemnification cap from 200% to 150% of trailing twelve-month fees, which would reduce Cedarpoint's Year 1 cap from $30,000,000 to $22,500,000 — a reduction of $7,500,000 in Year 1 exposure.

(c) Change of Control Definition (Section 14 / Schedule 2): Cedarpoint seeks to narrow the definition of "change of control" by deleting the board-turnover prong (clause (iv) of the definition), which currently treats a change in a majority of Cedarpoint's board of directors within any twelve-month period as a triggering event.

(d) SLA Credit Cap (Section 6 / Exhibit B): Cedarpoint proposes reducing the annual aggregate SLA credit cap from 30% to 15% of annual managed services fees, which would reduce the maximum annual credit from $3,150,000 to $1,575,000.

(e) Escrow Release Timeline and Partial Release on Renewal (Section 15 / Escrow Agreement): Cedarpoint proposes an accelerated release timeline upon natural expiration (15 business days rather than 30 calendar days) and a partial release of 50% of the then-accumulated escrow balance upon the first automatic two-year renewal.

The purpose of this memorandum is to analyze each of these positions in detail, assess the associated risks to Northgate, and recommend primary and fall-back positions for the negotiation team. The memorandum also summarizes provisions that have been resolved in the counter-redline and proposes an overall negotiation strategy — including a package-deal approach — for the June 1 session.

Overall Assessment: Cedarpoint's positions on the mutual MFN and the deletion of the board-turnover prong in the change of control definition are the most consequential to Northgate and should be firmly resisted. The mutual MFN is commercially inappropriate for a customer-side obligation and has no precedent in comparable managed services transactions. The board-turnover prong is a critical protection given Ridgeline Capital Partners, LP's 62% voting equity stake in Cedarpoint and the attendant risks of a PE-driven board reconstitution that precedes or substitutes for a traditional change-of-control transaction. The indemnification cap and SLA credit cap positions present room for compromise, and the escrow release timeline issue is manageable and can be deployed as a concession point to secure Northgate's priorities on the more critical items.

II. Background and Procedural Context

Calderwood & Harkness LLP opened this engagement on March 14, 2023, pursuant to our outside counsel engagement letter dated March 10, 2023, to represent Northgate Americas, Inc. — the principal North American operating subsidiary of Northgate Telecommunications PLC (LSE: NTP) — in the negotiation and documentation of a five-year Master Services Agreement with Cedarpoint Systems Integration, Inc. The MSA encompasses managed network services, licensing of Cedarpoint's proprietary ArcMesh software platform (version 4.2), and professional services, with an aggregate contract value of approximately $75,000,000 over the initial five-year term ($15,000,000 per annum).

The services to be performed under the MSA span Northgate's entire North American node infrastructure, consisting of 340 managed nodes located across 28 U.S. states and 3 Canadian provinces. The engagement represents one of the largest managed network services procurements in Northgate's corporate history and is a cornerstone of Northgate's "NexGen Network 2025" initiative, which was approved by the Northgate Telecommunications PLC Board of Directors in November 2022.

The negotiation has proceeded on the following timeline:

April 3, 2023: Calderwood & Harkness circulated the first draft MSA to WGM on behalf of Northgate.

April 21, 2023: WGM returned Cedarpoint's redline to the first draft MSA, introducing a number of material revisions to scope, pricing, indemnification, and intellectual property provisions. A detailed analysis of this redline was prepared in a memorandum dated April 24, 2023 (Matter No. 1022-00008, Document ID C&H-0042).

May 5, 2023: Calderwood & Harkness circulated the second draft MSA, incorporating Northgate's responses to Cedarpoint's redline and reflecting the positions agreed during the April 27, 2023 telephonic negotiation session.

May 19, 2023: WGM circulated Cedarpoint's counter-redline to the second draft MSA, which is the subject of this memorandum.

The counter-redline was prepared by Douglas Fenn, Lead Partner in WGM's Technology Transactions practice, and Simone Alvarez, Associate Counsel, at Whitfield Graves & Morrow LLP, 1875 K Street NW, Suite 800, Washington, DC 20006. The counter-redline was accompanied by a two-page cover letter (the "Cover Letter") from Fenn to Colette Whitman, which provided high-level explanations for several of the proposed changes. Based on the substance and tone of the Cover Letter, as well as references therein to discussions "with our client's senior management," it appears that Nadia Okafor (General Counsel, Cedarpoint) and Philip Hargreaves (CFO, Cedarpoint) were directly involved in formulating several of the commercial positions reflected in the counter-redline, particularly those relating to the indemnification cap and the escrow release provisions.

The next scheduled milestone in the negotiation is an in-person session on June 1, 2023, to be held at Calderwood & Harkness's New York office, 600 Lexington Avenue, 30th Floor, New York, NY 10022, beginning at 10:00 a.m. Eastern Time. The parties' target execution date for the MSA remains June 9, 2023, consistent with Northgate's internal project timeline for the NexGen Network 2025 initiative and with the planned commencement of Phase 1 of the Greystone migration.

III. Issue-by-Issue Analysis

A. Most Favored Nation Pricing (MSA Section 7.4 / Schedule 3)

1. Cedarpoint's Position: Mutual MFN

In our second draft, Section 7.4 of the MSA established a unilateral most-favored-nation pricing obligation running solely in Northgate's favor. Under this provision, Cedarpoint warranted that the fees charged to Northgate under the MSA would be no less favorable than the fees charged by Cedarpoint to any other customer for comparable managed network services of comparable scope and volume. The provision was designed to protect Northgate against pricing erosion — ensuring that Cedarpoint could not offer materially lower pricing to a subsequent or concurrent customer for substantially similar services without extending the same favorable pricing to Northgate.

In the counter-redline, Cedarpoint proposes converting this unilateral MFN into a mutual MFN obligation. Specifically, Cedarpoint has inserted a new subsection 7.4(b) under which Northgate would warrant that it does not procure, and will not during the term of the MSA procure, comparable managed network services from any third-party provider at a per-node unit price or aggregate annual fee that is lower than the fees paid to Cedarpoint under the MSA for comparable services. Cedarpoint frames this as a "parity" or "level playing field" issue in WGM's Cover Letter, asserting that if Cedarpoint must guarantee that it offers Northgate its most competitive pricing, then Northgate should reciprocally commit to pricing exclusivity or, at minimum, benchmarking its third-party procurement against the fees paid to Cedarpoint.

It is important to note that Cedarpoint has not modified the existing MFN mechanics applicable to its own obligation. The following parameters remain as drafted in our second draft:

• Comparable volume threshold: The MFN comparison applies only to Cedarpoint customers with a managed node footprint of 200 or more nodes (the "≥200 Managed Nodes" threshold).

• Benchmark period: The comparison is based on a trailing twelve-month fee assessment.

• Pricing differential trigger: The MFN is triggered when the pricing differential between the fees charged to Northgate and the fees charged to the comparable customer exceeds 3% (the ">3% Pricing Differential Trigger").

• Retroactive credit timeline: Upon a confirmed MFN violation, Cedarpoint must issue a retroactive credit to Northgate within 45 calendar days, covering the period from the date the lower pricing was first offered to the comparable customer.

• Prospective adjustment timeline: Cedarpoint must prospectively adjust Northgate's pricing to match the lower rate within 30 calendar days of the confirmed violation.

• Audit rights: Northgate has the right to conduct an annual audit of Cedarpoint's pricing to comparable customers to verify MFN compliance. If a violation is confirmed, the audit is conducted at Cedarpoint's cost; if no violation is found, the audit is conducted at Northgate's cost.

The insertion of the mutual MFN would layer onto these mechanics a reciprocal set of obligations running in Cedarpoint's favor, although the counter-redline does not fully specify the mechanics of how the mutual obligation would operate from Cedarpoint's perspective (e.g., audit rights, credit mechanics, or remedies for a Northgate violation). This incomplete drafting further underscores the conceptual weakness of the proposal.

2. Analysis and Recommendation

A mutual MFN is commercially inappropriate and operationally unworkable for the customer side of this transaction. The MFN clause in a managed services MSA is a standard buyer protection mechanism that ensures the customer receives competitive pricing relative to the service provider's other customers. The purpose of the MFN is to prevent the service provider from using the customer's locked-in contract as a pricing floor while offering discounts to win new business. This is a well-established market norm in large-scale managed network services agreements, and Northgate's position is consistent with prevailing practice among similarly situated enterprise customers.

Imposing a reciprocal MFN on Northgate — the buyer of services — is fundamentally asymmetric in the wrong direction. Northgate is not a seller of managed network services; it is a consumer. The mutual MFN would effectively constrain Northgate's ability to procure supplementary, alternative, or redundant network services from other providers at competitive rates. In a multi-vendor enterprise networking environment — which is the standard operating model for a telecommunications company of Northgate's scale — this constraint would be both commercially unacceptable and practically unenforceable.

Moreover, the mutual MFN concept would directly conflict with Northgate's ongoing migration from Greystone Halcyon Software's legacy MPLS infrastructure. The MSA contemplates a three-phase migration over an eighteen-month period, during which Northgate will necessarily be running parallel network services — paying both Cedarpoint and Greystone simultaneously. The pricing structures for these parallel services are not comparable (Greystone's legacy MPLS pricing is based on circuit-level billing, while Cedarpoint's ArcMesh-based pricing is node-level), but a loosely drafted mutual MFN could create ambiguity and give rise to disputes during the migration period. Even if the mutual MFN were drafted with a migration-period carve-out, the existence of the obligation would create an ongoing compliance burden that serves no legitimate commercial purpose.

There is no market precedent in comparable managed services MSAs — including the three comparable transactions we have reviewed from 2021–2023 (the Ashgrove & Co./Thackeray Holdings MSA, the BT/Stonefield & Co. MSA, and the Camberwell Enterprises/Sterling Reach Corporation MSA) — for imposing a mutual MFN on the customer in a managed network services engagement. Cedarpoint's stated concern about competitive benchmarking — essentially, a fear that Northgate will use the MFN as leverage to drive pricing down while simultaneously procuring cheaper services elsewhere — can be addressed, if at all, through the existing covenant of good faith and fair dealing inherent in New York contract law, not through a structural MFN obligation.

Recommendation: Reject the mutual MFN firmly and without equivocation. This should be treated as a non-negotiable position at the June 1 session. Northgate's 340-node footprint — which significantly exceeds the ≥200-node comparable volume threshold — and the $15,000,000 annual contract value make the unilateral MFN a core commercial protection for the client. No fall-back should be offered on this point. If Cedarpoint presses the issue, the negotiation team should emphasize the lack of market precedent, the operational conflicts with the Greystone migration, and the conceptual inappropriateness of a buyer-side MFN. Cedarpoint's underlying concern — that Northgate will benchmark Cedarpoint's pricing against cheaper alternatives — can be acknowledged verbally but should not be conceded structurally.

B. Indemnification Cap (MSA Section 11)

1. Cedarpoint's Position: Reduction from 200% to 150% of Trailing 12-Month Fees

Section 11 of the MSA establishes a mutual indemnification framework under which each party agrees to indemnify, defend, and hold harmless the other party from and against certain categories of third-party claims and losses. The indemnification obligations are subject to an aggregate cap expressed as a percentage of the trailing twelve-month fees paid by Northgate to Cedarpoint under the MSA.

In our second draft, the aggregate indemnification caps were set as follows:

• Cedarpoint's aggregate indemnification cap: 200% of the aggregate fees paid by Northgate during the twelve-month period immediately preceding the date on which the relevant claim is first asserted (the "Cedarpoint Cap"). Based on the annual contract value of $15,000,000, the Cedarpoint Cap in Year 1 would be 2 × $15,000,000 = $30,000,000.

• Northgate's aggregate indemnification cap: 100% of the aggregate fees paid by Northgate during the trailing twelve-month period (the "Northgate Cap"). The Northgate Cap in Year 1 would be 1 × $15,000,000 = $15,000,000.

Cedarpoint's counter-redline proposes reducing the Cedarpoint Cap from 200% to 150% of trailing twelve-month fees. Under this proposal, the Cedarpoint Cap in Year 1 would be 1.5 × $15,000,000 = $22,500,000 — a reduction of $7,500,000 relative to our second draft. Cedarpoint has not proposed any corresponding adjustment to the Northgate Cap, which remains at 100%.

It is important to note several aspects of the indemnification framework that Cedarpoint has not proposed to modify in the counter-redline:

Carve-outs from the cap. The following categories of claims remain uncapped under both our second draft and the counter-redline, meaning that they are not subject to the aggregate indemnification cap regardless of whether it is set at 200%, 175%, or 150%:

(i) Third-party intellectual property infringement claims arising from Northgate's authorized use of the ArcMesh platform;

(ii) Claims arising from willful misconduct by the indemnifying party;

(iii) Claims arising from data breaches caused by the indemnifying party's negligence or willful misconduct; and

(iv) Claims arising from breaches of the confidentiality provisions in Section 12 of the MSA.

Scope of Cedarpoint's indemnification obligations. Cedarpoint's indemnification obligations under Section 11.1 remain as drafted, covering: (a) third-party intellectual property infringement claims arising from Northgate's authorized use of the ArcMesh platform or the managed network services; (b) data breaches caused by Cedarpoint's negligence or willful misconduct in the handling of Northgate data; (c) bodily injury or property damage caused by Cedarpoint personnel while present on Northgate premises; and (d) regulatory penalties imposed on Northgate arising from Cedarpoint's failure to comply with applicable telecommunications regulations, including but not limited to FCC regulations and Canadian CRTC regulations.

Scope of Northgate's indemnification obligations. Northgate's indemnification obligations under Section 11.2 remain as drafted, covering: (a) third-party claims arising from Northgate's use of the ArcMesh platform outside the scope of the license granted under Section 8; and (b) third-party claims relating to Northgate-provided data or content transmitted over the managed network, including claims of defamation, copyright infringement, or invasion of privacy arising from such data or content.

Northgate's indemnification cap. The Northgate Cap remains at 100% of trailing twelve-month fees ($15,000,000 per year), unchanged from our second draft.

2. Analysis and Recommendation

The 200% Cedarpoint Cap was a deliberately negotiated position in our second draft, reflecting the asymmetric risk profile inherent in this transaction. Cedarpoint is providing mission-critical managed network services across the entirety of Northgate's North American node infrastructure — 340 enterprise nodes spanning 28 U.S. states and 3 Canadian provinces. A systemic failure in Cedarpoint's service delivery could cascade across Northgate's entire North American operations, affecting voice, data, and video services to Northgate's enterprise and wholesale customers. The potential downstream losses from such a failure — including regulatory penalties, customer churn, and reputational harm — could significantly exceed the annual contract value. The 200% cap was designed to provide a meaningful recovery mechanism for Northgate in the event of such a failure, commensurate with the magnitude of Northgate's exposure.

However, in assessing Cedarpoint's proposal, it is relevant to consider the practical impact of the cap reduction in light of the uncapped carve-outs and the insurance backstops:

Impact of the uncapped carve-outs. The most consequential categories of claims — Intellectual property infringement, willful misconduct, data breach, and confidentiality breach — are carved out from the aggregate cap and remain uncapped. These carve-outs address the highest-severity and most likely risk scenarios. The aggregate cap therefore primarily governs residual claims — i.e., claims that do not fall within the carve-out categories, such as bodily injury or property damage caused by Cedarpoint personnel, regulatory penalties arising from non-willful regulatory noncompliance, and general breach-of-contract claims not involving willful misconduct. While these residual claims can be significant, they represent a narrower band of risk than the full spectrum of potential losses.

Insurance backstops. Under Exhibit F of the MSA, Cedarpoint is required to maintain the following minimum insurance coverage throughout the term:

• Cyber liability insurance: $25,000,000 per occurrence / $50,000,000 aggregate;

• Technology errors and omissions insurance: $20,000,000 per occurrence / $40,000,000 aggregate;

• Commercial general liability insurance: $5,000,000 per occurrence / $10,000,000 aggregate.

All policies are currently carried through Braeburn Mutual Insurance Company, as confirmed by Cedarpoint in its response to our second draft. The combined insurance coverage provides a substantial backstop for indemnification claims, and the insurance minimums were calibrated in our second draft to align with the 200% indemnification cap. If the cap is reduced, the insurance coverage would exceed the cap by an even wider margin, providing additional comfort.

Quantitative impact of a compromise position. If a compromise position of 175% is adopted, the Cedarpoint Cap in Year 1 would be 1.75 × $15,000,000 = $26,250,000, which represents a reduction of $3,750,000 from the 200% position but remains $3,750,000 above Cedarpoint's proposed 150% position. At $26,250,000, the Year 1 cap remains well within the combined insurance coverage limits (aggregate cyber liability + tech E&O + CGL coverage exceeds $100,000,000), providing adequate financial protection for Northgate.

Recommendation: Resist the reduction to 150% but identify 175% as a potential fall-back position if needed to close the deal. The 200% cap remains Northgate's primary position and should be defended at the June 1 session on the basis of the asymmetric risk profile. However, if the indemnification cap emerges as a significant impediment to closing, the 175% position ($26,250,000 in Year 1) represents a reasonable compromise that preserves meaningful financial protection while acknowledging Cedarpoint's exposure concern. If the 175% fall-back is offered, it should be paired with one or both of the following conditions: (a) an increase in the minimum insurance coverage requirements under Exhibit F, specifically an increase in the cyber liability per-occurrence minimum from $25,000,000 to $30,000,000; or (b) a requirement that Northgate be named as a loss payee (rather than merely an additional insured) on Cedarpoint's technology errors and omissions policy. These conditions would provide incremental protection to offset the reduction in the contractual cap.

C. Change of Control Definition (MSA Section 14 / Schedule 2)

1. Cedarpoint's Position: Deletion of Board-Turnover Prong (Clause (iv))

Section 14 of the MSA addresses assignment, change of control, and related matters. The change of control provisions grant Northgate certain protective rights — including the right to consent to the change of control or to terminate the MSA — in the event of a qualifying change in Cedarpoint's ownership or governance structure. The definition of "change of control" is set forth in Schedule 2 and, as drafted in our second draft, encompasses four triggering events:

(i) The acquisition by any person or group (as such terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934) of more than 50% of Cedarpoint's outstanding voting equity securities;

(ii) Any merger, consolidation, or reorganization of Cedarpoint in which Cedarpoint is not the surviving entity, or following which the holders of Cedarpoint's voting equity immediately prior to such transaction hold less than 50% of the surviving entity's outstanding voting equity;

(iii) The sale, transfer, or other disposition of all or substantially all of Cedarpoint's assets; or

(iv) A change in a majority of the members of Cedarpoint's board of directors within any twelve-month period, other than changes approved by the directors constituting the board at the beginning of such twelve-month period (the "Board-Turnover Prong").

Cedarpoint's counter-redline deletes clause (iv) in its entirety. WGM's Cover Letter argues that the Board-Turnover Prong is "overbroad and potentially triggered by routine corporate governance changes," including board refreshments initiated by existing directors or driven by Cedarpoint's investors in the ordinary course of governance, and that the prong imposes an unnecessary compliance burden on Cedarpoint's board-level governance decisions.

Cedarpoint has not proposed changes to any of the other elements of the change of control framework, all of which remain as drafted in our second draft:

• Advance notice: Cedarpoint is required to provide Northgate with 90 calendar days' advance written notice of any anticipated change of control event.

• Election period: Following receipt of such notice, Northgate has a 60-calendar-day election period during which it may either (a) consent to the assignment of the MSA to the successor entity, subject to the successor's written assumption of all obligations, or (b) terminate the MSA, with an orderly wind-down period of 180 calendar days.

• Transition assistance: In the event of a change-of-control termination, Cedarpoint is obligated to provide transition assistance services at no additional cost to Northgate for the duration of the 180-day wind-down period.

• Pro-rata refund: Cedarpoint is obligated to refund to Northgate a pro-rata portion of any prepaid fees allocable to the post-termination period.

• Escrow release: The transition/wind-down escrow (discussed in Section III.E below) is released to Northgate upon a change-of-control termination to fund transition costs.

• Anti-assignment: Under Section 14.2, any attempted assignment of the MSA without Northgate's prior written consent is void and of no force or effect.

2. Analysis and Recommendation

The Board-Turnover Prong is a critical protection for Northgate given the current ownership structure of Cedarpoint. Based on publicly available information and representations made during the due diligence phase of this negotiation, Cedarpoint's voting equity is held as follows:

• Ridgeline Capital Partners, LP: 62% of outstanding voting equity

• Rajiv Sundaram (CEO and Co-Founder): 18% of outstanding voting equity

• Teresa Cho (CTO and Co-Founder): 12% of outstanding voting equity

• Other employees and early-stage investors: 8% of outstanding voting equity

Ridgeline Capital Partners, LP is a middle-market private equity fund headquartered at 55 Arch Street, Suite 700, Greenwich, Connecticut 06830, managed by Jonathan Kessler. Ridgeline acquired its 62% stake in Cedarpoint in 2019 as part of a recapitalization transaction. As a private equity fund with a typical five-to-seven-year hold period, Ridgeline will likely seek to exit its investment in Cedarpoint during the initial term of the MSA — and a typical PE exit strategy could involve replacing board members as a precursor to, or as part of, a sale, merger, leveraged recapitalization, or other transaction that materially alters Cedarpoint's corporate direction and management.

Deleting the Board-Turnover Prong would allow Ridgeline — or any future majority equity holder — to reconstitute Cedarpoint's board of directors without triggering any of the change of control protections in Section 14. This could enable a creeping change of control in which the strategic direction, management philosophy, and operational priorities of Cedarpoint are materially altered through board-level changes without any formal ownership transfer or corporate reorganization. In such a scenario, Northgate would have no advance notice, no election period, no termination right, and no access to transition assistance — despite the fact that the practical effect on the service relationship could be equivalent to a traditional change of control.

WGM's stated concern — that the Board-Turnover Prong could be triggered by "routine corporate governance changes" — is addressed by the qualifier already included in clause (iv). The prong applies only to changes in a majority of the board within any twelve-month period that are not approved by the directors constituting the board at the beginning of such period. This "existing director approval" carve-out provides a meaningful safe harbor for ordinary-course board refreshment, planned succession, and investor-driven governance improvements that have the endorsement of the existing board. Only hostile or non-consensual board reconstitutions — precisely the scenario that poses the greatest risk to Northgate — would trigger the prong.

Recommendation: Retain clause (iv) — this is a priority position and should be treated as near-non-negotiable at the June 1 session. The Board-Turnover Prong addresses a specific and realistic risk arising from Cedarpoint's PE-backed ownership structure, and the existing director approval carve-out already addresses WGM's stated concerns about routine governance changes.

If Cedarpoint presses the issue strenuously and the retention of clause (iv) becomes a potential impediment to closing, consider — as a last-resort compromise only — narrowing the prong by changing the trigger threshold from "a majority of" Cedarpoint's board members to "two-thirds of" the board members within any twelve-month period. This modification would make accidental or incidental triggering even less likely while preserving the core protection against hostile or PE-driven board reconstitution. This narrowing should be offered only at the June 1 session and only if necessary to secure concessions on other priority issues (such as the mutual MFN). Under no circumstances should the Board-Turnover Prong be deleted entirely.

D. SLA Credit Cap (MSA Section 6 / Exhibit B)

1. Cedarpoint's Position: Reduction from 30% to 15% of Annual Managed Services Fees

Section 6 of the MSA establishes the service level framework for the managed network services provided by Cedarpoint, with detailed SLA metrics and credit schedules set forth in Exhibit B. The SLA credit mechanism is a core operational protection for Northgate, providing financial incentives for Cedarpoint to meet its performance commitments and compensating Northgate for service degradation.

Our second draft caps the aggregate annual SLA credits at 30% of annual managed services fees. The managed services component of the annual contract value is $10,500,000 (out of the total $15,000,000 ACV, which also includes $3,000,000 for the ArcMesh platform license and $1,500,000 for professional services). Accordingly, the annual SLA credit cap under our second draft is:

30% × $10,500,000 = $3,150,000 per year

Cedarpoint's counter-redline proposes reducing this cap to 15% of annual managed services fees:

15% × $10,500,000 = $1,575,000 per year — a reduction of $1,575,000 in maximum annual credit exposure relative to our second draft.

Cedarpoint has not modified the underlying SLA performance tiers or the per-tier credit rates, which remain as follows:

Note: The monthly managed services fee is $875,000 ($10,500,000 ÷ 12). The credit amounts shown above are per-node averages; actual credits are calculated on a per-node basis and aggregated monthly.

Cedarpoint has also not altered the material breach trigger in Section 6.4: three consecutive calendar months in which the aggregate monthly uptime across Northgate's managed node infrastructure falls below 99.50% constitutes a material breach of the MSA, entitling Northgate to terminate the MSA for cause under Section 13.2 with 30 days' written notice and to invoke the associated remedies (including pro-rata fee refund, escrow release, and transition assistance).

The SLA credits apply exclusively to the managed network services component of the fee structure ($10,500,000 per year, or $875,000 per month) and do not apply to the ArcMesh platform license fees ($3,000,000 per year) or to professional services fees ($1,500,000 per year).

2. Analysis and Recommendation

The practical impact of the SLA credit cap reduction can be assessed by modeling the rate at which credits accrue under various underperformance scenarios:

Under the 15% cap ($1,575,000 per year): At the 10% credit tier (99.50%–99.89% uptime), monthly credits of $87,500 would exhaust the annual cap after approximately 18 months — meaning that the cap would not be reached within a single contract year at the 10% tier. However, at the 20% credit tier (below 99.50% uptime), monthly credits of $175,000 would exhaust the annual cap after approximately 9 months. More importantly, a mixed-performance year with several months at the 10% tier and several months at the 20% tier could exhaust the cap within 6–8 months, leaving Northgate without further credit protection for the remainder of the contract year even if underperformance persists.

Under the 30% cap ($3,150,000 per year): The credit pool is approximately double, providing sufficient headroom to cover a full year of moderate underperformance at the 10% tier ($87,500 × 12 = $1,050,000, well below the cap) and to sustain extended periods at the 20% tier ($175,000 × 12 = $2,100,000, still below the cap).

Under a 20% cap ($2,100,000 per year) — the recommended compromise position: The credit pool would be sufficient to cover a full year of moderate underperformance at the 10% tier ($1,050,000 < $2,100,000) and would sustain 12 months at the 20% tier ($2,100,000 = cap), providing meaningful protection in all but the most extreme underperformance scenarios.

However, it is important to note that the SLA credit cap operates alongside — not in lieu of — the material breach termination right. If Cedarpoint's performance deteriorates to the point where uptime falls below 99.50% for three consecutive months, Northgate has the unqualified right to terminate the MSA for cause. This termination right provides a powerful protection that is independent of the credit cap: if performance is consistently poor enough to threaten exhaustion of the credit pool, Northgate can exit the contract entirely rather than being limited to credit-based remediation.

Recommendation: Accept 20% as a compromise position. At 20% × $10,500,000 = $2,100,000 per year, the credit pool is commercially meaningful — providing adequate coverage for sustained moderate underperformance — without approaching the level that Cedarpoint views as commercially unacceptable. The 20% position represents a near-midpoint between Cedarpoint's proposed 15% and our second draft's 30%, and can be presented as a balanced concession. This compromise should be offered as part of the package-deal strategy described in Section V below — specifically, in exchange for Cedarpoint's withdrawal of the mutual MFN proposal and retention of the Board-Turnover Prong in the change of control definition.

E. Escrow Release Timeline and Partial Release on Renewal (MSA Section 15 / Escrow Agreement)

1. Cedarpoint's Position

Section 15 of the MSA establishes a transition and wind-down escrow designed to ensure that adequate funds are available to support an orderly transition of services in the event of a termination or expiration of the MSA. The escrow is a key element of Northgate's operational risk management framework, providing a dedicated funding source for the costs of migrating 340 managed nodes to an alternative service provider or to an in-house managed services capability.

Under our second draft, the escrow operates as follows:

• Funding: Cedarpoint funds the escrow at a rate of $750,000 per year, representing 5% of the annual contract value of $15,000,000. Payments are made quarterly ($187,500 per quarter) into a segregated escrow account.

• Aggregate escrow cap: The escrow accumulates over the five-year initial term to a maximum aggregate balance of $3,750,000 ($750,000 × 5 years).

• Escrow agent: Dravello National Bank, escrow account number FNB-ESC-2023-07742. The designated Relationship Manager is Brian Caulfield, located at 401 South Tryon Street, Suite 1200, Charlotte, NC 28202.

• Release events: The escrow balance is released under the following circumstances:

(a) Natural expiration of the MSA (including any renewal term), without termination for cause — the full escrow balance is released to Cedarpoint within 30 calendar days following the expiration date.

(b) Termination for Northgate's convenience (with 180 days' prior written notice) — the escrow balance is released to Northgate to fund transition costs.

(d) Termination for cause (by Northgate, for Cedarpoint's material breach) — the escrow balance is released to Northgate to fund transition costs.

Cedarpoint's counter-redline proposes two modifications to the escrow release provisions:

First, upon the first automatic two-year renewal of the MSA (i.e., the commencement of Year 6, which under the current term structure would begin on June 9, 2028), 50% of the then-accumulated escrow balance would be released back to Cedarpoint. If the escrow is fully funded through Year 5, the accumulated balance at the time of the first renewal would be $3,750,000, and the 50% partial release would return $1,875,000 to Cedarpoint — leaving $1,875,000 remaining in escrow. Cedarpoint's rationale, as articulated in WGM's Cover Letter, is that the first renewal "demonstrates a stable and successful service relationship" and "materially reduces the transition risk that the escrow is designed to address."

Second, upon natural expiration of the MSA (without termination for cause), the full escrow balance would be released to Cedarpoint within 15 business days rather than the 30 calendar days specified in our second draft. This is a relatively minor timing change, reducing the post-expiration holding period by approximately one week (15 business days ≈ 21 calendar days, compared to the current 30 calendar days).

2. Analysis and Recommendation

Partial release upon first renewal. The concept of a partial escrow release upon renewal is not inherently unreasonable. Cedarpoint's argument — that the first renewal demonstrates a stable relationship and reduces wind-down risk — has some commercial logic. By the time the first renewal commences (June 9, 2028), the MSA will have been in effect for five years, the three-phase migration from Greystone Halcyon Software will be long complete (scheduled for completion by approximately December 2024), and the service relationship will be mature.

However, the magnitude of the proposed release — 50% of the accumulated balance — is excessive. Releasing $1,875,000 at the first renewal would leave only $1,875,000 in escrow to fund transition assistance during the remaining renewal term(s). Given the scale of Northgate's 340-node infrastructure, a transition from Cedarpoint to an alternative provider would require significant planning, staffing, and operational resources. Our internal estimate — based on the transition cost analysis prepared by Katrina Bosch's team in March 2023 — is that a full transition could cost between $2,500,000 and $4,000,000, depending on the complexity of the migration and the availability of alternative providers. Reducing the escrow to $1,875,000 during the renewal periods would leave Northgate materially underfunded in the event of a transition scenario.

A more appropriate structure would involve a graduated partial release that maintains a sufficient minimum balance throughout the renewal periods:

• Upon the first automatic two-year renewal: release 25% of the then-accumulated escrow balance ($937,500 if fully funded), leaving $2,812,500 in escrow.

• Upon the second automatic two-year renewal: release an additional 25% of the original accumulated balance ($937,500), leaving $1,875,000 in escrow.

• This structure ensures that a minimum of $1,875,000 remains in escrow at all times during the renewal periods — sufficient to cover a meaningful portion of estimated transition costs — while providing Cedarpoint with incremental releases that reward the continuation of the service relationship.

Accelerated post-expiration release. Reducing the post-expiration release timeline from 30 calendar days to 15 business days is a minor point. Fifteen business days is approximately 21 calendar days, which provides sufficient time for the escrow agent to process the release and for Northgate to confirm that no outstanding claims exist that would warrant a hold on the escrow funds. This concession carries minimal risk and can be offered as a goodwill gesture.

Recommendation: Offer a modified partial release — 25% (not 50%) of the escrow balance released upon the first renewal, and an additional 25% upon the second renewal, maintaining a minimum of $1,875,000 in escrow at all times during the renewal periods. Accept the 15 business day post-expiration release timeline. The escrow release issue is well-suited for use as a concession point to gain ground on higher-priority items. By demonstrating flexibility on the escrow terms, Northgate can create negotiating room to hold firm on the mutual MFN rejection and the retention of the Board-Turnover Prong, and to strengthen its position on the indemnification cap.

As a procedural note, Garrett Simmons should be consulted regarding any tax implications of the escrow release modifications. Partial releases of escrowed funds may have income recognition implications for Cedarpoint under Section 451 of the Internal Revenue Code, and the MSA's tax indemnity provisions should be reviewed to ensure that they appropriately allocate the tax consequences of escrow releases between the parties.

IV. Issues Resolved in the Counter-Redline

The following provisions were either accepted by Cedarpoint without further modification or were resolved in prior negotiation rounds and remain unchanged in the counter-redline. These items no longer require further negotiation and should be treated as settled for purposes of the June 1 session.

Scope of Services (Section 3 / Exhibit A). Cedarpoint has accepted in full the description of services set forth in Exhibit A, including: managed wide-area network services across Northgate's 340 North American nodes; SD-WAN deployment using the ArcMesh platform version 4.2; 24×7 Network Operations Center monitoring from Cedarpoint's primary NOC facility in Reston, Virginia and its redundant NOC facility in Winnipeg, Manitoba; quarterly performance reviews conducted jointly by the parties' respective operations teams; the three-phase migration from Greystone Halcyon Software's legacy MPLS infrastructure over an eighteen-month period; cybersecurity monitoring and incident response services, including 24×7 threat detection, vulnerability scanning, and incident escalation in accordance with the procedures set forth in Exhibit E; and assignment of a dedicated service delivery manager to the Northgate account. No changes were proposed to these provisions.

Fee Structure (Section 7 / Exhibit C). Cedarpoint has accepted the fee structure as drafted, confirming the annual contract value of $15,000,000, allocated as follows: $10,500,000 for managed network services, $3,000,000 for the ArcMesh platform license, and $1,500,000 for professional services. The monthly run-rate of $1,250,000 ($15,000,000 ÷ 12) has been confirmed. Payment terms (net 30 from date of invoice), annual escalation mechanics (CPI-based, capped at 3%), and the invoicing procedures set forth in Exhibit C were accepted without changes.

IP Licensing Terms (Section 8). Cedarpoint has accepted the ArcMesh platform license scope, restrictions, and ownership provisions as drafted. The license is non-exclusive, non-transferable (except in connection with a permitted assignment of the MSA), and limited to Northgate's internal use across its North American node infrastructure. Cedarpoint retains all intellectual property rights in the ArcMesh platform, including all modifications, enhancements, and derivative works. Northgate's rights to customizations developed specifically for the Northgate engagement are addressed through a perpetual, royalty-free license to use such customizations, which survives termination or expiration of the MSA.

Confidentiality (Section 12). Cedarpoint has accepted the confidentiality framework set forth in Section 12, including the five-year survival period for confidentiality obligations, the scope of permitted disclosures, and the cross-reference to the mutual non-disclosure agreement executed by the parties on February 22, 2023 (the "Mutual NDA"). The Mutual NDA remains in effect and supplements (but does not supersede) the confidentiality provisions of the MSA.

Data Security and Privacy (Exhibit E). Cedarpoint has accepted Exhibit E without material changes. The data security requirements include compliance with SOC 2 Type II standards, annual penetration testing by a qualified third-party assessor, encryption of data at rest (AES-256) and in transit (TLS 1.3), 72-hour breach notification to Northgate, and cooperation with Northgate's Data Protection Officer in connection with any regulatory inquiry or data subject access request.

Insurance Requirements (Exhibit F). Cedarpoint has accepted all minimum coverage levels specified in Exhibit F: cyber liability insurance at $25,000,000 per occurrence / $50,000,000 aggregate; technology errors and omissions insurance at $20,000,000 per occurrence / $40,000,000 aggregate; and commercial general liability insurance at $5,000,000 per occurrence / $10,000,000 aggregate. Cedarpoint has confirmed that Braeburn Mutual Insurance Company is its current carrier for all three coverages and has agreed to provide certificates of insurance within 10 business days of execution of the MSA. No changes were proposed.

Term and Renewal (Section 2). Cedarpoint has accepted the five-year initial term (June 9, 2023 through June 8, 2028) with two automatic two-year renewal terms (first renewal: June 9, 2028 through June 8, 2030; second renewal: June 9, 2030 through June 8, 2032), unless either party delivers written notice of non-renewal at least 180 calendar days prior to the expiration of the then-current term. The simultaneous signing and closing mechanic set forth in Section 2.1 has been accepted. The maximum potential term of the MSA, including both renewal periods, is nine years (June 9, 2023 through June 8, 2032).

Governing Law (Section 20). Cedarpoint has accepted New York as the governing law jurisdiction, without qualification. The dispute resolution provisions — including mandatory pre-litigation mediation, followed by binding arbitration under the AAA Commercial Arbitration Rules administered by the American Arbitration Association's New York Regional Office — were accepted without changes.

Acceptable Use Policy (Exhibit D). Cedarpoint has accepted the Acceptable Use Policy without material changes. The AUP governs Northgate's use of the managed network services and the ArcMesh platform, including restrictions on unlawful content, network abuse, and unauthorized access.

Anti-Assignment (Section 14.2). Cedarpoint has accepted the anti-assignment provision, confirming that any attempted assignment of the MSA by either party without the prior written consent of the other party shall be void and of no force or effect. This provision operates in conjunction with the change of control provisions discussed in Section III.C above.

V. Recommended Negotiation Strategy for June 1 Session

A. Priority Ranking of Open Issues

Based on the analysis set forth in Section III, the five open issues should be ranked as follows for purposes of the June 1 negotiation:

1. Non-negotiable / Hold firm:

(a) Reject mutual MFN (Section III.A). The mutual MFN is commercially inappropriate, operationally unworkable, and inconsistent with market practice. This is Northgate's strongest position and should be defended without concession. No fall-back should be offered.

(b) Retain change of control Board-Turnover Prong (Section III.C). The Board-Turnover Prong addresses a specific and material risk arising from Cedarpoint's PE-backed ownership structure. The existing director approval carve-out already addresses WGM's stated concerns. Clause (iv) should be retained in its current form or, as a last-resort compromise, narrowed from "a majority" to "two-thirds" of the board.

2. Resist but identify fall-back:

(c) Indemnification cap at 200%, with 175% as compromise (Section III.B). The 200% cap is the preferred position, but the 175% fall-back ($26,250,000 in Year 1) is acceptable if paired with enhanced insurance requirements or loss payee status on the E&O policy.

3. Offer as concession:

(d) SLA credit cap at 20% (Section III.D). Moving from 30% to 20% represents a meaningful concession to Cedarpoint while preserving adequate credit protection for Northgate. The 20% position should be offered as part of the package deal.

(e) Modified escrow partial release at 25% per renewal (Section III.E). Agreeing to a graduated partial release (25% at first renewal, 25% at second renewal) and the 15 business day post-expiration timeline demonstrates good faith and flexibility. This concession can be offered to build goodwill and create negotiating room on the higher-priority items.

B. Trade-off / Package Approach

Rather than addressing the five open issues serially — which risks protracted point-by-point negotiation and positional entrenchment — the negotiation team should propose a comprehensive package deal at the June 1 session. The package should be presented as a balanced resolution that allows both sides to claim meaningful concessions while preserving the core commercial protections that are most important to each party.

The recommended package is as follows:

Northgate concedes:

• SLA credit cap reduced from 30% to 20% of annual managed services fees (a reduction of $1,050,000 in annual credit exposure for Cedarpoint).

• Escrow partial release of 25% of the accumulated balance upon the first renewal, and an additional 25% upon the second renewal (releasing up to $1,875,000 to Cedarpoint over the two renewal periods while maintaining a minimum $1,875,000 in escrow at all times).

• Escrow post-expiration release timeline reduced from 30 calendar days to 15 business days.

In exchange, Cedarpoint:

• Withdraws the mutual MFN proposal and accepts the unilateral MFN as drafted in our second draft.

• Retains the four-prong change of control definition, including the Board-Turnover Prong (clause (iv)), as drafted in our second draft (or, if necessary, as narrowed to a two-thirds threshold).

• Maintains the indemnification cap at 200% of trailing twelve-month fees (or, if the package requires an additional Northgate concession to close, accepts 175% paired with enhanced insurance requirements).

This package approach allows Cedarpoint to demonstrate to its board and to Ridgeline Capital Partners that it achieved meaningful financial concessions on the SLA credit cap and the escrow provisions, while Northgate preserves the structural protections — MFN, change of control, and indemnification — that are most critical to its long-term risk management.

C. Attendees and Preparation

Anticipated Northgate / Calderwood & Harkness attendees for the June 1 session:

• Colette Whitman — Responsible Partner, Calderwood & Harkness LLP

• Christy Bauer — Lead Associate, Calderwood & Harkness LLP

• Deirdre Kwan — Vice President of Procurement, North America, Northgate Americas, Inc.

• Katrina Bosch — Vice President of Network Operations, Northgate Americas, Inc.

Anticipated Cedarpoint / Whitfield Graves & Morrow attendees for the June 1 session:

• Douglas Fenn — Lead Partner, Technology Transactions, Whitfield Graves & Morrow LLP

• Simone Alvarez — Associate Counsel, Whitfield Graves & Morrow LLP

• Nadia Okafor — General Counsel, Cedarpoint Systems Integration, Inc.

• Philip Hargreaves — Chief Financial Officer, Cedarpoint Systems Integration, Inc.

Pre-session preparation recommendations:

1. Client alignment call. Schedule a preparatory call with Deirdre Kwan and Katrina Bosch prior to the June 1 session, ideally during the week of May 22, to align on commercial fall-back positions. The call should focus in particular on: (a) Deirdre Kwan's views on the acceptable range for the indemnification cap compromise (200% vs. 175%); (b) Katrina Bosch's operational assessment of the SLA credit cap reduction (30% vs. 20%) and the adequacy of the material breach termination right as a backstop; and (c) both executives' comfort level with the proposed escrow partial release structure (25% per renewal).

2. Issues tracker. Update the negotiation issues tracker (currently maintained as Document ID C&H-0058) to reflect the current positions on all five open issues and the recommended fall-back positions outlined in this memorandum. A revised version of the issues tracker should be circulated to WGM in advance of the June 1 session to frame the agenda and ensure that both sides come prepared to address the open items efficiently.

3. Comparable transaction data. Prepare a summary of MFN provisions in comparable managed services MSAs (including the Ashgrove & Co./Thackeray Holdings, BT/Stonefield & Co., and Camberwell Enterprises/Sterling Reach Corporation transactions referenced in Section III.A) to support the position that mutual MFN obligations are not market practice on the customer side.

4. Ridgeline Capital Partners research. Prepare a brief summary of Ridgeline's portfolio, fund structure, and typical exit timelines to support the retention of the Board-Turnover Prong. This information may be useful if Cedarpoint challenges the relevance of the prong during the in-person session.

VI. Next Steps

The following action items should be completed in advance of the June 1, 2023 negotiation session:

1. Circulate this memorandum to Colette Whitman for review and approval of the recommended positions and negotiation strategy outlined herein. Please advise if any of the recommended positions or fall-back parameters require modification based on partner-level review or input from Northgate's senior management.

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
TO: Colette Whitman, Responsible Partner, Calderwood & Harkness LLP
FROM: Christy Bauer, Lead Associate, Calderwood & Harkness LLP
DATE: May 22, 2023
RE: Analysis of Cedarpoint Systems Integration, Inc. Counter-Redline to Second Draft Master Services Agreement (Received May 19, 2023)
MATTER NO.: 1022-00008
CLIENT: Northgate Telecommunications PLC / Northgate Americas, Inc.
COUNTERPARTY: Cedarpoint Systems Integration, Inc.
COUNTERPARTY COUNSEL: Whitfield Graves & Morrow LLP (Douglas Fenn / Simone Alvarez)
cc: Garrett Simmons (Working Associate, Tax)
I. Executive Summary
On May 19, 2023, Whitfield Graves & Morrow LLP ("WGM") circulated Cedarpoint Systems Integration, Inc.'s ("Cedarpoint") counter-redline to our May 5, 2023 second draft of the Master Services Agreement (the "MSA") between Northgate Americas, Inc. ("Northgate" or the "Customer/Licensee") and Cedarpoint (the "Service Provider/Licensor"). This memorandum provides a detailed analysis of the counter-redline, assesses the legal and commercial risks associated with each open issue, and recommends negotiation positions and fall-back strategies in advance of the scheduled June 1, 2023 in-person negotiation session in New York.
The counter-redline accepts many of the revisions contained in our second draft — including the scope of services description, fee structure, IP licensing terms, confidentiality provisions, data security and privacy framework, insurance requirements, and governing law selection — but re-opens or introduces new positions on five significant areas:
(a) Most Favored Nation Pricing (Section 7.4 / Schedule 3): Cedarpoint now insists on converting the unilateral MFN obligation (running solely in Northgate's favor) into a mutual MFN, under which Northgate would also warrant that it does not procure comparable managed network services from any third-party provider at a price lower than the fees paid to Cedarpoint.
(b) Indemnification Cap (Section 11): Cedarpoint proposes reducing its aggregate indemnification cap from 200% to 150% of trailing twelve-month fees, which would reduce Cedarpoint's Year 1 cap from $30,000,000 to $22,500,000 — a reduction of $7,500,000 in Year 1 exposure.
(c) Change of Control Definition (Section 14 / Schedule 2): Cedarpoint seeks to narrow the definition of "change of control" by deleting the board-turnover prong (clause (iv) of the definition), which currently treats a change in a majority of Cedarpoint's board of directors within any twelve-month period as a triggering event.
(d) SLA Credit Cap (Section 6 / Exhibit B): Cedarpoint proposes reducing the annual aggregate SLA credit cap from 30% to 15% of annual managed services fees, which would reduce the maximum annual credit from $3,150,000 to $1,575,000.
(e) Escrow Release Timeline and Partial Release on Renewal (Section 15 / Escrow Agreement): Cedarpoint proposes an accelerated release timeline upon natural expiration (15 business days rather than 30 calendar days) and a partial release of 50% of the then-accumulated escrow balance upon the first automatic two-year renewal.
The purpose of this memorandum is to analyze each of these positions in detail, assess the associated risks to Northgate, and recommend primary and fall-back positions for the negotiation team. The memorandum also summarizes provisions that have been resolved in the counter-redline and proposes an overall negotiation strategy — including a package-deal approach — for the June 1 session.
Overall Assessment: Cedarpoint's positions on the mutual MFN and the deletion of the board-turnover prong in the change of control definition are the most consequential to Northgate and should be firmly resisted. The mutual MFN is commercially inappropriate for a customer-side obligation and has no precedent in comparable managed services transactions. The board-turnover prong is a critical protection given Ridgeline Capital Partners, LP's 62% voting equity stake in Cedarpoint and the attendant risks of a PE-driven board reconstitution that precedes or substitutes for a traditional change-of-control transaction. The indemnification cap and SLA credit cap positions present room for compromise, and the escrow release timeline issue is manageable and can be deployed as a concession point to secure Northgate's priorities on the more critical items.
II. Background and Procedural Context
Calderwood & Harkness LLP opened this engagement on March 14, 2023, pursuant to our outside counsel engagement letter dated March 10, 2023, to represent Northgate Americas, Inc. — the principal North American operating subsidiary of Northgate Telecommunications PLC (LSE: NTP) — in the negotiation and documentation of a five-year Master Services Agreement with Cedarpoint Systems Integration, Inc. The MSA encompasses managed network services, licensing of Cedarpoint's proprietary ArcMesh software platform (version 4.2), and professional services, with an aggregate contract value of approximately $75,000,000 over the initial five-year term ($15,000,000 per annum).
The services to be performed under the MSA span Northgate's entire North American node infrastructure, consisting of 340 managed nodes located across 28 U.S. states and 3 Canadian provinces. The engagement represents one of the largest managed network services procurements in Northgate's corporate history and is a cornerstone of Northgate's "NexGen Network 2025" initiative, which was approved by the Northgate Telecommunications PLC Board of Directors in November 2022.
The negotiation has proceeded on the following timeline:
April 3, 2023: Calderwood & Harkness circulated the first draft MSA to WGM on behalf of Northgate.
April 21, 2023: WGM returned Cedarpoint's redline to the first draft MSA, introducing a number of material revisions to scope, pricing, indemnification, and intellectual property provisions. A detailed analysis of this redline was prepared in a memorandum dated April 24, 2023 (Matter No. 1022-00008, Document ID C&H-0042).
May 5, 2023: Calderwood & Harkness circulated the second draft MSA, incorporating Northgate's responses to Cedarpoint's redline and reflecting the positions agreed during the April 27, 2023 telephonic negotiation session.
May 19, 2023: WGM circulated Cedarpoint's counter-redline to the second draft MSA, which is the subject of this memorandum.
The counter-redline was prepared by Douglas Fenn, Lead Partner in WGM's Technology Transactions practice, and Simone Alvarez, Associate Counsel, at Whitfield Graves & Morrow LLP, 1875 K Street NW, Suite 800, Washington, DC 20006. The counter-redline was accompanied by a two-page cover letter (the "Cover Letter") from Fenn to Colette Whitman, which provided high-level explanations for several of the proposed changes. Based on the substance and tone of the Cover Letter, as well as references therein to discussions "with our client's senior management," it appears that Nadia Okafor (General Counsel, Cedarpoint) and Philip Hargreaves (CFO, Cedarpoint) were directly involved in formulating several of the commercial positions reflected in the counter-redline, particularly those relating to the indemnification cap and the escrow release provisions.
The next scheduled milestone in the negotiation is an in-person session on June 1, 2023, to be held at Calderwood & Harkness's New York office, 600 Lexington Avenue, 30th Floor, New York, NY 10022, beginning at 10:00 a.m. Eastern Time. The parties' target execution date for the MSA remains June 9, 2023, consistent with Northgate's internal project timeline for the NexGen Network 2025 initiative and with the planned commencement of Phase 1 of the Greystone migration.
III. Issue-by-Issue Analysis
A. Most Favored Nation Pricing (MSA Section 7.4 / Schedule 3)
1. Cedarpoint's Position: Mutual MFN
In our second draft, Section 7.4 of the MSA established a unilateral most-favored-nation pricing obligation running solely in Northgate's favor. Under this provision, Cedarpoint warranted that the fees charged to Northgate under the MSA would be no less favorable than the fees charged by Cedarpoint to any other customer for comparable managed network services of comparable scope and volume. The provision was designed to protect Northgate against pricing erosion — ensuring that Cedarpoint could not offer materially lower pricing to a subsequent or concurrent customer for substantially similar services without extending the same favorable pricing to Northgate.
In the counter-redline, Cedarpoint proposes converting this unilateral MFN into a mutual MFN obligation. Specifically, Cedarpoint has inserted a new subsection 7.4(b) under which Northgate would warrant that it does not procure, and will not during the term of the MSA procure, comparable managed network services from any third-party provider at a per-node unit price or aggregate annual fee that is lower than the fees paid to Cedarpoint under the MSA for comparable services. Cedarpoint frames this as a "parity" or "level playing field" issue in WGM's Cover Letter, asserting that if Cedarpoint must guarantee that it offers Northgate its most competitive pricing, then Northgate should reciprocally commit to pricing exclusivity or, at minimum, benchmarking its third-party procurement against the fees paid to Cedarpoint.
It is important to note that Cedarpoint has not modified the existing MFN mechanics applicable to its own obligation. The following parameters remain as drafted in our second draft:
• Comparable volume threshold: The MFN comparison applies only to Cedarpoint customers with a managed node footprint of 200 or more nodes (the "≥200 Managed Nodes" threshold).
• Benchmark period: The comparison is based on a trailing twelve-month fee assessment.
• Pricing differential trigger: The MFN is triggered when the pricing differential between the fees charged to Northgate and the fees charged to the comparable customer exceeds 3% (the ">3% Pricing Differential Trigger").
• Retroactive credit timeline: Upon a confirmed MFN violation, Cedarpoint must issue a retroactive credit to Northgate within 45 calendar days, covering the period from the date the lower pricing was first offered to the comparable customer.
• Prospective adjustment timeline: Cedarpoint must prospectively adjust Northgate's pricing to match the lower rate within 30 calendar days of the confirmed violation.
• Audit rights: Northgate has the right to conduct an annual audit of Cedarpoint's pricing to comparable customers to verify MFN compliance. If a violation is confirmed, the audit is conducted at Cedarpoint's cost; if no violation is found, the audit is conducted at Northgate's cost.
The insertion of the mutual MFN would layer onto these mechanics a reciprocal set of obligations running in Cedarpoint's favor, although the counter-redline does not fully specify the mechanics of how the mutual obligation would operate from Cedarpoint's perspective (e.g., audit rights, credit mechanics, or remedies for a Northgate violation). This incomplete drafting further underscores the conceptual weakness of the proposal.
2. Analysis and Recommendation
A mutual MFN is commercially inappropriate and operationally unworkable for the customer side of this transaction. The MFN clause in a managed services MSA is a standard buyer protection mechanism that ensures the customer receives competitive pricing relative to the service provider's other customers. The purpose of the MFN is to prevent the service provider from using the customer's locked-in contract as a pricing floor while offering discounts to win new business. This is a well-established market norm in large-scale managed network services agreements, and Northgate's position is consistent with prevailing practice among similarly situated enterprise customers.
Imposing a reciprocal MFN on Northgate — the buyer of services — is fundamentally asymmetric in the wrong direction. Northgate is not a seller of managed network services; it is a consumer. The mutual MFN would effectively constrain Northgate's ability to procure supplementary, alternative, or redundant network services from other providers at competitive rates. In a multi-vendor enterprise networking environment — which is the standard operating model for a telecommunications company of Northgate's scale — this constraint would be both commercially unacceptable and practically unenforceable.
Moreover, the mutual MFN concept would directly conflict with Northgate's ongoing migration from Greystone Halcyon Software's legacy MPLS infrastructure. The MSA contemplates a three-phase migration over an eighteen-month period, during which Northgate will necessarily be running parallel network services — paying both Cedarpoint and Greystone simultaneously. The pricing structures for these parallel services are not comparable (Greystone's legacy MPLS pricing is based on circuit-level billing, while Cedarpoint's ArcMesh-based pricing is node-level), but a loosely drafted mutual MFN could create ambiguity and give rise to disputes during the migration period. Even if the mutual MFN were drafted with a migration-period carve-out, the existence of the obligation would create an ongoing compliance burden that serves no legitimate commercial purpose.
There is no market precedent in comparable managed services MSAs — including the three comparable transactions we have reviewed from 2021–2023 (the Ashgrove & Co./Thackeray Holdings MSA, the BT/Stonefield & Co. MSA, and the Camberwell Enterprises/Sterling Reach Corporation MSA) — for imposing a mutual MFN on the customer in a managed network services engagement. Cedarpoint's stated concern about competitive benchmarking — essentially, a fear that Northgate will use the MFN as leverage to drive pricing down while simultaneously procuring cheaper services elsewhere — can be addressed, if at all, through the existing covenant of good faith and fair dealing inherent in New York contract law, not through a structural MFN obligation.
Recommendation: Reject the mutual MFN firmly and without equivocation. This should be treated as a non-negotiable position at the June 1 session. Northgate's 340-node footprint — which significantly exceeds the ≥200-node comparable volume threshold — and the $15,000,000 annual contract value make the unilateral MFN a core commercial protection for the client. No fall-back should be offered on this point. If Cedarpoint presses the issue, the negotiation team should emphasize the lack of market precedent, the operational conflicts with the Greystone migration, and the conceptual inappropriateness of a buyer-side MFN. Cedarpoint's underlying concern — that Northgate will benchmark Cedarpoint's pricing against cheaper alternatives — can be acknowledged verbally but should not be conceded structurally.
B. Indemnification Cap (MSA Section 11)
1. Cedarpoint's Position: Reduction from 200% to 150% of Trailing 12-Month Fees
Section 11 of the MSA establishes a mutual indemnification framework under which each party agrees to indemnify, defend, and hold harmless the other party from and against certain categories of third-party claims and losses. The indemnification obligations are subject to an aggregate cap expressed as a percentage of the trailing twelve-month fees paid by Northgate to Cedarpoint under the MSA.
In our second draft, the aggregate indemnification caps were set as follows:
• Cedarpoint's aggregate indemnification cap: 200% of the aggregate fees paid by Northgate during the twelve-month period immediately preceding the date on which the relevant claim is first asserted (the "Cedarpoint Cap"). Based on the annual contract value of $15,000,000, the Cedarpoint Cap in Year 1 would be 2 × $15,000,000 = $30,000,000.
• Northgate's aggregate indemnification cap: 100% of the aggregate fees paid by Northgate during the trailing twelve-month period (the "Northgate Cap"). The Northgate Cap in Year 1 would be 1 × $15,000,000 = $15,000,000.
Cedarpoint's counter-redline proposes reducing the Cedarpoint Cap from 200% to 150% of trailing twelve-month fees. Under this proposal, the Cedarpoint Cap in Year 1 would be 1.5 × $15,000,000 = $22,500,000 — a reduction of $7,500,000 relative to our second draft. Cedarpoint has not proposed any corresponding adjustment to the Northgate Cap, which remains at 100%.
It is important to note several aspects of the indemnification framework that Cedarpoint has not proposed to modify in the counter-redline:
Carve-outs from the cap. The following categories of claims remain uncapped under both our second draft and the counter-redline, meaning that they are not subject to the aggregate indemnification cap regardless of whether it is set at 200%, 175%, or 150%:
(i) Third-party intellectual property infringement claims arising from Northgate's authorized use of the ArcMesh platform;
(ii) Claims arising from willful misconduct by the indemnifying party;
(iii) Claims arising from data breaches caused by the indemnifying party's negligence or willful misconduct; and
(iv) Claims arising from breaches of the confidentiality provisions in Section 12 of the MSA.
Scope of Cedarpoint's indemnification obligations. Cedarpoint's indemnification obligations under Section 11.1 remain as drafted, covering: (a) third-party intellectual property infringement claims arising from Northgate's authorized use of the ArcMesh platform or the managed network services; (b) data breaches caused by Cedarpoint's negligence or willful misconduct in the handling of Northgate data; (c) bodily injury or property damage caused by Cedarpoint personnel while present on Northgate premises; and (d) regulatory penalties imposed on Northgate arising from Cedarpoint's failure to comply with applicable telecommunications regulations, including but not limited to FCC regulations and Canadian CRTC regulations.
Scope of Northgate's indemnification obligations. Northgate's indemnification obligations under Section 11.2 remain as drafted, covering: (a) third-party claims arising from Northgate's use of the ArcMesh platform outside the scope of the license granted under Section 8; and (b) third-party claims relating to Northgate-provided data or content transmitted over the managed network, including claims of defamation, copyright infringement, or invasion of privacy arising from such data or content.
Northgate's indemnification cap. The Northgate Cap remains at 100% of trailing twelve-month fees ($15,000,000 per year), unchanged from our second draft.
2. Analysis and Recommendation
The 200% Cedarpoint Cap was a deliberately negotiated position in our second draft, reflecting the asymmetric risk profile inherent in this transaction. Cedarpoint is providing mission-critical managed network services across the entirety of Northgate's North American node infrastructure — 340 enterprise nodes spanning 28 U.S. states and 3 Canadian provinces. A systemic failure in Cedarpoint's service delivery could cascade across Northgate's entire North American operations, affecting voice, data, and video services to Northgate's enterprise and wholesale customers. The potential downstream losses from such a failure — including regulatory penalties, customer churn, and reputational harm — could significantly exceed the annual contract value. The 200% cap was designed to provide a meaningful recovery mechanism for Northgate in the event of such a failure, commensurate with the magnitude of Northgate's exposure.
However, in assessing Cedarpoint's proposal, it is relevant to consider the practical impact of the cap reduction in light of the uncapped carve-outs and the insurance backstops:
Impact of the uncapped carve-outs. The most consequential categories of claims — Intellectual property infringement, willful misconduct, data breach, and confidentiality breach — are carved out from the aggregate cap and remain uncapped. These carve-outs address the highest-severity and most likely risk scenarios. The aggregate cap therefore primarily governs residual claims — i.e., claims that do not fall within the carve-out categories, such as bodily injury or property damage caused by Cedarpoint personnel, regulatory penalties arising from non-willful regulatory noncompliance, and general breach-of-contract claims not involving willful misconduct. While these residual claims can be significant, they represent a narrower band of risk than the full spectrum of potential losses.
Insurance backstops. Under Exhibit F of the MSA, Cedarpoint is required to maintain the following minimum insurance coverage throughout the term:
• Cyber liability insurance: $25,000,000 per occurrence / $50,000,000 aggregate;
• Technology errors and omissions insurance: $20,000,000 per occurrence / $40,000,000 aggregate;
• Commercial general liability insurance: $5,000,000 per occurrence / $10,000,000 aggregate.
All policies are currently carried through Braeburn Mutual Insurance Company, as confirmed by Cedarpoint in its response to our second draft. The combined insurance coverage provides a substantial backstop for indemnification claims, and the insurance minimums were calibrated in our second draft to align with the 200% indemnification cap. If the cap is reduced, the insurance coverage would exceed the cap by an even wider margin, providing additional comfort.
Quantitative impact of a compromise position. If a compromise position of 175% is adopted, the Cedarpoint Cap in Year 1 would be 1.75 × $15,000,000 = $26,250,000, which represents a reduction of $3,750,000 from the 200% position but remains $3,750,000 above Cedarpoint's proposed 150% position. At $26,250,000, the Year 1 cap remains well within the combined insurance coverage limits (aggregate cyber liability + tech E&O + CGL coverage exceeds $100,000,000), providing adequate financial protection for Northgate.
Recommendation: Resist the reduction to 150% but identify 175% as a potential fall-back position if needed to close the deal. The 200% cap remains Northgate's primary position and should be defended at the June 1 session on the basis of the asymmetric risk profile. However, if the indemnification cap emerges as a significant impediment to closing, the 175% position ($26,250,000 in Year 1) represents a reasonable compromise that preserves meaningful financial protection while acknowledging Cedarpoint's exposure concern. If the 175% fall-back is offered, it should be paired with one or both of the following conditions: (a) an increase in the minimum insurance coverage requirements under Exhibit F, specifically an increase in the cyber liability per-occurrence minimum from $25,000,000 to $30,000,000; or (b) a requirement that Northgate be named as a loss payee (rather than merely an additional insured) on Cedarpoint's technology errors and omissions policy. These conditions would provide incremental protection to offset the reduction in the contractual cap.
C. Change of Control Definition (MSA Section 14 / Schedule 2)
1. Cedarpoint's Position: Deletion of Board-Turnover Prong (Clause (iv))
Section 14 of the MSA addresses assignment, change of control, and related matters. The change of control provisions grant Northgate certain protective rights — including the right to consent to the change of control or to terminate the MSA — in the event of a qualifying change in Cedarpoint's ownership or governance structure. The definition of "change of control" is set forth in Schedule 2 and, as drafted in our second draft, encompasses four triggering events:
(i) The acquisition by any person or group (as such terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934) of more than 50% of Cedarpoint's outstanding voting equity securities;
(ii) Any merger, consolidation, or reorganization of Cedarpoint in which Cedarpoint is not the surviving entity, or following which the holders of Cedarpoint's voting equity immediately prior to such transaction hold less than 50% of the surviving entity's outstanding voting equity;
(iii) The sale, transfer, or other disposition of all or substantially all of Cedarpoint's assets; or
(iv) A change in a majority of the members of Cedarpoint's board of directors within any twelve-month period, other than changes approved by the directors constituting the board at the beginning of such twelve-month period (the "Board-Turnover Prong").
Cedarpoint's counter-redline deletes clause (iv) in its entirety. WGM's Cover Letter argues that the Board-Turnover Prong is "overbroad and potentially triggered by routine corporate governance changes," including board refreshments initiated by existing directors or driven by Cedarpoint's investors in the ordinary course of governance, and that the prong imposes an unnecessary compliance burden on Cedarpoint's board-level governance decisions.
Cedarpoint has not proposed changes to any of the other elements of the change of control framework, all of which remain as drafted in our second draft:
• Advance notice: Cedarpoint is required to provide Northgate with 90 calendar days' advance written notice of any anticipated change of control event.
• Election period: Following receipt of such notice, Northgate has a 60-calendar-day election period during which it may either (a) consent to the assignment of the MSA to the successor entity, subject to the successor's written assumption of all obligations, or (b) terminate the MSA, with an orderly wind-down period of 180 calendar days.
• Transition assistance: In the event of a change-of-control termination, Cedarpoint is obligated to provide transition assistance services at no additional cost to Northgate for the duration of the 180-day wind-down period.
• Pro-rata refund: Cedarpoint is obligated to refund to Northgate a pro-rata portion of any prepaid fees allocable to the post-termination period.
• Escrow release: The transition/wind-down escrow (discussed in Section III.E below) is released to Northgate upon a change-of-control termination to fund transition costs.
• Anti-assignment: Under Section 14.2, any attempted assignment of the MSA without Northgate's prior written consent is void and of no force or effect.
2. Analysis and Recommendation
The Board-Turnover Prong is a critical protection for Northgate given the current ownership structure of Cedarpoint. Based on publicly available information and representations made during the due diligence phase of this negotiation, Cedarpoint's voting equity is held as follows:
• Ridgeline Capital Partners, LP: 62% of outstanding voting equity
• Rajiv Sundaram (CEO and Co-Founder): 18% of outstanding voting equity
• Teresa Cho (CTO and Co-Founder): 12% of outstanding voting equity
• Other employees and early-stage investors: 8% of outstanding voting equity
Ridgeline Capital Partners, LP is a middle-market private equity fund headquartered at 55 Arch Street, Suite 700, Greenwich, Connecticut 06830, managed by Jonathan Kessler. Ridgeline acquired its 62% stake in Cedarpoint in 2019 as part of a recapitalization transaction. As a private equity fund with a typical five-to-seven-year hold period, Ridgeline will likely seek to exit its investment in Cedarpoint during the initial term of the MSA — and a typical PE exit strategy could involve replacing board members as a precursor to, or as part of, a sale, merger, leveraged recapitalization, or other transaction that materially alters Cedarpoint's corporate direction and management.
Deleting the Board-Turnover Prong would allow Ridgeline — or any future majority equity holder — to reconstitute Cedarpoint's board of directors without triggering any of the change of control protections in Section 14. This could enable a creeping change of control in which the strategic direction, management philosophy, and operational priorities of Cedarpoint are materially altered through board-level changes without any formal ownership transfer or corporate reorganization. In such a scenario, Northgate would have no advance notice, no election period, no termination right, and no access to transition assistance — despite the fact that the practical effect on the service relationship could be equivalent to a traditional change of control.
WGM's stated concern — that the Board-Turnover Prong could be triggered by "routine corporate governance changes" — is addressed by the qualifier already included in clause (iv). The prong applies only to changes in a majority of the board within any twelve-month period that are not approved by the directors constituting the board at the beginning of such period. This "existing director approval" carve-out provides a meaningful safe harbor for ordinary-course board refreshment, planned succession, and investor-driven governance improvements that have the endorsement of the existing board. Only hostile or non-consensual board reconstitutions — precisely the scenario that poses the greatest risk to Northgate — would trigger the prong.
Recommendation: Retain clause (iv) — this is a priority position and should be treated as near-non-negotiable at the June 1 session. The Board-Turnover Prong addresses a specific and realistic risk arising from Cedarpoint's PE-backed ownership structure, and the existing director approval carve-out already addresses WGM's stated concerns about routine governance changes.
If Cedarpoint presses the issue strenuously and the retention of clause (iv) becomes a potential impediment to closing, consider — as a last-resort compromise only — narrowing the prong by changing the trigger threshold from "a majority of" Cedarpoint's board members to "two-thirds of" the board members within any twelve-month period. This modification would make accidental or incidental triggering even less likely while preserving the core protection against hostile or PE-driven board reconstitution. This narrowing should be offered only at the June 1 session and only if necessary to secure concessions on other priority issues (such as the mutual MFN). Under no circumstances should the Board-Turnover Prong be deleted entirely.
D. SLA Credit Cap (MSA Section 6 / Exhibit B)
1. Cedarpoint's Position: Reduction from 30% to 15% of Annual Managed Services Fees
Section 6 of the MSA establishes the service level framework for the managed network services provided by Cedarpoint, with detailed SLA metrics and credit schedules set forth in Exhibit B. The SLA credit mechanism is a core operational protection for Northgate, providing financial incentives for Cedarpoint to meet its performance commitments and compensating Northgate for service degradation.
Our second draft caps the aggregate annual SLA credits at 30% of annual managed services fees. The managed services component of the annual contract value is $10,500,000 (out of the total $15,000,000 ACV, which also includes $3,000,000 for the ArcMesh platform license and $1,500,000 for professional services). Accordingly, the annual SLA credit cap under our second draft is:
30% × $10,500,000 = $3,150,000 per year
Cedarpoint's counter-redline proposes reducing this cap to 15% of annual managed services fees:
15% × $10,500,000 = $1,575,000 per year — a reduction of $1,575,000 in maximum annual credit exposure relative to our second draft.
Cedarpoint has not modified the underlying SLA performance tiers or the per-tier credit rates, which remain as follows:
Note: The monthly managed services fee is $875,000 ($10,500,000 ÷ 12). The credit amounts shown above are per-node averages; actual credits are calculated on a per-node basis and aggregated monthly.
Cedarpoint has also not altered the material breach trigger in Section 6.4: three consecutive calendar months in which the aggregate monthly uptime across Northgate's managed node infrastructure falls below 99.50% constitutes a material breach of the MSA, entitling Northgate to terminate the MSA for cause under Section 13.2 with 30 days' written notice and to invoke the associated remedies (including pro-rata fee refund, escrow release, and transition assistance).
The SLA credits apply exclusively to the managed network services component of the fee structure ($10,500,000 per year, or $875,000 per month) and do not apply to the ArcMesh platform license fees ($3,000,000 per year) or to professional services fees ($1,500,000 per year).
2. Analysis and Recommendation
The practical impact of the SLA credit cap reduction can be assessed by modeling the rate at which credits accrue under various underperformance scenarios:
Under the 15% cap ($1,575,000 per year): At the 10% credit tier (99.50%–99.89% uptime), monthly credits of $87,500 would exhaust the annual cap after approximately 18 months — meaning that the cap would not be reached within a single contract year at the 10% tier. However, at the 20% credit tier (below 99.50% uptime), monthly credits of $175,000 would exhaust the annual cap after approximately 9 months. More importantly, a mixed-performance year with several months at the 10% tier and several months at the 20% tier could exhaust the cap within 6–8 months, leaving Northgate without further credit protection for the remainder of the contract year even if underperformance persists.
Under the 30% cap ($3,150,000 per year): The credit pool is approximately double, providing sufficient headroom to cover a full year of moderate underperformance at the 10% tier ($87,500 × 12 = $1,050,000, well below the cap) and to sustain extended periods at the 20% tier ($175,000 × 12 = $2,100,000, still below the cap).
Under a 20% cap ($2,100,000 per year) — the recommended compromise position: The credit pool would be sufficient to cover a full year of moderate underperformance at the 10% tier ($1,050,000 < $2,100,000) and would sustain 12 months at the 20% tier ($2,100,000 = cap), providing meaningful protection in all but the most extreme underperformance scenarios.
However, it is important to note that the SLA credit cap operates alongside — not in lieu of — the material breach termination right. If Cedarpoint's performance deteriorates to the point where uptime falls below 99.50% for three consecutive months, Northgate has the unqualified right to terminate the MSA for cause. This termination right provides a powerful protection that is independent of the credit cap: if performance is consistently poor enough to threaten exhaustion of the credit pool, Northgate can exit the contract entirely rather than being limited to credit-based remediation.
Recommendation: Accept 20% as a compromise position. At 20% × $10,500,000 = $2,100,000 per year, the credit pool is commercially meaningful — providing adequate coverage for sustained moderate underperformance — without approaching the level that Cedarpoint views as commercially unacceptable. The 20% position represents a near-midpoint between Cedarpoint's proposed 15% and our second draft's 30%, and can be presented as a balanced concession. This compromise should be offered as part of the package-deal strategy described in Section V below — specifically, in exchange for Cedarpoint's withdrawal of the mutual MFN proposal and retention of the Board-Turnover Prong in the change of control definition.
E. Escrow Release Timeline and Partial Release on Renewal (MSA Section 15 / Escrow Agreement)
1. Cedarpoint's Position
Section 15 of the MSA establishes a transition and wind-down escrow designed to ensure that adequate funds are available to support an orderly transition of services in the event of a termination or expiration of the MSA. The escrow is a key element of Northgate's operational risk management framework, providing a dedicated funding source for the costs of migrating 340 managed nodes to an alternative service provider or to an in-house managed services capability.
Under our second draft, the escrow operates as follows:
• Funding: Cedarpoint funds the escrow at a rate of $750,000 per year, representing 5% of the annual contract value of $15,000,000. Payments are made quarterly ($187,500 per quarter) into a segregated escrow account.
• Aggregate escrow cap: The escrow accumulates over the five-year initial term to a maximum aggregate balance of $3,750,000 ($750,000 × 5 years).
• Escrow agent: Dravello National Bank, escrow account number FNB-ESC-2023-07742. The designated Relationship Manager is Brian Caulfield, located at 401 South Tryon Street, Suite 1200, Charlotte, NC 28202.
• Release events: The escrow balance is released under the following circumstances:
(a) Natural expiration of the MSA (including any renewal term), without termination for cause — the full escrow balance is released to Cedarpoint within 30 calendar days following the expiration date.
(b) Termination for Northgate's convenience (with 180 days' prior written notice) — the escrow balance is released to Northgate to fund transition costs.
(c) Change of control termination — the escrow balance is released to Northgate to fund transition costs.
(d) Termination for cause (by Northgate, for Cedarpoint's material breach) — the escrow balance is released to Northgate to fund transition costs.
Cedarpoint's counter-redline proposes two modifications to the escrow release provisions:
First, upon the first automatic two-year renewal of the MSA (i.e., the commencement of Year 6, which under the current term structure would begin on June 9, 2028), 50% of the then-accumulated escrow balance would be released back to Cedarpoint. If the escrow is fully funded through Year 5, the accumulated balance at the time of the first renewal would be $3,750,000, and the 50% partial release would return $1,875,000 to Cedarpoint — leaving $1,875,000 remaining in escrow. Cedarpoint's rationale, as articulated in WGM's Cover Letter, is that the first renewal "demonstrates a stable and successful service relationship" and "materially reduces the transition risk that the escrow is designed to address."
Second, upon natural expiration of the MSA (without termination for cause), the full escrow balance would be released to Cedarpoint within 15 business days rather than the 30 calendar days specified in our second draft. This is a relatively minor timing change, reducing the post-expiration holding period by approximately one week (15 business days ≈ 21 calendar days, compared to the current 30 calendar days).
2. Analysis and Recommendation
Partial release upon first renewal. The concept of a partial escrow release upon renewal is not inherently unreasonable. Cedarpoint's argument — that the first renewal demonstrates a stable relationship and reduces wind-down risk — has some commercial logic. By the time the first renewal commences (June 9, 2028), the MSA will have been in effect for five years, the three-phase migration from Greystone Halcyon Software will be long complete (scheduled for completion by approximately December 2024), and the service relationship will be mature.
However, the magnitude of the proposed release — 50% of the accumulated balance — is excessive. Releasing $1,875,000 at the first renewal would leave only $1,875,000 in escrow to fund transition assistance during the remaining renewal term(s). Given the scale of Northgate's 340-node infrastructure, a transition from Cedarpoint to an alternative provider would require significant planning, staffing, and operational resources. Our internal estimate — based on the transition cost analysis prepared by Katrina Bosch's team in March 2023 — is that a full transition could cost between $2,500,000 and $4,000,000, depending on the complexity of the migration and the availability of alternative providers. Reducing the escrow to $1,875,000 during the renewal periods would leave Northgate materially underfunded in the event of a transition scenario.
A more appropriate structure would involve a graduated partial release that maintains a sufficient minimum balance throughout the renewal periods:
• Upon the first automatic two-year renewal: release 25% of the then-accumulated escrow balance ($937,500 if fully funded), leaving $2,812,500 in escrow.
• Upon the second automatic two-year renewal: release an additional 25% of the original accumulated balance ($937,500), leaving $1,875,000 in escrow.
• This structure ensures that a minimum of $1,875,000 remains in escrow at all times during the renewal periods — sufficient to cover a meaningful portion of estimated transition costs — while providing Cedarpoint with incremental releases that reward the continuation of the service relationship.
Accelerated post-expiration release. Reducing the post-expiration release timeline from 30 calendar days to 15 business days is a minor point. Fifteen business days is approximately 21 calendar days, which provides sufficient time for the escrow agent to process the release and for Northgate to confirm that no outstanding claims exist that would warrant a hold on the escrow funds. This concession carries minimal risk and can be offered as a goodwill gesture.
Recommendation: Offer a modified partial release — 25% (not 50%) of the escrow balance released upon the first renewal, and an additional 25% upon the second renewal, maintaining a minimum of $1,875,000 in escrow at all times during the renewal periods. Accept the 15 business day post-expiration release timeline. The escrow release issue is well-suited for use as a concession point to gain ground on higher-priority items. By demonstrating flexibility on the escrow terms, Northgate can create negotiating room to hold firm on the mutual MFN rejection and the retention of the Board-Turnover Prong, and to strengthen its position on the indemnification cap.
As a procedural note, Garrett Simmons should be consulted regarding any tax implications of the escrow release modifications. Partial releases of escrowed funds may have income recognition implications for Cedarpoint under Section 451 of the Internal Revenue Code, and the MSA's tax indemnity provisions should be reviewed to ensure that they appropriately allocate the tax consequences of escrow releases between the parties.
IV. Issues Resolved in the Counter-Redline
The following provisions were either accepted by Cedarpoint without further modification or were resolved in prior negotiation rounds and remain unchanged in the counter-redline. These items no longer require further negotiation and should be treated as settled for purposes of the June 1 session.
Scope of Services (Section 3 / Exhibit A). Cedarpoint has accepted in full the description of services set forth in Exhibit A, including: managed wide-area network services across Northgate's 340 North American nodes; SD-WAN deployment using the ArcMesh platform version 4.2; 24×7 Network Operations Center monitoring from Cedarpoint's primary NOC facility in Reston, Virginia and its redundant NOC facility in Winnipeg, Manitoba; quarterly performance reviews conducted jointly by the parties' respective operations teams; the three-phase migration from Greystone Halcyon Software's legacy MPLS infrastructure over an eighteen-month period; cybersecurity monitoring and incident response services, including 24×7 threat detection, vulnerability scanning, and incident escalation in accordance with the procedures set forth in Exhibit E; and assignment of a dedicated service delivery manager to the Northgate account. No changes were proposed to these provisions.
Fee Structure (Section 7 / Exhibit C). Cedarpoint has accepted the fee structure as drafted, confirming the annual contract value of $15,000,000, allocated as follows: $10,500,000 for managed network services, $3,000,000 for the ArcMesh platform license, and $1,500,000 for professional services. The monthly run-rate of $1,250,000 ($15,000,000 ÷ 12) has been confirmed. Payment terms (net 30 from date of invoice), annual escalation mechanics (CPI-based, capped at 3%), and the invoicing procedures set forth in Exhibit C were accepted without changes.
IP Licensing Terms (Section 8). Cedarpoint has accepted the ArcMesh platform license scope, restrictions, and ownership provisions as drafted. The license is non-exclusive, non-transferable (except in connection with a permitted assignment of the MSA), and limited to Northgate's internal use across its North American node infrastructure. Cedarpoint retains all intellectual property rights in the ArcMesh platform, including all modifications, enhancements, and derivative works. Northgate's rights to customizations developed specifically for the Northgate engagement are addressed through a perpetual, royalty-free license to use such customizations, which survives termination or expiration of the MSA.
Confidentiality (Section 12). Cedarpoint has accepted the confidentiality framework set forth in Section 12, including the five-year survival period for confidentiality obligations, the scope of permitted disclosures, and the cross-reference to the mutual non-disclosure agreement executed by the parties on February 22, 2023 (the "Mutual NDA"). The Mutual NDA remains in effect and supplements (but does not supersede) the confidentiality provisions of the MSA.
Data Security and Privacy (Exhibit E). Cedarpoint has accepted Exhibit E without material changes. The data security requirements include compliance with SOC 2 Type II standards, annual penetration testing by a qualified third-party assessor, encryption of data at rest (AES-256) and in transit (TLS 1.3), 72-hour breach notification to Northgate, and cooperation with Northgate's Data Protection Officer in connection with any regulatory inquiry or data subject access request.
Insurance Requirements (Exhibit F). Cedarpoint has accepted all minimum coverage levels specified in Exhibit F: cyber liability insurance at $25,000,000 per occurrence / $50,000,000 aggregate; technology errors and omissions insurance at $20,000,000 per occurrence / $40,000,000 aggregate; and commercial general liability insurance at $5,000,000 per occurrence / $10,000,000 aggregate. Cedarpoint has confirmed that Braeburn Mutual Insurance Company is its current carrier for all three coverages and has agreed to provide certificates of insurance within 10 business days of execution of the MSA. No changes were proposed.
Term and Renewal (Section 2). Cedarpoint has accepted the five-year initial term (June 9, 2023 through June 8, 2028) with two automatic two-year renewal terms (first renewal: June 9, 2028 through June 8, 2030; second renewal: June 9, 2030 through June 8, 2032), unless either party delivers written notice of non-renewal at least 180 calendar days prior to the expiration of the then-current term. The simultaneous signing and closing mechanic set forth in Section 2.1 has been accepted. The maximum potential term of the MSA, including both renewal periods, is nine years (June 9, 2023 through June 8, 2032).
Governing Law (Section 20). Cedarpoint has accepted New York as the governing law jurisdiction, without qualification. The dispute resolution provisions — including mandatory pre-litigation mediation, followed by binding arbitration under the AAA Commercial Arbitration Rules administered by the American Arbitration Association's New York Regional Office — were accepted without changes.
Acceptable Use Policy (Exhibit D). Cedarpoint has accepted the Acceptable Use Policy without material changes. The AUP governs Northgate's use of the managed network services and the ArcMesh platform, including restrictions on unlawful content, network abuse, and unauthorized access.
Anti-Assignment (Section 14.2). Cedarpoint has accepted the anti-assignment provision, confirming that any attempted assignment of the MSA by either party without the prior written consent of the other party shall be void and of no force or effect. This provision operates in conjunction with the change of control provisions discussed in Section III.C above.
V. Recommended Negotiation Strategy for June 1 Session
A. Priority Ranking of Open Issues
Based on the analysis set forth in Section III, the five open issues should be ranked as follows for purposes of the June 1 negotiation:
1. Non-negotiable / Hold firm:
(a) Reject mutual MFN (Section III.A). The mutual MFN is commercially inappropriate, operationally unworkable, and inconsistent with market practice. This is Northgate's strongest position and should be defended without concession. No fall-back should be offered.
(b) Retain change of control Board-Turnover Prong (Section III.C). The Board-Turnover Prong addresses a specific and material risk arising from Cedarpoint's PE-backed ownership structure. The existing director approval carve-out already addresses WGM's stated concerns. Clause (iv) should be retained in its current form or, as a last-resort compromise, narrowed from "a majority" to "two-thirds" of the board.
2. Resist but identify fall-back:
(c) Indemnification cap at 200%, with 175% as compromise (Section III.B). The 200% cap is the preferred position, but the 175% fall-back ($26,250,000 in Year 1) is acceptable if paired with enhanced insurance requirements or loss payee status on the E&O policy.
3. Offer as concession:
(d) SLA credit cap at 20% (Section III.D). Moving from 30% to 20% represents a meaningful concession to Cedarpoint while preserving adequate credit protection for Northgate. The 20% position should be offered as part of the package deal.
(e) Modified escrow partial release at 25% per renewal (Section III.E). Agreeing to a graduated partial release (25% at first renewal, 25% at second renewal) and the 15 business day post-expiration timeline demonstrates good faith and flexibility. This concession can be offered to build goodwill and create negotiating room on the higher-priority items.
B. Trade-off / Package Approach
Rather than addressing the five open issues serially — which risks protracted point-by-point negotiation and positional entrenchment — the negotiation team should propose a comprehensive package deal at the June 1 session. The package should be presented as a balanced resolution that allows both sides to claim meaningful concessions while preserving the core commercial protections that are most important to each party.
The recommended package is as follows:
Northgate concedes:
• SLA credit cap reduced from 30% to 20% of annual managed services fees (a reduction of $1,050,000 in annual credit exposure for Cedarpoint).
• Escrow partial release of 25% of the accumulated balance upon the first renewal, and an additional 25% upon the second renewal (releasing up to $1,875,000 to Cedarpoint over the two renewal periods while maintaining a minimum $1,875,000 in escrow at all times).
• Escrow post-expiration release timeline reduced from 30 calendar days to 15 business days.
In exchange, Cedarpoint:
• Withdraws the mutual MFN proposal and accepts the unilateral MFN as drafted in our second draft.
• Retains the four-prong change of control definition, including the Board-Turnover Prong (clause (iv)), as drafted in our second draft (or, if necessary, as narrowed to a two-thirds threshold).
• Maintains the indemnification cap at 200% of trailing twelve-month fees (or, if the package requires an additional Northgate concession to close, accepts 175% paired with enhanced insurance requirements).
This package approach allows Cedarpoint to demonstrate to its board and to Ridgeline Capital Partners that it achieved meaningful financial concessions on the SLA credit cap and the escrow provisions, while Northgate preserves the structural protections — MFN, change of control, and indemnification — that are most critical to its long-term risk management.
C. Attendees and Preparation
Anticipated Northgate / Calderwood & Harkness attendees for the June 1 session:
• Colette Whitman — Responsible Partner, Calderwood & Harkness LLP
• Christy Bauer — Lead Associate, Calderwood & Harkness LLP
• Deirdre Kwan — Vice President of Procurement, North America, Northgate Americas, Inc.
• Katrina Bosch — Vice President of Network Operations, Northgate Americas, Inc.
Anticipated Cedarpoint / Whitfield Graves & Morrow attendees for the June 1 session:
• Douglas Fenn — Lead Partner, Technology Transactions, Whitfield Graves & Morrow LLP
• Simone Alvarez — Associate Counsel, Whitfield Graves & Morrow LLP
• Nadia Okafor — General Counsel, Cedarpoint Systems Integration, Inc.
• Philip Hargreaves — Chief Financial Officer, Cedarpoint Systems Integration, Inc.
Pre-session preparation recommendations:
1. Client alignment call. Schedule a preparatory call with Deirdre Kwan and Katrina Bosch prior to the June 1 session, ideally during the week of May 22, to align on commercial fall-back positions. The call should focus in particular on: (a) Deirdre Kwan's views on the acceptable range for the indemnification cap compromise (200% vs. 175%); (b) Katrina Bosch's operational assessment of the SLA credit cap reduction (30% vs. 20%) and the adequacy of the material breach termination right as a backstop; and (c) both executives' comfort level with the proposed escrow partial release structure (25% per renewal).
2. Issues tracker. Update the negotiation issues tracker (currently maintained as Document ID C&H-0058) to reflect the current positions on all five open issues and the recommended fall-back positions outlined in this memorandum. A revised version of the issues tracker should be circulated to WGM in advance of the June 1 session to frame the agenda and ensure that both sides come prepared to address the open items efficiently.
3. Comparable transaction data. Prepare a summary of MFN provisions in comparable managed services MSAs (including the Ashgrove & Co./Thackeray Holdings, BT/Stonefield & Co., and Camberwell Enterprises/Sterling Reach Corporation transactions referenced in Section III.A) to support the position that mutual MFN obligations are not market practice on the customer side.
4. Ridgeline Capital Partners research. Prepare a brief summary of Ridgeline's portfolio, fund structure, and typical exit timelines to support the retention of the Board-Turnover Prong. This information may be useful if Cedarpoint challenges the relevance of the prong during the in-person session.
VI. Next Steps
The following action items should be completed in advance of the June 1, 2023 negotiation session:
1. Circulate this memorandum to Colette Whitman for review and approval of the recommended positions and negotiation strategy outlined herein. Please advise if any of the recommended positions or fall-back parameters require modification based on partner-level review or input from Northgate's senior management.
2. Schedule preparatory call with Deirdre Kwan and Katrina Bosch (target: week of May 22, 2023). Christy Bauer will coordinate scheduling with Northgate's executive assistants and will prepare a brief agenda for the call.
3. Update the negotiation issues tracker (Document ID C&H-0058) to reflect the current positions on all five open issues, the recommended fall-back positions, and the package-deal framework described in Section V.B above. The updated tracker should be ready for internal review by May 25, 2023.
4. Send pre-session letter/email to Douglas Fenn (WGM) by approximately May 26, 2023, identifying the five open issues for the June 1 session and proposing an agenda. The letter should frame the discussion in terms of the parties' respective priorities and signal Northgate's willingness to engage constructively on the commercial terms while maintaining firm positions on structural protections.
5. Coordinate with Garrett Simmons (Working Associate, Tax) on any tax implications of the escrow release modifications. In particular, the partial release of escrowed funds upon renewal may have income recognition implications for Cedarpoint under Section 451 of the Internal Revenue Code, and the MSA's tax indemnity provisions (Section 18.3) should be reviewed to ensure that they appropriately allocate the tax consequences of escrow releases between the parties. Garrett should also confirm whether any Canadian tax implications arise from the partial release, given that a portion of the managed services are delivered from Cedarpoint's Winnipeg, Manitoba facility.
6. Target execution date remains June 9, 2023. If all open issues are resolved at the June 1 session, a final clean draft of the MSA should be circulated to WGM by June 5, 2023, with signature pages prepared simultaneously. Closing deliverables — including the escrow agreement with Dravello National Bank, certificates of insurance from Braeburn Mutual Insurance Company, and the officer's certificates required under Section 16 — should be coordinated during the week of June 5 to permit simultaneous execution and delivery on June 9.
This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP in connection with its representation of Northgate Telecommunications PLC and Northgate Americas, Inc. in Matter No. 1022-00008. This memorandum is intended solely for the use of the individuals identified in the "To" and "cc" fields above and should not be distributed, copied, or disclosed to any other person without the prior written authorization of Calderwood & Harkness LLP. The analysis and recommendations contained herein are based on the facts and circumstances known to counsel as of the date of this memorandum and are subject to revision as additional information becomes available or as the negotiation progresses.
Monthly Uptime (Per Node) | Credit Rate | Monthly Credit Amount
99.95% or above (Target) | 0% | $0
99.90% – 99.94% | 5% of monthly managed services fee | $43,750/month ($875,000 × 5%)
99.50% – 99.89% | 10% of monthly managed services fee | $87,500/month ($875,000 × 10%)
Below 99.50% | 20% of monthly managed services fee | $175,000/month ($875,000 × 20%)

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MATTER NO.: 1022-00008

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