Contract analysis

I. Executive Summary The purpose of this memorandum is to evaluate the Cascadia State Infrastructure Authority's ("CSIA") rights and strategic considerations under the §9.1 shotgun buy-sell provision of the Amended and Restated Limited Liability Company Agreement (the "JV Agreement") of Columbia Basin Water Treatment Partners, LLC ("CBWTP" or the "JV Entity"). The §9.1 buy-sell mechanism becomes exercisable on Novemb

1. CSIA may exercise the §9.1 shotgun provision as of November 2, 2023. The sole temporal condition—passage of the second anniversary of the JV Entity's formation—will be satisfied on that date, and no additional triggering event (such as deadlock or default) is required.

2. The §9.1 mechanism presents distinct advantages and risks compared to the §8.2 default remedies. While the shotgun buy-sell provides CSIA with a unilateral mechanism to force a separation from Pinnacle, it exposes CSIA to the reverse-election risk inherent in any shotgun provision—namely, the possibility that Pinnacle (or its private equity sponsor, Ridgeline Capital Partners, LP) could elect to purchase CSIA's 55

3. CSIA must carefully evaluate the pricing it would set in a §9.1 offer. Given Pinnacle's financial backing from Ridgeline Capital Partners, LP, CSIA cannot assume that Pinnacle will default to the seller position. The price must be one at which CSIA would genuinely accept being the seller if Pinnacle elects to buy.

4. The interplay between §8.2 and §9.1 permits sequential or alternative exercise, but not simultaneous exercise of conflicting remedies. CSIA has the ability to pursue dilution or a default buyout under §8.2 before or instead of the §9.1 shotgun, which may yield a more favorable outcome.

5. We recommend that CSIA consider initiating the shotgun provision with a strategically calibrated price, but only as a secondary strategy. The preferred primary approach is to exercise §8.2 default remedies—particularly the §8.2(ii) buyout at 75% of fair market value—which offers a built-in pricing discount and eliminates the reverse-election risk. The §9.1 shotgun should be held in reserve as leverage or as a back

II. Background A. Formation and Structure of the Joint Venture CBWTP was formed as a Washington limited liability company on November 2, 2021, under the Washington Limited Liability Company Act (Title 25.15 RCW). The JV Entity's Certificate of Formation was filed with the Washington Secretary of State on the same date (WA UBI No. 604-892-315; federal Employer Identification Number 88-3421076). The registered office o

III. Overview of the §9.1 Shotgun Buy-Sell Provision A. Triggering Conditions

Section 9.1 of the JV Agreement establishes a "shotgun" or "Russian roulette" buy-sell provision—a bilateral mechanism under which either member may force a separation by naming a price at which it is willing to either buy or sell membership interests. The provision is subject to a single temporal condition: it may not be exercised until after the second anniversary of the JV Entity's formation. Since CBWTP was forme

IV. Pricing Analysis and Valuation Considerations A. Determining the Appropriate Offer Price The most critical decision CSIA faces in connection with a potential §9.1 exercise is the determination of the Offer Price. The price must be set with full recognition that it will apply equally to a purchase of Pinnacle's 45% interest and a purchase of CSIA's 55% interest, depending on which election the Receiving Member mak

V. Interplay Between §9.1 (Buy-Sell) and §8.2 (Default Remedies) A. Availability of Both Provisions The JV Agreement provides CSIA with two distinct sets of rights that are relevant to the current situation: the §8.2 default remedies (available because of Pinnacle's uncured default) and the §9.1 shotgun buy-sell (available to either member after November 2, 2023, regardless of default). Understanding the interplay be

Section 8.2 of the JV Agreement provides three remedies available to the non-defaulting member upon the occurrence and continuation of an uncured default: (i) Pro Rata Dilution. The non-defaulting member may elect to dilute the defaulting member's membership interest pro rata based on the defaulting member's unfunded capital contribution relative to total contributions. (ii) Purchase at 75% of Fair Market Value. The

Section 9.1, by contrast, provides a bilateral shotgun buy-sell mechanism that is not conditioned on default, deadlock, or any other triggering event beyond the passage of the second anniversary. The §9.1 mechanism is available to both members. A critical question is whether these remedies are cumulative or alternative—i.e., whether CSIA may exercise both §8.2 and §9.1 remedies, or must choose between them. The JV Ag

Section 8.2(ii) of the JV Agreement provides an alternative to the shotgun that warrants serious consideration. Under §8.2(ii), CSIA has the right to purchase Pinnacle's 45% membership interest at a price equal to 75% of its fair market value—a built-in 25% discount to FMV. This remedy is available now, without waiting for November 2, 2023. The §8.2(ii) buyout has several significant advantages over the §9.1 shotgun:

VI. Washington LLC Law Considerations A. Revised Uniform Limited Liability Company Act (RULLCA) — Title 25.15 RCW CBWTP is a Washington limited liability company governed by the Washington Revised Uniform Limited Liability Company Act, codified at Title 25.15 RCW (the "RULLCA"). Washington's LLC statute is broadly enabling and generally defers to the terms of the operating agreement with respect to the internal affai

VII. Strategic Recommendations Based on the foregoing analysis, we present the following strategic recommendations for CSIA's consideration. Each recommendation is accompanied by an assessment of its advantages, risks, and practical implications. A. Preferred Approach: §8.2 Remedies Before §9.1 We recommend that CSIA's primary strategy be to exercise the §8.2(ii) default buyout right to acquire Pinnacle's 45% members