EXHIBIT C
PRICING SCHEDULE AND FEE STRUCTURE
to the
MASTER SERVICES AGREEMENT
dated June 9, 2023
by and between
NORTHGATE AMERICAS, INC.
and
CEDARPOINT SYSTEMS INTEGRATION, INC.
This Exhibit C (this "Pricing Schedule") is attached to and incorporated into that certain Master Services Agreement dated June 9, 2023 (the "Agreement"), by and between Northgate Americas, Inc., a Delaware corporation ("Customer"), and Cedarpoint Systems Integration, Inc., a Delaware corporation ("Service Provider"). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement. In the event of any conflict between the terms of this Exhibit C and the body of the Agreement, the terms of the Agreement shall control unless this Exhibit C expressly states otherwise with specific reference to the conflicting provision of the Agreement.
This Pricing Schedule sets forth the fees, payment terms, escalation mechanisms, most favored nation pricing protections, service credit structure, escrow obligations, and related financial terms applicable to the services and licenses to be provided by Service Provider to Customer under the Agreement and the related Exhibits thereto.
SECTION 1 — TOTAL CONTRACT VALUE AND ANNUAL CONTRACT VALUE
1.1 Total Contract Value. The total contract value for the services and licenses to be provided by Service Provider to Customer during the five (5)-year Initial Term of the Agreement (the "Total Contract Value" or "TCV") is Seventy-Five Million United States Dollars ($75,000,000.00). The Initial Term commences on June 9, 2023 (the "Commencement Date") and expires on June 8, 2028, unless earlier terminated or extended in accordance with the terms of the Agreement.
1.2 Annual Contract Value. The annual contract value for the services and licenses under the Agreement (the "Annual Contract Value" or "ACV") is Fifteen Million United States Dollars ($15,000,000.00) per Contract Year, subject to adjustment in accordance with Section 6 (Annual Escalation), Section 7 (Most Favored Nation Pricing), and Section 10 (Node Adjustments) of this Exhibit C.
1.3 Monthly Run-Rate. The monthly run-rate for the services and licenses under the Agreement shall be One Million Two Hundred Fifty Thousand United States Dollars ($1,250,000.00) per calendar month, calculated as the ACV of $15,000,000.00 divided by twelve (12) calendar months, subject to proration for any partial month at the beginning or end of the Term and to adjustment in accordance with the provisions of this Exhibit C.
1.4 Definition of Contract Year. For purposes of this Exhibit C, each "Contract Year" shall mean each successive twelve (12)-month period beginning on the Commencement Date, as follows:
1.5 Renewal Term Pricing. Fees during any Renewal Term (including the two (2) automatic two (2)-year renewal periods set forth in Section 3.2 of the Agreement) shall be calculated by applying the annual escalation mechanism set forth in Section 6 of this Exhibit C to the ACV in effect at the expiration of the immediately preceding term, unless the parties otherwise agree in writing to alternative Renewal Term pricing. Nothing in this Section 1.5 shall limit the applicability of the most favored nation pricing warranty set forth in Section 7 of this Exhibit C during any Renewal Term.
SECTION 2 — FEE COMPONENTS
The ACV of $15,000,000.00 per Contract Year is comprised of three (3) fee components, each as described in detail in Sections 2.1, 2.2, and 2.3 below and summarized in the fee summary table set forth in Section 2.4.
2.1 Managed Network Services Fees
(a) Annual Fee. The annual fee for Managed Network Services during each Contract Year shall be Ten Million Five Hundred Thousand United States Dollars ($10,500,000.00), representing seventy percent (70%) of the ACV ($10,500,000.00 ÷ $15,000,000.00 = 70%).
(b) Monthly Amount. The monthly fee for Managed Network Services shall be Eight Hundred Seventy-Five Thousand United States Dollars ($875,000.00) per calendar month ($10,500,000.00 ÷ 12 = $875,000.00), subject to proration for any partial month.
(c) Scope of Managed Network Services. The Managed Network Services fee covers all of the following services, as more particularly described in Exhibit A (Statement of Work) to the Agreement:
(i) Managed wide area network (WAN) operations, including all routing, switching, and transport management activities necessary to maintain and operate Customer's North American network infrastructure;
(ii) Twenty-four hours per day, seven days per week, three hundred sixty-five days per year (24×7×365) Network Operations Center (NOC) monitoring from Service Provider's facilities located in Reston, Virginia, United States and Winnipeg, Manitoba, Canada, including real-time traffic monitoring, event correlation, fault management, and capacity reporting;
(iii) Software-defined wide area network (SD-WAN) deployment, configuration, optimization, and ongoing management across Customer's network infrastructure, including policy management, application-aware routing, and dynamic path selection;
(iv) Cybersecurity monitoring, threat detection, and incident response services, including continuous security event monitoring, vulnerability scanning, intrusion detection and prevention, distributed denial-of-service (DDoS) mitigation, and coordinated incident response in accordance with the incident response protocols set forth in Exhibit A;
(v) Management and support of three hundred forty (340) managed nodes located across twenty-eight (28) U.S. states and three (3) Canadian provinces, including all hardware monitoring, firmware updates, configuration management, and remote remediation activities;
(vi) Assignment of a dedicated service delivery manager to the Customer account, who shall serve as Customer's primary point of contact with Service Provider for all service delivery, escalation, and operational matters, and who shall be available during Customer's standard business hours (Monday through Friday, 8:00 a.m. to 6:00 p.m. Eastern Time, excluding U.S. federal holidays) and on an on-call basis outside of standard business hours for critical incidents; and
(vii) All other managed network services described in Exhibit A that are not specifically categorized as ArcMesh Platform License and Maintenance or Professional Services.
(d) Per-Node Reference Rate. For internal benchmarking, planning, and node adjustment purposes, the per-node reference rate is calculated as $10,500,000.00 ÷ 340 nodes = approximately $30,882.35 per node per annum (approximately $2,573.53 per node per month). The per-node reference rate is provided for informational and calculation purposes only; all billing for Managed Network Services shall be on an aggregate basis at the monthly fee set forth in Section 2.1(b), subject to adjustment for node additions or reductions in accordance with Section 10 of this Exhibit C.
2.2 ArcMesh Platform License and Maintenance Fees
(a) Annual Fee. The annual fee for the ArcMesh Platform license and associated maintenance during each Contract Year shall be Three Million United States Dollars ($3,000,000.00), representing twenty percent (20%) of the ACV ($3,000,000.00 ÷ $15,000,000.00 = 20%).
(b) Monthly Amount. The monthly fee for ArcMesh Platform License and Maintenance shall be Two Hundred Fifty Thousand United States Dollars ($250,000.00) per calendar month ($3,000,000.00 ÷ 12 = $250,000.00), subject to proration for any partial month.
(c) License Grant. The ArcMesh Platform License and Maintenance fee includes a perpetual, non-exclusive, non-transferable license to Service Provider's proprietary ArcMesh platform, version 4.2, and any updates, upgrades, patches, or new versions thereof provided by Service Provider during the Term (each such release, an "ArcMesh Update"), for use by Customer solely in connection with the managed network services provided under the Agreement. The license shall remain in effect following expiration or termination of the Agreement, subject to the terms and conditions of the Agreement, including the intellectual property and license provisions set forth in Section 9 thereof.
(d) Maintenance and Support. The ArcMesh Platform License and Maintenance fee includes all maintenance services associated with the ArcMesh platform, including the provision of patches, bug fixes, security updates, version upgrades, and feature enhancements as released by Service Provider during the Term. Service Provider shall provide such maintenance in accordance with the release schedule and support protocols set forth in Exhibit A.
(e) License Restrictions. Customer's use of the ArcMesh platform is subject to the following restrictions:
(i) Use of the ArcMesh platform shall be limited to Customer's North American network operations as specified in the Agreement and Exhibit A, and shall not extend to any other geographic regions, business units, or affiliates of Customer without Service Provider's prior written consent;
(ii) Customer shall not sublicense, assign, or otherwise transfer the ArcMesh platform license, in whole or in part, to any third party without Service Provider's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed in the case of a permitted assignment under the Agreement;
(iii) Customer shall not reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code of the ArcMesh platform, except to the extent expressly permitted by applicable law notwithstanding a contractual prohibition; and
(iv) Customer shall comply with all other license terms and restrictions set forth in Section 9 of the Agreement.
2.3 Professional Services Fees
(a) Annual Fee. The annual fee for Professional Services during each Contract Year shall be One Million Five Hundred Thousand United States Dollars ($1,500,000.00), representing ten percent (10%) of the ACV ($1,500,000.00 ÷ $15,000,000.00 = 10%) (the "Annual Professional Services Allocation").
(b) Monthly Amount. The monthly fee for Professional Services shall be One Hundred Twenty-Five Thousand United States Dollars ($125,000.00) per calendar month ($1,500,000.00 ÷ 12 = $125,000.00), subject to proration for any partial month.
(c) Scope of Professional Services. The Annual Professional Services Allocation covers the following professional services, as more particularly described in Exhibit A (Statement of Work) to the Agreement:
(i) Implementation and deployment services necessary to fully operationalize the managed network services and ArcMesh platform within Customer's network environment, including site surveys, hardware installation coordination, software configuration, and cutover planning;
(ii) Migration services related to the transition of Customer's network infrastructure from the legacy MPLS infrastructure operated by Greystone Halcyon Software to the managed network services and SD-WAN architecture provided by Service Provider under the Agreement, including development of migration plans, parallel operation periods, data migration, and decommissioning support;
(iii) Ongoing network optimization services, including traffic analysis, capacity planning, performance tuning, and architecture recommendations designed to improve network performance, reduce latency, and enhance the resiliency of Customer's network;
(iv) Quarterly performance reviews, to be conducted by Service Provider's senior engineering team and delivered to Customer's IT leadership team, summarizing network performance metrics, SLA compliance, incident analysis, capacity utilization trends, and recommendations for optimization; and
(v) Quarterly optimization reports, documenting the results of optimization activities performed during the preceding quarter and identifying opportunities for further improvement.
(d) Additional Professional Services. Any professional services requested by Customer that are beyond the scope of the Annual Professional Services Allocation, or that exceed the dollar value of the Annual Professional Services Allocation in any given Contract Year, shall be performed by Service Provider pursuant to a mutually agreed Change Order executed by both parties in accordance with the change management procedures set forth in the Agreement. Such additional professional services shall be provided at Service Provider's then-current professional services rates, which rates shall not exceed the following caps:
(i) Senior Engineers (defined as Service Provider personnel with ten (10) or more years of relevant experience and holding at least one of the following certifications: CCIE, CCNP Enterprise, PCNSE, or equivalent): $275.00 per hour; and
(ii) Standard Engineers (defined as Service Provider personnel who do not qualify as Senior Engineers): $195.00 per hour.
The foregoing hourly rate caps shall remain in effect during the Initial Term. During any Renewal Term, such rate caps shall be subject to escalation in accordance with Section 6 of this Exhibit C, applied in the same manner as the ACV escalation.
(e) Unused Professional Services Hours. Any unused portion of the Annual Professional Services Allocation in a given Contract Year shall not roll over or carry forward to subsequent Contract Years. Customer acknowledges that the Annual Professional Services Allocation is a fixed fee and not an hourly bank, and that the full Annual Professional Services Allocation is due and payable regardless of Customer's actual utilization of professional services during any Contract Year.
2.4 Fee Summary Table
The following table summarizes the fee components comprising the ACV for each Contract Year during the Initial Term (subject to adjustment in accordance with Sections 6, 7, and 10 of this Exhibit C):
The foregoing amounts reflect Contract Year 1 pricing and are subject to annual escalation commencing with Contract Year 2 in accordance with Section 6 of this Exhibit C.
SECTION 3 — INVOICING
3.1 Invoice Schedule
(a) Service Provider shall submit invoices to Customer on a monthly basis, in arrears, no later than the tenth (10th) business day following the end of each calendar month in which the applicable services were performed or licenses made available. For purposes of this Section 3, "business day" means any day other than a Saturday, Sunday, or U.S. federal holiday.
(b) Each invoice shall separately itemize the following fee components, together with the applicable amounts due for the billing period:
(i) Managed Network Services fees;
(ii) ArcMesh Platform License and Maintenance fees; and
(iii) Professional Services fees.
(c) Each invoice shall reference the Agreement (including its effective date of June 9, 2023), this Exhibit C, and the applicable Contract Year in which the billing period falls, and shall clearly identify the billing period covered by the invoice (i.e., the calendar month for which services are being billed).
(d) Invoices shall be delivered electronically in portable document format (PDF) to the email address designated by Customer's Vice President of Procurement, North America. As of the date of this Exhibit C, the designated contact for invoice delivery is:
Deirdre Kwan Vice President of Procurement, North America Northgate Americas, Inc.
Email: dkwan@northgateamericas.com
Customer may change the designated invoice recipient by providing written notice to Service Provider in accordance with the notice provisions of the Agreement.
(e) In the event that Service Provider fails to submit an invoice within the timeframe specified in Section 3.1(a), Service Provider shall not forfeit its right to payment for the applicable billing period; however, Customer shall not be required to pay such late-submitted invoice until thirty (30) calendar days after actual receipt thereof.
3.2 Invoice Requirements
(a) Each invoice submitted by Service Provider to Customer must include, at a minimum, the following information:
(i) Service Provider's full legal name: Cedarpoint Systems Integration, Inc.;
(ii) Service Provider's Employer Identification Number (EIN): 52-4178503;
(iii) Remittance instructions, including the name of the receiving financial institution, ABA routing number, account number, account name, and any applicable wire transfer reference information;
(iv) A unique invoice number, assigned sequentially or in accordance with Service Provider's standard invoicing system;
(v) The billing period covered by the invoice (i.e., the applicable calendar month);
(vi) An itemization of fees by fee component, as described in Section 3.1(b);
(vii) All applicable taxes, separately stated, in accordance with Section 5 of this Exhibit C;
(viii) Any service credits applied to the invoice, with reference to the specific SLA metrics and the credit calculation methodology set forth in Exhibit B (Service Level Agreement) and Section 8 of this Exhibit C; and
(ix) The total amount due after application of any credits and taxes.
(b) Supporting Documentation. Each invoice shall be accompanied by the following supporting documentation:
(i) A monthly service report summarizing the services performed by Service Provider during the applicable billing period, including a summary of incidents, changes, and service requests processed;
(ii) An SLA compliance report detailing Service Provider's performance against each service level target set forth in Exhibit B for the applicable billing period, including network availability statistics by node, response time metrics, and resolution time data; and
(iii) Node availability data, including a summary of the total number of managed nodes during the billing period, the aggregate uptime and downtime for each node, and any nodes added or removed during the billing period.
(c) Service Provider acknowledges and agrees that Customer's obligation to pay an invoice is contingent upon the invoice meeting the requirements set forth in this Section 3.2. Customer shall promptly notify Service Provider of any deficiency in an invoice, and Service Provider shall correct and resubmit the invoice within five (5) business days of receipt of such notice. The payment due date for a corrected and resubmitted invoice shall be calculated from the date of Customer's receipt of the corrected invoice.
SECTION 4 — PAYMENT TERMS
4.1 Payment Due Date
(a) Customer shall pay each properly submitted invoice within thirty (30) calendar days following Customer's receipt of such invoice ("Net 30"). Payments shall be deemed received by Service Provider on the date the wire transfer is initiated by Customer's financial institution.
(b) All payments shall be made in United States dollars (USD) by wire transfer to Service Provider's designated bank account, as specified in Service Provider's remittance instructions included on each invoice. Service Provider may change its designated bank account by providing Customer with at least thirty (30) days' prior written notice, including updated wire transfer instructions.
(c) Customer shall not be required to make any payment by check, cash, automated clearing house (ACH) transfer, or any other method of payment unless mutually agreed in writing by the parties.
4.2 Late Payments
(a) Any amount not paid by Customer when due in accordance with Section 4.1 shall accrue interest at the rate equal to the lesser of (i) one percent (1.0%) per month (equivalent to twelve percent (12%) per annum), compounded monthly, or (ii) the maximum rate of interest permitted by applicable law. Interest shall be calculated on the unpaid amount from the date on which payment was originally due until the date on which payment is received in full by Service Provider.
(b) Notwithstanding the foregoing, Service Provider shall provide Customer with written notice of any past-due amount, identifying the invoice number, the amount past due, and the date on which payment was originally due. Customer shall have ten (10) business days from the date of Customer's receipt of such written notice to cure the past-due payment before interest begins to accrue. If Customer remits payment in full within such ten (10)-business-day cure period, no interest shall accrue on such past-due amount.
(c) The accrual of interest under this Section 4.2 shall not constitute a waiver of any other rights or remedies available to Service Provider under the Agreement, including the right to suspend services or terminate the Agreement for material breach in accordance with the terms thereof.
4.3 Disputed Amounts
(a) Customer may, in good faith, withhold payment of any amount that Customer reasonably disputes, provided that Customer satisfies all of the following conditions:
(i) Customer shall pay all undisputed amounts reflected on the applicable invoice when due in accordance with Section 4.1;
(ii) Customer shall deliver to Service Provider written notice specifying: (A) the disputed amount, (B) the invoice number and billing period to which the disputed amount relates, and (C) a detailed description of the basis for the dispute, including any supporting documentation, within fifteen (15) calendar days of Customer's receipt of the applicable invoice; and
(iii) Customer shall cooperate with Service Provider in good faith to resolve the dispute within thirty (30) calendar days following Service Provider's receipt of Customer's written dispute notice (the "Dispute Resolution Period").
(b) During the Dispute Resolution Period, each party shall designate a representative with authority to resolve the dispute, and such representatives shall meet (in person or by teleconference) at least once during the Dispute Resolution Period to attempt to reach a mutually satisfactory resolution.
(c) Any disputed amounts that are ultimately determined to be owed to Service Provider (whether by mutual agreement of the parties, by an independent auditor, or by a court of competent jurisdiction) shall be paid by Customer within ten (10) business days of such determination, together with interest calculated in accordance with Section 4.2 from the original due date of the applicable invoice through the date of payment.
(d) If the parties are unable to resolve a dispute within the Dispute Resolution Period, either party may escalate the dispute in accordance with the dispute resolution procedures set forth in the Agreement.
4.4 Set-Off. Customer may set off against amounts owed to Service Provider under this Exhibit C the following amounts, in each case upon reasonable prior written notice to Service Provider:
(a) Any service credits earned by Customer pursuant to Exhibit B (Service Level Agreement) and Section 8 of this Exhibit C;
(b) Any retroactive credits owed to Customer pursuant to the most favored nation pricing provisions set forth in Section 7 of this Exhibit C; and
(c) Any indemnification amounts owed by Service Provider to Customer under Section 11 of the Agreement that have been finally determined or mutually agreed.
Customer's set-off notice shall specify the amount being set off, the basis for the set-off (including the applicable Exhibit, Section, or Agreement provision), and the invoice against which the set-off is being applied. Service Provider shall reflect the set-off on its records and on the next applicable invoice.
SECTION 5 — TAXES
5.1 General Tax Provisions
(a) All fees set forth in this Exhibit C are exclusive of applicable taxes. The fees stated herein represent the pre-tax amounts payable by Customer to Service Provider for the services and licenses provided under the Agreement.
(b) Customer shall be responsible for the payment of all sales taxes, use taxes, value-added taxes (VAT), goods and services taxes (GST), harmonized sales taxes (HST), provincial sales taxes (PST), and any similar indirect taxes imposed on the services and license fees under applicable federal, state, provincial, local, or foreign law. Customer shall remit such taxes to Service Provider in addition to the fees set forth in this Exhibit C, or directly to the applicable taxing authority where required by law.
(c) Service Provider shall be solely responsible for all taxes based on Service Provider's net income, gross income, gross receipts, franchise taxes, privilege taxes, capital taxes, or similar taxes imposed on Service Provider by any taxing jurisdiction, and for all employment-related taxes (including payroll taxes, unemployment insurance contributions, workers' compensation premiums, and similar assessments) for Service Provider's personnel. Such taxes are the sole obligation of Service Provider and shall not be passed through to Customer.
5.2 Tax Invoicing
(a) Service Provider shall separately state on each invoice all applicable sales, use, GST, HST, PST, or similar taxes, with reference to the applicable jurisdiction and the tax rate applied. Service Provider shall not include taxes within the line-item fee amounts for Managed Network Services, ArcMesh Platform License and Maintenance, or Professional Services, but shall instead present all such taxes as a separate line item or line items on each invoice.
(b) For managed network services and ArcMesh platform license fees allocated to managed nodes located in Canadian provinces (including, as of the date of this Exhibit C, nodes in the provinces of Ontario, British Columbia, and Alberta), Service Provider shall charge and remit applicable GST and HST in accordance with the Excise Tax Act (Canada) and applicable provincial legislation. Service Provider shall provide Customer with invoices that comply with the requirements of the Canada Revenue Agency for purposes of enabling Customer to claim input tax credits to the extent permitted by applicable law. Service Provider's GST/HST registration number shall be included on all invoices that include Canadian tax charges.
(c) If Customer provides Service Provider with a valid exemption certificate, direct pay permit, or similar documentation establishing Customer's exemption from or direct payment obligation for any applicable tax, Service Provider shall not charge such tax on invoices issued after its receipt and verification of such documentation.
5.3 Tax Withholding
(a) If Customer is required by applicable law to withhold or deduct any taxes from payments to Service Provider (including, without limitation, any backup withholding required under the Internal Revenue Code of 1986, as amended, or any withholding required under applicable foreign law), Customer shall:
(i) Make such withholding or deduction from the payment otherwise due to Service Provider;
(ii) Remit the withheld or deducted amount to the appropriate taxing authority in a timely manner and in accordance with applicable law; and
(iii) Promptly provide Service Provider with documentation evidencing such withholding or deduction, including copies of any tax receipts, withholding certificates, or other forms received from the applicable taxing authority.
(b) The parties shall cooperate in good faith to minimize any applicable withholding taxes, including by providing any applicable tax forms (such as IRS Form W-9, IRS Form W-8BEN-E, or equivalent foreign forms), certificates of tax residence, or treaty claims that may reduce or eliminate withholding obligations.
5.4 Tax Indemnity
Each party shall indemnify, defend, and hold harmless the other party from and against any taxes, penalties, interest, and related costs and expenses (including reasonable attorneys' fees) resulting from the indemnifying party's failure to comply with its respective tax obligations under this Section 5. This indemnification obligation shall survive the expiration or termination of the Agreement for a period equal to the applicable statute of limitations for the relevant tax obligations, plus any extensions thereof.
5.5 Cross-Border Considerations
(a) The parties acknowledge that payments from Customer (Northgate Americas, Inc., EIN 84-3291067, a Delaware corporation) to Service Provider (Cedarpoint Systems Integration, Inc., EIN 52-4178503, a Delaware corporation) are domestic United States payments and, as such, are not subject to U.S. federal withholding tax under Section 1441 or 1442 of the Internal Revenue Code. Provided, however, that any upstream flow of funds from Customer to its ultimate parent, Northgate Telecommunications PLC, a public limited company organized under the laws of England and Wales, shall be governed by the applicable provisions of the Convention between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (the "U.S.-UK Income Tax Treaty"), and shall not impose any additional obligations on Service Provider.
(b) Service fees attributable to services delivered from Service Provider's Network Operations Center located in Winnipeg, Manitoba, Canada shall be treated in accordance with applicable Canadian federal and provincial tax rules, including the Income Tax Act (Canada) and the Canada-United States Tax Convention, to the extent applicable. The parties shall cooperate in good faith to ensure the proper characterization of such service fees for Canadian tax purposes and to achieve compliance with all applicable Canadian reporting and remittance obligations.
SECTION 6 — ANNUAL ESCALATION
6.1 Escalation Mechanism
(a) Commencing with Contract Year 2 and continuing for each successive Contract Year thereafter during the Initial Term and any Renewal Term, the ACV (and each fee component comprising the ACV, as set forth in Section 2 of this Exhibit C) shall be subject to an annual escalation. The annual escalation percentage for each Contract Year shall be equal to the lesser of:
(i) The percentage increase in the United States Consumer Price Index for All Urban Consumers (CPI-U), All Items (1982–84 = 100), not seasonally adjusted, as published by the U.S. Bureau of Labor Statistics, for the twelve (12)-month period ending on March 31 of the then-current Contract Year (the "CPI-U Increase"); or
(ii) Three percent (3.0%).
For the avoidance of doubt, if the CPI-U decreases during the applicable twelve (12)-month measurement period, the escalation for the applicable Contract Year shall be zero percent (0%), and no reduction shall be applied to the ACV.
(b) The annual escalation shall be applied proportionally and uniformly to each fee component (Managed Network Services fees, ArcMesh Platform License and Maintenance fees, and Professional Services fees), such that each component increases by the same percentage. The escalated ACV for each Contract Year shall become the base upon which the escalation for the next Contract Year is calculated (i.e., escalations are compounding).
Illustrative Example (for reference only): If the CPI-U Increase for the twelve (12)-month period ending March 31, 2024 is 2.5%, the Contract Year 2 ACV would be $15,000,000.00 × 1.025 = $15,375,000.00. If the CPI-U Increase for the twelve (12)-month period ending March 31, 2025 is 4.1%, the escalation would be capped at 3.0%, and the Contract Year 3 ACV would be $15,375,000.00 × 1.03 = $15,836,250.00.
6.2 Notice of Escalation
(a) Service Provider shall provide Customer with written notice of the applicable escalation percentage and the resulting adjusted ACV and fee component amounts no later than sixty (60) days prior to the commencement of each Contract Year. Such notice shall include:
(i) The CPI-U data relied upon, including the applicable twelve (12)-month measurement period, the beginning and ending CPI-U index values, and the calculated CPI-U Increase percentage;
(ii) The applicable escalation percentage (i.e., the lesser of the CPI-U Increase and 3.0%);
(iii) The adjusted ACV for the upcoming Contract Year;
(iv) The adjusted monthly fee for each fee component; and
(v) A certification by an authorized officer of Service Provider that the escalation has been calculated in accordance with this Section 6.
(b) If Service Provider fails to provide the escalation notice within the timeframe specified in Section 6.2(a), the ACV and fee component amounts in effect during the prior Contract Year shall continue in effect until Service Provider provides proper notice in accordance with this Section 6.2. Upon receipt of a compliant escalation notice, the escalation shall become effective on the first day of the calendar month following the expiration of a sixty (60)-day notice period from the date of Customer's receipt of such notice. Service Provider shall not be entitled to retroactive application of any escalation for which timely notice was not provided.
6.3 Escalation Cap
In no event shall the cumulative escalation over the Initial Term (Contract Years 1 through 5) cause the ACV to exceed one hundred fifteen percent (115%) of the Contract Year 1 ACV, which is equivalent to a maximum ACV of Seventeen Million Two Hundred Fifty Thousand United States Dollars ($17,250,000.00) per annum during the Initial Term. If the cumulative effect of annual escalations under Section 6.1 would cause the ACV to exceed $17,250,000.00 in any Contract Year during the Initial Term, the escalation for such Contract Year shall be reduced to the extent necessary to keep the ACV at or below $17,250,000.00. This escalation cap applies only to the Initial Term; escalation during any Renewal Term shall be calculated in accordance with Section 6.1 without reference to the fifteen percent (15%) cumulative cap applicable to the Initial Term.
SECTION 7 — MOST FAVORED NATION PRICING
7.1 MFN Warranty
(a) Service Provider represents and warrants to Customer that the per-unit pricing for Managed Network Services set forth in this Exhibit C (calculated on a per-node, per-annum basis) is, as of the Commencement Date, and shall at all times during the Term remain, no greater than the lowest per-unit pricing offered or charged by Service Provider to any other customer of comparable volume during the applicable MFN Benchmark Period (as defined in Section 7.2).
(b) For purposes of this Section 7, "comparable volume" means any customer of Service Provider that has two hundred (200) or more managed nodes and is receiving substantially similar managed network services from Service Provider, including, at a minimum, managed WAN operations, NOC monitoring, and SD-WAN management. In determining whether another customer's managed network services are "substantially similar," the parties shall consider the overall scope, complexity, and service levels of the engagement, but shall not require that every feature or service be identical.
(c) The most favored nation warranty set forth in this Section 7 applies only to the per-unit pricing of Managed Network Services and does not apply to ArcMesh Platform License and Maintenance fees or Professional Services fees.
7.2 MFN Benchmark Period
The most favored nation pricing comparison shall be measured over the trailing twelve (12)-month period ending on the last day of each Contract Year (each such period, an "MFN Benchmark Period"). For Contract Year 1, the MFN Benchmark Period shall be the twelve (12)-month period ending June 8, 2024. For each subsequent Contract Year, the MFN Benchmark Period shall be the twelve (12)-month period ending on the last day of such Contract Year.
7.3 Pricing Differential Threshold and Remedies
(a) If a most favored nation audit conducted pursuant to Section 7.5 reveals that the per-unit Managed Network Services pricing charged to Customer during the applicable MFN Benchmark Period exceeds the lowest comparable-volume per-unit pricing offered or charged by Service Provider to any other customer during the same MFN Benchmark Period by more than three percent (>3%) (a "MFN Violation"), Service Provider shall take the following corrective actions:
(i) Retroactive Credit. Service Provider shall issue a retroactive credit to Customer for the full amount of the pricing differential (i.e., the difference between the per-unit pricing charged to Customer and the lowest comparable-volume per-unit pricing, multiplied by the number of Customer's managed nodes, for the entire applicable MFN Benchmark Period). Such credit shall be issued within forty-five (45) calendar days of the date on which the MFN Violation is determined.
(ii) Prospective Adjustment. Service Provider shall adjust the prospective per-unit Managed Network Services pricing charged to Customer to eliminate the pricing differential, such that Customer's per-unit pricing is equal to or less than the lowest comparable-volume per-unit pricing. Such prospective adjustment shall be effective within thirty (30) calendar days of the date on which the MFN Violation is determined and shall remain in effect for the remainder of the Term, subject to further adjustment in accordance with this Section 7.
(b) Credits issued pursuant to Section 7.3(a)(i) may be applied by Customer as a set-off against future invoices in accordance with Section 4.4 of this Exhibit C, or, at Customer's election, may be paid directly by Service Provider to Customer within forty-five (45) calendar days of the determination of the MFN Violation.
7.4 MFN Pricing Differential Within Tolerance
A pricing differential of three percent (3%) or less between the per-unit Managed Network Services pricing charged to Customer and the lowest comparable-volume per-unit pricing during the applicable MFN Benchmark Period shall not constitute an MFN Violation and shall not entitle Customer to a retroactive credit or prospective pricing adjustment under Section 7.3. The three percent (3%) tolerance acknowledges that minor pricing variations may result from legitimate differences in contract structure, service configuration, or market timing.
7.5 Audit Rights
Customer shall have the right to conduct an audit of Service Provider's pricing records to verify Service Provider's compliance with the most favored nation warranty set forth in this Section 7, subject to the following terms and conditions:
(a) Frequency. Customer may conduct no more than one (1) most favored nation audit per calendar year.
(b) Independent Auditor. Each most favored nation audit shall be conducted by an independent third-party auditor selected by Customer and reasonably acceptable to Service Provider. Service Provider shall not unreasonably withhold, condition, or delay its acceptance of Customer's proposed auditor. The auditor must be a nationally recognized accounting or consulting firm with experience in technology services pricing and shall not be a direct competitor of Service Provider.
(c) Access to Records. Service Provider shall provide the independent auditor with access to all relevant pricing records, customer contracts (with confidential business terms of other customers redacted to the extent not relevant to the per-unit pricing comparison), rate cards, discount schedules, and supporting documentation necessary to verify compliance with the most favored nation warranty, within fifteen (15) business days of Customer's written request for such audit. Service Provider shall make its personnel reasonably available to respond to the auditor's questions and requests for clarification.
(d) Cost Allocation. If the audit reveals an MFN Violation (i.e., a pricing differential exceeding 3%), the reasonable costs and expenses of the audit (including the auditor's fees) shall be borne by Service Provider. If the audit does not reveal an MFN Violation, the reasonable costs and expenses of the audit shall be borne by Customer.
(e) Audit Results. The results of each most favored nation audit shall be shared with both parties simultaneously in writing. The auditor's determination of whether an MFN Violation has occurred shall be final and binding on both parties, absent manifest error.
7.6 Confidentiality of MFN Data
(a) All pricing information, customer data, contract terms, and other confidential or proprietary information of Service Provider disclosed to Customer or to the independent auditor in connection with a most favored nation audit conducted pursuant to this Section 7 shall be treated as Confidential Information of Service Provider, as defined in and subject to the confidentiality obligations set forth in Section 12 of the Agreement and the Mutual Non-Disclosure Agreement between the parties dated February 22, 2023 (the "NDA").
(b) Prior to commencing any most favored nation audit, the independent auditor shall execute a confidentiality undertaking in a form reasonably acceptable to both parties, pursuant to which the auditor agrees to: (i) use the disclosed information solely for the purpose of conducting the most favored nation pricing audit; (ii) not disclose any such information to any third party, including Customer, except in the form of the auditor's conclusions regarding whether an MFN Violation has occurred and the amount of any pricing differential; and (iii) return or destroy all copies of such information upon completion of the audit.
(c) Customer acknowledges that the most favored nation audit process may expose Service Provider to significant competitive risk, and Customer agrees to exercise its audit rights responsibly and in good faith.
SECTION 8 — SERVICE CREDITS
8.1 General. Service credits shall be calculated and applied in accordance with the service level targets, measurement methodologies, and credit formulas set forth in Exhibit B (Service Level Agreement) to the Agreement. This Section 8 sets forth certain additional terms governing the calculation, application, and limitations of service credits under this Exhibit C.
8.2 Maximum Aggregate Annual Service Credits. The maximum aggregate service credits payable by Service Provider (whether through invoice credits or direct payment) during any single Contract Year shall not exceed Three Million One Hundred Fifty Thousand United States Dollars ($3,150,000.00), which amount is equal to thirty percent (30%) of the annual Managed Network Services fee of $10,500,000.00. For the avoidance of doubt, the maximum aggregate annual service credit cap shall be calculated based on the Managed Network Services fee for the applicable Contract Year as adjusted for annual escalation, node adjustments, or other applicable modifications.
8.3 Application of Service Credits. Service credits shall be applied as a credit against the next monthly invoice following the determination of the applicable credit amount. In the alternative, Customer may elect to apply service credits as a set-off against any amounts owed to Service Provider pursuant to Section 4.4 of this Exhibit C. In no event shall Service Provider be required to make a direct cash payment to Customer in respect of service credits, except (a) upon expiration or termination of the Agreement, if accrued and unpaid service credits remain outstanding, or (b) as otherwise agreed in writing by the parties.
8.4 SLA Credit Tiers. The following table sets forth the applicable monthly service credit amounts based on the network availability performance tier achieved during each calendar month, as measured in accordance with the methodologies set forth in Exhibit B:
*Monthly credit amounts shown above are calculated based on the Contract Year 1 monthly Managed Network Services fee of $875,000.00 and are subject to adjustment in proportion to any changes in the Managed Network Services fee resulting from annual escalation, node adjustments, or other modifications under this Exhibit C.
8.5 Sole and Exclusive Financial Remedy. Service credits are Customer's sole and exclusive financial remedy for Service Provider's failure to meet the service level targets set forth in Exhibit B; provided, however, that the service credit limitations set forth in this Section 8 shall not limit, restrict, or otherwise affect: (a) Customer's termination rights under the Agreement in the event of a material breach (including chronic or persistent SLA failures as defined in Exhibit B); (b) Customer's rights to seek equitable relief; or (c) any other rights or remedies expressly preserved in the Agreement.
SECTION 9 — TRANSITION/WIND-DOWN ESCROW DEPOSIT
9.1 Escrow Obligation. In addition to the fees set forth in Sections 2 through 8 of this Exhibit C, Customer shall fund a transition and wind-down escrow deposit (the "Escrow Deposit") to ensure the availability of funds for an orderly transition of services in the event of expiration or termination of the Agreement, as follows:
(a) Annual Deposit Amount. Customer shall deposit Seven Hundred Fifty Thousand United States Dollars ($750,000.00) into the escrow account during each Contract Year, which amount is equal to five percent (5%) of the ACV for the applicable Contract Year.
(b) Aggregate Escrow Cap. The aggregate amount of all Escrow Deposits over the Initial Term shall not exceed Three Million Seven Hundred Fifty Thousand United States Dollars ($3,750,000.00), calculated as $750,000.00 multiplied by five (5) Contract Years. If the escrow account balance reaches $3,750,000.00 prior to the conclusion of the Initial Term (including as a result of interest or investment returns credited to the escrow account), Customer shall not be required to make additional deposits until the balance falls below $3,750,000.00.
(c) Escrow Agent. The Escrow Deposit shall be held by Dravello National Bank, Charlotte, North Carolina (the "Escrow Agent"), pursuant to the terms and conditions of the Escrow Agreement among Customer, Service Provider, and Dravello National Bank dated June 9, 2023 (the "Escrow Agreement").
(d) Escrow Account Reference. The escrow account has been established under reference number FNB-ESC-2023-07742. The relationship manager for the escrow account at Dravello National Bank is Brian Caulfield.
9.2 Timing of Deposits. Each annual Escrow Deposit shall be made by Customer within thirty (30) calendar days of the commencement of each Contract Year. For Contract Year 1, the initial deposit of $750,000.00 shall be made no later than July 9, 2023.
9.3 Escrow Agreement Governs. The release conditions for the Escrow Deposit, the permitted investment of escrowed funds, the payment of escrow agent fees, the allocation of interest and investment returns, and all other terms and conditions relating to the administration of the escrow account shall be governed exclusively by the Escrow Agreement. In the event of any conflict between this Section 9 and the Escrow Agreement, the terms of the Escrow Agreement shall control.
9.4 Nature of Escrow Deposit. The Escrow Deposit is not a fee payable to Service Provider and shall not constitute revenue, compensation, or consideration for services rendered by Service Provider under the Agreement. Accordingly, the Escrow Deposit shall not be included in the calculation of: (a) fees paid by Customer to Service Provider for purposes of any indemnification cap, limitation of liability, or similar limitation set forth in the Agreement; (b) the ACV or TCV for any purpose under this Exhibit C; or (c) the per-unit pricing used for most favored nation benchmarking under Section 7 of this Exhibit C.
SECTION 10 — NODE ADJUSTMENTS
10.1 Addition of Nodes
(a) If Customer adds managed nodes beyond the initial three hundred forty (340) nodes at any time during the Term, the monthly Managed Network Services fee shall increase proportionally based on the per-node reference rate calculated in Section 2.1(d) of this Exhibit C, as follows:
Per-node annual rate: $10,500,000.00 ÷ 340 = approximately $30,882.35 per node per annum
Per-node monthly rate: approximately $2,573.53 per node per month
The per-node rate applicable to added nodes shall be subject to the most favored nation pricing warranty set forth in Section 7 of this Exhibit C and to any annual escalation applied under Section 6 of this Exhibit C.
(b) Customer shall provide Service Provider with at least thirty (30) days' prior written notice of any planned node additions, specifying the number of nodes to be added, the location(s) of such nodes, and the requested activation date. Service Provider shall use commercially reasonable efforts to activate additional nodes within the timeframe specified by Customer, subject to the change management and deployment procedures set forth in Exhibit A.
(c) Node additions of twenty (20) or more nodes in a single request or series of related requests within a sixty (60)-day period shall entitle Customer to negotiate volume-based pricing adjustments with Service Provider. Service Provider agrees to engage in good faith negotiations regarding such volume pricing adjustments and to provide Customer with a proposal for adjusted per-node pricing within fifteen (15) business days of Customer's request. Any agreed-upon volume pricing adjustments shall be documented in a Change Order executed by both parties.
(d) The addition of nodes shall not reduce the per-node pricing for the initial 340 nodes unless the parties agree otherwise in writing or unless a volume pricing adjustment applies to all managed nodes.
10.2 Reduction of Nodes
(a) Customer may reduce the number of managed nodes upon ninety (90) days' prior written notice to Service Provider, specifying the number of nodes to be decommissioned, the location(s) of such nodes, and the requested deactivation date. Upon the effective date of any node reduction, the monthly Managed Network Services fee shall decrease proportionally based on the per-node rate set forth in Section 10.1(a).
(b) Customer's right to reduce nodes is subject to a minimum commitment of two hundred seventy (270) managed nodes (the "Minimum Node Commitment"), which represents approximately eighty percent (80%) of the initial 340 nodes. Customer shall maintain at least 270 managed nodes at all times during the Term, unless otherwise agreed in writing by the parties.