1023-00001 · Ironside Capital Management LP · Diligence

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CALDERWOOD & HARKNESS LLP 125 Broad Street, 44th Floor New York, NY 10004

ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

MEMORANDUM

To: Marcus J. Calloway, Founder & Chief Investment Officer, Ironside Capital Management LP Renata Obasi, Senior Managing Director, Infrastructure, Ironside Capital Management LP

From: Owen Fischer, Working Associate, Funds & Asset Management, Calderwood & Harkness LLP Theresa Kim, Lead Associate, Funds & Asset Management, Calderwood & Harkness LLP

Reviewed by: Pamela Cross, Responsible Partner, Funds & Asset Management, Calderwood & Harkness LLP

Date: August 26, 2022

Re: Due Diligence Review — Employment and Benefits Matters of Cascadia Renewables Holdings, Inc.

Matter No.: 1023-00001

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I. Executive Summary

This memorandum summarizes the findings of Calderwood & Harkness LLP ("C&H" or the "Firm") in connection with our review of employment and employee benefits matters relating to Cascadia Renewables Holdings, Inc. ("Cascadia," "CRH," or the "Company"), an Oregon corporation headquartered at 1100 SW Sixth Avenue, Suite 1800, Portland, Oregon 97204. This review has been undertaken in connection with the proposed acquisition (the "Transaction") of 100% of the outstanding equity interests of Cascadia by Cascadia Acquisition Corp. (the "Acquiror"), a newly formed Delaware corporation organized on behalf of Meridian Infrastructure Partners Fund IV, LP ("Fund IV") and ICM Cascadia Co-Invest, LP (the "Co-Invest Vehicle," and together with Fund IV, "Meridian" or the "Sponsor"). Ironside Capital Management LP ("Ironside" or "ICM") serves as the investment manager of Fund IV and the Co-Invest Vehicle.

The Transaction contemplates an enterprise value of $1,950,000,000 (one billion, nine hundred and fifty million dollars), representing an implied EV/EBITDA multiple of approximately 14.1x based on Cascadia's fiscal year 2021 EBITDA of approximately $138 million. Cascadia reported fiscal year 2021 revenues of approximately $487 million. The Company's operations span 14 hydroelectric generation facilities, 6 wind farm installations, and 3 water-treatment concession arrangements across the states of Oregon, Washington, and Idaho. Cascadia is a vertically integrated renewable energy and water infrastructure platform with a diversified asset base and long-duration revenue contracts, making it a core holding for Meridian's infrastructure strategy.

The principal purpose of this memorandum is to identify and analyze the material employment and benefits issues arising in connection with the Transaction that may affect the terms of the definitive Equity Purchase Agreement (the "EPA"), the allocation of risk between the sellers and the Acquiror, and the Sponsor's post-closing operational and integration plans. Specifically, this memorandum addresses the following areas:

• Workforce Profile and Employee Census. An overview of Cascadia's employee base across all states and facility types, including an assessment of the use of independent contractors and associated misclassification risk.

• Employment Agreements and Arrangements. Review of executive employment agreements, at-will employment arrangements, restrictive covenant agreements, and retention and transaction bonus programs.

• Employee Benefit Plans. Analysis of qualified retirement plans, health and welfare benefit plans, equity and incentive compensation plans, and other fringe benefit programs, including successor liability considerations.

• Collective Bargaining Agreements. Identification of any union representation, review of CBA terms, and analysis of successorship obligations under applicable labor law.

• Management Rollover Pool. Review of the structure, composition, and mechanics of the management rollover pool and its interaction with the Weir Family Trust.

• WARN Act Considerations. Federal and state-level analysis of the Worker Adjustment and Retraining Notification Act and analogous state statutes.

• Pending Employment Litigation and Claims. Summary of known employment-related disputes, cross-referenced to the separate litigation due diligence memorandum.

• Payroll Tax and Withholding Compliance. Assessment of multi-state payroll tax compliance and workers' compensation coverage.

• Risk Assessment and Recommendations. Categorized risk findings and recommended EPA protections, pre-closing action items, and post-closing considerations.

This memorandum should be read in conjunction with the C&H Summary Due Diligence Report and Risk Matrix (anticipated finalization date: September 1, 2022), the C&H Due Diligence Memorandum: Cascadia Litigation and Proceedings (dated August 19, 2022), and the Tax Structuring Analysis (dated July 20, 2022, prepared by Sylvia Hartwell of the C&H Tax Group).

The documents reviewed in connection with this memorandum were made available through the virtual data room organized by Breckenridge Sloane & Pratt LLP ("BSP," with Charles A. Delacroix serving as lead counsel to Meridian) and were provided by Cascadia's counsel, Ridgeway, Ashford & Malone PC ("RAM," with Nina R. Castellano serving as lead partner), as well as audited financial information furnished by Halstead & Greer LLP, Cascadia's independent auditor and tax advisor. A complete index of documents reviewed is set forth in Section XII below.

II. Scope and Methodology

A. Scope of Review

The employment and benefits due diligence review encompassed the following categories of documents and information:

1. Employment Agreements. All executive-level employment agreements, including those of the Chief Executive Officer, Chief Financial Officer, and other members of the senior leadership team, as well as representative samples of standard offer letters and at-will employment acknowledgments applicable to non-executive employees.

2. Employee Handbooks and Policies. Current employee handbooks applicable to Cascadia's Oregon, Washington, and Idaho employees, including policies relating to anti-harassment, equal employment opportunity, leave of absence, attendance and scheduling, drug and alcohol use, and workplace safety.

3. Employee Benefit Plan Documents. Plan documents, summary plan descriptions ("SPDs"), and the most recently filed Forms 5500 for all qualified retirement plans, health and welfare plans, and equity incentive plans sponsored by Cascadia or any of its subsidiaries, together with all plan amendments, determination letters, and compliance testing results.

4. Collective Bargaining Agreements. All collective bargaining agreements currently in effect at any Cascadia facility, together with any pending grievances, arbitration proceedings, and unfair labor practice charges.

5. WARN Act Compliance. Historical records of any WARN Act notices issued by Cascadia, together with current employee census data relevant to WARN applicability.

6. Employment Litigation and Claims. Pleadings, correspondence, settlement agreements, and reserves information relating to pending or threatened employment-related litigation, administrative proceedings, and government investigations, including EEOC charges, OSHA citations, and wage and hour claims.

7. Independent Contractor Arrangements. Representative samples of independent contractor agreements, together with management representations regarding the classification of independent contractors.

8. Management Equity and Rollover Arrangements. Cascadia's equity incentive plan documents, individual award agreements, the management rollover term sheet, and related correspondence regarding the proposed management rollover in connection with the Transaction.

9. Restrictive Covenant Agreements. Samples of non-competition, non-solicitation, and confidentiality agreements entered into with executive and key technical personnel.

10. Payroll and Withholding Records. Summary payroll reports, multi-state tax withholding records, workers' compensation insurance policies, and unemployment insurance rating notices.

B. Data Room Access and Supplemental Requests

All documents reviewed in connection with this memorandum were accessed through the Meridian-organized virtual data room hosted on Thackeray Solutions (Project "Clearwater"). Supplemental document requests and follow-up questions were submitted through BSP (Charles A. Delacroix) and, where appropriate, directly to RAM (Nina R. Castellano) pursuant to the agreed-upon diligence protocol. Over the course of the review period, C&H submitted three supplemental diligence request lists relating to employment and benefits matters (dated July 28, August 5, and August 16, 2022, respectively). As of the date of this memorandum, substantially all requested materials have been produced, although certain items remain outstanding as noted in the relevant sections below.

C. Limitations. The following limitations apply to this memorandum and should be noted by the recipients:

• Personnel Files. Individual personnel files and detailed individual compensation data were reviewed on a summary or redacted basis only. Cascadia provided aggregated compensation data organized by position category and facility location, together with individual compensation details for the ten most highly compensated employees. Full personnel files were not made available for review.

• Management Representations. Certain findings and conclusions set forth herein are based in part on oral and written representations made by Cascadia management, including Chief Executive Officer Jonathan M. Weir and Chief Financial Officer Sandra K. Llewellyn, as well as written disclosures provided by RAM in response to our diligence questionnaires. C&H has not independently verified all such representations, and the accuracy of the information presented herein is subject to the completeness and accuracy of the information provided by the Company and its advisors.

• Actuarial and Benefits Valuations. C&H has not conducted independent actuarial or benefits valuations. Where applicable, we have relied on actuarial reports and valuation summaries provided by Cascadia's benefits consultants and auditors.

• Tax Analysis. While this memorandum addresses certain tax-related aspects of the employment and benefits review (including Section 409A, Section 280G, and rollover tax treatment), comprehensive tax analysis is being conducted separately by Sylvia Hartwell of the C&H Tax Group and is addressed in the Tax Structuring Analysis dated July 20, 2022.

• Ongoing Diligence. This memorandum is based on information available as of August 26, 2022. Our review is ongoing, and additional findings may be reported as supplemental information is received. This memorandum will be updated as necessary in connection with the finalization of the Summary Due Diligence Report and Risk Matrix.

III. Workforce Overview

A. Employee Census

Based on the employee census data provided by Cascadia management as of July 31, 2022, the Company and its subsidiaries employ approximately 1,247 employees across its three-state operating footprint. The breakdown of the workforce is as follows:

By State:

By Facility Type:

By Employee Category:

The Company's headquarters operations are conducted from leased office space at 1100 SW Sixth Avenue, Suite 1800, Portland, Oregon 97204, where approximately 169 employees are based. These headquarters employees include members of the senior leadership team, corporate finance and accounting personnel, human resources, legal, regulatory affairs, and administrative staff. The remaining workforce is distributed across the Company's 23 operating facilities.

We note that the employee census data provided to us is current as of July 31, 2022. We recommend that an updated census be obtained within 30 days prior to the anticipated closing date to ensure accuracy for purposes of WARN Act analysis, benefit plan administration, and post-closing integration planning.

B. Independent Contractors

Cascadia engages independent contractors for range functions, including specialized maintenance services at hydroelectric and wind farm facilities, engineering consulting on capacity expansion and environmental compliance projects, and seasonal or project-based work associated with water-treatment concession operations. Based on information provided by Cascadia management, the Company currently engages approximately 85 to 95 independent contractors on an ongoing or recurring basis, with an additional 30 to 50 contractors engaged on a seasonal or project-specific basis during peak demand periods.

We reviewed a representative sample of 12 independent contractor agreements provided in the data room. The agreements reviewed generally contain provisions establishing the contractor's independent status, including statements that the contractor controls the manner and means of performance, provides their own tools and equipment, is responsible for their own taxes and insurance, and is not entitled to employee benefits. The agreements typically provide for termination on 30 days' notice and include standard confidentiality provisions but generally do not contain non-competition covenants.

Worker Classification Analysis. We conducted a preliminary assessment of misclassification risk associated with Cascadia's use of independent contractors. Worker classification is governed by a patchwork of federal and state standards that apply different tests:

(a) Federal Standards. Under Internal Revenue Service guidelines, worker classification is determined by application of the common-law test, which examines the degree of behavioral control, financial control, and the type of relationship between the parties. The Department of Labor applies an "economic reality" test under the Fair Labor Standards Act, which focuses on whether the worker is economically dependent on the employer or is in business for themselves. The DOL's recent rulemaking (effective March 11, 2024, but subject to change under future administrations) may alter the weighting of these factors but is not yet in effect as of the date of this memorandum.

(b) Oregon. Oregon applies a multi-factor test under ORS 670.600 for determining independent contractor status, which requires satisfaction of several criteria, including that the individual is free from direction and control, is customarily engaged in an independently established business, and meets specific additional requirements depending on the type of work. Oregon's test is generally considered more restrictive than the federal common-law test.

(c) Washington. Washington applies an "economic dependence" test under RCW 49.46.010 and related statutes, as well as a separate test under the Washington Industrial Insurance Act. Recent Washington case law has trended toward broader definitions of "employee," increasing misclassification risk for companies relying heavily on independent contractors.

(d) Idaho. Idaho generally follows the IRS common-law test and considers factors such as behavioral control, financial control, and the nature of the relationship. Idaho's framework is somewhat more permissive than Oregon's or Washington's.

Based on our review of the sample contractor agreements and discussions with Cascadia management, we identified a moderate level of misclassification risk with respect to approximately 15 to 20 independent contractors who perform ongoing maintenance and inspection work at hydroelectric facilities in Oregon and Washington. These individuals work on a recurring schedule, use Company-provided equipment in certain instances, and perform functions substantially similar to those performed by full-time operations and maintenance employees. We recommend that a more detailed classification review be conducted post-closing with respect to these individuals, and that the EPA include a representation from the sellers regarding the proper classification of all workers.

C. Multi-State Employment Law Considerations

Cascadia's operations across three states subject the Company and its employees to varying state employment law regimes. The following summary highlights key differences that may be relevant to the Transaction and post-closing operations:

Oregon:

• Oregon Pay Equity Act (ORS 652.220). Prohibits employers from seeking or relying on salary history in hiring and compensation decisions and requires equal pay for work of comparable character. Cascadia's compliance with this statute should be verified in connection with any post-closing compensation adjustments or integration efforts.

• Oregon Family Leave Act (OFLA) (ORS 659A.150 et seq.). Provides eligible employees with up to 12 weeks of protected leave for specified family and medical reasons. OFLA operates in addition to the federal Family and Medical Leave Act (FMLA) and, in certain respects, provides broader protections. Cascadia has more than 25 employees in Oregon and is therefore a covered employer.

• Predictive Scheduling (ORS 653.412 et seq.). Oregon's "fair work week" law imposes advance scheduling requirements on certain employers in the retail, hospitality, and food services industries. Based on our review, Cascadia's operations are not within the covered industry sectors, and this statute is therefore not directly applicable. However, we note that legislative proposals to expand the scope of predictive scheduling requirements have been introduced in recent sessions and should be monitored.

• Oregon Non-Compete Statute (ORS 653.295). Oregon law restricts the enforceability of non-competition agreements, including requirements that the agreement be entered into upon the commencement of employment or upon a bona fide advancement, that the employee earn above a minimum compensation threshold (currently approximately $100,533 per year, adjusted annually), and that the non-compete period not exceed 12 months. Non-compete agreements that fail to meet these requirements are voidable.

Washington:

• Washington Non-Compete Statute (RCW 49.62). Effective January 1, 2020, Washington significantly restricted the enforceability of non-competition agreements. Non-compete agreements are void and unenforceable unless the employee earns more than $100,000 annually (adjusted annually for inflation; the 2022 threshold is approximately $101,390). Independent contractors are subject to a higher threshold of approximately $250,000. The statute also limits non-compete durations to 18 months and requires the employer to pay the employee during any garden leave period.

• Washington Paid Family and Medical Leave (RCW 50A). Washington's Paid Family and Medical Leave program, administered by the Employment Security Department, provides eligible employees with up to 12 weeks of paid leave for family or medical reasons (or 16 weeks combined for both family and medical leave). The program is funded through employee and employer premiums. Cascadia is required to participate as a covered employer.

• Washington Equal Pay and Opportunities Act (RCW 49.58). Requires employers with 15 or more employees to disclose in each posting for each job opening the wage scale or salary range and a general description of all benefits and other compensation.

Idaho:

• At-Will Employment. Idaho maintains a robust at-will employment framework. Idaho courts have recognized limited exceptions to the at-will doctrine, including a public policy exception and an implied contract exception, but the state's employment law environment is generally considered employer-friendly.

• Wage Payment Requirements (Idaho Code § 45-601 et seq.). Idaho law requires employers to pay wages on regular paydays at least once per month. Upon termination, final wages must be paid within 10 days or the next scheduled payday, whichever is sooner, unless a contract provides otherwise.

• Non-Compete Agreements. Idaho courts generally enforce reasonable non-competition agreements that are supported by adequate consideration and are limited in scope, duration, and geographic area. Idaho's framework is more permissive than Oregon's or Washington's.

The multi-state nature of Cascadia's operations requires careful coordination of employment policies and practices across jurisdictions. We recommend that the Company's employee handbooks and policies be reviewed post-closing to ensure continued compliance with the applicable requirements in each state, particularly in light of recent legislative and regulatory developments in Oregon and Washington.

IV. Employment Agreements and Arrangements

A. Executive Employment Agreements

We reviewed the employment agreements of the following members of Cascadia's senior leadership team:

The key terms of these agreements are summarized below:

Base Salary and Bonus. Base salaries for the executives listed above range from approximately $275,000 (for the VP, Hydroelectric Operations) to $625,000 (for the CEO). Each agreement provides for an annual performance bonus opportunity, with target bonuses ranging from 40% to 100% of base salary, payable based on achievement of individual and Company performance metrics established by the board of directors (or, in the case of the CEO, by the compensation committee of the board). The CEO's 2021 base salary was $625,000, with a target bonus of 100% of base salary and an actual bonus paid of $548,750, reflecting 87.8% target achievement.

Severance Provisions. Each executive employment agreement contains severance provisions triggered upon termination of employment under specified circumstances. The severance provisions vary by executive but generally provide for the following:

(a) Termination Without Cause or Resignation for Good Reason (Non-Change-of-Control). The CEO is entitled to 18 months of base salary continuation, plus a prorated bonus for the year of termination, plus continuation of health benefits for 18 months (or until the executive obtains comparable coverage). The CFO and COO are entitled to 12 months of base salary continuation plus a prorated bonus and 12 months of health benefit continuation. Other named executives are entitled to 9 months of base salary continuation plus 9 months of health benefit continuation.

(b) Termination Without Cause or Resignation for Good Reason Within 24 Months Following a Change of Control. The CEO is entitled to 2.0 times the sum of base salary and target bonus (i.e., 2.0 × ($625,000 + $625,000) = $2,500,000), plus acceleration of all unvested equity awards, plus 24 months of health benefit continuation. The CFO and COO are entitled to 1.5 times the sum of base salary and target bonus, plus acceleration of unvested equity, plus 18 months of health benefit continuation. Other named executives are entitled to 1.0 times the sum of base salary and target bonus, plus partial acceleration of equity (50% of unvested awards), plus 12 months of health benefit continuation.

Change-of-Control Definition. The employment agreements define "Change of Control" to include, among other events, the acquisition of more than 50% of the outstanding voting securities of Cascadia by any person or group, a merger or consolidation of Cascadia with another entity in which Cascadia's equity holders immediately prior to the transaction hold less than 50% of the voting securities of the surviving entity, or the sale of all or substantially all of the assets of Cascadia. The proposed Transaction, which contemplates the acquisition of 100% of the equity of Cascadia, would constitute a "Change of Control" under each of the reviewed employment agreements.

Analysis of Change-of-Control Trigger. The employment agreements employ a double-trigger mechanism for enhanced change-of-control severance and equity acceleration. That is, the change-of-control benefits are triggered only if the executive's employment is terminated without "Cause" or the executive resigns for "Good Reason" within the 24-month period following the Change of Control. The mere occurrence of the Change of Control, standing alone, does not trigger the payment of severance amounts (other than accelerated vesting of equity awards, which in the case of the CEO and CFO is a single-trigger event — see Section V.C below).

This double-trigger structure is generally favorable from the Acquiror's perspective, as it avoids automatic severance payments at closing and instead creates incentives for executives to remain employed during the post-closing transition period. However, the definitions of "Good Reason" in the executive agreements are broadly drafted and include events such as a material diminution in duties or responsibilities, a reduction in base salary or target bonus opportunity, a change in primary work location of more than 35 miles, and a material breach by the Company of any material obligation under the agreement. The Sponsor and the Acquiror should be mindful that post-closing organizational changes — including changes to reporting structures, board composition, or operational authority — could inadvertently trigger "Good Reason" resignations if not carefully managed.

Estimated Change-of-Control Payment Exposure. Based on our analysis, the maximum aggregate change-of-control severance exposure for the seven named executives reviewed (assuming all are terminated without Cause or resign for Good Reason within 24 months following closing) is estimated at approximately $7.3 million in cash severance payments, plus acceleration of equity awards (addressed separately in Section V.C), plus the cost of extended health benefit continuation estimated at approximately $320,000 to $380,000 in the aggregate. The following table summarizes the estimated exposure by executive:

These amounts are relevant to the Transaction's overall cost estimates and should be reflected in the sources and uses analysis. We understand that the current estimated Transaction costs of approximately $50 million include an allocation for change-of-control and severance-related payments, but we recommend that Meridian confirm that the amount allocated is sufficient to cover the full potential exposure identified above plus the Section 280G exposure discussed in Section V.C.

Non-Competition and Non-Solicitation Covenants. Each executive employment agreement contains post-termination non-competition and non-solicitation covenants. The non-competition covenants generally prohibit the executive from engaging in or becoming associated with any business that competes with Cascadia within the Pacific Northwest region (defined as Oregon, Washington, Idaho, Montana, and Northern California) for a period of 12 months following termination of employment. The non-solicitation covenants prohibit the executive from soliciting employees or customers of Cascadia for a period of 18 months following termination.

We note that the enforceability of these non-competition covenants varies by jurisdiction, as discussed in Section IV.C below. The CEO's and CFO's agreements are governed by Oregon law, which imposes specific requirements on the enforceability of non-compete agreements. Based on our review, the CEO's non-compete covenant appears to satisfy the requirements of ORS 653.295 (entered into upon a bona fide advancement, with the CEO's compensation exceeding the statutory threshold). The CFO's non-compete covenant also appears to satisfy the statutory requirements, although we note that it was entered into at the commencement of her employment with Cascadia in 2019. We recommend confirmation that the CFO received the requisite two-week advance written notice of the non-compete requirement prior to accepting the offer of employment, as required by Oregon law.

Notice Periods. Termination by either party requires 60 days' advance written notice for the CEO and 30 days' advance written notice for all other named executives (subject to the Company's right to terminate for "Cause" without notice).

B. Offer Letters and At-Will Employment

We reviewed the Company's standard offer letter template currently in use for non-executive employees. The template clearly establishes that employment is on an "at-will" basis, meaning that either the employee or the Company may terminate the employment relationship at any time, with or without cause, and with or without notice, subject to applicable law. The template does not provide for severance benefits, change-of-control payments, or fixed terms of employment. The template references the Company's employee handbook and benefit plan summaries and requires the employee to acknowledge receipt of such materials.

We were advised by Cascadia management that, to their knowledge, no non-executive employees have individual employment agreements providing for fixed terms of employment or enhanced termination protections, with the exception of approximately 8 employees in Washington state who were hired under legacy employment agreements entered into prior to 2016 by Pacific Ridge Hydro LLC (a predecessor entity acquired by Cascadia in 2016) that contain rolling one-year terms and severance protections equivalent to six months of base salary upon termination without cause. These legacy agreements were assumed by Cascadia in connection with the Pacific Ridge Hydro acquisition and remain in effect. The aggregate potential severance liability under these legacy agreements is estimated at approximately $480,000 (based on current salary levels). We recommend that these agreements be listed on the EPA's disclosure schedules and that a representation be obtained from the sellers regarding the completeness of the disclosure of all individual employment agreements.

C. Restrictive Covenant Agreements

In addition to the restrictive covenants contained in the executive employment agreements described above, Cascadia utilizes standalone confidentiality and invention assignment agreements ("CIAAs") for all employees, and standalone non-competition and non-solicitation agreements for employees in the engineering/technical and management/executive categories. We reviewed a sample of 15 standalone restrictive covenant agreements from across the three states.

Enforceability Analysis:

(a) Oregon. As noted above, Oregon law under ORS 653.295 restricts the enforceability of non-competition agreements. A non-compete is enforceable only if: (i) the employer provides a signed, written copy of the terms at least two weeks before the first day of employment or upon a bona fide advancement; (ii) the employee is engaged in administrative, executive, or professional work and earns a salary above the median family income for a four-person family (approximately $100,533 in 2022); and (iii) the non-compete period does not exceed 12 months. Based on our sample review, approximately 4 of the 7 Oregon-based agreements reviewed appear to satisfy these requirements. The remaining 3 agreements were entered into after the commencement of employment and do not appear to have been provided in connection with a bona fide advancement, raising enforceability concerns. We recommend that a comprehensive audit of Oregon non-compete agreements be conducted to identify the full scope of potentially unenforceable agreements.

(b) Washington. Under RCW 49.62, non-competition agreements are enforceable only against employees earning more than approximately $101,390 annually (2022 threshold). Of the 5 Washington-based agreements reviewed, 3 were with employees earning above the threshold and appear enforceable; 2 were with employees earning below the threshold and are likely void and unenforceable under Washington law.

(c) Idaho. Idaho courts enforce non-competition agreements that are reasonable in scope, duration, and geographic area. The 3 Idaho-based agreements reviewed contain non-compete periods of 12 months and geographic restrictions limited to the state of Idaho and adjacent counties. These agreements appear to be enforceable under Idaho law.

Key Technical and Engineering Personnel. We specifically assessed whether key technical and engineering personnel — particularly those with specialized knowledge of hydroelectric turbine systems, dam safety and regulatory compliance, and water-treatment concession operations — are bound by enforceable restrictive covenants. Of the approximately 42 individuals identified by Cascadia management as "critical" engineering and technical personnel, approximately 28 have signed non-competition agreements that appear enforceable in their respective jurisdictions, and all 42 have signed CIAAs. The remaining 14 individuals either did not sign non-compete agreements or signed agreements that may not be enforceable under the applicable state law. We recommend that the Sponsor assess the retention risk associated with these 14 individuals, particularly in light of increasing competition for specialized renewable energy engineering talent in the Pacific Northwest.

D. Retention and Transaction Bonuses

Cascadia management has proposed, and the Sponsor has agreed in principle to, a retention bonus program for approximately 30 employees identified as critical to the post-closing operation of the business. The retention bonus pool is expected to total approximately $4.2 million, payable in two installments: 50% upon closing of the Transaction and 50% on the first anniversary of closing, subject to continued employment through each payment date. The retention bonus program is expected to be documented in individual retention bonus agreements to be entered into prior to closing.

We were not provided with copies of executed retention bonus agreements in the data room, as the program is still being finalized. We recommend that the terms of the retention bonus agreements be coordinated with the management rollover pool (discussed in Section VII below) to ensure alignment of retention incentives and to avoid duplication of benefits. The retention bonus program should also be reviewed for compliance with Section 409A of the Internal Revenue Code to the extent any payments are structured as deferred compensation.

In addition to the retention bonus program, we note that the CEO and CFO are expected to receive a transaction-related bonus in connection with the closing of the Transaction. Based on representations from Cascadia management, the CEO's transaction bonus is approximately $1.5 million and the CFO's transaction bonus is approximately $750,000, in each case payable at closing. These amounts are included in the estimated Transaction costs.

V. Employee Benefit Plans

A. Qualified Retirement Plans

401(k) Plan. Cascadia sponsors the Cascadia Renewables Holdings, Inc. 401(k) Savings Plan (the "401(k) Plan"), a defined contribution plan intended to qualify under Section 401(a) of the Internal Revenue Code. We reviewed the plan document (restated effective January 1, 2020), the current summary plan description, the most recent Form 5500 filing (for the plan year ended December 31, 2021), and the most recent compliance testing results.

Key features of the 401(k) Plan include:

• Eligibility. All employees who have completed 90 days of service and have attained age 21 are eligible to participate. Part-time employees who complete 1,000 hours of service in a 12-month measurement period are also eligible.

• Employee Contributions. Participants may elect to make pre-tax and/or Roth after-tax contributions of up to 75% of eligible compensation, subject to the annual IRS deferral limit ($20,500 in 2022; $27,000 for participants age 50 and older with catch-up contributions).

• Employer Match. Cascadia provides a discretionary matching contribution equal to 100% of the first 3% of compensation deferred and 50% of the next 2% of compensation deferred, for a maximum match of 4% of eligible compensation. Based on the 2021 Form 5500 filing, total employer matching contributions for the plan year ended December 31, 2021, were approximately $3.8 million.

• Vesting. Employee contributions are immediately vested. Employer matching contributions vest according to a three-year cliff vesting schedule (i.e., 100% vested after three years of service; 0% vested before three years of service).

• Plan Assets. Total plan assets as of December 31, 2021, were approximately $87.4 million, based on the Form 5500 filing. The plan offers a diversified menu of investment options, including target-date funds, index funds, and a self-directed brokerage option.

Compliance Testing. We reviewed the compliance testing results for the 2021 plan year, including the Actual Deferral Percentage (ADP) test, the Actual Contribution Percentage (ACP) test, and the top-heavy test. The plan passed all required testing for the 2021 plan year without the need for corrective distributions or refunds. We did not identify any compliance deficiencies or pending IRS or DOL correction programs (EPCRS or DFVCP) based on the materials provided.

Defined Benefit Plans. Based on representations from Cascadia management and a review of the data room materials, Cascadia does not currently sponsor, and has never sponsored, a defined benefit pension plan. However, we note that Pacific Ridge Hydro LLC (acquired by Cascadia in 2016) previously maintained a frozen defined benefit plan (the "Pacific Ridge Hydro Salaried Employees Pension Plan"), which was terminated effective December 31, 2015, and for which a standard termination was completed and PBGC approval obtained in March 2016. Final plan distributions were completed prior to Cascadia's acquisition of Pacific Ridge Hydro. We recommend that the EPA include a representation from the sellers confirming the completion of the Pacific Ridge Hydro pension plan termination and the absence of any residual PBGC liability.

Determination Letters and IRS Filings. The 401(k) Plan received a favorable IRS determination letter dated October 14, 2016, with respect to its prior restatement. The plan was subsequently restated effective January 1, 2020, to incorporate mandatory law changes through that date. We recommend that Cascadia confirm whether it has applied for or intends to apply for an updated determination letter with respect to the 2020 restatement.

B. Health and Welfare Plans

Cascadia sponsors the following health and welfare benefit plans for eligible employees:

Group Health Insurance. Cascadia provides group medical insurance through Cobalt Ridge Mutual Insurance (for Oregon and Washington employees) and Brightmoor Assurance (for Idaho employees). The Company offers three plan options: a Preferred Provider Organization (PPO) plan, a Health Maintenance Organization (HMO) plan (available only in Oregon), and a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) option. Cascadia covers approximately 75% of the premium cost for employee-only coverage and approximately 60% of the premium cost for dependent coverage. The total annual employer cost for group health insurance for the plan year ended December 31, 2021, was approximately $11.2 million, based on data provided by the Company.

All group health insurance arrangements are fully insured (i.e., Cascadia does not maintain a self-insured health plan). We did not identify any self-insured health plan arrangements or related stop-loss coverage.

Dental, Vision, Life Insurance, and Disability Plans. Cascadia provides dental insurance through Ostrander Insurance, vision insurance through Thackeray Group, basic group life insurance and accidental death and dismemberment (AD&D) insurance through Quillon Holdings (with a basic life benefit of 1.5 times annual salary up to a $500,000 maximum), short-term disability insurance through Quillon Holdings (60% of base salary for up to 26 weeks), and long-term disability insurance through Quillon Holdings (60% of base salary, subject to a $10,000 monthly maximum).

Affordable Care Act Compliance. Cascadia qualifies as an "applicable large employer" ("ALE") under the Affordable Care Act, having employed more than 50 full-time employees (or full-time equivalents) in each of the prior three calendar years. We reviewed Cascadia's Forms 1095-C and 1094-C filing history for tax years 2019, 2020, and 2021. Based on our review, Cascadia appears to have timely filed all required forms and has offered minimum essential coverage providing minimum value at an affordable cost to all full-time employees, as required by Section 4980H of the Internal Revenue Code. We did not identify any pending IRS assessments of employer shared responsibility payments (the "employer mandate penalty") based on the materials reviewed.

COBRA Administration. Cascadia has contracted with a third-party COBRA administrator (Greaves Technologies) for administration of COBRA continuation coverage. We reviewed the COBRA notice templates and election forms and did not identify any material deficiencies in the Company's COBRA administration procedures. We recommend that the EPA include a representation from the sellers regarding compliance with COBRA notice and election requirements, as noncompliance can give rise to excise tax exposure under Section 4980B of the Internal Revenue Code.

Retiree Medical Obligations (OPEB). Based on representations from Cascadia management and a review of the data room materials, Cascadia does not provide any post-retirement health benefits ("OPEB") to former employees or retirees. There are no unfunded or partially funded retiree medical obligations. We note that the Pacific Ridge Hydro acquisition in 2016 did not result in the assumption of any retiree medical obligations, as Pacific Ridge Hydro had terminated its retiree medical program effective December 31, 2014.

C. Equity and Incentive Compensation Plans

Cascadia Equity Incentive Plan. Cascadia maintains the Cascadia Renewables Holdings, Inc. 2017 Equity Incentive Plan (the "Equity Plan"), adopted by the board of directors and approved by the shareholders effective March 15, 2017, and amended effective November 1, 2020. The Equity Plan authorizes the issuance of various forms of equity-based awards, including stock options, restricted stock, restricted stock units ("RSUs"), phantom equity, and profits interests. The Equity Plan reserves a total of 1,200,000 shares of Cascadia common stock for issuance, of which approximately 847,000 shares are subject to outstanding awards and approximately 353,000 shares remain available for future grants as of the date of this memorandum.

Outstanding Awards. Based on the equity award ledger provided by Cascadia management (current as of July 31, 2022), the following awards are outstanding under the Equity Plan:

Stock options have a weighted-average exercise price of $18.42 per share and were granted at fair market value as of the respective grant dates (as determined by periodic 409A valuations conducted by Dunmore Benefits Consulting & McGregor, Inc., an independent valuation firm). RSUs and phantom equity awards are settled in shares or cash, respectively, upon vesting.

Treatment upon Change of Control. The Equity Plan provides that upon a "Change of Control" (as defined in the plan, which definition is substantially consistent with the definition in the executive employment agreements), all outstanding stock options and RSUs shall become fully vested and exercisable (a single-trigger acceleration). Phantom equity awards vest on a single-trigger basis for participants who are "Level I Executives" (CEO and CFO) and on a double-trigger basis for all other participants. The plan provides that, in connection with a Change of Control, the board may elect to (i) cash out all outstanding awards based on the per-share consideration payable in the Change of Control transaction, (ii) provide for the assumption or substitution of awards by the acquiror, or (iii) permit the exercise of outstanding options for a specified period prior to closing.

We understand that, in connection with the Transaction, the Acquiror intends to cash out all outstanding equity awards at closing based on the implied per-share consideration derived from the Transaction's equity value, net of the exercise price in the case of stock options. Based on the implied per-share consideration of approximately $62.50 (derived from an estimated equity value of approximately $1.15 billion allocated across approximately 18.4 million fully diluted shares), the estimated aggregate cost of cashing out all outstanding awards is as follows:

We note that the above figures are preliminary estimates and are subject to adjustment based on the final per-share consideration, the number of awards outstanding as of the closing date, and any rollover elections made by management participants (see Section VII below, regarding the management rollover pool). The equity cash-out is expected to be funded from the Transaction's equity consideration and is included in the sources and uses analysis.

Section 409A Compliance. Stock options were granted at fair market value and are structured as "stock rights" exempt from Section 409A of the Internal Revenue Code under Treasury Regulation § 1.409A-1(b)(5). RSUs are structured to vest and settle within the "short-term deferral" period (i.e., by the later of the 15th day of the third month following the end of the participant's taxable year in which the RSU vests, or the 15th day of the third month following the end of Cascadia's taxable year in which the RSU vests) and are therefore also exempt from Section 409A. Phantom equity awards for Level I Executives contain deferred settlement features that may implicate Section 409A; we recommend coordination with the C&H Tax Group (Sylvia Hartwell) to confirm compliance and assess whether the Transaction settlement constitutes a permissible payment event under the applicable plan documents and award agreements.

Section 280G Analysis. The Transaction constitutes a "change in control" for purposes of Section 280G of the Internal Revenue Code (which applies to C corporations such as Cascadia). Section 280G imposes a 20% excise tax on "excess parachute payments" received by "disqualified individuals" (generally, officers, directors, and highly compensated employees) in connection with a change in control, and denies the employer a deduction for such payments. A "parachute payment" is any compensatory payment that is contingent on the change in control and that has an aggregate present value equal to or exceeding three times the individual's "base amount" (the average annual compensation over the five-year period ending before the change in control).

Payments subject to Section 280G analysis include change-of-control severance (if triggered), accelerated vesting of equity awards, transaction bonuses, and continued health benefits. Based on preliminary data, the following "disqualified individuals" may be subject to Section 280G exposure:

For each individual listed above, the ratio of total change-in-control payments to the base amount exceeds the 3.0x threshold, meaning that the excess over 1.0x base amount would be subject to the 20% excise tax under Section 4999 of the Internal Revenue Code, and the employer would lose the deduction for the excess amount under Section 280G. The aggregate Section 280G exposure (excise tax borne by the individuals plus lost employer deduction) is estimated at approximately $4.8 million to $5.6 million in the aggregate.

Potential mitigation strategies include: (i) obtaining a shareholder vote to approve the parachute payments under Section 280G(b)(5)(B), which, if approved by more than 75% of the voting power of the outstanding shares, would exempt the payments from Section 280G treatment; (ii) structuring the EPA to allocate a portion of the consideration as reasonable compensation for post-closing services (subject to Section 280G(b)(4) allocation rules); or (iii) negotiating "best net" or "cutback" provisions in the executive employment agreements to reduce payments to the safe harbor amount (2.99x base amount). We recommend that the Section 280G analysis be finalized in coordination with Sylvia Hartwell (Tax) and that the Sponsor determine its preferred approach prior to the finalization of the EPA.

We note that the executive employment agreements do not contain gross-up provisions for Section 280G excise taxes (which is consistent with current market practice and the Sponsor's stated policy). The agreements do contain "best net" provisions, under which payments would be reduced to the safe harbor amount only if the after-tax benefit to the executive of the reduced amount exceeds the after-tax benefit of receiving the full payment and bearing the excise tax.

D. Other Fringe Benefits

In addition to the foregoing, Cascadia provides the following fringe benefits to eligible employees:

• Company Vehicle Program. Cascadia provides company vehicles to approximately 38 employees in field operations and maintenance roles, as well as the CEO and COO. The personal use component of company vehicles is included as taxable compensation on employees' W-2 forms.

• Relocation Assistance. The Company maintains a relocation assistance policy for new hires and transferred employees, providing reimbursement for moving expenses, temporary housing (up to 90 days), and real estate transaction costs (for employees relocating from outside the Portland metropolitan area). The policy includes a two-year clawback provision for employees who voluntarily terminate within two years of receiving relocation benefits.

• Tuition Reimbursement. Cascadia offers tuition reimbursement for job-related undergraduate and graduate coursework, up to a maximum of $5,250 per calendar year (the non-taxable limit under Section 127 of the Internal Revenue Code). Approximately 47 employees currently participate in the program.

• Employee Assistance Program (EAP). The Company provides an EAP through Aldermere Strategy Partners, offering confidential counseling, legal consultation, financial planning, and work-life balance resources.

Deferred Compensation and SERPs. Cascadia does not maintain a nonqualified deferred compensation plan or a supplemental executive retirement plan ("SERP"). To the extent any phantom equity awards contain deferred settlement features, the Section 409A analysis described above applies.

E. Plan Successor Liability Considerations

Because the Transaction is structured as a 100% equity acquisition, the Acquiror (Cascadia Acquisition Corp.) will succeed to all of Cascadia's existing employee benefit plan obligations by operation of law. The Company will continue to exist as a legal entity following the closing, and there will be no change in the plan sponsor or employer for purposes of ERISA or the Internal Revenue Code. Accordingly:

• Qualified Plans. The 401(k) Plan will continue in effect following the closing without the need for plan termination, transfer of assets, or a new determination letter application. The Acquiror should evaluate post-closing whether it wishes to amend or merge the 401(k) Plan with any other plan sponsored by a Meridian portfolio company, or to make changes to the employer matching contribution formula. Any such changes should be implemented in compliance with ERISA's anti-cutback rules (Section 204(g)) and the plan's amendment procedures.

• Health and Welfare Plans. Fully insured health and welfare plans will continue under existing carrier contracts. The Acquiror should review insurance contract renewal dates and assess whether it wishes to renegotiate carrier arrangements or integrate Cascadia employees into a Meridian-wide benefits platform post-closing.

• Underfunded Plan Obligations. Based on our review, Cascadia does not sponsor any defined benefit pension plan, and the 401(k) Plan is a defined contribution plan with no unfunded obligation. We did not identify any material underfunded plan obligations.

• PBGC Considerations. As noted above, Cascadia does not sponsor or maintain any defined benefit pension plan. The former Pacific Ridge Hydro pension plan was terminated and fully distributed prior to Cascadia's acquisition of Pacific Ridge Hydro. Accordingly, PBGC considerations are not implicated by the Transaction.

• Multiemployer Plan Exposure. Based on representations from Cascadia management, no Cascadia employees currently participate in, and Cascadia has no obligation to contribute to, any multiemployer pension plan (as defined in ERISA § 3(37)). We recommend that the EPA include a specific representation from the sellers to this effect, together with an indemnity for any undisclosed multiemployer plan withdrawal liability under ERISA §§ 4201-4225, which can be substantial. If any employees are determined to participate in a multiemployer plan, a full withdrawal liability analysis would be required.

VI. Collective Bargaining Agreements

A. Union Representation

Based on the data room materials and representations from Cascadia management, approximately 218 employees at four Cascadia facilities are represented by organized labor. The following collective bargaining agreements are currently in effect:

Total Unionized Employees: 218 (approximately 17.5% of the total workforce).

We reviewed copies of all four CBAs and note the following key terms:

Wage Rates. Each CBA establishes wage scales for covered positions, with annual increases ranging from 2.5% to 3.5% per year over the contract term. The IBEW Local 125 CBA provides for the highest wage rates, with journeyman electricians earning a base hourly rate of $48.72 (effective July 1, 2022).

Benefits. Each CBA requires the Company to provide health insurance coverage (generally through the Company's group health plan), retirement benefits (participation in the 401(k) Plan with the Company match), and, in the case of the IBEW and UA CBAs, contributions to union-sponsored training and apprenticeship funds.

Grievance and Arbitration. Each CBA contains a multi-step grievance procedure culminating in binding arbitration before a neutral arbitrator selected from a panel maintained by the Federal Mediation and Conciliation Service (FMCS) or the American Arbitration Association (AAA). We did not identify any pending arbitration proceedings, although there are two open grievances at the Columbia Gorge facility (relating to overtime assignment disputes) that are in the early stages of the grievance process.

Management Rights. Each CBA contains a management rights clause reserving to the Company the right to manage its operations, direct the workforce, determine staffing levels, and make business decisions, subject to the specific terms of the CBA. The management rights clauses are generally consistent with standard industry practice and do not appear to unduly restrict the Acquiror's post-closing operational flexibility.

Successorship Clauses. The IBEW Local 125 CBA and the UA Local 290 CBA each contain a successorship clause requiring the Company to give notice of any sale or transfer of the facility to the union and to require the purchaser or transferee to agree to be bound by the terms of the CBA for the remainder of the contract term. The IBEW Local 77 CBA and the LIUNA Local 737 CBA do not contain express successorship clauses.

B. Successorship and Change-of-Control Provisions

NLRA Successorship Doctrine. Under the National Labor Relations Act and applicable case law, a purchaser of a business may be deemed a "successor employer" obligated to recognize and bargain with the incumbent union if (i) the purchaser uses essentially the same workforce in the same jobs under similar working conditions, and (ii) a majority of the purchaser's workforce in the bargaining unit was employed by the predecessor. Because the Transaction is structured as an equity acquisition (rather than an asset purchase) and the Company will continue to operate as a going concern with the same workforce, the Acquiror will generally be treated as a successor employer under the NLRA. See NLRB v. Burns International Security Services, 406 U.S. 272 (1972).

Under the Burns doctrine, a successor employer is obligated to recognize and bargain with the incumbent union but is generally not bound by the terms of the predecessor's CBA. However, if the successor makes clear, prior to or at the time of the transfer, that it plans to retain the predecessor's employees without making changes to their terms and conditions of employment, the successor may be deemed a "perfectly clear" successor under Spruce Up Corp., 209 NLRB 194 (1974), and bound by the terms of the existing CBA as an initial set of employment terms.

Given that the Transaction is an equity acquisition in which the legal employer entity (Cascadia) will remain unchanged, the existing CBAs will continue in effect by their terms. No new successorship analysis is strictly required because the employer of record is not changing. However, to the extent the Acquiror contemplates any post-closing restructuring that would involve a change in the employing entity (e.g., a merger of Cascadia into another Meridian portfolio company or a transfer of assets to a new entity), successorship issues would need to be reassessed at that time.

CBA Successorship Clauses. Notwithstanding the foregoing, the successorship clauses in the IBEW Local 125 CBA and the UA Local 290 CBA create contractual obligations to notify the unions of any sale or transfer and to obtain the purchaser's agreement to be bound by the CBA. We recommend that Cascadia provide the required notice to IBEW Local 125 and UA Local 290 prior to closing, and that the Acquiror acknowledge its assumption of the existing CBAs in the EPA. Failure to comply with the contractual notice requirements could give rise to a grievance or unfair labor practice charge.

Union Notice Obligations. Apart from the contractual successorship clauses, we do not believe that the Transaction, as currently structured, triggers a legal obligation to bargain with the unions over the "effects" of the change of control under the NLRA, so long as no changes to the terms and conditions of employment are contemplated at or immediately following closing. However, if any post-closing changes to wages, benefits, staffing levels, or working conditions at unionized facilities are contemplated, the Acquiror would be required to bargain with the applicable union over such changes before implementation.

Pending ULP Charges, Grievances, and Arbitrations. We were advised by RAM that there are no pending unfair labor practice charges before the National Labor Relations Board against Cascadia or any of its subsidiaries. As noted above, there are two open grievances at the Columbia Gorge Hydroelectric Station relating to overtime assignment, both of which are in Step 2 of the grievance process. Cascadia management characterized these grievances as routine and not material. We did not identify any pending arbitration proceedings.

C. Labor Relations Climate

Based on our review of the data room materials and discussions with Cascadia management, the Company's labor relations climate appears to be generally stable and constructive. We note the following:

• No Recent Strikes or Work Stoppages. Cascadia has not experienced any strikes, lockouts, or other work stoppages in the past five years.

• No Pending Organizing Campaigns. Cascadia management represented that it is not aware of any current union organizing campaigns or representation petitions at any non-unionized facility. We note that the renewable energy sector has experienced increased unionization activity nationally, and the Sponsor should monitor this trend with respect to Cascadia's non-unionized wind farm and water-treatment facilities.

• Upcoming CBA Expirations. The UA Local 290 CBA (Cascade Locks Hydroelectric Station) is scheduled to expire on March 31, 2023, which is the earliest expiration among the four CBAs. Depending on the timing of the Transaction closing (currently targeted for Q4 2022), the Acquiror may be involved in the negotiation of the successor CBA for this facility. We recommend that Meridian and the Acquiror begin developing a labor rela

CALDERWOOD & HARKNESS LLP 125 Broad Street, 44th Floor New York, NY 10004
ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
To: Marcus J. Calloway, Founder & Chief Investment Officer, Ironside Capital Management LP Renata Obasi, Senior Managing Director, Infrastructure, Ironside Capital Management LP
From: Owen Fischer, Working Associate, Funds & Asset Management, Calderwood & Harkness LLP Theresa Kim, Lead Associate, Funds & Asset Management, Calderwood & Harkness LLP
Reviewed by: Pamela Cross, Responsible Partner, Funds & Asset Management, Calderwood & Harkness LLP
Date: August 26, 2022
Re: Due Diligence Review — Employment and Benefits Matters of Cascadia Renewables Holdings, Inc.
Matter No.: 1023-00001
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I. Executive Summary
This memorandum summarizes the findings of Calderwood & Harkness LLP ("C&H" or the "Firm") in connection with our review of employment and employee benefits matters relating to Cascadia Renewables Holdings, Inc. ("Cascadia," "CRH," or the "Company"), an Oregon corporation headquartered at 1100 SW Sixth Avenue, Suite 1800, Portland, Oregon 97204. This review has been undertaken in connection with the proposed acquisition (the "Transaction") of 100% of the outstanding equity interests of Cascadia by Cascadia Acquisition Corp. (the "Acquiror"), a newly formed Delaware corporation organized on behalf of Meridian Infrastructure Partners Fund IV, LP ("Fund IV") and ICM Cascadia Co-Invest, LP (the "Co-Invest Vehicle," and together with Fund IV, "Meridian" or the "Sponsor"). Ironside Capital Management LP ("Ironside" or "ICM") serves as the investment manager of Fund IV and the Co-Invest Vehicle.
The Transaction contemplates an enterprise value of $1,950,000,000 (one billion, nine hundred and fifty million dollars), representing an implied EV/EBITDA multiple of approximately 14.1x based on Cascadia's fiscal year 2021 EBITDA of approximately $138 million. Cascadia reported fiscal year 2021 revenues of approximately $487 million. The Company's operations span 14 hydroelectric generation facilities, 6 wind farm installations, and 3 water-treatment concession arrangements across the states of Oregon, Washington, and Idaho. Cascadia is a vertically integrated renewable energy and water infrastructure platform with a diversified asset base and long-duration revenue contracts, making it a core holding for Meridian's infrastructure strategy.
The principal purpose of this memorandum is to identify and analyze the material employment and benefits issues arising in connection with the Transaction that may affect the terms of the definitive Equity Purchase Agreement (the "EPA"), the allocation of risk between the sellers and the Acquiror, and the Sponsor's post-closing operational and integration plans. Specifically, this memorandum addresses the following areas:
•  Workforce Profile and Employee Census. An overview of Cascadia's employee base across all states and facility types, including an assessment of the use of independent contractors and associated misclassification risk.
•  Employment Agreements and Arrangements. Review of executive employment agreements, at-will employment arrangements, restrictive covenant agreements, and retention and transaction bonus programs.
•  Employee Benefit Plans. Analysis of qualified retirement plans, health and welfare benefit plans, equity and incentive compensation plans, and other fringe benefit programs, including successor liability considerations.
•  Collective Bargaining Agreements. Identification of any union representation, review of CBA terms, and analysis of successorship obligations under applicable labor law.
•  Management Rollover Pool. Review of the structure, composition, and mechanics of the management rollover pool and its interaction with the Weir Family Trust.
•  WARN Act Considerations. Federal and state-level analysis of the Worker Adjustment and Retraining Notification Act and analogous state statutes.
•  Pending Employment Litigation and Claims. Summary of known employment-related disputes, cross-referenced to the separate litigation due diligence memorandum.
•  Payroll Tax and Withholding Compliance. Assessment of multi-state payroll tax compliance and workers' compensation coverage.
•  Risk Assessment and Recommendations. Categorized risk findings and recommended EPA protections, pre-closing action items, and post-closing considerations.
This memorandum should be read in conjunction with the C&H Summary Due Diligence Report and Risk Matrix (anticipated finalization date: September 1, 2022), the C&H Due Diligence Memorandum: Cascadia Litigation and Proceedings (dated August 19, 2022), and the Tax Structuring Analysis (dated July 20, 2022, prepared by Sylvia Hartwell of the C&H Tax Group).
The documents reviewed in connection with this memorandum were made available through the virtual data room organized by Breckenridge Sloane & Pratt LLP ("BSP," with Charles A. Delacroix serving as lead counsel to Meridian) and were provided by Cascadia's counsel, Ridgeway, Ashford & Malone PC ("RAM," with Nina R. Castellano serving as lead partner), as well as audited financial information furnished by Halstead & Greer LLP, Cascadia's independent auditor and tax advisor. A complete index of documents reviewed is set forth in Section XII below.
II. Scope and Methodology
A. Scope of Review
The employment and benefits due diligence review encompassed the following categories of documents and information:
1.  Employment Agreements. All executive-level employment agreements, including those of the Chief Executive Officer, Chief Financial Officer, and other members of the senior leadership team, as well as representative samples of standard offer letters and at-will employment acknowledgments applicable to non-executive employees.
2.  Employee Handbooks and Policies. Current employee handbooks applicable to Cascadia's Oregon, Washington, and Idaho employees, including policies relating to anti-harassment, equal employment opportunity, leave of absence, attendance and scheduling, drug and alcohol use, and workplace safety.
3.  Employee Benefit Plan Documents. Plan documents, summary plan descriptions ("SPDs"), and the most recently filed Forms 5500 for all qualified retirement plans, health and welfare plans, and equity incentive plans sponsored by Cascadia or any of its subsidiaries, together with all plan amendments, determination letters, and compliance testing results.
4.  Collective Bargaining Agreements. All collective bargaining agreements currently in effect at any Cascadia facility, together with any pending grievances, arbitration proceedings, and unfair labor practice charges.
5.  WARN Act Compliance. Historical records of any WARN Act notices issued by Cascadia, together with current employee census data relevant to WARN applicability.
6.  Employment Litigation and Claims. Pleadings, correspondence, settlement agreements, and reserves information relating to pending or threatened employment-related litigation, administrative proceedings, and government investigations, including EEOC charges, OSHA citations, and wage and hour claims.
7.  Independent Contractor Arrangements. Representative samples of independent contractor agreements, together with management representations regarding the classification of independent contractors.
8.  Management Equity and Rollover Arrangements. Cascadia's equity incentive plan documents, individual award agreements, the management rollover term sheet, and related correspondence regarding the proposed management rollover in connection with the Transaction.
9.  Restrictive Covenant Agreements. Samples of non-competition, non-solicitation, and confidentiality agreements entered into with executive and key technical personnel.
10.  Payroll and Withholding Records. Summary payroll reports, multi-state tax withholding records, workers' compensation insurance policies, and unemployment insurance rating notices.
B. Data Room Access and Supplemental Requests
All documents reviewed in connection with this memorandum were accessed through the Meridian-organized virtual data room hosted on Thackeray Solutions (Project "Clearwater"). Supplemental document requests and follow-up questions were submitted through BSP (Charles A. Delacroix) and, where appropriate, directly to RAM (Nina R. Castellano) pursuant to the agreed-upon diligence protocol. Over the course of the review period, C&H submitted three supplemental diligence request lists relating to employment and benefits matters (dated July 28, August 5, and August 16, 2022, respectively). As of the date of this memorandum, substantially all requested materials have been produced, although certain items remain outstanding as noted in the relevant sections below.
C. Limitations.  The following limitations apply to this memorandum and should be noted by the recipients:
•  Personnel Files. Individual personnel files and detailed individual compensation data were reviewed on a summary or redacted basis only. Cascadia provided aggregated compensation data organized by position category and facility location, together with individual compensation details for the ten most highly compensated employees. Full personnel files were not made available for review.
•  Management Representations. Certain findings and conclusions set forth herein are based in part on oral and written representations made by Cascadia management, including Chief Executive Officer Jonathan M. Weir and Chief Financial Officer Sandra K. Llewellyn, as well as written disclosures provided by RAM in response to our diligence questionnaires. C&H has not independently verified all such representations, and the accuracy of the information presented herein is subject to the completeness and accuracy of the information provided by the Company and its advisors.
•  Actuarial and Benefits Valuations. C&H has not conducted independent actuarial or benefits valuations. Where applicable, we have relied on actuarial reports and valuation summaries provided by Cascadia's benefits consultants and auditors.
•  Tax Analysis. While this memorandum addresses certain tax-related aspects of the employment and benefits review (including Section 409A, Section 280G, and rollover tax treatment), comprehensive tax analysis is being conducted separately by Sylvia Hartwell of the C&H Tax Group and is addressed in the Tax Structuring Analysis dated July 20, 2022.
•  Ongoing Diligence. This memorandum is based on information available as of August 26, 2022. Our review is ongoing, and additional findings may be reported as supplemental information is received. This memorandum will be updated as necessary in connection with the finalization of the Summary Due Diligence Report and Risk Matrix.
III. Workforce Overview
A. Employee Census
Based on the employee census data provided by Cascadia management as of July 31, 2022, the Company and its subsidiaries employ approximately 1,247 employees across its three-state operating footprint. The breakdown of the workforce is as follows:
By State:
By Facility Type:
By Employee Category:
The Company's headquarters operations are conducted from leased office space at 1100 SW Sixth Avenue, Suite 1800, Portland, Oregon 97204, where approximately 169 employees are based. These headquarters employees include members of the senior leadership team, corporate finance and accounting personnel, human resources, legal, regulatory affairs, and administrative staff. The remaining workforce is distributed across the Company's 23 operating facilities.
We note that the employee census data provided to us is current as of July 31, 2022. We recommend that an updated census be obtained within 30 days prior to the anticipated closing date to ensure accuracy for purposes of WARN Act analysis, benefit plan administration, and post-closing integration planning.
B. Independent Contractors
Cascadia engages independent contractors for range functions, including specialized maintenance services at hydroelectric and wind farm facilities, engineering consulting on capacity expansion and environmental compliance projects, and seasonal or project-based work associated with water-treatment concession operations. Based on information provided by Cascadia management, the Company currently engages approximately 85 to 95 independent contractors on an ongoing or recurring basis, with an additional 30 to 50 contractors engaged on a seasonal or project-specific basis during peak demand periods.
We reviewed a representative sample of 12 independent contractor agreements provided in the data room. The agreements reviewed generally contain provisions establishing the contractor's independent status, including statements that the contractor controls the manner and means of performance, provides their own tools and equipment, is responsible for their own taxes and insurance, and is not entitled to employee benefits. The agreements typically provide for termination on 30 days' notice and include standard confidentiality provisions but generally do not contain non-competition covenants.
Worker Classification Analysis. We conducted a preliminary assessment of misclassification risk associated with Cascadia's use of independent contractors. Worker classification is governed by a patchwork of federal and state standards that apply different tests:
(a) Federal Standards. Under Internal Revenue Service guidelines, worker classification is determined by application of the common-law test, which examines the degree of behavioral control, financial control, and the type of relationship between the parties. The Department of Labor applies an "economic reality" test under the Fair Labor Standards Act, which focuses on whether the worker is economically dependent on the employer or is in business for themselves. The DOL's recent rulemaking (effective March 11, 2024, but subject to change under future administrations) may alter the weighting of these factors but is not yet in effect as of the date of this memorandum.
(b) Oregon. Oregon applies a multi-factor test under ORS 670.600 for determining independent contractor status, which requires satisfaction of several criteria, including that the individual is free from direction and control, is customarily engaged in an independently established business, and meets specific additional requirements depending on the type of work. Oregon's test is generally considered more restrictive than the federal common-law test.
(c) Washington. Washington applies an "economic dependence" test under RCW 49.46.010 and related statutes, as well as a separate test under the Washington Industrial Insurance Act. Recent Washington case law has trended toward broader definitions of "employee," increasing misclassification risk for companies relying heavily on independent contractors.
(d) Idaho. Idaho generally follows the IRS common-law test and considers factors such as behavioral control, financial control, and the nature of the relationship. Idaho's framework is somewhat more permissive than Oregon's or Washington's.
Based on our review of the sample contractor agreements and discussions with Cascadia management, we identified a moderate level of misclassification risk with respect to approximately 15 to 20 independent contractors who perform ongoing maintenance and inspection work at hydroelectric facilities in Oregon and Washington. These individuals work on a recurring schedule, use Company-provided equipment in certain instances, and perform functions substantially similar to those performed by full-time operations and maintenance employees. We recommend that a more detailed classification review be conducted post-closing with respect to these individuals, and that the EPA include a representation from the sellers regarding the proper classification of all workers.
C. Multi-State Employment Law Considerations
Cascadia's operations across three states subject the Company and its employees to varying state employment law regimes. The following summary highlights key differences that may be relevant to the Transaction and post-closing operations:
Oregon:
•  Oregon Pay Equity Act (ORS 652.220). Prohibits employers from seeking or relying on salary history in hiring and compensation decisions and requires equal pay for work of comparable character. Cascadia's compliance with this statute should be verified in connection with any post-closing compensation adjustments or integration efforts.
•  Oregon Family Leave Act (OFLA) (ORS 659A.150 et seq.). Provides eligible employees with up to 12 weeks of protected leave for specified family and medical reasons. OFLA operates in addition to the federal Family and Medical Leave Act (FMLA) and, in certain respects, provides broader protections. Cascadia has more than 25 employees in Oregon and is therefore a covered employer.
•  Predictive Scheduling (ORS 653.412 et seq.). Oregon's "fair work week" law imposes advance scheduling requirements on certain employers in the retail, hospitality, and food services industries. Based on our review, Cascadia's operations are not within the covered industry sectors, and this statute is therefore not directly applicable. However, we note that legislative proposals to expand the scope of predictive scheduling requirements have been introduced in recent sessions and should be monitored.
•  Oregon Non-Compete Statute (ORS 653.295). Oregon law restricts the enforceability of non-competition agreements, including requirements that the agreement be entered into upon the commencement of employment or upon a bona fide advancement, that the employee earn above a minimum compensation threshold (currently approximately $100,533 per year, adjusted annually), and that the non-compete period not exceed 12 months. Non-compete agreements that fail to meet these requirements are voidable.
Washington:
•  Washington Non-Compete Statute (RCW 49.62). Effective January 1, 2020, Washington significantly restricted the enforceability of non-competition agreements. Non-compete agreements are void and unenforceable unless the employee earns more than $100,000 annually (adjusted annually for inflation; the 2022 threshold is approximately $101,390). Independent contractors are subject to a higher threshold of approximately $250,000. The statute also limits non-compete durations to 18 months and requires the employer to pay the employee during any garden leave period.
•  Washington Paid Family and Medical Leave (RCW 50A). Washington's Paid Family and Medical Leave program, administered by the Employment Security Department, provides eligible employees with up to 12 weeks of paid leave for family or medical reasons (or 16 weeks combined for both family and medical leave). The program is funded through employee and employer premiums. Cascadia is required to participate as a covered employer.
•  Washington Equal Pay and Opportunities Act (RCW 49.58). Requires employers with 15 or more employees to disclose in each posting for each job opening the wage scale or salary range and a general description of all benefits and other compensation.
Idaho:
•  At-Will Employment. Idaho maintains a robust at-will employment framework. Idaho courts have recognized limited exceptions to the at-will doctrine, including a public policy exception and an implied contract exception, but the state's employment law environment is generally considered employer-friendly.
•  Wage Payment Requirements (Idaho Code § 45-601 et seq.). Idaho law requires employers to pay wages on regular paydays at least once per month. Upon termination, final wages must be paid within 10 days or the next scheduled payday, whichever is sooner, unless a contract provides otherwise.
•  Non-Compete Agreements. Idaho courts generally enforce reasonable non-competition agreements that are supported by adequate consideration and are limited in scope, duration, and geographic area. Idaho's framework is more permissive than Oregon's or Washington's.
The multi-state nature of Cascadia's operations requires careful coordination of employment policies and practices across jurisdictions. We recommend that the Company's employee handbooks and policies be reviewed post-closing to ensure continued compliance with the applicable requirements in each state, particularly in light of recent legislative and regulatory developments in Oregon and Washington.
IV. Employment Agreements and Arrangements
A. Executive Employment Agreements
We reviewed the employment agreements of the following members of Cascadia's senior leadership team:
The key terms of these agreements are summarized below:
Base Salary and Bonus. Base salaries for the executives listed above range from approximately $275,000 (for the VP, Hydroelectric Operations) to $625,000 (for the CEO). Each agreement provides for an annual performance bonus opportunity, with target bonuses ranging from 40% to 100% of base salary, payable based on achievement of individual and Company performance metrics established by the board of directors (or, in the case of the CEO, by the compensation committee of the board). The CEO's 2021 base salary was $625,000, with a target bonus of 100% of base salary and an actual bonus paid of $548,750, reflecting 87.8% target achievement.
Severance Provisions. Each executive employment agreement contains severance provisions triggered upon termination of employment under specified circumstances. The severance provisions vary by executive but generally provide for the following:
(a) Termination Without Cause or Resignation for Good Reason (Non-Change-of-Control). The CEO is entitled to 18 months of base salary continuation, plus a prorated bonus for the year of termination, plus continuation of health benefits for 18 months (or until the executive obtains comparable coverage). The CFO and COO are entitled to 12 months of base salary continuation plus a prorated bonus and 12 months of health benefit continuation. Other named executives are entitled to 9 months of base salary continuation plus 9 months of health benefit continuation.
(b) Termination Without Cause or Resignation for Good Reason Within 24 Months Following a Change of Control. The CEO is entitled to 2.0 times the sum of base salary and target bonus (i.e., 2.0 × ($625,000 + $625,000) = $2,500,000), plus acceleration of all unvested equity awards, plus 24 months of health benefit continuation. The CFO and COO are entitled to 1.5 times the sum of base salary and target bonus, plus acceleration of unvested equity, plus 18 months of health benefit continuation. Other named executives are entitled to 1.0 times the sum of base salary and target bonus, plus partial acceleration of equity (50% of unvested awards), plus 12 months of health benefit continuation.
Change-of-Control Definition. The employment agreements define "Change of Control" to include, among other events, the acquisition of more than 50% of the outstanding voting securities of Cascadia by any person or group, a merger or consolidation of Cascadia with another entity in which Cascadia's equity holders immediately prior to the transaction hold less than 50% of the voting securities of the surviving entity, or the sale of all or substantially all of the assets of Cascadia. The proposed Transaction, which contemplates the acquisition of 100% of the equity of Cascadia, would constitute a "Change of Control" under each of the reviewed employment agreements.
Analysis of Change-of-Control Trigger. The employment agreements employ a double-trigger mechanism for enhanced change-of-control severance and equity acceleration. That is, the change-of-control benefits are triggered only if the executive's employment is terminated without "Cause" or the executive resigns for "Good Reason" within the 24-month period following the Change of Control. The mere occurrence of the Change of Control, standing alone, does not trigger the payment of severance amounts (other than accelerated vesting of equity awards, which in the case of the CEO and CFO is a single-trigger event — see Section V.C below).
This double-trigger structure is generally favorable from the Acquiror's perspective, as it avoids automatic severance payments at closing and instead creates incentives for executives to remain employed during the post-closing transition period. However, the definitions of "Good Reason" in the executive agreements are broadly drafted and include events such as a material diminution in duties or responsibilities, a reduction in base salary or target bonus opportunity, a change in primary work location of more than 35 miles, and a material breach by the Company of any material obligation under the agreement. The Sponsor and the Acquiror should be mindful that post-closing organizational changes — including changes to reporting structures, board composition, or operational authority — could inadvertently trigger "Good Reason" resignations if not carefully managed.
Estimated Change-of-Control Payment Exposure. Based on our analysis, the maximum aggregate change-of-control severance exposure for the seven named executives reviewed (assuming all are terminated without Cause or resign for Good Reason within 24 months following closing) is estimated at approximately $7.3 million in cash severance payments, plus acceleration of equity awards (addressed separately in Section V.C), plus the cost of extended health benefit continuation estimated at approximately $320,000 to $380,000 in the aggregate. The following table summarizes the estimated exposure by executive:
These amounts are relevant to the Transaction's overall cost estimates and should be reflected in the sources and uses analysis. We understand that the current estimated Transaction costs of approximately $50 million include an allocation for change-of-control and severance-related payments, but we recommend that Meridian confirm that the amount allocated is sufficient to cover the full potential exposure identified above plus the Section 280G exposure discussed in Section V.C.
Non-Competition and Non-Solicitation Covenants. Each executive employment agreement contains post-termination non-competition and non-solicitation covenants. The non-competition covenants generally prohibit the executive from engaging in or becoming associated with any business that competes with Cascadia within the Pacific Northwest region (defined as Oregon, Washington, Idaho, Montana, and Northern California) for a period of 12 months following termination of employment. The non-solicitation covenants prohibit the executive from soliciting employees or customers of Cascadia for a period of 18 months following termination.
We note that the enforceability of these non-competition covenants varies by jurisdiction, as discussed in Section IV.C below. The CEO's and CFO's agreements are governed by Oregon law, which imposes specific requirements on the enforceability of non-compete agreements. Based on our review, the CEO's non-compete covenant appears to satisfy the requirements of ORS 653.295 (entered into upon a bona fide advancement, with the CEO's compensation exceeding the statutory threshold). The CFO's non-compete covenant also appears to satisfy the statutory requirements, although we note that it was entered into at the commencement of her employment with Cascadia in 2019. We recommend confirmation that the CFO received the requisite two-week advance written notice of the non-compete requirement prior to accepting the offer of employment, as required by Oregon law.
Notice Periods. Termination by either party requires 60 days' advance written notice for the CEO and 30 days' advance written notice for all other named executives (subject to the Company's right to terminate for "Cause" without notice).
B. Offer Letters and At-Will Employment
We reviewed the Company's standard offer letter template currently in use for non-executive employees. The template clearly establishes that employment is on an "at-will" basis, meaning that either the employee or the Company may terminate the employment relationship at any time, with or without cause, and with or without notice, subject to applicable law. The template does not provide for severance benefits, change-of-control payments, or fixed terms of employment. The template references the Company's employee handbook and benefit plan summaries and requires the employee to acknowledge receipt of such materials.
We were advised by Cascadia management that, to their knowledge, no non-executive employees have individual employment agreements providing for fixed terms of employment or enhanced termination protections, with the exception of approximately 8 employees in Washington state who were hired under legacy employment agreements entered into prior to 2016 by Pacific Ridge Hydro LLC (a predecessor entity acquired by Cascadia in 2016) that contain rolling one-year terms and severance protections equivalent to six months of base salary upon termination without cause. These legacy agreements were assumed by Cascadia in connection with the Pacific Ridge Hydro acquisition and remain in effect. The aggregate potential severance liability under these legacy agreements is estimated at approximately $480,000 (based on current salary levels). We recommend that these agreements be listed on the EPA's disclosure schedules and that a representation be obtained from the sellers regarding the completeness of the disclosure of all individual employment agreements.
C. Restrictive Covenant Agreements
In addition to the restrictive covenants contained in the executive employment agreements described above, Cascadia utilizes standalone confidentiality and invention assignment agreements ("CIAAs") for all employees, and standalone non-competition and non-solicitation agreements for employees in the engineering/technical and management/executive categories. We reviewed a sample of 15 standalone restrictive covenant agreements from across the three states.
Enforceability Analysis:
(a) Oregon. As noted above, Oregon law under ORS 653.295 restricts the enforceability of non-competition agreements. A non-compete is enforceable only if: (i) the employer provides a signed, written copy of the terms at least two weeks before the first day of employment or upon a bona fide advancement; (ii) the employee is engaged in administrative, executive, or professional work and earns a salary above the median family income for a four-person family (approximately $100,533 in 2022); and (iii) the non-compete period does not exceed 12 months. Based on our sample review, approximately 4 of the 7 Oregon-based agreements reviewed appear to satisfy these requirements. The remaining 3 agreements were entered into after the commencement of employment and do not appear to have been provided in connection with a bona fide advancement, raising enforceability concerns. We recommend that a comprehensive audit of Oregon non-compete agreements be conducted to identify the full scope of potentially unenforceable agreements.
(b) Washington. Under RCW 49.62, non-competition agreements are enforceable only against employees earning more than approximately $101,390 annually (2022 threshold). Of the 5 Washington-based agreements reviewed, 3 were with employees earning above the threshold and appear enforceable; 2 were with employees earning below the threshold and are likely void and unenforceable under Washington law.
(c) Idaho. Idaho courts enforce non-competition agreements that are reasonable in scope, duration, and geographic area. The 3 Idaho-based agreements reviewed contain non-compete periods of 12 months and geographic restrictions limited to the state of Idaho and adjacent counties. These agreements appear to be enforceable under Idaho law.
Key Technical and Engineering Personnel. We specifically assessed whether key technical and engineering personnel — particularly those with specialized knowledge of hydroelectric turbine systems, dam safety and regulatory compliance, and water-treatment concession operations — are bound by enforceable restrictive covenants. Of the approximately 42 individuals identified by Cascadia management as "critical" engineering and technical personnel, approximately 28 have signed non-competition agreements that appear enforceable in their respective jurisdictions, and all 42 have signed CIAAs. The remaining 14 individuals either did not sign non-compete agreements or signed agreements that may not be enforceable under the applicable state law. We recommend that the Sponsor assess the retention risk associated with these 14 individuals, particularly in light of increasing competition for specialized renewable energy engineering talent in the Pacific Northwest.
D. Retention and Transaction Bonuses
Cascadia management has proposed, and the Sponsor has agreed in principle to, a retention bonus program for approximately 30 employees identified as critical to the post-closing operation of the business. The retention bonus pool is expected to total approximately $4.2 million, payable in two installments: 50% upon closing of the Transaction and 50% on the first anniversary of closing, subject to continued employment through each payment date. The retention bonus program is expected to be documented in individual retention bonus agreements to be entered into prior to closing.
We were not provided with copies of executed retention bonus agreements in the data room, as the program is still being finalized. We recommend that the terms of the retention bonus agreements be coordinated with the management rollover pool (discussed in Section VII below) to ensure alignment of retention incentives and to avoid duplication of benefits. The retention bonus program should also be reviewed for compliance with Section 409A of the Internal Revenue Code to the extent any payments are structured as deferred compensation.
In addition to the retention bonus program, we note that the CEO and CFO are expected to receive a transaction-related bonus in connection with the closing of the Transaction. Based on representations from Cascadia management, the CEO's transaction bonus is approximately $1.5 million and the CFO's transaction bonus is approximately $750,000, in each case payable at closing. These amounts are included in the estimated Transaction costs.
V. Employee Benefit Plans
A. Qualified Retirement Plans
401(k) Plan. Cascadia sponsors the Cascadia Renewables Holdings, Inc. 401(k) Savings Plan (the "401(k) Plan"), a defined contribution plan intended to qualify under Section 401(a) of the Internal Revenue Code. We reviewed the plan document (restated effective January 1, 2020), the current summary plan description, the most recent Form 5500 filing (for the plan year ended December 31, 2021), and the most recent compliance testing results.
Key features of the 401(k) Plan include:
•  Eligibility. All employees who have completed 90 days of service and have attained age 21 are eligible to participate. Part-time employees who complete 1,000 hours of service in a 12-month measurement period are also eligible.
•  Employee Contributions. Participants may elect to make pre-tax and/or Roth after-tax contributions of up to 75% of eligible compensation, subject to the annual IRS deferral limit ($20,500 in 2022; $27,000 for participants age 50 and older with catch-up contributions).
•  Employer Match. Cascadia provides a discretionary matching contribution equal to 100% of the first 3% of compensation deferred and 50% of the next 2% of compensation deferred, for a maximum match of 4% of eligible compensation. Based on the 2021 Form 5500 filing, total employer matching contributions for the plan year ended December 31, 2021, were approximately $3.8 million.
•  Vesting. Employee contributions are immediately vested. Employer matching contributions vest according to a three-year cliff vesting schedule (i.e., 100% vested after three years of service; 0% vested before three years of service).
•  Plan Assets. Total plan assets as of December 31, 2021, were approximately $87.4 million, based on the Form 5500 filing. The plan offers a diversified menu of investment options, including target-date funds, index funds, and a self-directed brokerage option.
Compliance Testing. We reviewed the compliance testing results for the 2021 plan year, including the Actual Deferral Percentage (ADP) test, the Actual Contribution Percentage (ACP) test, and the top-heavy test. The plan passed all required testing for the 2021 plan year without the need for corrective distributions or refunds. We did not identify any compliance deficiencies or pending IRS or DOL correction programs (EPCRS or DFVCP) based on the materials provided.
Defined Benefit Plans. Based on representations from Cascadia management and a review of the data room materials, Cascadia does not currently sponsor, and has never sponsored, a defined benefit pension plan. However, we note that Pacific Ridge Hydro LLC (acquired by Cascadia in 2016) previously maintained a frozen defined benefit plan (the "Pacific Ridge Hydro Salaried Employees Pension Plan"), which was terminated effective December 31, 2015, and for which a standard termination was completed and PBGC approval obtained in March 2016. Final plan distributions were completed prior to Cascadia's acquisition of Pacific Ridge Hydro. We recommend that the EPA include a representation from the sellers confirming the completion of the Pacific Ridge Hydro pension plan termination and the absence of any residual PBGC liability.
Determination Letters and IRS Filings. The 401(k) Plan received a favorable IRS determination letter dated October 14, 2016, with respect to its prior restatement. The plan was subsequently restated effective January 1, 2020, to incorporate mandatory law changes through that date. We recommend that Cascadia confirm whether it has applied for or intends to apply for an updated determination letter with respect to the 2020 restatement.
B. Health and Welfare Plans
Cascadia sponsors the following health and welfare benefit plans for eligible employees:
Group Health Insurance. Cascadia provides group medical insurance through Cobalt Ridge Mutual Insurance (for Oregon and Washington employees) and Brightmoor Assurance (for Idaho employees). The Company offers three plan options: a Preferred Provider Organization (PPO) plan, a Health Maintenance Organization (HMO) plan (available only in Oregon), and a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) option. Cascadia covers approximately 75% of the premium cost for employee-only coverage and approximately 60% of the premium cost for dependent coverage. The total annual employer cost for group health insurance for the plan year ended December 31, 2021, was approximately $11.2 million, based on data provided by the Company.
All group health insurance arrangements are fully insured (i.e., Cascadia does not maintain a self-insured health plan). We did not identify any self-insured health plan arrangements or related stop-loss coverage.
Dental, Vision, Life Insurance, and Disability Plans. Cascadia provides dental insurance through Ostrander Insurance, vision insurance through Thackeray Group, basic group life insurance and accidental death and dismemberment (AD&D) insurance through Quillon Holdings (with a basic life benefit of 1.5 times annual salary up to a $500,000 maximum), short-term disability insurance through Quillon Holdings (60% of base salary for up to 26 weeks), and long-term disability insurance through Quillon Holdings (60% of base salary, subject to a $10,000 monthly maximum).
Affordable Care Act Compliance. Cascadia qualifies as an "applicable large employer" ("ALE") under the Affordable Care Act, having employed more than 50 full-time employees (or full-time equivalents) in each of the prior three calendar years. We reviewed Cascadia's Forms 1095-C and 1094-C filing history for tax years 2019, 2020, and 2021. Based on our review, Cascadia appears to have timely filed all required forms and has offered minimum essential coverage providing minimum value at an affordable cost to all full-time employees, as required by Section 4980H of the Internal Revenue Code. We did not identify any pending IRS assessments of employer shared responsibility payments (the "employer mandate penalty") based on the materials reviewed.
COBRA Administration. Cascadia has contracted with a third-party COBRA administrator (Greaves Technologies) for administration of COBRA continuation coverage. We reviewed the COBRA notice templates and election forms and did not identify any material deficiencies in the Company's COBRA administration procedures. We recommend that the EPA include a representation from the sellers regarding compliance with COBRA notice and election requirements, as noncompliance can give rise to excise tax exposure under Section 4980B of the Internal Revenue Code.
Retiree Medical Obligations (OPEB). Based on representations from Cascadia management and a review of the data room materials, Cascadia does not provide any post-retirement health benefits ("OPEB") to former employees or retirees. There are no unfunded or partially funded retiree medical obligations. We note that the Pacific Ridge Hydro acquisition in 2016 did not result in the assumption of any retiree medical obligations, as Pacific Ridge Hydro had terminated its retiree medical program effective December 31, 2014.
C. Equity and Incentive Compensation Plans
Cascadia Equity Incentive Plan. Cascadia maintains the Cascadia Renewables Holdings, Inc. 2017 Equity Incentive Plan (the "Equity Plan"), adopted by the board of directors and approved by the shareholders effective March 15, 2017, and amended effective November 1, 2020. The Equity Plan authorizes the issuance of various forms of equity-based awards, including stock options, restricted stock, restricted stock units ("RSUs"), phantom equity, and profits interests. The Equity Plan reserves a total of 1,200,000 shares of Cascadia common stock for issuance, of which approximately 847,000 shares are subject to outstanding awards and approximately 353,000 shares remain available for future grants as of the date of this memorandum.
Outstanding Awards. Based on the equity award ledger provided by Cascadia management (current as of July 31, 2022), the following awards are outstanding under the Equity Plan:
Stock options have a weighted-average exercise price of $18.42 per share and were granted at fair market value as of the respective grant dates (as determined by periodic 409A valuations conducted by Dunmore Benefits Consulting & McGregor, Inc., an independent valuation firm). RSUs and phantom equity awards are settled in shares or cash, respectively, upon vesting.
Treatment upon Change of Control. The Equity Plan provides that upon a "Change of Control" (as defined in the plan, which definition is substantially consistent with the definition in the executive employment agreements), all outstanding stock options and RSUs shall become fully vested and exercisable (a single-trigger acceleration). Phantom equity awards vest on a single-trigger basis for participants who are "Level I Executives" (CEO and CFO) and on a double-trigger basis for all other participants. The plan provides that, in connection with a Change of Control, the board may elect to (i) cash out all outstanding awards based on the per-share consideration payable in the Change of Control transaction, (ii) provide for the assumption or substitution of awards by the acquiror, or (iii) permit the exercise of outstanding options for a specified period prior to closing.
We understand that, in connection with the Transaction, the Acquiror intends to cash out all outstanding equity awards at closing based on the implied per-share consideration derived from the Transaction's equity value, net of the exercise price in the case of stock options. Based on the implied per-share consideration of approximately $62.50 (derived from an estimated equity value of approximately $1.15 billion allocated across approximately 18.4 million fully diluted shares), the estimated aggregate cost of cashing out all outstanding awards is as follows:
We note that the above figures are preliminary estimates and are subject to adjustment based on the final per-share consideration, the number of awards outstanding as of the closing date, and any rollover elections made by management participants (see Section VII below, regarding the management rollover pool). The equity cash-out is expected to be funded from the Transaction's equity consideration and is included in the sources and uses analysis.
Section 409A Compliance. Stock options were granted at fair market value and are structured as "stock rights" exempt from Section 409A of the Internal Revenue Code under Treasury Regulation § 1.409A-1(b)(5). RSUs are structured to vest and settle within the "short-term deferral" period (i.e., by the later of the 15th day of the third month following the end of the participant's taxable year in which the RSU vests, or the 15th day of the third month following the end of Cascadia's taxable year in which the RSU vests) and are therefore also exempt from Section 409A. Phantom equity awards for Level I Executives contain deferred settlement features that may implicate Section 409A; we recommend coordination with the C&H Tax Group (Sylvia Hartwell) to confirm compliance and assess whether the Transaction settlement constitutes a permissible payment event under the applicable plan documents and award agreements.
Section 280G Analysis. The Transaction constitutes a "change in control" for purposes of Section 280G of the Internal Revenue Code (which applies to C corporations such as Cascadia). Section 280G imposes a 20% excise tax on "excess parachute payments" received by "disqualified individuals" (generally, officers, directors, and highly compensated employees) in connection with a change in control, and denies the employer a deduction for such payments. A "parachute payment" is any compensatory payment that is contingent on the change in control and that has an aggregate present value equal to or exceeding three times the individual's "base amount" (the average annual compensation over the five-year period ending before the change in control).
Payments subject to Section 280G analysis include change-of-control severance (if triggered), accelerated vesting of equity awards, transaction bonuses, and continued health benefits. Based on preliminary data, the following "disqualified individuals" may be subject to Section 280G exposure:
For each individual listed above, the ratio of total change-in-control payments to the base amount exceeds the 3.0x threshold, meaning that the excess over 1.0x base amount would be subject to the 20% excise tax under Section 4999 of the Internal Revenue Code, and the employer would lose the deduction for the excess amount under Section 280G. The aggregate Section 280G exposure (excise tax borne by the individuals plus lost employer deduction) is estimated at approximately $4.8 million to $5.6 million in the aggregate.
Potential mitigation strategies include: (i) obtaining a shareholder vote to approve the parachute payments under Section 280G(b)(5)(B), which, if approved by more than 75% of the voting power of the outstanding shares, would exempt the payments from Section 280G treatment; (ii) structuring the EPA to allocate a portion of the consideration as reasonable compensation for post-closing services (subject to Section 280G(b)(4) allocation rules); or (iii) negotiating "best net" or "cutback" provisions in the executive employment agreements to reduce payments to the safe harbor amount (2.99x base amount). We recommend that the Section 280G analysis be finalized in coordination with Sylvia Hartwell (Tax) and that the Sponsor determine its preferred approach prior to the finalization of the EPA.
We note that the executive employment agreements do not contain gross-up provisions for Section 280G excise taxes (which is consistent with current market practice and the Sponsor's stated policy). The agreements do contain "best net" provisions, under which payments would be reduced to the safe harbor amount only if the after-tax benefit to the executive of the reduced amount exceeds the after-tax benefit of receiving the full payment and bearing the excise tax.
D. Other Fringe Benefits
In addition to the foregoing, Cascadia provides the following fringe benefits to eligible employees:
•  Company Vehicle Program. Cascadia provides company vehicles to approximately 38 employees in field operations and maintenance roles, as well as the CEO and COO. The personal use component of company vehicles is included as taxable compensation on employees' W-2 forms.
•  Relocation Assistance. The Company maintains a relocation assistance policy for new hires and transferred employees, providing reimbursement for moving expenses, temporary housing (up to 90 days), and real estate transaction costs (for employees relocating from outside the Portland metropolitan area). The policy includes a two-year clawback provision for employees who voluntarily terminate within two years of receiving relocation benefits.
•  Tuition Reimbursement. Cascadia offers tuition reimbursement for job-related undergraduate and graduate coursework, up to a maximum of $5,250 per calendar year (the non-taxable limit under Section 127 of the Internal Revenue Code). Approximately 47 employees currently participate in the program.
•  Employee Assistance Program (EAP). The Company provides an EAP through Aldermere Strategy Partners, offering confidential counseling, legal consultation, financial planning, and work-life balance resources.
Deferred Compensation and SERPs. Cascadia does not maintain a nonqualified deferred compensation plan or a supplemental executive retirement plan ("SERP"). To the extent any phantom equity awards contain deferred settlement features, the Section 409A analysis described above applies.
E. Plan Successor Liability Considerations
Because the Transaction is structured as a 100% equity acquisition, the Acquiror (Cascadia Acquisition Corp.) will succeed to all of Cascadia's existing employee benefit plan obligations by operation of law. The Company will continue to exist as a legal entity following the closing, and there will be no change in the plan sponsor or employer for purposes of ERISA or the Internal Revenue Code. Accordingly:
•  Qualified Plans. The 401(k) Plan will continue in effect following the closing without the need for plan termination, transfer of assets, or a new determination letter application. The Acquiror should evaluate post-closing whether it wishes to amend or merge the 401(k) Plan with any other plan sponsored by a Meridian portfolio company, or to make changes to the employer matching contribution formula. Any such changes should be implemented in compliance with ERISA's anti-cutback rules (Section 204(g)) and the plan's amendment procedures.
•  Health and Welfare Plans. Fully insured health and welfare plans will continue under existing carrier contracts. The Acquiror should review insurance contract renewal dates and assess whether it wishes to renegotiate carrier arrangements or integrate Cascadia employees into a Meridian-wide benefits platform post-closing.
•  Underfunded Plan Obligations. Based on our review, Cascadia does not sponsor any defined benefit pension plan, and the 401(k) Plan is a defined contribution plan with no unfunded obligation. We did not identify any material underfunded plan obligations.
•  PBGC Considerations. As noted above, Cascadia does not sponsor or maintain any defined benefit pension plan. The former Pacific Ridge Hydro pension plan was terminated and fully distributed prior to Cascadia's acquisition of Pacific Ridge Hydro. Accordingly, PBGC considerations are not implicated by the Transaction.
•  Multiemployer Plan Exposure. Based on representations from Cascadia management, no Cascadia employees currently participate in, and Cascadia has no obligation to contribute to, any multiemployer pension plan (as defined in ERISA § 3(37)). We recommend that the EPA include a specific representation from the sellers to this effect, together with an indemnity for any undisclosed multiemployer plan withdrawal liability under ERISA §§ 4201-4225, which can be substantial. If any employees are determined to participate in a multiemployer plan, a full withdrawal liability analysis would be required.
VI. Collective Bargaining Agreements
A. Union Representation
Based on the data room materials and representations from Cascadia management, approximately 218 employees at four Cascadia facilities are represented by organized labor. The following collective bargaining agreements are currently in effect:
Total Unionized Employees: 218 (approximately 17.5% of the total workforce).
We reviewed copies of all four CBAs and note the following key terms:
Wage Rates. Each CBA establishes wage scales for covered positions, with annual increases ranging from 2.5% to 3.5% per year over the contract term. The IBEW Local 125 CBA provides for the highest wage rates, with journeyman electricians earning a base hourly rate of $48.72 (effective July 1, 2022).
Benefits. Each CBA requires the Company to provide health insurance coverage (generally through the Company's group health plan), retirement benefits (participation in the 401(k) Plan with the Company match), and, in the case of the IBEW and UA CBAs, contributions to union-sponsored training and apprenticeship funds.
Grievance and Arbitration. Each CBA contains a multi-step grievance procedure culminating in binding arbitration before a neutral arbitrator selected from a panel maintained by the Federal Mediation and Conciliation Service (FMCS) or the American Arbitration Association (AAA). We did not identify any pending arbitration proceedings, although there are two open grievances at the Columbia Gorge facility (relating to overtime assignment disputes) that are in the early stages of the grievance process.
Management Rights. Each CBA contains a management rights clause reserving to the Company the right to manage its operations, direct the workforce, determine staffing levels, and make business decisions, subject to the specific terms of the CBA. The management rights clauses are generally consistent with standard industry practice and do not appear to unduly restrict the Acquiror's post-closing operational flexibility.
Successorship Clauses. The IBEW Local 125 CBA and the UA Local 290 CBA each contain a successorship clause requiring the Company to give notice of any sale or transfer of the facility to the union and to require the purchaser or transferee to agree to be bound by the terms of the CBA for the remainder of the contract term. The IBEW Local 77 CBA and the LIUNA Local 737 CBA do not contain express successorship clauses.
B. Successorship and Change-of-Control Provisions
NLRA Successorship Doctrine. Under the National Labor Relations Act and applicable case law, a purchaser of a business may be deemed a "successor employer" obligated to recognize and bargain with the incumbent union if (i) the purchaser uses essentially the same workforce in the same jobs under similar working conditions, and (ii) a majority of the purchaser's workforce in the bargaining unit was employed by the predecessor. Because the Transaction is structured as an equity acquisition (rather than an asset purchase) and the Company will continue to operate as a going concern with the same workforce, the Acquiror will generally be treated as a successor employer under the NLRA. See NLRB v. Burns International Security Services, 406 U.S. 272 (1972).
Under the Burns doctrine, a successor employer is obligated to recognize and bargain with the incumbent union but is generally not bound by the terms of the predecessor's CBA. However, if the successor makes clear, prior to or at the time of the transfer, that it plans to retain the predecessor's employees without making changes to their terms and conditions of employment, the successor may be deemed a "perfectly clear" successor under Spruce Up Corp., 209 NLRB 194 (1974), and bound by the terms of the existing CBA as an initial set of employment terms.
Given that the Transaction is an equity acquisition in which the legal employer entity (Cascadia) will remain unchanged, the existing CBAs will continue in effect by their terms. No new successorship analysis is strictly required because the employer of record is not changing. However, to the extent the Acquiror contemplates any post-closing restructuring that would involve a change in the employing entity (e.g., a merger of Cascadia into another Meridian portfolio company or a transfer of assets to a new entity), successorship issues would need to be reassessed at that time.
CBA Successorship Clauses. Notwithstanding the foregoing, the successorship clauses in the IBEW Local 125 CBA and the UA Local 290 CBA create contractual obligations to notify the unions of any sale or transfer and to obtain the purchaser's agreement to be bound by the CBA. We recommend that Cascadia provide the required notice to IBEW Local 125 and UA Local 290 prior to closing, and that the Acquiror acknowledge its assumption of the existing CBAs in the EPA. Failure to comply with the contractual notice requirements could give rise to a grievance or unfair labor practice charge.
Union Notice Obligations. Apart from the contractual successorship clauses, we do not believe that the Transaction, as currently structured, triggers a legal obligation to bargain with the unions over the "effects" of the change of control under the NLRA, so long as no changes to the terms and conditions of employment are contemplated at or immediately following closing. However, if any post-closing changes to wages, benefits, staffing levels, or working conditions at unionized facilities are contemplated, the Acquiror would be required to bargain with the applicable union over such changes before implementation.
Pending ULP Charges, Grievances, and Arbitrations. We were advised by RAM that there are no pending unfair labor practice charges before the National Labor Relations Board against Cascadia or any of its subsidiaries. As noted above, there are two open grievances at the Columbia Gorge Hydroelectric Station relating to overtime assignment, both of which are in Step 2 of the grievance process. Cascadia management characterized these grievances as routine and not material. We did not identify any pending arbitration proceedings.
C. Labor Relations Climate
Based on our review of the data room materials and discussions with Cascadia management, the Company's labor relations climate appears to be generally stable and constructive. We note the following:
•  No Recent Strikes or Work Stoppages. Cascadia has not experienced any strikes, lockouts, or other work stoppages in the past five years.
•  No Pending Organizing Campaigns. Cascadia management represented that it is not aware of any current union organizing campaigns or representation petitions at any non-unionized facility. We note that the renewable energy sector has experienced increased unionization activity nationally, and the Sponsor should monitor this trend with respect to Cascadia's non-unionized wind farm and water-treatment facilities.
•  Upcoming CBA Expirations. The UA Local 290 CBA (Cascade Locks Hydroelectric Station) is scheduled to expire on March 31, 2023, which is the earliest expiration among the four CBAs. Depending on the timing of the Transaction closing (currently targeted for Q4 2022), the Acquiror may be involved in the negotiation of the successor CBA for this facility. We recommend that Meridian and the Acquiror begin developing a labor rela

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