Contract analysis

1. Cascadia State Infrastructure Authority ("CSIA"), a Washington state governmental authority created pursuant to Chapter 43.155A of the Revised Code of Washington, with its principal offices located at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501, hereby submits this Demand for Binding Arbitration ("Demand") against Pinnacle Water Solutions, LLC ("Pinnacle"), a Delaware limited liability company w

2. This arbitration arises out of and relates to Pinnacle's material breach of the JV Agreement, specifically Pinnacle's failure to fund its Second Tranche capital contribution in the amount of Four Million Fifty Thousand Dollars ($4,050,000) to Columbia Basin Water Treatment Partners, LLC ("CBWTP" or the "JV Entity"), a joint venture formed by CSIA and Pinnacle for the purpose of designing, constructing, owning, and

3. CSIA seeks, through this arbitration, specific performance compelling Pinnacle to fund its outstanding Second Tranche capital contribution of $4,050,000, together with interest thereon from the date such payment was due. In the alternative, CSIA seeks damages in the amount of $4,050,000. CSIA further seeks consequential damages arising from the substantial project delay caused by Pinnacle's default, including but

4. The facts underlying this dispute, the applicable contractual provisions, and the legal basis for the relief requested are set forth in detail below.

II. THE PARTIES A. Claimant — Cascadia State Infrastructure Authority

5. CSIA is a Washington state governmental instrumentality established and operating under the authority of Chapter 43.155A of the Revised Code of Washington. CSIA is charged with financing, developing, and overseeing critical public infrastructure across the State of Washington, including water treatment facilities, transportation infrastructure, energy systems, and related capital projects that serve the public int

6. CSIA maintains its principal offices at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501. Its Executive Director is Margaret Ellsworth. Its General Counsel is David Tanaka, who serves as the primary contact for this proceeding on behalf of CSIA.

7. CSIA administers an annual budget of approximately Three Hundred Eighty Million Dollars ($380,000,000) and manages a portfolio of over sixty (60) active infrastructure projects across the State of Washington. CSIA serves a vital public function in ensuring that critical infrastructure is developed, financed, and maintained for the benefit of Washington's citizens and communities.

8. Under the JV Agreement, CSIA holds a fifty-five percent (55%) membership interest in CBWTP, corresponding to a total equity commitment of Nine Million Nine Hundred Thousand Dollars ($9,900,000), which CSIA has funded in full. B. Respondent — Pinnacle Water Solutions, LLC

9. Pinnacle Water Solutions, LLC is a Delaware limited liability company (Delaware Division of Corporations File Number 5847231; Employer Identification Number 47-2918534) that is registered to do business in the States of Washington and Oregon. Pinnacle maintains its principal place of business at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205.

10. Pinnacle specializes in water and wastewater treatment engineering, construction, and operations. The company was founded in 2014 by Richard Prumvane, who serves as its Chief Executive Officer and Managing Member, and Cynthia Voss, who serves as its Chief Operating Officer. Since its founding, Pinnacle has completed in excess of Six Hundred Million Dollars ($600,000,000) in water infrastructure projects across th

11. Sixty-two percent (62%) of the equity interest in Pinnacle is held by Ridgeline Capital Partners, LP, a Delaware limited partnership headquartered at 1120 NW Couch Street, Suite 700, Portland, Oregon 97209. Ridgeline Capital Partners, LP is managed by its Managing Partner, Jonathan Kreider. Ridgeline acquired its sixty-two percent (62%) stake in Pinnacle in 2019 for approximately Ninety-Five Million Dollars ($95,

12. Under the JV Agreement, Pinnacle holds a forty-five percent (45%) membership interest in CBWTP, corresponding to a total equity commitment of Eight Million One Hundred Thousand Dollars ($8,100,000). Of that commitment, Pinnacle has funded only its First Tranche contribution of Four Million Fifty Thousand Dollars ($4,050,000), leaving the Second Tranche contribution of an equal amount unfunded.

13. Pinnacle is represented in connection with the matters giving rise to this Demand by Whitfield, Aarons & Greer LLP, located at 1455 SW Broadway, Suite 2100, Portland, Oregon 97201. The lead partner on the matter is Elaine Prescott, and the senior associate is Marcus Delvecchio.

III. JURISDICTIONAL BASIS AND AUTHORITY TO ARBITRATE A. Arbitration Agreement

14. Section 12.2 of the JV Agreement provides that all disputes arising out of or relating to the JV Agreement, the formation, performance, breach, or termination thereof, or the rights and obligations of the parties thereunder, that are not resolved through the mandatory mediation process set forth in Section 12.1, shall be finally resolved by binding arbitration conducted under the rules of the Pacific Northwest Ar

15. The dispute that is the subject of this Demand — Pinnacle's failure to fund its Second Tranche capital contribution, its failure to cure such default, and the resulting damages to CSIA and CBWTP — arises squarely out of and relates to the JV Agreement. Accordingly, this dispute falls within the scope of the arbitration agreement set forth in Section 12.2 of the JV Agreement, and the PNAA has jurisdiction to hear

16. The JV Agreement is governed by, and shall be construed and enforced in accordance with, the laws of the State of Washington, without regard to its conflict of laws principles. B. Mandatory Mediation Prerequisite

17. CSIA acknowledges that Section 12.1 of the JV Agreement requires that the parties engage in mandatory mediation of any dispute arising under the JV Agreement prior to the commencement of binding arbitration. Section 12.1 provides that either party may initiate mediation by written notice to the other party, and that the parties shall endeavor in good faith to resolve the dispute through mediation within forty-fiv

18. CSIA intends to initiate mediation in full compliance with Section 12.1 before or concurrently with the filing of this Demand. This Demand has been prepared in draft form and will be filed with the PNAA upon the completion of the mediation process, or concurrently therewith, as may be permitted under the applicable PNAA rules. In the event that Pinnacle refuses to participate in mediation or fails to participate

19. CSIA has been ready and willing to mediate at all relevant times and remains so. C. Governing Law

20. As set forth above, the substantive issues in this arbitration are governed by the laws of the State of Washington. The procedural aspects of the arbitration shall be governed by the rules of the PNAA, as supplemented by any procedural orders issued by the arbitral tribunal.

IV. STATEMENT OF FACTS A. Formation of the Joint Venture

21. On November 2, 2021, CSIA and Pinnacle executed the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC (the "JV Agreement"), thereby forming CBWTP as a Washington limited liability company. CBWTP was assigned Washington Unified Business Identifier Number 604-892-315 and Employer Identification Number 88-3421076 upon its formation.

22. The JV Agreement was filed with the Washington Secretary of State on November 2, 2021. CBWTP maintains its registered office at 1100 Jefferson Street SE, Suite 400, Olympia, Washington 98501, in care of CSIA.

23. The stated purpose of CBWTP, as set forth in Article II of the JV Agreement, is the design, construction, ownership, and operation of the Thurston County Advanced Water Treatment Facility (the "Facility"). The Facility is designed to be a twelve million gallon-per-day (12 MGD) advanced water treatment plant to be constructed on a 14.7-acre parcel located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Wa

24. The total estimated project cost for the design, engineering, permitting, construction, and commissioning of the Facility is Forty-Five Million Dollars ($45,000,000). The Facility, when completed, would serve a critical public need by providing advanced water treatment capacity to Thurston County and surrounding communities in the southern Puget Sound region. B. Capital Structure and Contributions

25. The JV Agreement established a capital structure consisting of Eighteen Million Dollars ($18,000,000) in total equity commitments from the two members, supplemented by Twenty-Seven Million Dollars ($27,000,000) in project finance debt, for a total of Forty-Five Million Dollars ($45,000,000) in project funding sources.

26. Under Sections 3.1 and 3.2 of the JV Agreement, the total equity commitments were allocated as follows: (a) CSIA: Nine Million Nine Hundred Thousand Dollars ($9,900,000), representing a fifty-five percent (55%) membership interest in CBWTP. (b) Pinnacle: Eight Million One Hundred Thousand Dollars ($8,100,000), representing a forty-five percent (45%) membership interest in CBWTP.

27. The equity was to be funded in two tranches, as specified in Section 3.3 of the JV Agreement: (a) First Tranche: Due on November 15, 2021. CSIA's First Tranche contribution was Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000), and Pinnacle's First Tranche contribution was Four Million Fifty Thousand Dollars ($4,050,000), for a total first tranche of Nine Million Dollars ($9,000,000). (b) Second Tranc

28. Both CSIA and Pinnacle timely funded their respective First Tranche contributions on November 15, 2021. The total equity initially deployed to CBWTP was therefore Nine Million Dollars ($9,000,000).

29. The project finance debt component was to be provided by Pacific Cascade Bank, N.A. ("PCB"), a national banking association. On February 15, 2022, PCB issued a commitment letter (Reference Number PCB-PF-2022-0417) committing to provide a Twenty-Seven Million Dollar ($27,000,000) senior secured project finance credit facility to CBWTP, with an eighteen (18) month tenor from the date of the commitment letter. The a

30. Article V of the JV Agreement established a five-member Governing Board to oversee the affairs of CBWTP. The Board composition was as follows: (a) Three (3) members appointed by CSIA: Margaret Ellsworth (Executive Director of CSIA), David Tanaka (General Counsel of CSIA), and Patricia Huang. (b) Two (2) members appointed by Pinnacle: Richard Prumvane (CEO of Pinnacle) and Cynthia Voss (COO of Pinnacle).

31. Section 5.4 of the JV Agreement established a supermajority voting requirement, mandating the affirmative vote of at least four (4) of the five (5) Governing Board members for the authorization of certain major decisions, including but not limited to: (i) Commencement of construction of the Facility; (ii) Incurrence of indebtedness (other than trade payables incurred in the ordinary course); (iii) Admission of ne

32. Pursuant to Section 6.1 of the JV Agreement, Pinnacle was designated as the Manager of CBWTP and was charged with the day-to-day management and operations of the JV Entity, subject to the oversight and direction of the Governing Board. The Manager's responsibilities included, without limitation, advancing the design, permitting, and construction of the Facility, managing contractor and consultant relationships, m

33. In consideration of its services as Manager, Section 6.3 of the JV Agreement entitled Pinnacle to a management fee equal to three percent (3%) of total construction costs, amounting to One Million Three Hundred Fifty Thousand Dollars ($1,350,000) based on the projected total construction budget. D. Ground Lease

34. Concurrently with the execution of the JV Agreement, on November 2, 2021, CSIA, as landlord, and CBWTP, as tenant, entered into a ninety-nine (99) year ground lease (the "Ground Lease") for the 14.7-acre parcel located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501 (the "Facility Site"), upon which the Facility was to be constructed.

35. The Ground Lease provides for annual rent of One Dollar ($1.00). The Ground Lease was duly recorded with the Thurston County Auditor as Recording Number 2021-1102-004788. Upon termination of the JV Entity for any reason, the Facility Site and all improvements thereon revert to CSIA as the fee owner of the underlying land. E. Environmental Permitting and Project Stall

36. Following the formation of CBWTP and the initial equity funding in November 2021, the project proceeded into its pre-development phase. On January 10, 2022, CBWTP retained Westmark Environmental Consulting, Inc. ("Westmark"), an environmental consulting firm based in Tacoma, Washington, to conduct Phase I and Phase II environmental assessments of the Facility Site. The principal consultant assigned to the engagem

37. On April 22, 2022, Westmark completed its Phase I Environmental Site Assessment of the Facility Site. The Phase I assessment identified no recognized environmental conditions, and the site was deemed suitable for the intended use as an advanced water treatment facility.

38. Following the completion of the Phase I assessment, the project proceeded to the Phase II Environmental Impact Determination ("EID") review stage, conducted under the auspices of the Thurston County Department of Environmental Health. On July 8, 2022, the Thurston County Department of Environmental Health, through its Environmental Review Division Manager, Karen Lindstrom, issued a request for supplemental enviro

39. On September 14, 2022, Pinnacle notified CSIA that it would "defer further project expenditures" pending resolution of the permitting issues. This notification was made unilaterally by Pinnacle in its capacity as Manager, without the prior authorization or approval of the Governing Board. The notification did not identify any specific impediment to the submission of the supplemental environmental data requested b

40. On November 30, 2022, a regularly scheduled meeting of the CBWTP Governing Board was convened by notice from the CSIA-appointed Board members. However, the meeting failed for lack of a quorum because neither of the Pinnacle-appointed Governing Board members — Richard Prumvane and Cynthia Voss — attended the meeting. Under Section 5.3 of the JV Agreement, a quorum of the Governing Board requires the presence of at

41. The combined effect of Pinnacle's September 2022 unilateral deferral of project expenditures and the November 2022 failed Board meeting was to bring the Facility project to a standstill. No further progress was made on the environmental permitting, construction preparations, or any other aspect of the project during this period. F. The Second Tranche Capital Call and Pinnacle's Default

42. On March 1, 2023, the CBWTP Governing Board issued a formal capital call notice for the Second Tranche equity contributions, as authorized under Section 3.3 of the JV Agreement. The capital call notice required CSIA to contribute Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000) and Pinnacle to contribute Four Million Fifty Thousand Dollars ($4,050,000), in each case payable within thirty (30) calenda

43. On March 28, 2023, CSIA timely funded its Second Tranche capital contribution of $4,950,000 in full, bringing CSIA's total funded equity in CBWTP to Nine Million Nine Hundred Thousand Dollars ($9,900,000), representing one hundred percent (100%) of CSIA's total equity commitment under the JV Agreement.

44. March 31, 2023 — the deadline established by the capital call notice — passed without Pinnacle funding any portion of its Second Tranche capital contribution of $4,050,000. Pinnacle did not make its required payment on or before the due date, nor did Pinnacle provide any written notice of an intent to fund, request an extension, or otherwise communicate with CSIA or the Governing Board regarding its failure to fu

45. On April 14, 2023, Calderwood & Harkness LLP, acting as counsel for CSIA, transmitted a formal default notice (the "Default Notice") to Pinnacle, addressed to Richard Prumvane, Chief Executive Officer, at Pinnacle's principal offices at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205. Copies of the Default Notice were simultaneously transmitted to Pinnacle's counsel, Whitfield, Aarons & Greer LLP, to t

46. The Default Notice stated that Pinnacle had failed to fund its Second Tranche capital contribution of $4,050,000 by the March 31, 2023 deadline, constituting a default under Section 8.1(a) of the JV Agreement. The Default Notice further advised Pinnacle that, pursuant to Section 8.2 of the JV Agreement, Pinnacle had a period of sixty (60) calendar days from the date of the Default Notice — that is, until June 13,

47. The sixty-day cure period expired on June 13, 2023. Pinnacle did not fund its Second Tranche capital contribution of $4,050,000 during the cure period, nor did Pinnacle take any steps to cure or partially cure its default. To this day, Pinnacle has not funded any portion of its outstanding Second Tranche capital contribution. The total outstanding default amount remains $4,050,000. G. Pinnacle's Force Majeure Cla

48. On April 28, 2023, Whitfield, Aarons & Greer LLP, acting as counsel for Pinnacle, transmitted a letter (the "Force Majeure Letter") to Calderwood & Harkness LLP asserting that Pinnacle's failure to fund the Second Tranche capital contribution was excused by force majeure under Section 11.4 of the JV Agreement. The Force Majeure Letter contended that "regulatory delay beyond Pinnacle's control" — referring to the

49. On May 12, 2023, Calderwood & Harkness LLP, acting on behalf of CSIA, transmitted a detailed response letter (the "Rejection Letter") to Whitfield, Aarons & Greer LLP, rejecting Pinnacle's force majeure defense in its entirety. The Rejection Letter set forth the following grounds: (a) Contractual Exclusion. Section 11.4 of the JV Agreement defines "Force Majeure Events" and expressly excludes from that definition

50. Pinnacle did not respond substantively to the Rejection Letter and has not advanced any additional legal theories or defenses in support of its refusal to fund. H. Lapse of Project Financing Commitment

51. On August 15, 2023, the Pacific Cascade Bank, N.A. commitment letter (Reference Number PCB-PF-2022-0417) for the $27,000,000 senior secured project finance credit facility expired without any draws having been made thereunder. The commitment letter had an eighteen (18) month tenor from its date of issuance on February 15, 2022, and its expiration on August 15, 2023 was a direct and foreseeable consequence of the

52. Thomas Rennick, Senior Vice President, Public Finance, at Pacific Cascade Bank, N.A., confirmed the expiration of the commitment and indicated that the commitment had not been renewed. The loss of this $27,000,000 in committed project financing has materially impaired the viability of the $45,000,000 Facility project and has necessitated that CSIA explore alternative financing options at potentially higher cost a

I. Current Financial Position of CBWTP

53. As of June 30, 2023, the last date for which financial statements have been prepared, the financial position of CBWTP is as follows, based on financial statements prepared by Hargrove & Tillman, CPAs, of Olympia, Washington (engagement partner: Laura Svensson, CPA): (a) Total Assets: Approximately $9,847,000, consisting of: (i) Cash held in the operating account at Pacific Cascade Bank, N.A.: $8,412,000; (ii) Pre

54. Since October 2023, the matter has been dormant with no further substantive action taken by either party. Counsel for CSIA and Pinnacle have exchanged periodic status updates but have not engaged in any mediation or settlement discussions. No additional capital contributions have been made by either party, and the JV Entity has not undertaken any further project development activities.

55. Pursuant to Section 9.1 of the JV Agreement, the buy-sell (or "shotgun") provision became exercisable on November 2, 2023, the second anniversary of the formation of CBWTP. CSIA has not yet elected to exercise this provision but expressly reserves its right to do so.