Contract analysis

I. Executive Summary This memorandum has been prepared at the request of the Cascadia State Infrastructure Authority ("CSIA") following the expiration on June 13, 2023, of the sixty (60)-day cure period afforded to Pinnacle Water Solutions, LLC ("Pinnacle") under Section 8.2 of the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC, dated as of November 2, 2021 (t

II. Background and Procedural History A. Formation of the Joint Venture Columbia Basin Water Treatment Partners, LLC ("CBWTP") was organized on November 2, 2021, as a Washington limited liability company, duly registered with the Office of the Washington Secretary of State under UBI Number 604-892-315 and assigned Employer Identification Number 88-3421076 by the Internal Revenue Service. CBWTP was formed pursuant to

III. Applicable Contractual Provisions This section identifies and discusses the key provisions of the JV Agreement relevant to CSIA's remedy election. The full text of the cited provisions is reproduced in Appendices B and E. A. Section 8.2 — Default Remedies

Section 8.2 of the JV Agreement establishes the framework for remedying a member's failure to fund a capital call. The key elements of §8.2 are as follows: Triggering Event. A default under §8.2 is triggered when a member fails to fund a capital contribution within thirty (30) calendar days of the date on which notice of the capital call is delivered in accordance with §8.1. Here, the Second Tranche capital call was

Section 4.3 of the JV Agreement allocates permitting responsibility for the Facility to the JV entity itself—i.e., to CBWTP—rather than to either member individually. However, §4.3 must be read in conjunction with §4.2, which designates Pinnacle as the Manager of CBWTP and charges the Manager with day-to-day operational responsibility for advancing the project, including the pursuit of governmental approvals and perm

Section 9.1 of the JV Agreement contains a buy-sell provision commonly referred to as a "shotgun" or "Russian roulette" clause. Under §9.1, either member may, at any time after the second anniversary of the date of formation of CBWTP (i.e., after November 2, 2023), trigger the shotgun mechanism by delivering a written notice to the other member specifying a price at which the initiating member offers to purchase the

Section 11.4 of the JV Agreement defines Force Majeure Events and provides for the suspension of certain performance obligations during the pendency of such events. However, the definition of Force Majeure Events in §11.4 expressly excludes the following: "delays in obtaining governmental approvals, permits, licenses, or authorizations of any kind" This exclusion is fatal to Pinnacle's force majeure defense. The stal

Section 10.1 of the JV Agreement enumerates the events that may trigger the dissolution of CBWTP. Under normal circumstances, a voluntary dissolution requires the affirmative vote of a supermajority of the Governing Board—specifically, four (4) of five (5) members. Given the current composition of the Governing Board (three CSIA-appointed members and two Pinnacle-appointed members), a voluntary dissolution under §10.

IV. Analysis of Remedy (i): Pro Rata Dilution A. Mechanics of Dilution Under §8.2(i), CSIA may elect to dilute Pinnacle's percentage interest in CBWTP on a pro rata basis to reflect the unfunded capital contribution. The dilution is calculated by reference to each member's actual funded capital contributions relative to total funded capital, effectively resetting the percentage interests to align with the members' re

V. Analysis of Remedy (ii): Purchase at 75% of Fair Market Value A. Mechanics of Purchase Under §8.2(ii), CSIA may elect to purchase Pinnacle's entire membership interest in CBWTP at a price equal to seventy-five percent (75%) of the fair market value ("FMV") of such interest. Exercise of this remedy would result in CSIA becoming the sole member of CBWTP, with full economic ownership and governance control. The opera

VI. Analysis of Remedy (iii): Dissolution Election A. Mechanics of Dissolution Under §8.2(iii), CSIA may elect to dissolve CBWTP as a remedy for Pinnacle's uncured funding default. This dissolution right is a unilateral election by CSIA as the non-defaulting member. It does not require the supermajority (4 of 5) Governing Board vote that would otherwise be necessary for a voluntary dissolution under §10.1 of the JV A