1022-00008 · Northgate Telecommunications PLC · Negotiation & Drafting

memo-cedarpoint-redline-analysis-apr21.docx DOCUMENT M&A / Corporate

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

To: Colette Whitman, Responsible Partner

From: Christy Bauer, Lead Associate

Date: April 24, 2023

Re: Analysis of Cedarpoint Systems Integration, Inc. Redline to Draft Master Services Agreement — Received April 21, 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)

I. Executive Summary

On April 21, 2023, Whitfield Graves & Morrow LLP circulated Cedarpoint Systems Integration, Inc.'s ("Cedarpoint") redline markup of the first draft Master Services Agreement (the "MSA"), which Calderwood & Harkness had circulated on behalf of Northgate Americas, Inc. ("Northgate" or the "Client") on April 3, 2023. This memorandum provides a comprehensive analysis of Cedarpoint's proposed modifications, assesses their impact on Northgate's commercial and legal interests, and sets forth recommended positions for the second draft MSA.

Cedarpoint's redline contains significant proposed modifications across several critical areas of the MSA. The most consequential changes fall into six primary categories:

(1) Indemnification Caps and Carve-Outs (MSA Article 11) — Cedarpoint seeks to reduce its aggregate indemnification cap and eliminate the data breach carve-out from uncapped exposure;

(2) Most Favored Nation Pricing Audit Rights (MSA Section 7.4 / Schedule 3) — Cedarpoint proposes threshold and scope changes that would effectively render the MFN provision inoperative;

(3) Change of Control Consent Mechanics (MSA Section 14 / Schedule 2) — Cedarpoint seeks to narrow the change of control definition, shorten notice and election periods, and introduce a deemed consent mechanism;

(4) Limitation of Liability (MSA Section 12) — Cedarpoint proposes a separate aggregate liability cap and removes the confidentiality breach carve-out from the consequential damages exclusion;

(5) IP Infringement Defense Obligations (MSA Section 11.3) — Cedarpoint introduces a "sole remedy" provision with a unilateral termination right and seeks to cap IP infringement indemnification; and

(6) SLA Credit Structure (MSA Section 6 / Exhibit B) — Cedarpoint proposes lowering the uptime target, reducing credit tiers, halving the annual credit cap, and eliminating the material breach trigger.

The MSA governs a five-year initial term engagement with a total contract value of approximately $75,000,000 (annual contract value of $15,000,000), subject to New York governing law, for managed network services across 340 nodes deployed in 28 U.S. states and 3 Canadian provinces. The engagement includes licensing of Cedarpoint's proprietary ArcMesh platform (version 4.2), which serves as the unified orchestration layer for Northgate's North American wide-area network ("WAN"). Given the mission-critical nature of these services and the deep integration of the ArcMesh platform into Northgate's network infrastructure, the positions we recommend below reflect the need for robust contractual protections commensurate with the scope and scale of this engagement.

We target circulation of the second draft MSA by May 5, 2023, following internal alignment with the Northgate business team and a preliminary call with Cedarpoint's counsel.

II. Indemnification Caps and Carve-Outs (MSA Article 11)

A. Cedarpoint's Proposed Changes

Cedarpoint's redline introduces several significant modifications to the indemnification framework set forth in Article 11 of our first draft MSA. Each proposed change is analyzed below.

1. Reduction of Aggregate Indemnification Cap. Our first draft set Cedarpoint's aggregate indemnification cap at 200% of aggregate fees paid or payable during the trailing twelve (12) months preceding the date on which the relevant claim first arises (the "Trailing 12-Month Fees"). At the annual contract value of $15,000,000, this would produce a Year 1 cap of $30,000,000. Cedarpoint's redline proposes reducing this cap from 200% to 150% of Trailing 12-Month Fees, which would lower the Year 1 cap from $30,000,000 to $22,500,000 — a reduction of $7,500,000.

2. Elimination of Data Breach Carve-Out. Our first draft carved out four categories of claims from the aggregate indemnification cap, rendering them subject to uncapped liability exposure. These uncapped carve-outs applied to claims arising from: (a) intellectual property infringement; (b) willful misconduct or gross negligence; (c) data breach or unauthorized access to Northgate data; and (d) breach of confidentiality obligations. Cedarpoint's redline seeks to eliminate the data breach carve-out from the list of uncapped categories, thereby subjecting any data breach indemnification obligations to the aggregate cap. The remaining three carve-outs (IP infringement, willful misconduct, and confidentiality breach) are left intact in Cedarpoint's redline, although the IP infringement carve-out is addressed separately in Section 11.3 (discussed in Section VI of this memorandum).

3. Reciprocal Cap Modifications for Northgate. Our first draft set Northgate's aggregate indemnification cap at 100% of Trailing 12-Month Fees ($15,000,000 per year in Year 1), reflecting the asymmetric risk profile — Cedarpoint, as the service provider with access to Northgate's network and data, bears greater exposure. Northgate's uncapped carve-outs, as drafted, included willful misconduct and confidentiality breach. Cedarpoint's redline proposes that Northgate's currently uncapped carve-outs for willful misconduct and confidentiality breach be made subject to a cap of 200% of Trailing 12-Month Fees (i.e., $30,000,000 in Year 1), rather than remaining fully uncapped. In effect, Cedarpoint seeks to impose reciprocal caps on both parties' uncapped carve-outs while simultaneously reducing its own base cap.

4. Reduction of Indemnification Survival Period. Our first draft provided for a thirty-six (36) month survival period for indemnification claims following expiration or termination of the MSA. Cedarpoint's redline proposes reducing this survival period to twenty-four (24) months. Cedarpoint's counsel did not provide a stated rationale for this reduction in the cover email accompanying the redline, though we expect the argument will center on alignment with typical statutes of limitation and Cedarpoint's internal risk management policies.

B. Analysis and Recommendation

Aggregate Indemnification Cap. We strongly recommend maintaining the 200% cap for Cedarpoint's indemnification obligations. The total contract value of $75,000,000 over the initial five-year term, and the critical nature of the managed network services spanning Northgate's entire North American WAN infrastructure (340 nodes across 28 U.S. states and 3 Canadian provinces), justify the 200% level as market-appropriate and proportionate. The resulting Year 1 cap of $30,000,000 is well within Cedarpoint's financial capacity. Cedarpoint reported fiscal year 2022 revenues of $420,000,000, meaning the Year 1 indemnification cap represents approximately 7.1% of Cedarpoint's annual revenue — a reasonable proportion given the scope of reliance and the scale of potential harm in the event of a material breach. Furthermore, market data from comparable managed services agreements in the telecommunications sector supports indemnification caps in the range of 150% to 250% of annual contract value, with 200% representing a well-established midpoint for agreements of this scale and criticality. Accepting a reduction to 150% would place this contract at the lower end of market norms despite the above-market risk profile.

Data Breach Carve-Out. The elimination of the data breach carve-out from uncapped indemnification exposure is a change we cannot accept. Under the MSA, Cedarpoint will have pervasive access to sensitive network traffic traversing Northgate's managed WAN, including enterprise data, customer communications, and business-sensitive information. The ArcMesh platform's deep packet inspection and traffic routing capabilities mean that a data breach at the Cedarpoint level could expose vast quantities of Northgate's proprietary and customer data. The potential losses from such a breach — including regulatory fines under applicable U.S. state data breach notification laws, Canadian PIPEDA obligations, potential GDPR exposure for data in transit involving EU-origin communications, reputational harm, customer remediation costs, and third-party claims — could far exceed even the uncapped amount, let alone a cap of $22,500,000.

Cedarpoint maintains cyber liability insurance through Braeburn Mutual Insurance Company with coverage of $25,000,000 per occurrence and $50,000,000 in the aggregate. While this insurance provides a meaningful backstop for Cedarpoint's ability to satisfy data breach indemnification obligations, it should not substitute for appropriate contractual exposure. Insurance coverage is subject to policy terms, exclusions, and potential disputes with the carrier that are outside Northgate's control. Moreover, the insurance limits themselves confirm that the magnitude of potential data breach exposure justifies uncapped contractual treatment — Cedarpoint's own risk assessment, as evidenced by the level of insurance it procures, contemplates per-occurrence losses of up to $25,000,000.

Survival Period. We recommend accepting a modest compromise on the survival period as a potential negotiating concession. A reduction from thirty-six (36) months to thirty (30) months is defensible and demonstrates good-faith flexibility, while still providing Northgate with a meaningful window to identify and assert indemnification claims that may not become apparent immediately upon termination or expiration. We should not, however, accept a reduction to twenty-four (24) months. Data breach claims, in particular, may involve latent exposures that are not discovered for an extended period. The New York statute of limitations for breach of contract is six years (N.Y. C.P.L.R. § 213), and a twenty-four-month survival period would be significantly shorter than the limitations period, potentially leaving Northgate without an indemnification remedy for claims that are timely under the statute but outside the contractual survival window.

Reciprocal Cap Modifications. Northgate's 100% cap ($15,000,000 per year in Year 1) and the scope of its indemnification obligations — which are limited to claims arising from Northgate's misuse of the ArcMesh platform outside the licensed scope and third-party content claims — should remain unchanged. These obligations are narrower in scope and appropriately asymmetric. The risk profile under this MSA is inherently asymmetric: Cedarpoint is the service provider with access to Northgate's network infrastructure and data, while Northgate's exposure to Cedarpoint is limited to its use of the ArcMesh platform within the parameters defined by the license grant. Imposing reciprocal caps on Northgate's uncapped carve-outs for willful misconduct and confidentiality breach is unnecessary and inappropriate given this asymmetry.

Recommended Position for Second Draft. Maintain the 200% aggregate indemnification cap for Cedarpoint. Maintain all four uncapped carve-outs (IP infringement, willful misconduct, data breach, and confidentiality breach). Propose a thirty (30) month survival period as a potential negotiating concession from our original thirty-six (36) month position, but do not move below thirty (30) months. Maintain Northgate's 100% cap and existing indemnification scope without modification.

III. Most Favored Nation Pricing Audit Rights (MSA Section 7.4 / Schedule 3)

A. Cedarpoint's Proposed Changes

The MFN provisions in Section 7.4 and the corresponding pricing schedule (Schedule 3) were designed to ensure that Northgate receives pricing no less favorable than that offered to other Cedarpoint customers of comparable scale. Cedarpoint's redline introduces several modifications that, taken together, would substantially diminish the effectiveness of these protections.

1. Comparable Volume Threshold. Our first draft provided that Cedarpoint warrants that per-unit pricing for managed network services shall not exceed the lowest pricing offered to any customer with comparable volume, defined as customers with 200 or more managed nodes, measured over a trailing twelve (12) month benchmark period. Cedarpoint's redline proposes raising this comparable volume threshold from 200 or more managed nodes to 350 or more managed nodes. Northgate's current deployment comprises 340 managed nodes. The proposed threshold of 350 nodes would therefore exclude Northgate itself from the class of "comparable" customers, effectively rendering the MFN provision inapplicable by design. This change appears to be specifically engineered to eliminate Northgate's ability to invoke the MFN protection.

2. Narrowing of MFN Scope. Our first draft applied the MFN warranty to all fee components under the MSA, including managed network services fees ($10,500,000 per year), ArcMesh platform license fees ($3,000,000 per year), and professional services fees ($1,500,000 per year). Cedarpoint's redline narrows the scope of the MFN provision to managed network services fees only, excluding the ArcMesh platform license fees and professional services fees from MFN coverage. This would remove $4,500,000 per year (30% of the annual contract value) from MFN protection.

3. Pricing Differential Threshold. Our first draft established that if an MFN audit reveals a pricing differential greater than 3%, Cedarpoint must issue a retroactive credit within forty-five (45) days of the audit finding and adjust prospective pricing within thirty (30) days. Cedarpoint's redline proposes increasing the pricing differential threshold from greater than 3% to greater than 7% before any credit obligation is triggered. At a managed services fee base of $10,500,000, a 7% differential would represent $735,000 in annual overpricing before any remedy is available to Northgate, compared to $315,000 under the 3% threshold.

4. Audit Cost Allocation. Our first draft provided that MFN audit costs would be borne by Cedarpoint if the audit reveals a pricing violation, and by Northgate if no violation is found. Cedarpoint's redline proposes that audit costs be borne by Northgate regardless of the outcome. This change eliminates the cost-shifting incentive that encourages Cedarpoint to maintain pricing discipline and discourages Northgate from exercising its audit rights by placing the full cost burden on the auditing party irrespective of whether overpricing is discovered. Cedarpoint's redline does not modify the frequency limitation — both parties agree that audits may be conducted no more than once per calendar year.

5. "Substantially Equivalent Value" Alternative. Cedarpoint's redline adds new language permitting Cedarpoint to satisfy its MFN obligations by offering Northgate "substantially equivalent value" in lieu of pricing parity. Examples cited in the proposed language include additional service credits, enhanced SLA commitments, or add-on professional services hours. This provision would allow Cedarpoint to maintain above-market pricing as long as it provides some offsetting benefit that it unilaterally deems to be of "substantially equivalent value."

B. Analysis and Recommendation

Comparable Volume Threshold. The proposed increase in the comparable volume threshold from 200 or more nodes to 350 or more nodes is a transparent and unacceptable attempt to render the MFN provision inoperative. Northgate's network comprises 340 managed nodes — precisely 10 nodes below the proposed threshold. It is inconceivable that a customer operating 340 nodes is not "comparable" to a customer operating 350 or more nodes for purposes of pricing benchmarking. The 200-node threshold in our first draft was specifically calibrated to ensure that Northgate falls within the comparable customer class while still limiting the MFN benchmark to customers of meaningful scale. We must reject this change and maintain the 200-node threshold.

MFN Scope. We recommend maintaining MFN coverage across all three fee components: managed services, ArcMesh platform license, and professional services. The ArcMesh platform license fee of $3,000,000 per year represents 20% of the total annual contract value and is a significant pricing element. Because the ArcMesh platform is proprietary to Cedarpoint and there is limited competitive benchmarking data available for this product, the MFN provision is the primary mechanism by which Northgate can ensure that its ArcMesh license pricing remains competitive relative to other Cedarpoint customers. Excluding the ArcMesh license from MFN protection would leave Northgate vulnerable to above-market pricing on a proprietary product for which switching costs are prohibitively high.

Pricing Differential Threshold. The proposed increase in the pricing differential threshold from 3% to 7% is excessive and well above market norms for MFN provisions in managed services agreements of this type. Industry practice for MFN pricing differential triggers in comparable telecommunications and managed services contracts typically falls in the range of 2% to 5%, with 3% being widely recognized as the market standard. A 7% threshold would permit Cedarpoint to maintain a substantial pricing premium over comparable customers before any remedial obligation is triggered. We recommend holding firm at the 3% threshold.

Audit Cost Allocation. The cost-shifting mechanism in our first draft — where Cedarpoint bears audit costs if a violation is found, and Northgate bears costs if no violation is found — creates appropriate incentives for both parties. It encourages Cedarpoint to maintain pricing discipline (since it will bear audit costs if it is found in violation) while discouraging Northgate from conducting frivolous audits (since it will bear costs if no violation is identified). Cedarpoint's proposed modification would remove this balanced incentive structure and should be rejected.

"Substantially Equivalent Value" Alternative. The proposed "substantially equivalent value" language is vague, subjective, and difficult to enforce. The determination of what constitutes "substantially equivalent value" is inherently judgmental and would be a source of ongoing disputes. Moreover, allowing Cedarpoint to substitute additional services or credits in lieu of pricing parity could result in Northgate receiving services it neither needs nor wants as a substitute for the price reduction to which it is entitled. Deirdre Kwan, VP of Procurement for North America, has confirmed that price certainty is Northgate's primary commercial objective with respect to the MFN provision. We recommend rejecting the "substantially equivalent value" language entirely or, at most, permitting such alternatives only with Northgate's prior written consent in each instance, which would preserve Northgate's ability to insist on pricing parity when it so chooses.

Recommended Position for Second Draft. Maintain the 200-node comparable volume threshold. Maintain MFN coverage across all fee components (managed network services, ArcMesh platform license, and professional services). Maintain the 3% pricing differential trigger with 45-day retroactive credit and 30-day prospective adjustment timelines. Maintain the cost-shifting audit mechanism. Reject the "substantially equivalent value" language or accept only with a requirement for Northgate's prior written consent.

IV. Change of Control Consent Mechanics (MSA Section 14 / Schedule 2)

A. Cedarpoint's Proposed Changes

The change of control provisions in Section 14 of the MSA, together with the related terms set forth in Schedule 2, are designed to protect Northgate against the assignment of this mission-critical services agreement to an entity that Northgate has not evaluated or approved. Cedarpoint's redline proposes several modifications to these protections.

1. Deletion of Board-Turnover Prong. Our first draft defined "change of control" using a comprehensive four-prong test:

(i) acquisition by any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) of more than 50% of Cedarpoint's outstanding voting equity securities;

(ii) merger, consolidation, or reorganization of Cedarpoint in which Cedarpoint is not the surviving or resulting entity;

(iii) sale, lease, exchange, or other transfer of all or substantially all of Cedarpoint's assets in a single transaction or a series of related transactions; and

(iv) change in a majority of the members of Cedarpoint's board of directors within any twelve (12) month period, other than changes approved by directors who were members of the board at the beginning of such twelve-month period or whose election or nomination was so approved.

Cedarpoint's redline proposes deleting prong (iv) in its entirety. In the cover email accompanying the redline, Douglas Fenn stated that Cedarpoint's position is that reconstitution of the board of directors without a corresponding change in equity ownership should not constitute a "change of control" under the MSA, as board composition changes can result from ordinary corporate governance processes unrelated to any change in ownership or control.

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

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

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

5. Deemed Consent Provision. Cedarpoint introduces a new provision stating that if Northgate fails to respond within the election period (whether 60 days or the proposed 30 days), Northgate's consent to the assignment of the MSA to the successor entity is deemed granted. No such provision was included in our first draft; the absence of a response was intended to default to non-consent, consistent with the general principle that any assignment without Northgate's prior written consent is void.

6. Paid Transition Assistance. Our first draft provided that transition assistance following a change-of-control termination would be provided by Cedarpoint at no additional cost to Northgate. Cedarpoint's redline proposes that transition assistance be provided at Cedarpoint's then-standard professional services rates. Given that Cedarpoint's current professional services billing rate is approximately $275 per hour for senior engineers and $185 per hour for standard engineers, and that a full 180-day managed network transition for a 340-node WAN would require substantial engineering resources, the cost of paid transition assistance could be significant — potentially in the range of $1,000,000 to $2,500,000 depending on complexity and staffing requirements.

B. Analysis — Ridgeline Capital Partners Considerations

The change of control provisions take on heightened significance in light of the ownership structure of Cedarpoint and the investment horizon of its controlling shareholder. Ridgeline Capital Partners, LP ("Ridgeline") currently holds approximately 62% of Cedarpoint's outstanding voting equity, a majority stake that was acquired in 2019. Based on information relayed by Deirdre Kwan, who received informal indications from Cedarpoint's management team, Ridgeline's managing partner, Jonathan Kessler, has signaled that Ridgeline may seek a secondary sale of its stake or pursue an initial public offering of Cedarpoint within the initial five-year term of the MSA. This is consistent with a typical private equity fund lifecycle; assuming Ridgeline's fund vintage is 2017–2019, a disposition event in the 2024–2027 timeframe would fall within the standard 5–7 year hold period for PE-backed portfolio companies.

Any disposition by Ridgeline of its 62% majority stake would trigger prong (i) of our change of control definition, as the acquirer would obtain more than 50% of Cedarpoint's voting equity. However, the board-turnover prong (iv) addresses a distinct and equally important scenario. A PE-sponsor exit could involve restructuring the board composition even before or without a formal equity transfer. For example, Ridgeline could negotiate the removal of its board designees and their replacement with representatives of a new strategic investor who acquires a significant but sub-50% equity stake (e.g., 40%) and gains effective control through board representation, board committee chairs, or enhanced governance rights. Without prong (iv), such a transaction could effect a de facto change of control without triggering any contractual protections for Northgate.

The current equity distribution among Cedarpoint's other shareholders further underscores this risk. Co-founder and CEO Rajiv Sundaram holds approximately 18% of voting equity, and co-founder and CTO Teresa Cho holds approximately 12%, for a combined 30%. The remaining 8% is held by other employees and early-stage investors. If Ridgeline were to sell its 62% stake in a fragmented manner — for example, transferring 30% to a strategic buyer and 32% to management in a leveraged recap — no single acquirer would cross the 50% threshold, but effective control could nonetheless shift. Prong (iv), together with prongs (ii) and (iii), provides layered protection against these and similar scenarios.

C. Recommendation. Board-Turnover Prong (iv). We strongly recommend retaining prong (iv) of the change of control definition. This is a standard provision in agreements involving PE-backed counterparties and is a critical protection given Ridgeline's majority ownership position and the realistic prospect of a portfolio disposition during the MSA term. As a potential concession, we may offer to refine the carve-out language for "changes approved by existing directors" to provide Cedarpoint with additional comfort that ordinary corporate governance actions will not inadvertently trigger the provision. For example, we could specify that the approval must be by a majority of the directors serving at the beginning of the relevant twelve-month period, or add a materiality qualifier that the board changes must result in a shift in the strategic direction or management of the company.

Notice Period. We recommend maintaining the ninety (90) day advance notice period. A PE-led exit or strategic sale of a mission-critical services provider requires significant transition planning on the customer's side, including evaluation of the successor entity, assessment of technical capabilities and financial stability, negotiation of any necessary amendments or supplemental agreements, and coordination with internal stakeholders. A 45-day window is insufficient for these purposes, particularly given the complexity of Northgate's 340-node WAN deployment and the deep integration of the proprietary ArcMesh platform. As a fallback position, we may consider a compromise at seventy-five (75) days, but we should not accept any notice period below sixty (60) days.

Election Period. We recommend maintaining the sixty (60) day election period. Northgate requires adequate time to evaluate the successor entity and its capabilities, financial condition, and commitment to maintaining the service levels and terms of the MSA. A 30-day election period is insufficient for meaningful due diligence on a successor to a critical infrastructure vendor. The evaluation process would involve input from multiple internal stakeholders — including Katrina Bosch (VP of Network Operations), Deirdre Kwan (VP of Procurement), Alistair Pemberton (CTO), and potentially Northgate's board — and would require analysis of the successor's technical capabilities, financial stability, customer references, and regulatory compliance posture.

Transition/Wind-Down Period. We recommend maintaining the one hundred eighty (180) day transition/wind-down period. Migration from Cedarpoint's managed services to an alternative provider would be an operationally complex undertaking, particularly given the proprietary nature of the ArcMesh platform (version 4.2) and its deep integration into Northgate's network orchestration, monitoring, and routing infrastructure across 340 nodes. Katrina Bosch has emphasized that 180 days is the minimum feasible transition period based on her team's assessment of the technical requirements for re-platforming the WAN management layer, provisioning replacement services, conducting parallel testing, and executing a phased cutover. A reduction to 120 days would create unacceptable operational risk and could result in service disruptions during a period when network stability is paramount.

Deemed Consent. We strongly oppose the introduction of a deemed consent provision. The assignment of a mission-critical infrastructure services agreement should require affirmative written consent from Northgate, not passive acquiescence through inaction. A deemed consent mechanism creates the risk that an administrative oversight, personnel transition, or internal communication delay could result in Northgate being bound to a successor entity that it has not evaluated or approved. The default in the event of non-response should be non-consent, consistent with the fundamental principle — established in Section 14.1 of our first draft — that any assignment without Northgate's prior written consent is null, void, and of no legal effect.

Transition Assistance Cost. We recommend maintaining the provision requiring Cedarpoint to provide transition assistance at no additional cost to Northgate. The purpose of the transition/wind-down escrow — which under our first draft is funded at $750,000 per year (5% of ACV) and held at Dravello National Bank (account FNB-ESC-2023-07742, relationship manager Brian Caulfield) with an aggregate cap of $3,750,000 — is to fund the costs associated with an orderly transition in the event of termination, including termination following a change of control. If Cedarpoint is also permitted to charge its standard professional services rates for transition assistance, the practical value of this protection is significantly diminished. Northgate would effectively be paying twice for transition support: once through the escrow deposits funded over the term, and again through professional services fees charged during the transition itself. Furthermore, if Cedarpoint knows that it will profit from the transition through professional services billings, it has a perverse incentive to complicate or extend the transition process.

Assignment Void Without Consent. We recommend maintaining the provision in Section 14.1 that any assignment without Northgate's prior written consent is void, without qualification or exception.

Recommended Position for Second Draft. Retain all four prongs of the change of control definition. Retain the 90-day notice period and 60-day election period. Retain the 180-day transition/wind-down period. Reject the deemed consent provision. Maintain the no-additional-cost transition assistance provision. Offer a minor narrowing of the board-turnover carve-out language as a targeted concession to demonstrate good-faith flexibility on this issue.

V. Limitation of Liability (MSA Section 12)

A. Cedarpoint's Proposed Changes

Cedarpoint's redline introduces several changes to the limitation of liability framework in Section 12 of the MSA.

1. Confidentiality Breach Carve-Out. Our first draft included a mutual exclusion of consequential, incidental, special, and punitive damages, with carve-outs from the exclusion for three categories: (a) indemnification obligations under Article 11, (b) breach of confidentiality obligations under Section 13, and (c) IP infringement claims under Section 11.3. The practical effect of these carve-outs is that consequential damages are recoverable for claims arising in these three categories, notwithstanding the general exclusion. Cedarpoint's redline eliminates the carve-out for confidentiality breach from the consequential damages exclusion. Under Cedarpoint's proposed language, consequential damages would not be recoverable for a breach of confidentiality obligations, even though direct damages would remain available.

2. Separate Aggregate Liability Cap. Our first draft did not include a separate, standalone limitation of liability cap, instead relying on the indemnification framework in Article 11 — with its 200% cap and uncapped carve-outs — as the primary mechanism for allocating and limiting financial exposure between the parties. Cedarpoint's redline proposes adding a new overall aggregate liability cap of 100% of fees paid or payable in the twelve (12) months preceding the event giving rise to the claim. This cap would be separate from, and in addition to, the indemnification cap under Article 11. Cedarpoint further proposes that this limitation of liability apply to all theories of recovery, including contract, tort (including negligence and strict liability), statute, and any other legal or equitable theory.

B. Analysis and Recommendation

Confidentiality Breach Carve-Out. The carve-out for confidentiality breach from the consequential damages exclusion is an important protection that should be retained. Under the MSA, Cedarpoint will have access to Northgate's proprietary network architecture documentation, customer data, traffic analytics, capacity planning information, and other business-sensitive information. In the event of a confidentiality breach, the most significant and likely forms of harm to Northgate are consequential in nature — loss of competitive advantage, customer attrition resulting from public disclosure of network vulnerabilities, erosion of market position, and similar downstream effects. If consequential damages are excluded for confidentiality breaches, Northgate's recovery would be limited to direct damages, which in the context of a confidentiality breach are typically minimal (consisting primarily of the cost of investigating and remediating the breach itself) and bear little relationship to the actual harm suffered.

The asymmetry of the confidentiality relationship further supports retaining this carve-out. While both parties exchange confidential information, the volume and sensitivity of confidential information flowing from Northgate to Cedarpoint — including detailed network topology, traffic patterns, customer usage data, and security configurations — is substantially greater than the information flowing in the opposite direction. Cedarpoint's confidential information shared with Northgate consists primarily of technical documentation for the ArcMesh platform and pricing information, both of which, while commercially sensitive, present a lower magnitude of potential harm if disclosed.

Separate Aggregate Liability Cap. The addition of a separate aggregate liability cap at 100% of Trailing 12-Month Fees ($15,000,000 in Year 1) would create a fundamental structural inconsistency with the indemnification framework. If the limitation of liability cap applies to all claims — including those arising under the indemnification provisions of Article 11 — it would effectively reduce Cedarpoint's indemnification cap from 200% ($30,000,000) to 100% ($15,000,000), overriding the specific and carefully negotiated indemnification caps. This result is presumably not Cedarpoint's intention, but the language as proposed in the redline does not include a savings clause or subordination provision that would preserve the indemnification framework.

If Cedarpoint insists on including a separate limitation of liability provision — which is not uncommon in managed services agreements — the provision must expressly state that it does not limit, reduce, or otherwise affect Cedarpoint's indemnification obligations under Article 11, including the aggregate indemnification cap and the uncapped carve-outs. Without this express subordination language, the two provisions would be in tension, and Cedarpoint could argue in the event of a dispute that the lower limitation of liability cap governs, even for claims within the scope of Article 11.

Recommended Position for Second Draft. Maintain the carve-outs for confidentiality breach, indemnification obligations, and IP infringement from the consequential damages exclusion. If a separate aggregate liability cap is to be included, require that it expressly state that it does not limit or affect indemnification obligations under Article 11. Alternatively, reject the separate aggregate liability cap entirely and maintain the indemnification framework as the sole mechanism for allocating and capping financial exposure.

VI. IP Infringement Defense Obligations (MSA Section 11.3)

A. Cedarpoint's Proposed Changes

Cedarpoint's redline modifies the intellectual property infringement provisions in Section 11.3 in several significant respects.

1. "Sole Remedy" Provision. Our first draft required Cedarpoint to indemnify, defend, and hold harmless Northgate against any and all third-party claims, suits, actions, or proceedings alleging that the ArcMesh platform (version 4.2), the managed network services, or any component thereof infringes, misappropriates, or otherwise violates any patent, copyright, trade secret, trademark, or other intellectual property right of any third party. This obligation was uncapped and did not limit Northgate's available remedies.

Cedarpoint's redline retains the indemnify and defend obligations in concept but adds a "sole remedy" provision. Under this provision, upon the assertion of any infringement claim, Cedarpoint's sole obligation with respect to remediation (as distinct from defense and indemnification of third-party damages) is to, at Cedarpoint's sole option:

(a) obtain for Northgate the right to continue using the allegedly infringing materials under the MSA;

(b) modify the allegedly infringing materials to render them non-infringing while maintaining substantially similar functionality; or

Critically, Cedarpoint's proposed language adds a fourth alternative: if none of options (a) through (c) is "commercially practicable" in Cedarpoint's reasonable determination, Cedarpoint may terminate the MSA and refund to Northgate any prepaid but unearned fees on a pro-rata basis.

2. Infringement Carve-Outs. Cedarpoint's redline introduces four carve-outs from its IP indemnification obligation. Under the proposed language, Cedarpoint has no obligation to indemnify Northgate for infringement claims to the extent arising from:

(i) modifications to the ArcMesh platform or managed network services made by Northgate or at Northgate's direction without Cedarpoint's prior written approval;

(ii) combination of the ArcMesh platform or managed network services with products, services, software, or technology not provided by Cedarpoint, where the infringement would not have occurred but for such combination;

(iii) continued use of the ArcMesh platform or managed network services after Cedarpoint has provided written notice of an infringement claim and has made a non-infringing alternative reasonably available; or

(iv) use of the ArcMesh platform or managed network services in a manner not in accordance with the then-current documentation and specifications provided by Cedarpoint.

3. Capping of IP Infringement Indemnification. Our first draft made IP infringement indemnification expressly uncapped — one of the four categories carved out from the aggregate indemnification cap under Article 11. Cedarpoint's redline deletes the language that exempts IP infringement indemnification from the aggregate cap, thereby subjecting IP infringement claims to the aggregate indemnification cap (which Cedarpoint also proposes reducing from 200% to 150% of Trailing 12-Month Fees, as discussed in Section II above).

B. Analysis and Recommendation

"Sole Remedy" Provision. The sole remedy provision as proposed is fundamentally problematic because it confers upon Cedarpoint a unilateral termination right disguised as an infringement remedy. Under option (d) of Cedarpoint's proposed framework, if Cedarpoint determines — in its own "reasonable" judgment — that obtaining rights, modifying, or replacing the infringing materials is not "commercially practicable," Cedarpoint can simply terminate the MSA and refund prepaid fees. This would leave Northgate without a critical managed network service across its entire 340-node North American WAN, with no assured transition path and only a pro-rata refund of prepaid fees as compensation.

The consequences of a Cedarpoint termination under this provision would be severe. Northgate would need to identify, procure, and deploy an alternative managed network services provider and orchestration platform on an emergency basis — a process that, based on Katrina Bosch's assessment, would take a minimum of six to nine months under normal circumstances and significantly longer in an unplanned scenario. During the transition period, Northgate's network operations would be at risk of degradation, outages, and security vulnerabilities. The pro-rata refund of prepaid fees would not come close to compensating Northgate for the operational disruption and transition costs.

Furthermore, the "commercially practicable" standard is inherently subjective and would be difficult to challenge in a dispute. Cedarpoint could argue that obtaining rights from a third-party patent holder at any price above some undefined threshold is not "commercially practicable," even if the cost of licensing is well within Cedarpoint's financial capacity. This gives Cedarpoint an effective escape hatch from the MSA in any IP infringement scenario.

Infringement Carve-Outs. The four carve-outs proposed by Cedarpoint are, in substance, reasonable and consistent with market practice for IP indemnification provisions in technology services agreements. It is appropriate for Cedarpoint to exclude from its indemnification obligation infringement claims attributable to (i) Northgate's unauthorized modifications, (ii) combination with non-Cedarpoint products, (iii) continued use after notice and availability of a non-infringing alternative, and (iv) use outside the scope of documentation. These carve-outs properly allocate responsibility for infringement to the party whose actions or decisions contributed to the claim.

However, we recommend that the carve-outs be accepted with drafting refinements to ensure they are narrowly tailored and do not create unintended gaps in coverage. Specifically:

• Carve-out (i) should clarify that "modifications" refers to changes to the underlying code, architecture, or functionality of the ArcMesh platform, and does not encompass routine configuration, customization, or parameter-setting activities performed within the normal operating parameters of the platform.

• Carve-out (ii) should specify that the burden of proving that the infringement "would not have occurred but for" the combination rests on Cedarpoint.

• Carve-out (iii) should require that the non-infringing alternative provided by Cedarpoint be functionally equivalent to the original materials and not impose material additional cost or operational burden on Northgate.

• Carve-out (iv) should reference the documentation in effect at the time of the alleged infringing use, and Cedarpoint should not be permitted to retroactively narrow the documentation to create an infringement carve-out.

IP Infringement Indemnification Must Remain Uncapped. The removal of the uncapped treatment for IP infringement indemnification is a fundamental structural change that we cannot accept. The ArcMesh platform is Cedarpoint's proprietary technology, developed and owned by Cedarpoint, and embedded throughout Northgate's managed network. Northgate bears no responsibility for Cedarpoint's IP clearance process and has no ability to evaluate, mitigate, or manage the risk that ArcMesh infringes third-party intellectual property rights. The entire IP infringement risk should therefore be allocated to Cedarpoint, which is the party best positioned to conduct freedom-to-operate analyses, obtain necessary licenses, and design around third-party IP.

Cedarpoint's financial capacity and insurance coverage support uncapped treatment. As noted above, Cedarpoint reported fiscal year 2022 revenues of $420,000,000 and maintains technology errors and omissions insurance through Braeburn Mutual Insurance Company with coverage of $20,000,000 per occurrence and $40,000,000 in the aggregate. These figures indicate that Cedarpoint has the financial resources and insurance backstop to absorb even significant IP infringement liability. Capping IP infringement indemnification at 150% of Trailing 12-Month Fees ($22,500,000) — or even at 200% ($30,000,000) — would leave Northgate bearing the excess exposure for infringement of Cedarpoint's own proprietary technology, an allocation that is both commercially unreasonable and inconsistent with market practice for agreements involving embedded proprietary platforms.

Recommended Position for Second Draft. Accept infringement carve-outs (i) through (iv), subject to the drafting refinements described above. Reject the "sole remedy" provision in its current form. If Cedarpoint insists on a remediation framework, require that: (A) option (c) (replacement) must include a functionally equivalent managed network solution that satisfies Northgate's then-current operational requirements, with a minimum transition period of no less than 180 days; (B) Cedarpoint's right to terminate under option (d) must be subject to Northgate's prior written consent, not exercisable unilaterally; and (C) in the event of termination following an IP infringement claim, Cedarpoint must bear all costs of transition to a replacement platform, including professional services, migration costs, and parallel operation expenses. Maintain IP infringement indemnification as uncapped. If Cedarpoint insists on a remediation framework, add a requirement that Cedarpoint bear all costs of transition to the replacement platform and that any termination right be exercisable only after good-faith exhaustion of options (a) through (c) over a minimum 120-day remediation period.

VII. SLA Credit Structure (MSA Section 6 / Exhibit B)

A. Cedarpoint's Proposed Changes

The Service Level Agreement framework set forth in Section 6 and Exhibit B is a critical performance accountability mechanism under the MSA. Cedarpoint's redline proposes several changes that would substantially weaken this framework.

1. SLA Target Reduction. Our first draft established a monthly uptime SLA of 99.95% per node, measured on a calendar-month basis. This target reflects 21.56 minutes of permitted downtime per node per month, or approximately 4.38 hours per node per year. Cedarpoint's redline proposes lowering the target SLA from 99.95% to 99.90% monthly uptime per node, which would double the permitted downtime to 43.2 minutes per node per month, or approximately 8.76 hours per node per year.

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

Cedarpoint's redline modifies the credit structure as follows:

The combined effect of the lowered SLA target and reduced credit tiers is significant. Under our first draft, if Northgate experienced 99.90% uptime in a given month, it would receive a 5% credit ($62,500) because performance fell below the 99.95% target. Under Cedarpoint's redline, 99.90% uptime would meet the SLA target and generate no credit whatsoever. Even at 99.85% uptime — which would trigger a $62,500 credit under our draft (falling within the 99.50%–99.89% tier) — Cedarpoint's proposal would yield only a 2% credit ($25,000). The maximum monthly credit under our draft ($250,000) would be reduced by half to $125,000.

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

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

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

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

B. Analysis and Recommendation

SLA Target. Lowering the SLA target from 99.95% to 99.90% is unacceptable for a mission-critical enterprise WAN serving 340 nodes across Northgate's North American operations. Both Alistair Pemberton (CTO) and Katrina Bosch (VP of Network Operations) have confirmed that 99.95% monthly uptime is Northgate's minimum operational requirement. This target is consistent with the performance achieved under Northgate's prior managed network services agreement with Greystone Network Solutions, which required and regularly met a 99.95% uptime commitment over the last three years of the engagement. A reduction to 99.90% would effectively double the permitted downtime and is inconsistent with Northgate's operational standards and the expectations of its internal and external stakeholders.

Furthermore, the 99.95% uptime target is well within industry norms for managed network services agreements of this scale. Benchmark data for enterprise WAN managed services consistently shows SLA targets of 99.95% or higher for comparable deployments. Cedarpoint's own marketing materials and customer case studies reference 99.99% uptime achievements for certain customers, suggesting that 99.95% is well within Cedarpoint's operational capabilities.

Credit Tiers. Cedarpoint's proposed credit tiers are significantly below market and would substantially reduce the financial incentive for Cedarpoint to maintain SLA compliance. The tiered structure in our first draft — 5%, 10%, and 20% — is calibrated to provide escalating financial consequences as performance degrades below the target, creating a meaningful incentive structure. Cedarpoint's proposal — 2%, 5%, and 10% — flattens the incentive curve and reduces the maximum monthly credit by half. We recommend maintaining our proposed tiered structure.

Annual Credit Cap. The 30% annual credit cap ($3,150,000) is appropriate and proportionate to the managed services fee component ($10,500,000 per year). It represents a meaningful aggregate exposure for Cedarpoint in the event of sustained underperformance, while remaining well below the total fees payable. Reducing the cap to 15% ($1,575,000) would halve the meaningful incentive for Cedarpoint to maintain service quality and would leave Northgate with inadequate financial recourse for persistent SLA failures across a $15,000,000 per year contract.

Material Breach Trigger. The material breach trigger provision — three consecutive months of performance below 99.50% — is Northgate's critical protection against persistent and sustained underperformance. Without this provision, Northgate would be locked into a five-year contract with no recourse for termination even if Cedarpoint consistently fails to deliver acceptable service levels, provided it pays the (reduced) service credits. The material breach trigger establishes a floor below which the SLA credit mechanism is insufficient and Northgate must have the right to exit the relationship. Three consecutive months below 99.50% represents a pattern of serious and sustained failure — not an isolated incident — and termination for cause in such circumstances is a proportionate and necessary remedy. This provision must be retained.

Sole and Exclusive Remedy. The "sole and exclusive remedy" language is acceptable in principle for SLA failures that fall above the material breach threshold. Service credits are an appropriate and market-standard remedy for moderate SLA deviations, and restricting Northgate's remedies to credits for such deviations provides Cedarpoint with reasonable certainty about its exposure. However, the sole and exclusive remedy language should not apply in circumstances where SLA failures rise to the level of a material breach under the trigger provision. We recommend adding express language providing that the sole and exclusive remedy designation does not limit, waive, or otherwise affect Northgate's right to terminate the MSA for cause pursuant to Section 16.2, to assert indemnification claims under Article 11, or to pursue any other remedies available at law or in equity, in each case to the extent that SLA failures constitute or contribute to a material breach of the MSA.

Scheduled Maintenance Exclusion. Scheduled maintenance exclusions are a reasonable and standard feature of managed services SLAs, and we do not object to the concept. However, the proposed scope — up to eight (8) hours per month — is excessive and should be reduced. We recommend capping scheduled maintenance exclusions at four (4) hours per month, during a pre-defined maintenance window of Sunday 02:00–06:00 Eastern Time, with a minimum of forty-eight (48) hours of advance written notice to Northgate's network operations team. We further recommend requiring that Cedarpoint coordinate maintenance windows with Katrina Bosch's team to ensure alignment with Northgate's operational requirements and to avoid conflicts with peak traffic periods or critical business operations.

Recommended Position for Second Draft. Maintain the 99.95% monthly uptime SLA target. Maintain the original credit tiers (5% / 10% / 20%). Maintain the 30% annual credit cap ($3,150,000). Retain the material breach trigger (three consecutive months below 99.50%). Accept the sole and exclusive remedy language with an express carve-out for material breach, preserving termination and indemnification rights. Accept the scheduled maintenance exclusion concept with a reduced window of four hours per month, a pre-defined maintenance window, and a 48-hour advance written notice requirement.

VIII. Other Notable Redline Changes

In addition to the six primary categories of changes analyzed above, Cedarpoint's redline contains several additional modifications of note that should be addressed in the second draft.

A. Term and Renewal (MSA Section 2)

Cedarpoint proposes changing the MSA from a simultaneous signing and closing structure to a deferred closing thirty (30) days after the date of execution. Under our first draft, MSA Section 2.1 provides that the MSA becomes effective upon execution by both parties and that services commencement occurs simultaneously with execution. Cedarpoint's proposed modification would create a 30-day gap between signing and the commencement of services.

We recommend maintaining the simultaneous signing and closing structure. Services commencement should coincide with execution to align with Northgate's migration timeline from the prior managed network services provider, Greystone Network Solutions. Northgate's network operations team has developed a detailed migration plan that is predicated on immediate services commencement upon MSA execution. A 30-day deferral would create a gap in service coverage and require either an extension of the Greystone agreement (which expires per its terms) or a period of unmanaged network operations — neither of which is acceptable from an operational standpoint.

On a positive note, Cedarpoint accepts without modification the renewal provisions in our first draft, which provide for two (2) automatic renewal terms of two (2) years each (for a potential total engagement of nine years), subject to a one hundred eighty (180) day non-renewal notice period prior to the expiration of the then-current term.

B. Escrow Provisions (MSA Section 15 / Escrow Agreement)

Cedarpoint proposes two modifications to the escrow framework:

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

2. Modified Release Conditions. Our first draft provided that escrowed funds would be released to Cedarpoint upon natural expiration of the MSA, provided that no event of default or termination for cause has occurred. Cedarpoint's redline proposes that escrowed funds be released upon the earlier of (a) expiration of the initial term without termination for cause, or (b) twelve (12) months after the last service credit event. The addition of alternative (b) could result in the release of escrow funds during the term of the MSA if Cedarpoint achieves a period of twelve months without triggering any service credits — an achievable threshold that would eliminate the escrow protection while the MSA is still in effect.

We recommend maintaining the 5% annual deposit ($750,000 per year) and the $3,750,000 aggregate cap. The escrow held at Dravello National Bank (account FNB-ESC-2023-07742, relationship manager Brian Caulfield) provides critical security for transition and wind-down costs in the event of termination. The $3,750,000 aggregate represents a carefully calculated estimate of the costs associated with a full transition from Cedarpoint's managed services to an alternative provider, including migration engineering, parallel operations, testing, and related professional services costs. Reducing the escrow to $2,250,000 would leave a funding gap of approximately $1,500,000, which Northgate would need to absorb from its operating budget in the event of a termination scenario. We further recommend rejecting the alternative release trigger (12 months after last service credit event) and maintaining the simple expiration-based release mechanism.

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
To: Colette Whitman, Responsible Partner
From: Christy Bauer, Lead Associate
Date: April 24, 2023
Re: Analysis of Cedarpoint Systems Integration, Inc. Redline to Draft Master Services Agreement — Received April 21, 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)
I. Executive Summary
On April 21, 2023, Whitfield Graves & Morrow LLP circulated Cedarpoint Systems Integration, Inc.'s ("Cedarpoint") redline markup of the first draft Master Services Agreement (the "MSA"), which Calderwood & Harkness had circulated on behalf of Northgate Americas, Inc. ("Northgate" or the "Client") on April 3, 2023. This memorandum provides a comprehensive analysis of Cedarpoint's proposed modifications, assesses their impact on Northgate's commercial and legal interests, and sets forth recommended positions for the second draft MSA.
Cedarpoint's redline contains significant proposed modifications across several critical areas of the MSA. The most consequential changes fall into six primary categories:
(1) Indemnification Caps and Carve-Outs (MSA Article 11) — Cedarpoint seeks to reduce its aggregate indemnification cap and eliminate the data breach carve-out from uncapped exposure;
(2) Most Favored Nation Pricing Audit Rights (MSA Section 7.4 / Schedule 3) — Cedarpoint proposes threshold and scope changes that would effectively render the MFN provision inoperative;
(3) Change of Control Consent Mechanics (MSA Section 14 / Schedule 2) — Cedarpoint seeks to narrow the change of control definition, shorten notice and election periods, and introduce a deemed consent mechanism;
(4) Limitation of Liability (MSA Section 12) — Cedarpoint proposes a separate aggregate liability cap and removes the confidentiality breach carve-out from the consequential damages exclusion;
(5) IP Infringement Defense Obligations (MSA Section 11.3) — Cedarpoint introduces a "sole remedy" provision with a unilateral termination right and seeks to cap IP infringement indemnification; and
(6) SLA Credit Structure (MSA Section 6 / Exhibit B) — Cedarpoint proposes lowering the uptime target, reducing credit tiers, halving the annual credit cap, and eliminating the material breach trigger.
The MSA governs a five-year initial term engagement with a total contract value of approximately $75,000,000 (annual contract value of $15,000,000), subject to New York governing law, for managed network services across 340 nodes deployed in 28 U.S. states and 3 Canadian provinces. The engagement includes licensing of Cedarpoint's proprietary ArcMesh platform (version 4.2), which serves as the unified orchestration layer for Northgate's North American wide-area network ("WAN"). Given the mission-critical nature of these services and the deep integration of the ArcMesh platform into Northgate's network infrastructure, the positions we recommend below reflect the need for robust contractual protections commensurate with the scope and scale of this engagement.
We target circulation of the second draft MSA by May 5, 2023, following internal alignment with the Northgate business team and a preliminary call with Cedarpoint's counsel.
II. Indemnification Caps and Carve-Outs (MSA Article 11)
A. Cedarpoint's Proposed Changes
Cedarpoint's redline introduces several significant modifications to the indemnification framework set forth in Article 11 of our first draft MSA. Each proposed change is analyzed below.
1. Reduction of Aggregate Indemnification Cap. Our first draft set Cedarpoint's aggregate indemnification cap at 200% of aggregate fees paid or payable during the trailing twelve (12) months preceding the date on which the relevant claim first arises (the "Trailing 12-Month Fees"). At the annual contract value of $15,000,000, this would produce a Year 1 cap of $30,000,000. Cedarpoint's redline proposes reducing this cap from 200% to 150% of Trailing 12-Month Fees, which would lower the Year 1 cap from $30,000,000 to $22,500,000 — a reduction of $7,500,000.
2. Elimination of Data Breach Carve-Out. Our first draft carved out four categories of claims from the aggregate indemnification cap, rendering them subject to uncapped liability exposure. These uncapped carve-outs applied to claims arising from: (a) intellectual property infringement; (b) willful misconduct or gross negligence; (c) data breach or unauthorized access to Northgate data; and (d) breach of confidentiality obligations. Cedarpoint's redline seeks to eliminate the data breach carve-out from the list of uncapped categories, thereby subjecting any data breach indemnification obligations to the aggregate cap. The remaining three carve-outs (IP infringement, willful misconduct, and confidentiality breach) are left intact in Cedarpoint's redline, although the IP infringement carve-out is addressed separately in Section 11.3 (discussed in Section VI of this memorandum).
3. Reciprocal Cap Modifications for Northgate. Our first draft set Northgate's aggregate indemnification cap at 100% of Trailing 12-Month Fees ($15,000,000 per year in Year 1), reflecting the asymmetric risk profile — Cedarpoint, as the service provider with access to Northgate's network and data, bears greater exposure. Northgate's uncapped carve-outs, as drafted, included willful misconduct and confidentiality breach. Cedarpoint's redline proposes that Northgate's currently uncapped carve-outs for willful misconduct and confidentiality breach be made subject to a cap of 200% of Trailing 12-Month Fees (i.e., $30,000,000 in Year 1), rather than remaining fully uncapped. In effect, Cedarpoint seeks to impose reciprocal caps on both parties' uncapped carve-outs while simultaneously reducing its own base cap.
4. Reduction of Indemnification Survival Period. Our first draft provided for a thirty-six (36) month survival period for indemnification claims following expiration or termination of the MSA. Cedarpoint's redline proposes reducing this survival period to twenty-four (24) months. Cedarpoint's counsel did not provide a stated rationale for this reduction in the cover email accompanying the redline, though we expect the argument will center on alignment with typical statutes of limitation and Cedarpoint's internal risk management policies.
B. Analysis and Recommendation
Aggregate Indemnification Cap. We strongly recommend maintaining the 200% cap for Cedarpoint's indemnification obligations. The total contract value of $75,000,000 over the initial five-year term, and the critical nature of the managed network services spanning Northgate's entire North American WAN infrastructure (340 nodes across 28 U.S. states and 3 Canadian provinces), justify the 200% level as market-appropriate and proportionate. The resulting Year 1 cap of $30,000,000 is well within Cedarpoint's financial capacity. Cedarpoint reported fiscal year 2022 revenues of $420,000,000, meaning the Year 1 indemnification cap represents approximately 7.1% of Cedarpoint's annual revenue — a reasonable proportion given the scope of reliance and the scale of potential harm in the event of a material breach. Furthermore, market data from comparable managed services agreements in the telecommunications sector supports indemnification caps in the range of 150% to 250% of annual contract value, with 200% representing a well-established midpoint for agreements of this scale and criticality. Accepting a reduction to 150% would place this contract at the lower end of market norms despite the above-market risk profile.
Data Breach Carve-Out. The elimination of the data breach carve-out from uncapped indemnification exposure is a change we cannot accept. Under the MSA, Cedarpoint will have pervasive access to sensitive network traffic traversing Northgate's managed WAN, including enterprise data, customer communications, and business-sensitive information. The ArcMesh platform's deep packet inspection and traffic routing capabilities mean that a data breach at the Cedarpoint level could expose vast quantities of Northgate's proprietary and customer data. The potential losses from such a breach — including regulatory fines under applicable U.S. state data breach notification laws, Canadian PIPEDA obligations, potential GDPR exposure for data in transit involving EU-origin communications, reputational harm, customer remediation costs, and third-party claims — could far exceed even the uncapped amount, let alone a cap of $22,500,000.
Cedarpoint maintains cyber liability insurance through Braeburn Mutual Insurance Company with coverage of $25,000,000 per occurrence and $50,000,000 in the aggregate. While this insurance provides a meaningful backstop for Cedarpoint's ability to satisfy data breach indemnification obligations, it should not substitute for appropriate contractual exposure. Insurance coverage is subject to policy terms, exclusions, and potential disputes with the carrier that are outside Northgate's control. Moreover, the insurance limits themselves confirm that the magnitude of potential data breach exposure justifies uncapped contractual treatment — Cedarpoint's own risk assessment, as evidenced by the level of insurance it procures, contemplates per-occurrence losses of up to $25,000,000.
Survival Period. We recommend accepting a modest compromise on the survival period as a potential negotiating concession. A reduction from thirty-six (36) months to thirty (30) months is defensible and demonstrates good-faith flexibility, while still providing Northgate with a meaningful window to identify and assert indemnification claims that may not become apparent immediately upon termination or expiration. We should not, however, accept a reduction to twenty-four (24) months. Data breach claims, in particular, may involve latent exposures that are not discovered for an extended period. The New York statute of limitations for breach of contract is six years (N.Y. C.P.L.R. § 213), and a twenty-four-month survival period would be significantly shorter than the limitations period, potentially leaving Northgate without an indemnification remedy for claims that are timely under the statute but outside the contractual survival window.
Reciprocal Cap Modifications. Northgate's 100% cap ($15,000,000 per year in Year 1) and the scope of its indemnification obligations — which are limited to claims arising from Northgate's misuse of the ArcMesh platform outside the licensed scope and third-party content claims — should remain unchanged. These obligations are narrower in scope and appropriately asymmetric. The risk profile under this MSA is inherently asymmetric: Cedarpoint is the service provider with access to Northgate's network infrastructure and data, while Northgate's exposure to Cedarpoint is limited to its use of the ArcMesh platform within the parameters defined by the license grant. Imposing reciprocal caps on Northgate's uncapped carve-outs for willful misconduct and confidentiality breach is unnecessary and inappropriate given this asymmetry.
Recommended Position for Second Draft. Maintain the 200% aggregate indemnification cap for Cedarpoint. Maintain all four uncapped carve-outs (IP infringement, willful misconduct, data breach, and confidentiality breach). Propose a thirty (30) month survival period as a potential negotiating concession from our original thirty-six (36) month position, but do not move below thirty (30) months. Maintain Northgate's 100% cap and existing indemnification scope without modification.
III. Most Favored Nation Pricing Audit Rights (MSA Section 7.4 / Schedule 3)
A. Cedarpoint's Proposed Changes
The MFN provisions in Section 7.4 and the corresponding pricing schedule (Schedule 3) were designed to ensure that Northgate receives pricing no less favorable than that offered to other Cedarpoint customers of comparable scale. Cedarpoint's redline introduces several modifications that, taken together, would substantially diminish the effectiveness of these protections.
1. Comparable Volume Threshold. Our first draft provided that Cedarpoint warrants that per-unit pricing for managed network services shall not exceed the lowest pricing offered to any customer with comparable volume, defined as customers with 200 or more managed nodes, measured over a trailing twelve (12) month benchmark period. Cedarpoint's redline proposes raising this comparable volume threshold from 200 or more managed nodes to 350 or more managed nodes. Northgate's current deployment comprises 340 managed nodes. The proposed threshold of 350 nodes would therefore exclude Northgate itself from the class of "comparable" customers, effectively rendering the MFN provision inapplicable by design. This change appears to be specifically engineered to eliminate Northgate's ability to invoke the MFN protection.
2. Narrowing of MFN Scope. Our first draft applied the MFN warranty to all fee components under the MSA, including managed network services fees ($10,500,000 per year), ArcMesh platform license fees ($3,000,000 per year), and professional services fees ($1,500,000 per year). Cedarpoint's redline narrows the scope of the MFN provision to managed network services fees only, excluding the ArcMesh platform license fees and professional services fees from MFN coverage. This would remove $4,500,000 per year (30% of the annual contract value) from MFN protection.
3. Pricing Differential Threshold. Our first draft established that if an MFN audit reveals a pricing differential greater than 3%, Cedarpoint must issue a retroactive credit within forty-five (45) days of the audit finding and adjust prospective pricing within thirty (30) days. Cedarpoint's redline proposes increasing the pricing differential threshold from greater than 3% to greater than 7% before any credit obligation is triggered. At a managed services fee base of $10,500,000, a 7% differential would represent $735,000 in annual overpricing before any remedy is available to Northgate, compared to $315,000 under the 3% threshold.
4. Audit Cost Allocation. Our first draft provided that MFN audit costs would be borne by Cedarpoint if the audit reveals a pricing violation, and by Northgate if no violation is found. Cedarpoint's redline proposes that audit costs be borne by Northgate regardless of the outcome. This change eliminates the cost-shifting incentive that encourages Cedarpoint to maintain pricing discipline and discourages Northgate from exercising its audit rights by placing the full cost burden on the auditing party irrespective of whether overpricing is discovered. Cedarpoint's redline does not modify the frequency limitation — both parties agree that audits may be conducted no more than once per calendar year.
5. "Substantially Equivalent Value" Alternative. Cedarpoint's redline adds new language permitting Cedarpoint to satisfy its MFN obligations by offering Northgate "substantially equivalent value" in lieu of pricing parity. Examples cited in the proposed language include additional service credits, enhanced SLA commitments, or add-on professional services hours. This provision would allow Cedarpoint to maintain above-market pricing as long as it provides some offsetting benefit that it unilaterally deems to be of "substantially equivalent value."
B. Analysis and Recommendation
Comparable Volume Threshold. The proposed increase in the comparable volume threshold from 200 or more nodes to 350 or more nodes is a transparent and unacceptable attempt to render the MFN provision inoperative. Northgate's network comprises 340 managed nodes — precisely 10 nodes below the proposed threshold. It is inconceivable that a customer operating 340 nodes is not "comparable" to a customer operating 350 or more nodes for purposes of pricing benchmarking. The 200-node threshold in our first draft was specifically calibrated to ensure that Northgate falls within the comparable customer class while still limiting the MFN benchmark to customers of meaningful scale. We must reject this change and maintain the 200-node threshold.
MFN Scope. We recommend maintaining MFN coverage across all three fee components: managed services, ArcMesh platform license, and professional services. The ArcMesh platform license fee of $3,000,000 per year represents 20% of the total annual contract value and is a significant pricing element. Because the ArcMesh platform is proprietary to Cedarpoint and there is limited competitive benchmarking data available for this product, the MFN provision is the primary mechanism by which Northgate can ensure that its ArcMesh license pricing remains competitive relative to other Cedarpoint customers. Excluding the ArcMesh license from MFN protection would leave Northgate vulnerable to above-market pricing on a proprietary product for which switching costs are prohibitively high.
Pricing Differential Threshold. The proposed increase in the pricing differential threshold from 3% to 7% is excessive and well above market norms for MFN provisions in managed services agreements of this type. Industry practice for MFN pricing differential triggers in comparable telecommunications and managed services contracts typically falls in the range of 2% to 5%, with 3% being widely recognized as the market standard. A 7% threshold would permit Cedarpoint to maintain a substantial pricing premium over comparable customers before any remedial obligation is triggered. We recommend holding firm at the 3% threshold.
Audit Cost Allocation. The cost-shifting mechanism in our first draft — where Cedarpoint bears audit costs if a violation is found, and Northgate bears costs if no violation is found — creates appropriate incentives for both parties. It encourages Cedarpoint to maintain pricing discipline (since it will bear audit costs if it is found in violation) while discouraging Northgate from conducting frivolous audits (since it will bear costs if no violation is identified). Cedarpoint's proposed modification would remove this balanced incentive structure and should be rejected.
"Substantially Equivalent Value" Alternative. The proposed "substantially equivalent value" language is vague, subjective, and difficult to enforce. The determination of what constitutes "substantially equivalent value" is inherently judgmental and would be a source of ongoing disputes. Moreover, allowing Cedarpoint to substitute additional services or credits in lieu of pricing parity could result in Northgate receiving services it neither needs nor wants as a substitute for the price reduction to which it is entitled. Deirdre Kwan, VP of Procurement for North America, has confirmed that price certainty is Northgate's primary commercial objective with respect to the MFN provision. We recommend rejecting the "substantially equivalent value" language entirely or, at most, permitting such alternatives only with Northgate's prior written consent in each instance, which would preserve Northgate's ability to insist on pricing parity when it so chooses.
Recommended Position for Second Draft. Maintain the 200-node comparable volume threshold. Maintain MFN coverage across all fee components (managed network services, ArcMesh platform license, and professional services). Maintain the 3% pricing differential trigger with 45-day retroactive credit and 30-day prospective adjustment timelines. Maintain the cost-shifting audit mechanism. Reject the "substantially equivalent value" language or accept only with a requirement for Northgate's prior written consent.
IV. Change of Control Consent Mechanics (MSA Section 14 / Schedule 2)
A. Cedarpoint's Proposed Changes
The change of control provisions in Section 14 of the MSA, together with the related terms set forth in Schedule 2, are designed to protect Northgate against the assignment of this mission-critical services agreement to an entity that Northgate has not evaluated or approved. Cedarpoint's redline proposes several modifications to these protections.
1. Deletion of Board-Turnover Prong. Our first draft defined "change of control" using a comprehensive four-prong test:
(i) acquisition by any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) of more than 50% of Cedarpoint's outstanding voting equity securities;
(ii) merger, consolidation, or reorganization of Cedarpoint in which Cedarpoint is not the surviving or resulting entity;
(iii) sale, lease, exchange, or other transfer of all or substantially all of Cedarpoint's assets in a single transaction or a series of related transactions; and
(iv) change in a majority of the members of Cedarpoint's board of directors within any twelve (12) month period, other than changes approved by directors who were members of the board at the beginning of such twelve-month period or whose election or nomination was so approved.
Cedarpoint's redline proposes deleting prong (iv) in its entirety. In the cover email accompanying the redline, Douglas Fenn stated that Cedarpoint's position is that reconstitution of the board of directors without a corresponding change in equity ownership should not constitute a "change of control" under the MSA, as board composition changes can result from ordinary corporate governance processes unrelated to any change in ownership or control.
2. Shortened Notice Period. Cedarpoint's redline reduces the advance notice period for any change of control event from ninety (90) days prior to the anticipated closing of the transaction to forty-five (45) days prior to closing.
3. Shortened Election Period. Cedarpoint's redline narrows Northgate's election period — the window within which Northgate must determine whether to consent to the assignment or exercise its termination right — from sixty (60) days following receipt of the change of control notice to thirty (30) days following receipt of such notice.
4. Shortened Transition/Wind-Down Period. Cedarpoint proposes that, upon Northgate's election to terminate following a change of control, the transition and wind-down period be reduced from one hundred eighty (180) days to one hundred twenty (120) days.
5. Deemed Consent Provision. Cedarpoint introduces a new provision stating that if Northgate fails to respond within the election period (whether 60 days or the proposed 30 days), Northgate's consent to the assignment of the MSA to the successor entity is deemed granted. No such provision was included in our first draft; the absence of a response was intended to default to non-consent, consistent with the general principle that any assignment without Northgate's prior written consent is void.
6. Paid Transition Assistance. Our first draft provided that transition assistance following a change-of-control termination would be provided by Cedarpoint at no additional cost to Northgate. Cedarpoint's redline proposes that transition assistance be provided at Cedarpoint's then-standard professional services rates. Given that Cedarpoint's current professional services billing rate is approximately $275 per hour for senior engineers and $185 per hour for standard engineers, and that a full 180-day managed network transition for a 340-node WAN would require substantial engineering resources, the cost of paid transition assistance could be significant — potentially in the range of $1,000,000 to $2,500,000 depending on complexity and staffing requirements.
B. Analysis — Ridgeline Capital Partners Considerations
The change of control provisions take on heightened significance in light of the ownership structure of Cedarpoint and the investment horizon of its controlling shareholder. Ridgeline Capital Partners, LP ("Ridgeline") currently holds approximately 62% of Cedarpoint's outstanding voting equity, a majority stake that was acquired in 2019. Based on information relayed by Deirdre Kwan, who received informal indications from Cedarpoint's management team, Ridgeline's managing partner, Jonathan Kessler, has signaled that Ridgeline may seek a secondary sale of its stake or pursue an initial public offering of Cedarpoint within the initial five-year term of the MSA. This is consistent with a typical private equity fund lifecycle; assuming Ridgeline's fund vintage is 2017–2019, a disposition event in the 2024–2027 timeframe would fall within the standard 5–7 year hold period for PE-backed portfolio companies.
Any disposition by Ridgeline of its 62% majority stake would trigger prong (i) of our change of control definition, as the acquirer would obtain more than 50% of Cedarpoint's voting equity. However, the board-turnover prong (iv) addresses a distinct and equally important scenario. A PE-sponsor exit could involve restructuring the board composition even before or without a formal equity transfer. For example, Ridgeline could negotiate the removal of its board designees and their replacement with representatives of a new strategic investor who acquires a significant but sub-50% equity stake (e.g., 40%) and gains effective control through board representation, board committee chairs, or enhanced governance rights. Without prong (iv), such a transaction could effect a de facto change of control without triggering any contractual protections for Northgate.
The current equity distribution among Cedarpoint's other shareholders further underscores this risk. Co-founder and CEO Rajiv Sundaram holds approximately 18% of voting equity, and co-founder and CTO Teresa Cho holds approximately 12%, for a combined 30%. The remaining 8% is held by other employees and early-stage investors. If Ridgeline were to sell its 62% stake in a fragmented manner — for example, transferring 30% to a strategic buyer and 32% to management in a leveraged recap — no single acquirer would cross the 50% threshold, but effective control could nonetheless shift. Prong (iv), together with prongs (ii) and (iii), provides layered protection against these and similar scenarios.
C. Recommendation.  Board-Turnover Prong (iv). We strongly recommend retaining prong (iv) of the change of control definition. This is a standard provision in agreements involving PE-backed counterparties and is a critical protection given Ridgeline's majority ownership position and the realistic prospect of a portfolio disposition during the MSA term. As a potential concession, we may offer to refine the carve-out language for "changes approved by existing directors" to provide Cedarpoint with additional comfort that ordinary corporate governance actions will not inadvertently trigger the provision. For example, we could specify that the approval must be by a majority of the directors serving at the beginning of the relevant twelve-month period, or add a materiality qualifier that the board changes must result in a shift in the strategic direction or management of the company.
Notice Period. We recommend maintaining the ninety (90) day advance notice period. A PE-led exit or strategic sale of a mission-critical services provider requires significant transition planning on the customer's side, including evaluation of the successor entity, assessment of technical capabilities and financial stability, negotiation of any necessary amendments or supplemental agreements, and coordination with internal stakeholders. A 45-day window is insufficient for these purposes, particularly given the complexity of Northgate's 340-node WAN deployment and the deep integration of the proprietary ArcMesh platform. As a fallback position, we may consider a compromise at seventy-five (75) days, but we should not accept any notice period below sixty (60) days.
Election Period. We recommend maintaining the sixty (60) day election period. Northgate requires adequate time to evaluate the successor entity and its capabilities, financial condition, and commitment to maintaining the service levels and terms of the MSA. A 30-day election period is insufficient for meaningful due diligence on a successor to a critical infrastructure vendor. The evaluation process would involve input from multiple internal stakeholders — including Katrina Bosch (VP of Network Operations), Deirdre Kwan (VP of Procurement), Alistair Pemberton (CTO), and potentially Northgate's board — and would require analysis of the successor's technical capabilities, financial stability, customer references, and regulatory compliance posture.
Transition/Wind-Down Period. We recommend maintaining the one hundred eighty (180) day transition/wind-down period. Migration from Cedarpoint's managed services to an alternative provider would be an operationally complex undertaking, particularly given the proprietary nature of the ArcMesh platform (version 4.2) and its deep integration into Northgate's network orchestration, monitoring, and routing infrastructure across 340 nodes. Katrina Bosch has emphasized that 180 days is the minimum feasible transition period based on her team's assessment of the technical requirements for re-platforming the WAN management layer, provisioning replacement services, conducting parallel testing, and executing a phased cutover. A reduction to 120 days would create unacceptable operational risk and could result in service disruptions during a period when network stability is paramount.
Deemed Consent. We strongly oppose the introduction of a deemed consent provision. The assignment of a mission-critical infrastructure services agreement should require affirmative written consent from Northgate, not passive acquiescence through inaction. A deemed consent mechanism creates the risk that an administrative oversight, personnel transition, or internal communication delay could result in Northgate being bound to a successor entity that it has not evaluated or approved. The default in the event of non-response should be non-consent, consistent with the fundamental principle — established in Section 14.1 of our first draft — that any assignment without Northgate's prior written consent is null, void, and of no legal effect.
Transition Assistance Cost. We recommend maintaining the provision requiring Cedarpoint to provide transition assistance at no additional cost to Northgate. The purpose of the transition/wind-down escrow — which under our first draft is funded at $750,000 per year (5% of ACV) and held at Dravello National Bank (account FNB-ESC-2023-07742, relationship manager Brian Caulfield) with an aggregate cap of $3,750,000 — is to fund the costs associated with an orderly transition in the event of termination, including termination following a change of control. If Cedarpoint is also permitted to charge its standard professional services rates for transition assistance, the practical value of this protection is significantly diminished. Northgate would effectively be paying twice for transition support: once through the escrow deposits funded over the term, and again through professional services fees charged during the transition itself. Furthermore, if Cedarpoint knows that it will profit from the transition through professional services billings, it has a perverse incentive to complicate or extend the transition process.
Assignment Void Without Consent. We recommend maintaining the provision in Section 14.1 that any assignment without Northgate's prior written consent is void, without qualification or exception.
Recommended Position for Second Draft. Retain all four prongs of the change of control definition. Retain the 90-day notice period and 60-day election period. Retain the 180-day transition/wind-down period. Reject the deemed consent provision. Maintain the no-additional-cost transition assistance provision. Offer a minor narrowing of the board-turnover carve-out language as a targeted concession to demonstrate good-faith flexibility on this issue.
V. Limitation of Liability (MSA Section 12)
A. Cedarpoint's Proposed Changes
Cedarpoint's redline introduces several changes to the limitation of liability framework in Section 12 of the MSA.
1. Confidentiality Breach Carve-Out. Our first draft included a mutual exclusion of consequential, incidental, special, and punitive damages, with carve-outs from the exclusion for three categories: (a) indemnification obligations under Article 11, (b) breach of confidentiality obligations under Section 13, and (c) IP infringement claims under Section 11.3. The practical effect of these carve-outs is that consequential damages are recoverable for claims arising in these three categories, notwithstanding the general exclusion. Cedarpoint's redline eliminates the carve-out for confidentiality breach from the consequential damages exclusion. Under Cedarpoint's proposed language, consequential damages would not be recoverable for a breach of confidentiality obligations, even though direct damages would remain available.
2. Separate Aggregate Liability Cap. Our first draft did not include a separate, standalone limitation of liability cap, instead relying on the indemnification framework in Article 11 — with its 200% cap and uncapped carve-outs — as the primary mechanism for allocating and limiting financial exposure between the parties. Cedarpoint's redline proposes adding a new overall aggregate liability cap of 100% of fees paid or payable in the twelve (12) months preceding the event giving rise to the claim. This cap would be separate from, and in addition to, the indemnification cap under Article 11. Cedarpoint further proposes that this limitation of liability apply to all theories of recovery, including contract, tort (including negligence and strict liability), statute, and any other legal or equitable theory.
B. Analysis and Recommendation
Confidentiality Breach Carve-Out. The carve-out for confidentiality breach from the consequential damages exclusion is an important protection that should be retained. Under the MSA, Cedarpoint will have access to Northgate's proprietary network architecture documentation, customer data, traffic analytics, capacity planning information, and other business-sensitive information. In the event of a confidentiality breach, the most significant and likely forms of harm to Northgate are consequential in nature — loss of competitive advantage, customer attrition resulting from public disclosure of network vulnerabilities, erosion of market position, and similar downstream effects. If consequential damages are excluded for confidentiality breaches, Northgate's recovery would be limited to direct damages, which in the context of a confidentiality breach are typically minimal (consisting primarily of the cost of investigating and remediating the breach itself) and bear little relationship to the actual harm suffered.
The asymmetry of the confidentiality relationship further supports retaining this carve-out. While both parties exchange confidential information, the volume and sensitivity of confidential information flowing from Northgate to Cedarpoint — including detailed network topology, traffic patterns, customer usage data, and security configurations — is substantially greater than the information flowing in the opposite direction. Cedarpoint's confidential information shared with Northgate consists primarily of technical documentation for the ArcMesh platform and pricing information, both of which, while commercially sensitive, present a lower magnitude of potential harm if disclosed.
Separate Aggregate Liability Cap. The addition of a separate aggregate liability cap at 100% of Trailing 12-Month Fees ($15,000,000 in Year 1) would create a fundamental structural inconsistency with the indemnification framework. If the limitation of liability cap applies to all claims — including those arising under the indemnification provisions of Article 11 — it would effectively reduce Cedarpoint's indemnification cap from 200% ($30,000,000) to 100% ($15,000,000), overriding the specific and carefully negotiated indemnification caps. This result is presumably not Cedarpoint's intention, but the language as proposed in the redline does not include a savings clause or subordination provision that would preserve the indemnification framework.
If Cedarpoint insists on including a separate limitation of liability provision — which is not uncommon in managed services agreements — the provision must expressly state that it does not limit, reduce, or otherwise affect Cedarpoint's indemnification obligations under Article 11, including the aggregate indemnification cap and the uncapped carve-outs. Without this express subordination language, the two provisions would be in tension, and Cedarpoint could argue in the event of a dispute that the lower limitation of liability cap governs, even for claims within the scope of Article 11.
Recommended Position for Second Draft. Maintain the carve-outs for confidentiality breach, indemnification obligations, and IP infringement from the consequential damages exclusion. If a separate aggregate liability cap is to be included, require that it expressly state that it does not limit or affect indemnification obligations under Article 11. Alternatively, reject the separate aggregate liability cap entirely and maintain the indemnification framework as the sole mechanism for allocating and capping financial exposure.
VI. IP Infringement Defense Obligations (MSA Section 11.3)
A. Cedarpoint's Proposed Changes
Cedarpoint's redline modifies the intellectual property infringement provisions in Section 11.3 in several significant respects.
1. "Sole Remedy" Provision. Our first draft required Cedarpoint to indemnify, defend, and hold harmless Northgate against any and all third-party claims, suits, actions, or proceedings alleging that the ArcMesh platform (version 4.2), the managed network services, or any component thereof infringes, misappropriates, or otherwise violates any patent, copyright, trade secret, trademark, or other intellectual property right of any third party. This obligation was uncapped and did not limit Northgate's available remedies.
Cedarpoint's redline retains the indemnify and defend obligations in concept but adds a "sole remedy" provision. Under this provision, upon the assertion of any infringement claim, Cedarpoint's sole obligation with respect to remediation (as distinct from defense and indemnification of third-party damages) is to, at Cedarpoint's sole option:
(a) obtain for Northgate the right to continue using the allegedly infringing materials under the MSA;
(b) modify the allegedly infringing materials to render them non-infringing while maintaining substantially similar functionality; or
(c) replace the allegedly infringing materials with non-infringing functional equivalents.
Critically, Cedarpoint's proposed language adds a fourth alternative: if none of options (a) through (c) is "commercially practicable" in Cedarpoint's reasonable determination, Cedarpoint may terminate the MSA and refund to Northgate any prepaid but unearned fees on a pro-rata basis.
2. Infringement Carve-Outs. Cedarpoint's redline introduces four carve-outs from its IP indemnification obligation. Under the proposed language, Cedarpoint has no obligation to indemnify Northgate for infringement claims to the extent arising from:
(i) modifications to the ArcMesh platform or managed network services made by Northgate or at Northgate's direction without Cedarpoint's prior written approval;
(ii) combination of the ArcMesh platform or managed network services with products, services, software, or technology not provided by Cedarpoint, where the infringement would not have occurred but for such combination;
(iii) continued use of the ArcMesh platform or managed network services after Cedarpoint has provided written notice of an infringement claim and has made a non-infringing alternative reasonably available; or
(iv) use of the ArcMesh platform or managed network services in a manner not in accordance with the then-current documentation and specifications provided by Cedarpoint.
3. Capping of IP Infringement Indemnification. Our first draft made IP infringement indemnification expressly uncapped — one of the four categories carved out from the aggregate indemnification cap under Article 11. Cedarpoint's redline deletes the language that exempts IP infringement indemnification from the aggregate cap, thereby subjecting IP infringement claims to the aggregate indemnification cap (which Cedarpoint also proposes reducing from 200% to 150% of Trailing 12-Month Fees, as discussed in Section II above).
B. Analysis and Recommendation
"Sole Remedy" Provision. The sole remedy provision as proposed is fundamentally problematic because it confers upon Cedarpoint a unilateral termination right disguised as an infringement remedy. Under option (d) of Cedarpoint's proposed framework, if Cedarpoint determines — in its own "reasonable" judgment — that obtaining rights, modifying, or replacing the infringing materials is not "commercially practicable," Cedarpoint can simply terminate the MSA and refund prepaid fees. This would leave Northgate without a critical managed network service across its entire 340-node North American WAN, with no assured transition path and only a pro-rata refund of prepaid fees as compensation.
The consequences of a Cedarpoint termination under this provision would be severe. Northgate would need to identify, procure, and deploy an alternative managed network services provider and orchestration platform on an emergency basis — a process that, based on Katrina Bosch's assessment, would take a minimum of six to nine months under normal circumstances and significantly longer in an unplanned scenario. During the transition period, Northgate's network operations would be at risk of degradation, outages, and security vulnerabilities. The pro-rata refund of prepaid fees would not come close to compensating Northgate for the operational disruption and transition costs.
Furthermore, the "commercially practicable" standard is inherently subjective and would be difficult to challenge in a dispute. Cedarpoint could argue that obtaining rights from a third-party patent holder at any price above some undefined threshold is not "commercially practicable," even if the cost of licensing is well within Cedarpoint's financial capacity. This gives Cedarpoint an effective escape hatch from the MSA in any IP infringement scenario.
Infringement Carve-Outs. The four carve-outs proposed by Cedarpoint are, in substance, reasonable and consistent with market practice for IP indemnification provisions in technology services agreements. It is appropriate for Cedarpoint to exclude from its indemnification obligation infringement claims attributable to (i) Northgate's unauthorized modifications, (ii) combination with non-Cedarpoint products, (iii) continued use after notice and availability of a non-infringing alternative, and (iv) use outside the scope of documentation. These carve-outs properly allocate responsibility for infringement to the party whose actions or decisions contributed to the claim.
However, we recommend that the carve-outs be accepted with drafting refinements to ensure they are narrowly tailored and do not create unintended gaps in coverage. Specifically:
•  Carve-out (i) should clarify that "modifications" refers to changes to the underlying code, architecture, or functionality of the ArcMesh platform, and does not encompass routine configuration, customization, or parameter-setting activities performed within the normal operating parameters of the platform.
•  Carve-out (ii) should specify that the burden of proving that the infringement "would not have occurred but for" the combination rests on Cedarpoint.
•  Carve-out (iii) should require that the non-infringing alternative provided by Cedarpoint be functionally equivalent to the original materials and not impose material additional cost or operational burden on Northgate.
•  Carve-out (iv) should reference the documentation in effect at the time of the alleged infringing use, and Cedarpoint should not be permitted to retroactively narrow the documentation to create an infringement carve-out.
IP Infringement Indemnification Must Remain Uncapped. The removal of the uncapped treatment for IP infringement indemnification is a fundamental structural change that we cannot accept. The ArcMesh platform is Cedarpoint's proprietary technology, developed and owned by Cedarpoint, and embedded throughout Northgate's managed network. Northgate bears no responsibility for Cedarpoint's IP clearance process and has no ability to evaluate, mitigate, or manage the risk that ArcMesh infringes third-party intellectual property rights. The entire IP infringement risk should therefore be allocated to Cedarpoint, which is the party best positioned to conduct freedom-to-operate analyses, obtain necessary licenses, and design around third-party IP.
Cedarpoint's financial capacity and insurance coverage support uncapped treatment. As noted above, Cedarpoint reported fiscal year 2022 revenues of $420,000,000 and maintains technology errors and omissions insurance through Braeburn Mutual Insurance Company with coverage of $20,000,000 per occurrence and $40,000,000 in the aggregate. These figures indicate that Cedarpoint has the financial resources and insurance backstop to absorb even significant IP infringement liability. Capping IP infringement indemnification at 150% of Trailing 12-Month Fees ($22,500,000) — or even at 200% ($30,000,000) — would leave Northgate bearing the excess exposure for infringement of Cedarpoint's own proprietary technology, an allocation that is both commercially unreasonable and inconsistent with market practice for agreements involving embedded proprietary platforms.
Recommended Position for Second Draft. Accept infringement carve-outs (i) through (iv), subject to the drafting refinements described above. Reject the "sole remedy" provision in its current form. If Cedarpoint insists on a remediation framework, require that: (A) option (c) (replacement) must include a functionally equivalent managed network solution that satisfies Northgate's then-current operational requirements, with a minimum transition period of no less than 180 days; (B) Cedarpoint's right to terminate under option (d) must be subject to Northgate's prior written consent, not exercisable unilaterally; and (C) in the event of termination following an IP infringement claim, Cedarpoint must bear all costs of transition to a replacement platform, including professional services, migration costs, and parallel operation expenses. Maintain IP infringement indemnification as uncapped. If Cedarpoint insists on a remediation framework, add a requirement that Cedarpoint bear all costs of transition to the replacement platform and that any termination right be exercisable only after good-faith exhaustion of options (a) through (c) over a minimum 120-day remediation period.
VII. SLA Credit Structure (MSA Section 6 / Exhibit B)
A. Cedarpoint's Proposed Changes
The Service Level Agreement framework set forth in Section 6 and Exhibit B is a critical performance accountability mechanism under the MSA. Cedarpoint's redline proposes several changes that would substantially weaken this framework.
1. SLA Target Reduction. Our first draft established a monthly uptime SLA of 99.95% per node, measured on a calendar-month basis. This target reflects 21.56 minutes of permitted downtime per node per month, or approximately 4.38 hours per node per year. Cedarpoint's redline proposes lowering the target SLA from 99.95% to 99.90% monthly uptime per node, which would double the permitted downtime to 43.2 minutes per node per month, or approximately 8.76 hours per node per year.
2. Reduced Credit Tiers. Our first draft established a tiered service credit structure based on actual uptime performance relative to the SLA target, calculated as a percentage of the monthly managed services fee (based on a monthly run-rate of $1,250,000, derived from the $15,000,000 annual contract value divided by twelve). The tiers were as follows:
Cedarpoint's redline modifies the credit structure as follows:
The combined effect of the lowered SLA target and reduced credit tiers is significant. Under our first draft, if Northgate experienced 99.90% uptime in a given month, it would receive a 5% credit ($62,500) because performance fell below the 99.95% target. Under Cedarpoint's redline, 99.90% uptime would meet the SLA target and generate no credit whatsoever. Even at 99.85% uptime — which would trigger a $62,500 credit under our draft (falling within the 99.50%–99.89% tier) — Cedarpoint's proposal would yield only a 2% credit ($25,000). The maximum monthly credit under our draft ($250,000) would be reduced by half to $125,000.
3. Reduced Annual Credit Cap. Our first draft set the aggregate annual SLA credit cap at 30% of annual managed services fees ($10,500,000 × 0.30 = $3,150,000). Cedarpoint's redline reduces this cap to 15% of annual managed services fees ($10,500,000 × 0.15 = $1,575,000) — a reduction of $1,575,000, or exactly half of Northgate's proposed cap.
4. Elimination of Material Breach Trigger. Our first draft included a material breach trigger provision: if Cedarpoint fails to achieve at least 99.50% monthly uptime in any three (3) consecutive calendar months, such failure constitutes a material breach of the MSA, entitling Northgate to terminate the MSA for cause pursuant to Section 16.2, with all associated termination rights and remedies. Cedarpoint's redline deletes this provision entirely.
5. Sole and Exclusive Remedy. Cedarpoint's redline adds language providing that service credits issued under the SLA framework constitute Northgate's sole and exclusive remedy for Cedarpoint's failure to meet the SLA targets. This language would preclude Northgate from asserting breach of contract, indemnification, or other claims based on SLA failures, limiting Northgate's recourse to the service credits alone.
6. Scheduled Maintenance Exclusion. Cedarpoint's redline adds a provision excluding scheduled maintenance windows from the uptime calculation. Under the proposed language, Cedarpoint may schedule up to eight (8) hours of maintenance per month, during which downtime is not counted toward the SLA measurement. Combined with the lowered SLA target (99.90%), this exclusion could significantly increase the total permissible downtime per node per month.
B. Analysis and Recommendation
SLA Target. Lowering the SLA target from 99.95% to 99.90% is unacceptable for a mission-critical enterprise WAN serving 340 nodes across Northgate's North American operations. Both Alistair Pemberton (CTO) and Katrina Bosch (VP of Network Operations) have confirmed that 99.95% monthly uptime is Northgate's minimum operational requirement. This target is consistent with the performance achieved under Northgate's prior managed network services agreement with Greystone Network Solutions, which required and regularly met a 99.95% uptime commitment over the last three years of the engagement. A reduction to 99.90% would effectively double the permitted downtime and is inconsistent with Northgate's operational standards and the expectations of its internal and external stakeholders.
Furthermore, the 99.95% uptime target is well within industry norms for managed network services agreements of this scale. Benchmark data for enterprise WAN managed services consistently shows SLA targets of 99.95% or higher for comparable deployments. Cedarpoint's own marketing materials and customer case studies reference 99.99% uptime achievements for certain customers, suggesting that 99.95% is well within Cedarpoint's operational capabilities.
Credit Tiers. Cedarpoint's proposed credit tiers are significantly below market and would substantially reduce the financial incentive for Cedarpoint to maintain SLA compliance. The tiered structure in our first draft — 5%, 10%, and 20% — is calibrated to provide escalating financial consequences as performance degrades below the target, creating a meaningful incentive structure. Cedarpoint's proposal — 2%, 5%, and 10% — flattens the incentive curve and reduces the maximum monthly credit by half. We recommend maintaining our proposed tiered structure.
Annual Credit Cap. The 30% annual credit cap ($3,150,000) is appropriate and proportionate to the managed services fee component ($10,500,000 per year). It represents a meaningful aggregate exposure for Cedarpoint in the event of sustained underperformance, while remaining well below the total fees payable. Reducing the cap to 15% ($1,575,000) would halve the meaningful incentive for Cedarpoint to maintain service quality and would leave Northgate with inadequate financial recourse for persistent SLA failures across a $15,000,000 per year contract.
Material Breach Trigger. The material breach trigger provision — three consecutive months of performance below 99.50% — is Northgate's critical protection against persistent and sustained underperformance. Without this provision, Northgate would be locked into a five-year contract with no recourse for termination even if Cedarpoint consistently fails to deliver acceptable service levels, provided it pays the (reduced) service credits. The material breach trigger establishes a floor below which the SLA credit mechanism is insufficient and Northgate must have the right to exit the relationship. Three consecutive months below 99.50% represents a pattern of serious and sustained failure — not an isolated incident — and termination for cause in such circumstances is a proportionate and necessary remedy. This provision must be retained.
Sole and Exclusive Remedy. The "sole and exclusive remedy" language is acceptable in principle for SLA failures that fall above the material breach threshold. Service credits are an appropriate and market-standard remedy for moderate SLA deviations, and restricting Northgate's remedies to credits for such deviations provides Cedarpoint with reasonable certainty about its exposure. However, the sole and exclusive remedy language should not apply in circumstances where SLA failures rise to the level of a material breach under the trigger provision. We recommend adding express language providing that the sole and exclusive remedy designation does not limit, waive, or otherwise affect Northgate's right to terminate the MSA for cause pursuant to Section 16.2, to assert indemnification claims under Article 11, or to pursue any other remedies available at law or in equity, in each case to the extent that SLA failures constitute or contribute to a material breach of the MSA.
Scheduled Maintenance Exclusion. Scheduled maintenance exclusions are a reasonable and standard feature of managed services SLAs, and we do not object to the concept. However, the proposed scope — up to eight (8) hours per month — is excessive and should be reduced. We recommend capping scheduled maintenance exclusions at four (4) hours per month, during a pre-defined maintenance window of Sunday 02:00–06:00 Eastern Time, with a minimum of forty-eight (48) hours of advance written notice to Northgate's network operations team. We further recommend requiring that Cedarpoint coordinate maintenance windows with Katrina Bosch's team to ensure alignment with Northgate's operational requirements and to avoid conflicts with peak traffic periods or critical business operations.
Recommended Position for Second Draft. Maintain the 99.95% monthly uptime SLA target. Maintain the original credit tiers (5% / 10% / 20%). Maintain the 30% annual credit cap ($3,150,000). Retain the material breach trigger (three consecutive months below 99.50%). Accept the sole and exclusive remedy language with an express carve-out for material breach, preserving termination and indemnification rights. Accept the scheduled maintenance exclusion concept with a reduced window of four hours per month, a pre-defined maintenance window, and a 48-hour advance written notice requirement.
VIII. Other Notable Redline Changes
In addition to the six primary categories of changes analyzed above, Cedarpoint's redline contains several additional modifications of note that should be addressed in the second draft.
A. Term and Renewal (MSA Section 2)
Cedarpoint proposes changing the MSA from a simultaneous signing and closing structure to a deferred closing thirty (30) days after the date of execution. Under our first draft, MSA Section 2.1 provides that the MSA becomes effective upon execution by both parties and that services commencement occurs simultaneously with execution. Cedarpoint's proposed modification would create a 30-day gap between signing and the commencement of services.
We recommend maintaining the simultaneous signing and closing structure. Services commencement should coincide with execution to align with Northgate's migration timeline from the prior managed network services provider, Greystone Network Solutions. Northgate's network operations team has developed a detailed migration plan that is predicated on immediate services commencement upon MSA execution. A 30-day deferral would create a gap in service coverage and require either an extension of the Greystone agreement (which expires per its terms) or a period of unmanaged network operations — neither of which is acceptable from an operational standpoint.
On a positive note, Cedarpoint accepts without modification the renewal provisions in our first draft, which provide for two (2) automatic renewal terms of two (2) years each (for a potential total engagement of nine years), subject to a one hundred eighty (180) day non-renewal notice period prior to the expiration of the then-current term.
B. Escrow Provisions (MSA Section 15 / Escrow Agreement)
Cedarpoint proposes two modifications to the escrow framework:
1. Reduced Escrow Deposit. Cedarpoint proposes reducing the annual wind-down escrow deposit from 5% of annual contract value ($750,000 per year) to 3% of annual contract value ($450,000 per year). This would reduce the aggregate escrow cap over the five-year initial term from $3,750,000 to $2,250,000 — a reduction of $1,500,000 in available security.
2. Modified Release Conditions. Our first draft provided that escrowed funds would be released to Cedarpoint upon natural expiration of the MSA, provided that no event of default or termination for cause has occurred. Cedarpoint's redline proposes that escrowed funds be released upon the earlier of (a) expiration of the initial term without termination for cause, or (b) twelve (12) months after the last service credit event. The addition of alternative (b) could result in the release of escrow funds during the term of the MSA if Cedarpoint achieves a period of twelve months without triggering any service credits — an achievable threshold that would eliminate the escrow protection while the MSA is still in effect.
We recommend maintaining the 5% annual deposit ($750,000 per year) and the $3,750,000 aggregate cap. The escrow held at Dravello National Bank (account FNB-ESC-2023-07742, relationship manager Brian Caulfield) provides critical security for transition and wind-down costs in the event of termination. The $3,750,000 aggregate represents a carefully calculated estimate of the costs associated with a full transition from Cedarpoint's managed services to an alternative provider, including migration engineering, parallel operations, testing, and related professional services costs. Reducing the escrow to $2,250,000 would leave a funding gap of approximately $1,500,000, which Northgate would need to absorb from its operating budget in the event of a termination scenario. We further recommend rejecting the alternative release trigger (12 months after last service credit event) and maintaining the simple expiration-based release mechanism.

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