DRAFT — PRIVILEGED AND CONFIDENTIAL — FOR DISCUSSION PURPOSES ONLY
MASTER SERVICES AGREEMENT
SECOND DRAFT
May 5, 2023
Prepared by:
Christy Bauer Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, NY 10022
Matter No.: 1022-00008
Distribution:
Whitfield Graves & Morrow LLP
Attention: Douglas Fenn; Simone Alvarez
1875 K Street NW, Suite 800 Washington, DC 20006
Cover Note: This Second Draft incorporates Northgate's responses to the redline markup received from Whitfield Graves & Morrow LLP on behalf of Cedarpoint Systems Integration, Inc. on April 21, 2023. Changes from the First Draft dated April 3, 2023 are reflected in tracked changes in the accompanying redline version circulated simultaneously with this clean copy. This clean version is provided for ease of reference and review in advance of the next negotiation session. All terms remain subject to further negotiation and neither Party shall be bound until execution by both Parties.
MASTER SERVICES AGREEMENT
This MASTER SERVICES AGREEMENT (this "Agreement") is entered into as of the date set forth on the signature page hereto (the "Effective Date"), by and between:
NORTHGATE AMERICAS, INC., a Delaware corporation, with principal offices at 1700 Market Street, Suite 2400, Philadelphia, Pennsylvania 19103 ("Customer" or "Licensee"),
and
CEDARPOINT SYSTEMS INTEGRATION, INC., a Delaware corporation, with principal offices at 11400 Commerce Park Drive, Suite 600, Reston, Virginia 20191 ("Service Provider" or "Cedarpoint").
Customer and Service Provider are each referred to herein as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Customer is a wholly-owned subsidiary of Northgate Telecommunications PLC, a public limited company organized under the laws of England and Wales, listed on the London Stock Exchange (ticker: NTP.L), headquartered at 45 Threadneedle Court, London EC2R 8AH, United Kingdom ("Northgate Parent");
WHEREAS, Customer currently operates a wide-area network across 340 managed nodes in 28 states of the United States and 3 provinces of Canada, which network is presently served by legacy MPLS infrastructure provided by Greystone Halcyon Software ("Greystone");
WHEREAS, Service Provider has developed and owns the ArcMesh Platform, a proprietary network orchestration platform, and provides managed network services, including SD-WAN deployment, network monitoring, cybersecurity, and related professional services;
WHEREAS, Customer desires to engage Service Provider to provide managed network services, license the ArcMesh Platform, and perform professional services related to the migration from Customer's legacy MPLS infrastructure to Service Provider's SD-WAN/ArcMesh Platform, and Service Provider desires to provide such services, all on the terms and conditions set forth herein;
WHEREAS, Service Provider's majority equity holder is Ridgeline Capital Partners, LP, a Delaware limited partnership headquartered at 55 Arch Street, Suite 700, Greenwich, Connecticut 06830 ("Ridgeline"), which holds 62% of the voting equity of Service Provider;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
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ARTICLE 1 — DEFINITIONS AND INTERPRETATION
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Acceptable Use Policy" means the policy governing Customer's use of the ArcMesh Platform and the Managed Network Services, as attached hereto as Exhibit D and as may be updated by Service Provider from time to time with Customer's prior written consent (such consent not to be unreasonably withheld).
"ACV" or "Annual Contract Value" means Fifteen Million Dollars ($15,000,000) per Contract Year, representing the aggregate annual Fees payable by Customer under this Agreement, as more particularly described in Section 5.1 and Exhibit C.
"Affiliate" means, with respect to any Party, any entity controlling, controlled by, or under common control with such Party, where "control" means the direct or indirect ownership of more than fifty percent (50%) of the voting securities or equivalent ownership interests of such entity.
"Agreement" means this Master Services Agreement, together with all Exhibits, Schedules, Statements of Work, and amendments hereto, each of which is incorporated herein by this reference.
"ArcMesh Platform" means Cedarpoint's proprietary network orchestration platform, version 4.2, including all software, firmware, documentation, and related materials, as further described in Exhibit A.
"Braeburn Mutual Insurance Company" means Cedarpoint's current insurance carrier for cyber liability and technology errors and omissions policies, headquartered in Hartford, Connecticut.
"Business Day" means any day other than a Saturday, Sunday, or a day on which banks in New York, New York are authorized or required by law to be closed, including any federal holiday in the United States.
"Cedarpoint" or "Service Provider" means Cedarpoint Systems Integration, Inc., a Delaware corporation, with principal offices at 11400 Commerce Park Drive, Suite 600, Reston, Virginia 20191.
"Change of Control" has the meaning set forth in Section 14.1 and as further detailed in Schedule 2.
"Closing Date" means the date of execution of this Agreement by both Parties, on which date the Services shall commence.
"Comparable Customer" means any customer of Service Provider that receives managed network services from Service Provider for a network comprising two hundred (200) or more managed nodes.
"Confidential Information" has the meaning set forth in Section 12.1.
"Contract Year" means each successive twelve (12)-month period commencing on the Closing Date. The first Contract Year shall commence on the Closing Date and end on the day immediately preceding the first anniversary of the Closing Date, and each subsequent Contract Year shall commence on the applicable anniversary of the Closing Date.
"Customer" or "Licensee" means Northgate Americas, Inc., a Delaware corporation, with principal offices at 1700 Market Street, Suite 2400, Philadelphia, Pennsylvania 19103.
"Data Security Requirements" means the data security, privacy, and information protection requirements set forth in Exhibit E.
"Effective Date" means the date set forth on the signature page of this Agreement.
"Escrow Agent" means Dravello National Bank, a nationally chartered bank headquartered in Charlotte, North Carolina.
"Escrow Agreement" means the tri-party escrow agreement among Customer, Service Provider, and Escrow Agent, to be executed substantially concurrently with this Agreement.
"Escrow Deposit" means the annual deposit of Seven Hundred Fifty Thousand Dollars ($750,000) per Contract Year, subject to the Aggregate Escrow Cap of Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000), as more particularly described in Article 19.
"Exhibits" means Exhibits A through F attached hereto and incorporated herein by this reference.
"Fees" means, collectively, the Managed Services Fees, License Fees, and Professional Services Fees set forth in Section 5.1 and Exhibit C.
"Force Majeure Event" has the meaning set forth in Section 17.1.
"Governing Law" means the laws of the State of New York, without regard to conflict-of-laws principles that would result in the application of the laws of any other jurisdiction.
"Greystone" means Greystone Halcyon Software, the prior network vendor providing legacy MPLS infrastructure to Customer.
"Indemnified Party" has the meaning set forth in Section 10.1.
"Indemnifying Party" has the meaning set forth in Section 10.1.
"Initial Term" means the period of five (5) years commencing on the Effective Date, as further described in Section 2.2.
"Insurance Requirements" means the minimum insurance coverage requirements set forth in Exhibit F.
"License Fees" means Three Million Dollars ($3,000,000) per Contract Year for the ArcMesh Platform license and maintenance, representing twenty percent (20%) of the Annual Contract Value.
"Losses" has the meaning set forth in Section 10.1.
"Managed Network Services" means the managed wide-area network services described in Exhibit A and Section 3.1.
"Managed Services Fees" means Ten Million Five Hundred Thousand Dollars ($10,500,000) per Contract Year, representing seventy percent (70%) of the Annual Contract Value.
"Material Breach" has the meaning set forth in Section 13.2.
"MFN Pricing" or "Most Favored Nation Pricing" has the meaning set forth in Section 5.2 and Schedule 3.
"Migration" means the transition from Customer's legacy MPLS infrastructure (previously provided by Greystone) to the SD-WAN/ArcMesh Platform, to be conducted in three (3) phases over a period of eighteen (18) months, as further described in Exhibit A and the Transition Services Side Letter.
"Monthly Run-Rate" means One Million Two Hundred Fifty Thousand Dollars ($1,250,000) per month, calculated as the Annual Contract Value of $15,000,000 divided by twelve (12).
"Nodes" means the three hundred forty (340) managed network nodes across twenty-eight (28) states of the United States and three (3) provinces of Canada, as listed in Schedule 1.
"NOC" means Network Operations Center, referring to Service Provider's network operations centers located at Service Provider's facilities in Reston, Virginia, United States and Winnipeg, Manitoba, Canada.
"Northgate Parent" means Northgate Telecommunications PLC, a public limited company organized under the laws of England and Wales, listed on the London Stock Exchange (ticker: NTP.L), headquartered at 45 Threadneedle Court, London EC2R 8AH, United Kingdom.
"Party" and "Parties" means Customer and Service Provider, individually and collectively, as the context requires.
"Professional Services" means the implementation, migration, and optimization services described in Exhibit A and Section 3.3.
"Professional Services Fees" means One Million Five Hundred Thousand Dollars ($1,500,000) per Contract Year, representing ten percent (10%) of the Annual Contract Value.
"Renewal Term" means each successive two (2)-year renewal period following the Initial Term, as described in Section 2.3.
"Ridgeline" means Ridgeline Capital Partners, LP, a Delaware limited partnership headquartered at 55 Arch Street, Suite 700, Greenwich, Connecticut 06830, the majority equity holder of Service Provider, holding sixty-two percent (62%) of the voting equity of Service Provider as of the Effective Date.
"Schedules" means Schedules 1 through 3 attached hereto and incorporated herein by this reference.
"Service Credits" means the credits described in Section 6.3 and Exhibit B.
"Service Level Agreement" or "SLA" means the service levels set forth in Exhibit B.
"Statement of Work" or "SOW" means any statement of work executed under this Agreement, including Exhibit A.
"TCV" or "Total Contract Value" means Seventy-Five Million Dollars ($75,000,000) over the Initial Term, calculated as the Annual Contract Value multiplied by five (5) Contract Years.
"Transition Assistance" has the meaning set forth in Section 13.6.
"Wind-Down Period" has the meaning set forth in Section 13.5.
Section 1.2 — Interpretation
The following rules of interpretation shall apply to this Agreement:
(a) The headings and captions contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of any provision of this Agreement.
(b) The word "including" and words of similar import, when used in this Agreement, shall mean "including without limitation," unless the context clearly indicates otherwise.
(c) References to "Sections," "Articles," "Exhibits," and "Schedules" are to sections, articles, exhibits, and schedules of and to this Agreement unless otherwise specified.
(d) Words in the singular include the plural, and words in the plural include the singular.
(e) References to any gender include all genders.
(f) All references to currency or dollar amounts shall be deemed to refer to United States Dollars unless otherwise expressly specified.
(g) References to "days" shall mean calendar days unless "Business Days" is expressly specified.
(h) All Exhibits and Schedules attached hereto are incorporated herein by this reference and shall be deemed a part of this Agreement for all purposes. In the event of any conflict between the body of this Agreement and any Exhibit or Schedule, the body of this Agreement shall control unless the applicable Exhibit or Schedule expressly states that it is intended to supersede a specific provision of the body of this Agreement.
(i) References to any statute, regulation, or rule shall be deemed to include any amendments, modifications, successor legislation, or re-enactments thereof.
(j) The word "or" shall not be exclusive.
(k) The words "herein," "hereof," "hereby," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular provision hereof.
ARTICLE 2 — TERM
Section 2.1 — Effective Date and Commencement
This Agreement shall become effective upon execution by both Parties on the Effective Date. The signing and closing of this Agreement shall occur simultaneously, and the Services shall commence on the Closing Date. The Customer entity entering into this Agreement is Northgate Americas, Inc., a Delaware corporation (registered office: c/o Calvert Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801). The Service Provider entity entering into this Agreement is Cedarpoint Systems Integration, Inc., a Delaware corporation (registered office: c/o Calvert Corporate Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801). Each Party represents and warrants that it has the corporate authority to enter into this Agreement and that the individuals executing this Agreement on behalf of such Party are duly authorized to do so.
Section 2.2 — Initial Term
The initial term of this Agreement (the "Initial Term") shall be a period of five (5) years commencing on the Effective Date and expiring on the fifth (5th) anniversary of the Effective Date, unless earlier terminated in accordance with Article 13 or extended in accordance with Section 2.3. During the Initial Term, the Total Contract Value shall be Seventy-Five Million Dollars ($75,000,000), payable as set forth in Article 5.
Section 2.3 — Renewal Terms
Following the expiration of the Initial Term, this Agreement shall automatically renew for up to two (2) successive renewal periods of two (2) years each (each, a "Renewal Term"), unless either Party provides written notice of non-renewal to the other Party at least one hundred eighty (180) days prior to the expiration of the then-current term (whether the Initial Term or a Renewal Term). Any notice of non-renewal shall be delivered in accordance with the notice provisions set forth in Section 18.1. During any Renewal Term, the terms and conditions of this Agreement shall remain in full force and effect, subject to any annual fee escalation as set forth in Section 5.4 and Exhibit C. For the avoidance of doubt, the maximum total term of this Agreement (assuming both Renewal Terms are exercised) shall be nine (9) years from the Effective Date.
ARTICLE 3 — SCOPE OF SERVICES
Section 3.1 — Managed Network Services
Service Provider shall provide to Customer managed wide-area network (WAN) services (the "Managed Network Services") across three hundred forty (340) Nodes in twenty-eight (28) states of the United States and three (3) provinces of Canada, as listed in Schedule 1. The Managed Network Services shall include, without limitation:
(a) SD-WAN deployment and optimization utilizing the ArcMesh Platform version 4.2, including ongoing configuration management, policy enforcement, and traffic engineering across all managed Nodes;
(b) Twenty-four hours per day, seven days per week (24×7) Network Operations Center (NOC) monitoring from Service Provider's facilities in Reston, Virginia, United States, and Winnipeg, Manitoba, Canada, including real-time network health monitoring, fault detection, and proactive incident management;
(c) Cybersecurity monitoring, threat detection, and incident response for the managed network perimeter, including intrusion detection and prevention, distributed denial-of-service (DDoS) mitigation, and security event correlation and analysis;
(d) Quarterly network performance reviews and optimization reports, to be delivered to Customer within fifteen (15) Business Days following the end of each calendar quarter, summarizing network performance metrics, capacity utilization, incident trends, and recommendations for optimization; and
(e) Assignment of a dedicated Cedarpoint service delivery manager to the Northgate account, who shall serve as Customer's primary point of contact for all matters relating to the Managed Network Services and who shall coordinate with Customer's designated representatives on a regular basis.
Section 3.2 — ArcMesh Platform License
Subject to the terms and conditions of this Agreement, Service Provider hereby grants to Customer a non-exclusive, non-transferable license to use the ArcMesh Platform version 4.2 during the Term solely in connection with the Managed Network Services. The license granted herein is limited solely to Customer's internal business operations across the three hundred forty (340) managed Nodes identified in Schedule 1. Customer shall have no right to sublicense, reverse-engineer, decompile, disassemble, or create derivative works based upon the ArcMesh Platform, except to the extent that such restriction is expressly prohibited by applicable law. All intellectual property rights in and to the ArcMesh Platform, including all enhancements, modifications, updates, and derivative works thereof, shall remain the sole and exclusive property of Service Provider. The license granted under this Section 3.2 shall terminate automatically upon the expiration or termination of this Agreement, subject to the Transition Assistance obligations set forth in Section 13.6, which shall provide for continued access to the ArcMesh Platform during the Wind-Down Period.
Section 3.3 — Professional Services
Service Provider shall provide implementation, migration, and optimization services (the "Professional Services") as described in Exhibit A. The Professional Services shall include the migration from Customer's legacy MPLS infrastructure, previously provided by Greystone Halcyon Software, to Service Provider's SD-WAN/ArcMesh Platform. The Migration shall be conducted in three (3) phases over a period of eighteen (18) months from the Closing Date. The details of the migration phases, milestones, deliverables, acceptance criteria, and associated timelines shall be set forth in the Transition Services Side Letter to be executed by the Parties substantially concurrently with this Agreement and in Exhibit A. Service Provider shall use commercially reasonable efforts to complete each phase of the Migration within the timelines established in the Transition Services Side Letter and shall promptly notify Customer of any anticipated delays or impediments to the Migration schedule.
Section 3.4 — Service Descriptions
Detailed descriptions of all Services to be provided under this Agreement, including the Managed Network Services, the ArcMesh Platform license, and the Professional Services, are set forth in Exhibit A (Statement of Work / Service Descriptions). Service Provider may from time to time propose modifications to the scope of the Services; provided, however, that any material modification to the scope of the Services shall require Customer's prior written consent. For purposes of this Section, a "material modification" shall mean any change that would (i) reduce the level or quality of the Services, (ii) increase the Fees payable by Customer, (iii) alter the SLA targets, or (iv) change the number or location of managed Nodes.
Section 3.5 — Service Provider Personnel
Service Provider shall be responsible for providing qualified personnel sufficient to perform the Services in accordance with the terms of this Agreement. All Service Provider personnel who will have access to Customer's premises, systems, or Confidential Information shall be subject to background checks conducted at Service Provider's expense, in accordance with Customer's then-current background check requirements as communicated to Service Provider in writing. Customer shall have the right to request the removal of any Service Provider personnel from the performance of Services under this Agreement for reasonable cause, including concerns related to competence, conduct, or security. Service Provider shall comply with any such request within a reasonable period, not to exceed fifteen (15) Business Days, and shall replace such personnel with a qualified substitute at no additional cost to Customer.
ARTICLE 4 — SERVICE PROVIDER'S OBLIGATIONS
Section 4.1 — Standard of Care
Service Provider shall perform all Services under this Agreement in a professional and workmanlike manner, consistent with the degree of skill and care ordinarily exercised by qualified professionals providing similar managed network services to enterprises of comparable size and complexity. Without limiting the foregoing, Service Provider shall comply with all applicable federal, state, provincial, and local laws, rules, regulations, and industry standards relating to telecommunications, data security, and the provision of managed network services in the United States and Canada.
Section 4.2 — Key Personnel
Service Provider shall designate a dedicated service delivery manager for the Northgate account, whose name and contact information shall be provided to Customer on or prior to the Closing Date. Service Provider shall not reassign, remove, or replace any key personnel assigned to the Northgate account without providing Customer with at least thirty (30) days' prior written notice and obtaining Customer's consent to any proposed replacement, which consent shall not be unreasonably withheld, conditioned, or delayed. For purposes of this Section, "key personnel" shall include the service delivery manager, the lead network architect, and the lead security engineer assigned to the Northgate account. In the event that key personnel depart Service Provider's employment, Service Provider shall promptly notify Customer and shall use commercially reasonable efforts to provide a qualified replacement within thirty (30) days.
Section 4.3 — Subcontracting
Service Provider shall not subcontract or delegate any material portion of the Services without the prior written consent of Customer, which consent may be withheld in Customer's reasonable discretion. For purposes of this Section, a "material portion" of the Services shall mean any component of the Services that, individually or in the aggregate, represents more than ten percent (10%) of the Annual Contract Value or involves access to Customer's Confidential Information or systems. Notwithstanding any approved subcontracting arrangement, Service Provider shall remain fully responsible for the performance of all Services, including the acts and omissions of any approved subcontractor, as if such Services were performed directly by Service Provider. Service Provider shall ensure that any approved subcontractor is bound by obligations of confidentiality, data security, and compliance at least as protective as those set forth in this Agreement.
Section 4.4 — Compliance with Laws
Service Provider shall comply with all applicable laws, statutes, regulations, ordinances, rules, and industry standards in the performance of the Services, including without limitation all applicable federal and state telecommunications regulations in the United States, applicable telecommunications regulations in Canada, and applicable data protection and privacy laws in both jurisdictions. Service Provider shall obtain and maintain all licenses, permits, and authorizations necessary for the performance of the Services. Service Provider shall promptly notify Customer of any material change in applicable law or regulation that may affect the performance of the Services or Customer's use of the ArcMesh Platform.
ARTICLE 5 — FEES AND PAYMENT
Section 5.1 — Fee Structure
In consideration of the Services to be provided by Service Provider under this Agreement, Customer shall pay to Service Provider the following Fees:
(a) Total Contract Value. The Total Contract Value over the five (5)-year Initial Term shall be Seventy-Five Million Dollars ($75,000,000).
(b) Annual Contract Value. The Annual Contract Value shall be Fifteen Million Dollars ($15,000,000) per Contract Year.
(c) Monthly Run-Rate. The Monthly Run-Rate shall be One Million Two Hundred Fifty Thousand Dollars ($1,250,000) per month.
(d) Fee Breakdown. The Annual Contract Value shall be allocated among the following fee categories:
Detailed pricing, including per-node pricing, volume tiers, and any applicable discounts, is set forth in Exhibit C.
Section 5.2 — Most Favored Nation Pricing
(a) MFN Warranty. Service Provider represents, warrants, and covenants that the per-unit pricing charged to Customer for the Managed Network Services shall not exceed the lowest per-unit pricing offered by Service Provider to any Comparable Customer. For purposes of this Section, a "Comparable Customer" means any customer of Service Provider that receives managed network services from Service Provider for a network comprising two hundred (200) or more managed nodes. Customer's network currently comprises three hundred forty (340) managed nodes.
(b) MFN Benchmark Period. The MFN pricing comparison shall be measured over a trailing twelve (12)-month period. Service Provider shall evaluate its compliance with this MFN obligation on an ongoing basis and shall promptly notify Customer if it becomes aware of any pricing differential.
(c) MFN Audit Right. Customer shall have the right to conduct an MFN audit once per calendar year to verify Service Provider's compliance with the MFN pricing obligation. The MFN audit shall encompass all similarly situated Comparable Customer contracts in effect during the applicable trailing twelve (12)-month benchmark period. If an MFN audit reveals a pricing differential greater than three percent (3%) between the pricing charged to Customer and the lowest pricing offered to any Comparable Customer, Service Provider shall: (i) issue a retroactive credit to Customer within forty-five (45) days of the determination of such violation, in an amount equal to the aggregate overpayment during the applicable benchmark period; and (ii) adjust prospective pricing within thirty (30) days of such determination to bring Customer's pricing into compliance with the MFN obligation.
(d) Audit Cost Allocation. If an MFN audit reveals a violation, the reasonable costs and expenses of such audit shall be borne by Service Provider. If no violation is found, the costs and expenses of the audit shall be borne by Customer.
(e) Dispute Resolution. In the event of a disagreement between the Parties regarding the results of an MFN audit or the existence or magnitude of a pricing differential, such dispute shall be resolved in accordance with the dispute resolution procedures set forth in Article 16. Pending resolution of any MFN dispute, Service Provider shall continue to provide the Services at the existing pricing, and any adjustment resulting from the resolution shall be applied retroactively.
(f) Detailed Terms. Detailed MFN pricing terms, including the methodology for determining per-unit pricing comparisons, the scope of the audit, and related procedures, are set forth in Schedule 3.
Section 5.3 — Invoicing and Payment Terms
(a) Invoicing. Service Provider shall invoice Customer on a monthly basis in arrears for all Fees accrued during the preceding calendar month. Each invoice shall be in a form reasonably acceptable to Customer and shall contain sufficient detail to permit Customer to verify the amounts invoiced, including itemization by fee category, applicable Service Credits, and any adjustments.
(b) Payment. Customer shall pay each valid, undisputed invoice within thirty (30) days of Customer's receipt thereof. Payment shall be made by wire transfer of immediately available funds to an account designated by Service Provider.
(c) Late Payments. Any undisputed amount not paid when due shall accrue interest at the lesser of one and one-half percent (1.5%) per month or the maximum rate permitted by applicable law, calculated from the date such amount was due until the date of actual payment.
(d) Disputed Amounts. Customer may withhold payment of any amount that Customer disputes in good faith, pending resolution of such dispute in accordance with Section 16. Customer shall promptly notify Service Provider in writing of any disputed amount, specifying the nature and basis of the dispute with reasonable particularity. All undisputed portions of any invoice must be paid timely in accordance with this Section 5.3, notwithstanding any pending dispute regarding other portions of such invoice.
Section 5.4 — Annual Escalation
Fees shall be subject to annual escalation commencing on the second (2nd) Contract Year, as set forth in Exhibit C. Annual escalation shall not exceed the percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U) as published by the United States Bureau of Labor Statistics for the twelve (12)-month period ending on the last day of the immediately preceding Contract Year, plus [●]% per Contract Year. The specific escalation percentage above CPI-U remains subject to negotiation between the Parties and shall be finalized prior to execution.
Section 5.5 — Taxes
(a) Exclusive of Taxes. All Fees set forth in this Agreement are exclusive of applicable sales, use, value-added (VAT), goods and services (GST), harmonized sales (HST), and similar taxes, duties, levies, and governmental charges.
(b) Customer Responsibility. Customer shall be responsible for all such taxes, except for taxes based on Service Provider's net income, capital, or franchise taxes. Customer shall pay all applicable taxes directly or reimburse Service Provider for taxes paid by Service Provider on Customer's behalf.
(c) Tax Gross-Up. If any withholding or deduction for taxes is required by applicable law to be made from any payment under this Agreement, the paying Party shall increase the payment so that the receiving Party receives the full amount that would otherwise have been due absent such withholding or deduction, net of any foreign tax credits available to the receiving Party.
(d) Cross-Border Considerations. The Parties acknowledge that certain Services may be delivered from Service Provider's NOC in Winnipeg, Manitoba, Canada, and that such delivery may give rise to Canadian GST/HST obligations. The Parties shall cooperate in good faith to determine the applicable tax treatment of cross-border service delivery and to minimize the overall tax burden to the extent permitted by applicable law.
(e) Tax Cooperation. Each Party shall cooperate with the other Party in connection with any tax filings, audits, or assessments relating to the Fees paid under this Agreement. Each Party shall provide to the other Party any tax forms, certificates, or other documentation reasonably requested for tax compliance purposes.
(f) Tax Indemnity. Each Party shall indemnify and hold harmless the other Party from and against any taxes, penalties, and interest that may be assessed against the other Party as a result of the indemnifying Party's failure to comply with its tax obligations under this Section 5.5.
(g) Tax Identification. For tax reporting purposes, Customer's Employer Identification Number (EIN) is 84-3291067 and Service Provider's Employer Identification Number (EIN) is 52-4178503.
ARTICLE 6 — SERVICE LEVELS AND CREDITS
Section 6.1 — Service Level Targets
Service Provider shall provide the Managed Network Services in accordance with the service levels set forth in this Article 6 and in Exhibit B (the "Service Level Agreement" or "SLA"). The primary SLA target for network availability shall be ninety-nine and ninety-five hundredths percent (99.95%) monthly uptime, measured on a per-Node basis across all three hundred forty (340) managed Nodes. Additional service level targets, including incident response times, mean time to repair (MTTR), and packet loss thresholds, are set forth in Exhibit B.
Section 6.2 — SLA Measurement and Reporting
(a) Monthly Reports. Service Provider shall provide Customer with monthly SLA performance reports within ten (10) Business Days following the end of each calendar month. Each report shall detail actual uptime percentages for each Node, any SLA failures and their root causes, aggregate network performance statistics, and any Service Credits earned during the reporting period.
(b) Measurement Methodology. Performance shall be measured against the 99.95% uptime threshold on a per-Node basis. The methodology for measuring uptime, including the definition of "downtime" and the tools and systems used for measurement, is set forth in Exhibit B.
(c) Scheduled Maintenance. Scheduled maintenance windows shall be excluded from uptime calculations; provided, however, that (i) Service Provider shall provide Customer with at least seventy-two (72) hours' advance notice of any scheduled maintenance window, (ii) scheduled maintenance shall be performed during non-business hours to the extent practicable, and (iii) the aggregate duration of scheduled maintenance windows shall not exceed eight (8) hours per calendar month per Node without Customer's prior written consent.
Section 6.3 — Service Credits
In the event that Service Provider fails to meet the 99.95% monthly uptime SLA target for any Node, Customer shall be entitled to Service Credits as follows:
Service Credits shall be calculated based on the total Monthly Run-Rate of One Million Two Hundred Fifty Thousand Dollars ($1,250,000). Service Credits shall be applied as a credit against the next monthly invoice following the month in which the SLA failure occurred. Service Provider shall calculate and apply Service Credits automatically based on the monthly SLA performance reports; Customer shall not be required to request Service Credits. In the event that Customer disagrees with Service Provider's calculation of Service Credits, Customer shall notify Service Provider in writing within thirty (30) days of receipt of the applicable SLA performance report, and the Parties shall resolve any disagreement in accordance with the dispute resolution procedures set forth in Article 16.
Section 6.4 — Service Credit Cap
The maximum aggregate annual Service Credits payable to Customer in any Contract Year shall be capped at thirty percent (30%) of the annual Managed Services Fees, or Three Million One Hundred Fifty Thousand Dollars ($3,150,000) per Contract Year (calculated as $10,500,000 × 30%). Service Credits shall be Customer's sole and exclusive monetary remedy for Service Provider's failure to meet the SLA targets set forth in this Article 6 and Exhibit B; provided, however, that the Service Credit cap and the sole-and-exclusive-remedy limitation shall not limit or restrict Customer's right to terminate this Agreement for Material Breach as set forth in Section 6.5 and Section 13.2.
Section 6.5 — Material Breach for Persistent SLA Failure
If Service Provider's uptime performance falls below ninety-nine and fifty hundredths percent (99.50%) for any Node for three (3) consecutive calendar months, such persistent failure shall constitute a Material Breach of this Agreement entitling Customer to terminate this Agreement for cause pursuant to Section 13.2. Customer shall provide Service Provider with written notice of such Material Breach, and Service Provider shall have a cure period of thirty (30) days from receipt of such notice to remedy the persistent SLA failure; provided, however, that if the failure is, by its nature, incapable of cure within such thirty (30)-day period, the cure period shall not apply, and Customer may exercise its termination right immediately upon expiration of the notice period.
Section 6.6 — Root Cause Analysis
In the event of any SLA failure, Service Provider shall provide Customer with a detailed root cause analysis report within five (5) Business Days of the occurrence of such SLA failure. The root cause analysis shall identify the cause of the failure, the corrective actions taken or planned, and the measures implemented to prevent recurrence. On a quarterly basis, Service Provider shall aggregate individual root cause analyses into a comprehensive trend analysis report, which shall be presented to Customer during the quarterly performance review meetings described in Section 3.1(d). The quarterly trend analysis shall identify recurring patterns, systemic issues, and recommendations for long-term improvement.
ARTICLE 7 — INTELLECTUAL PROPERTY
Section 7.1 — Service Provider IP
All intellectual property rights in and to the ArcMesh Platform, including all patents, copyrights, trademarks, trade secrets, know-how, and other proprietary rights therein, and all enhancements, modifications, updates, and derivative works thereof, shall remain the sole and exclusive property of Service Provider. Nothing in this Agreement shall be construed as transferring or assigning to Customer any ownership interest in any Service Provider intellectual property. Customer acknowledges and agrees that its rights with respect to the ArcMesh Platform are limited to the license granted under Section 3.2, and that no other rights, express or implied, are granted to Customer.
Section 7.2 — Customer IP
All data, content, configurations, and materials provided by Customer to Service Provider in connection with the Services (collectively, "Customer Data") shall remain the sole and exclusive property of Customer. Service Provider shall have no rights in or to Customer Data except as reasonably necessary for Service Provider to perform the Services in accordance with this Agreement. Service Provider shall not use Customer Data for any purpose other than the performance of the Services, and shall not disclose Customer Data to any third party except as expressly authorized by Customer or as required by applicable law.
Section 7.3 — License Grant
The license to use the ArcMesh Platform granted to Customer is as set forth in Section 3.2. The scope of such license is limited to use in connection with the three hundred forty (340) managed Nodes identified in Schedule 1, and Customer shall not use the ArcMesh Platform in connection with any additional nodes or locations without Service Provider's prior written consent and the execution of an appropriate amendment to this Agreement reflecting any additional fees.
Section 7.4 — Feedback and Improvements
Customer may, from time to time, provide Service Provider with suggestions, feedback, ideas, or recommendations regarding the ArcMesh Platform or the Services (collectively, "Feedback"). Customer hereby acknowledges and agrees that Service Provider shall own all rights, title, and interest in and to any improvements, modifications, enhancements, or new features developed by Service Provider arising from or based upon such Feedback, and that Customer shall have no ownership interest or rights in such improvements. Service Provider shall have no obligation to implement any Feedback, and the decision whether to incorporate any Feedback into the ArcMesh Platform or the Services shall be at Service Provider's sole discretion.
Section 7.5 — Third-Party IP
Service Provider represents and warrants that, to Service Provider's knowledge, the ArcMesh Platform and the Services as provided under this Agreement do not infringe, misappropriate, or otherwise violate any intellectual property rights of any third party. In the event that any third-party intellectual property infringement claim is asserted against Customer arising from Customer's use of the ArcMesh Platform or the Services in accordance with this Agreement, Service Provider's obligations shall be as set forth in Section 10.2(a) (Indemnification for IP Infringement). In addition to its indemnification obligations, Service Provider shall, at its expense and option, (i) obtain for Customer the right to continue using the ArcMesh Platform, (ii) modify the ArcMesh Platform so that it becomes non-infringing without materially diminishing its functionality, or (iii) replace the ArcMesh Platform with a non-infringing alternative of substantially equivalent functionality.
ARTICLE 8 — DATA SECURITY AND PRIVACY
Section 8.1 — Data Security Obligations
Service Provider shall comply with the Data Security Requirements set forth in Exhibit E throughout the Term and for a period of two (2) years following the expiration or termination of this Agreement with respect to any Customer Data remaining in Service Provider's possession or control. Without limiting the foregoing, Service Provider shall implement and maintain industry-standard security measures, including encryption of Customer Data in transit and at rest using AES-256 encryption (or equivalent), role-based access controls, multi-factor authentication for administrative access to the ArcMesh Platform and the managed network, network segmentation, intrusion detection and prevention systems, and continuous security monitoring. Service Provider shall conduct annual third-party security assessments of its systems and controls at Service Provider's expense, and shall provide Customer with a summary of the results of each such assessment within thirty (30) days of completion. Such assessments shall be performed by a qualified, independent third-party security firm reasonably acceptable to Customer.
Section 8.2 — Data Breach Notification
Service Provider shall notify Customer of any actual or reasonably suspected data breach or unauthorized access, use, disclosure, or destruction of Customer Data (a "Security Incident") within twenty-four (24) hours of Service Provider's discovery of such Security Incident. Such notification shall include, to the extent known at the time, (i) the nature and scope of the Security Incident, (ii) the data affected, (iii) the actions taken or planned to contain and remediate the Security Incident, and (iv) a designated point of contact for further communications. Service Provider shall cooperate fully with Customer in the investigation, remediation, and any required regulatory notification arising from any Security Incident. The costs and expenses of breach investigation, remediation, forensic analysis, regulatory notification, credit monitoring services, and any other response activities shall be borne by Service Provider where the Security Incident was caused by Service Provider's negligence, willful misconduct, or failure to comply with the Data Security Requirements.
Section 8.3 — Data Localization
All Customer Data shall be stored, processed, and transmitted only within the United States and Canada. Service Provider shall not transfer, store, process, or permit access to Customer Data from any location outside of the United States and Canada without Customer's prior written consent. Service Provider shall implement technical and administrative controls to ensure compliance with this data localization requirement, including restrictions on remote access by Service Provider personnel located outside of the United States and Canada.
Section 8.4 — Audit Rights
Customer shall have the right to audit Service Provider's compliance with the Data Security Requirements and this Article 8 once per calendar year upon not less than thirty (30) days' prior written notice to Service Provider. Such audits may be conducted by Customer's internal audit personnel or by a qualified third-party auditor engaged by Customer and reasonably acceptable to Service Provider. Service Provider shall provide reasonable cooperation and access to relevant facilities, systems, records, and personnel in connection with any such audit. In addition to the annual audit right, Customer may conduct additional audits following any Security Incident, without regard to the frequency limitation, upon reasonable notice to Service Provider. The costs of any audit conducted under this Section 8.4 shall be borne by Customer, unless the audit reveals a material non-compliance with the Data Security Requirements, in which case the costs shall be borne by Service Provider.
ARTICLE 9 — REPRESENTATIONS AND WARRANTIES
Section 9.1 — Mutual Representations and Warranties
Each Party represents and warrants to the other Party as of the Effective Date as follows:
(a) Organization and Standing. Such Party is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, and has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as presently conducted.
(b) Authority. Such Party has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution, delivery, and performance of this Agreement by such Party have been duly authorized by all necessary corporate action on the part of such Party.
(c) Enforceability. This Agreement constitutes a legal, valid, and binding obligation of such Party, enforceable against such Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
(d) No Conflict. The execution, delivery, and performance of this Agreement by such Party do not and will not (i) violate, conflict with, or result in a breach of any provision of such Party's organizational documents, (ii) violate any applicable law, regulation, or order, or (iii) conflict with, result in a breach of, or constitute a default under any material agreement to which such Party is a party.
Section 9.2 — Service Provider Representations and Warranties
Service Provider additionally represents and warrants to Customer as follows: