1023-00001 · Ironside Capital Management LP · Dormancy/Quarterly Reviews

gp-quarterly-report-review-q3-2023.docx DOCUMENT Funds

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP MEMORANDUM

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

FROM: Pamela Cross, Responsible Partner, Calderwood & Harkness LLP Theresa Kim, Lead Associate, Calderwood & Harkness LLP

DATE: October 15, 2023

RE: Review of Meridian Infrastructure GP IV LLC Quarterly Status Report — Q3 2023 (July 1, 2023 – September 30, 2023) — ICM Cascadia Co-Invest, LP

MATTER NO.: 1023-00001

I. Executive Summary

This memorandum sets forth Calderwood & Harkness LLP's ("C&H") review and analysis of the quarterly status report delivered by Meridian Infrastructure GP IV LLC (the "GP") for the third quarter of 2023 (the "Q3 Report"), covering the period from July 1, 2023 through September 30, 2023. The Q3 Report was received by Ironside Capital Management LP ("Ironside" or the "LP") on October 5, 2023, in accordance with the reporting obligations set forth in Section 7.04(b) of the Amended and Restated Agreement of Limited Partnership of ICM Cascadia Co-Invest, LP, dated as of July 29, 2022 (the "LP Agreement"), and the Side Letter Agreement entered into between Ironside and the GP as of the same date (the "Side Letter"). This memorandum is prepared at the request of Ironside's investment team and is intended solely for the internal use of the addressees in connection with Ironside's ongoing monitoring of its co-investment in ICM Cascadia Co-Invest, LP (the "Co-Invest Vehicle" or the "Vehicle").

This is the third quarterly report delivered by the GP since January 9, 2023, when the GP declared a Material Impediment Event (as defined in Section 1.01 of the LP Agreement) and issued the Capital Call Suspension Notice (the "Suspension Notice"), placing the Co-Invest Vehicle into a state of dormancy under Section 7.04 of the LP Agreement. The two prior quarterly status reports — the Q1 2023 Report (covering January 1, 2023 through March 31, 2023) and the Q2 2023 Report (covering April 1, 2023 through June 30, 2023) — were reviewed by C&H in memoranda dated April 20, 2023 and July 18, 2023, respectively. This memorandum should be read in conjunction with those prior memoranda, which are incorporated herein by reference.

The key developments during Q3 2023, as disclosed in the Q3 Report and as supplemented by C&H's independent analysis, are as follows:

(i) The Third Amendment to the Equity Purchase Agreement (the "EPA") was executed on June 28, 2023, extending the outside date for closing the acquisition from June 30, 2023 to December 31, 2023. This represents the third extension of the original outside date and, while providing additional runway for resolution of the Material Impediment Event, raises questions regarding the willingness of the Selling Shareholders and the target to agree to further extensions if the concession renegotiation remains unresolved.

(ii) The debt commitment letter issued by Atlas National Bank, N.A. ("Atlas"), as administrative agent, and Pinnacle Credit Partners LLC ("Pinnacle") on August 30, 2022 — which was previously extended on April 30, 2023 to October 31, 2023 — is now approaching its expiration date. The Q3 Report does not indicate that any further extension has been agreed or is under active negotiation, and the commitment is set to lapse in approximately 16 days from the date of this memorandum.

(iii) The concession renegotiation between the Portland Metropolitan Water District (the "Water District") and Cascadia Renewables Holdings, Inc. ("Cascadia") regarding the 40-year Bull Run Filtration Project concession — the event underlying the GP's declaration of the Material Impediment Event — remains unresolved. The GP characterizes the pace of negotiations as "slow but constructive," but provides limited detail regarding the substance of the discussions.

(iv) The proceedings before the Oregon Public Utility Commission ("OPUC") in Docket No. UM-2287 remain stayed pursuant to the joint request of the parties, with no substantive developments during Q3 2023.

Overall Assessment. The Q3 Report is compliant with the contractual reporting obligations set forth in Section 7.04(b) of the LP Agreement and the Side Letter. The report was delivered in a timely fashion, addresses each of the required content elements, and is consistent in format and substance with the Q1 2023 and Q2 2023 reports. However, the Q3 Report raises significant forward-looking concerns. The imminent expiration of the debt commitment on October 31, 2023 — without any indication of further extension — represents the most significant new development and materially increases the complexity and cost of reactivating the transaction should the Material Impediment Event be resolved. The approaching December 31, 2023 EPA outside date further compresses the timeline for a resolution, and the mid-2024 lapse risk on the FERC Section 203 approval adds an additional source of uncertainty.

We recommend that Ironside promptly engage with the GP and its counsel regarding contingency planning for the debt commitment expiration, the feasibility of a fourth EPA amendment, and the GP's assessment of the transaction's viability. Our specific recommendations are set forth in Section VI of this memorandum.

II. Compliance Review — Reporting Obligations

A. Timeliness of Delivery

Section 7.04(b) of the LP Agreement imposes a mandatory reporting obligation on the GP during any period of dormancy following the declaration of a Material Impediment Event. Specifically, the GP is required to deliver to the LP a quarterly status report within fifteen (15) business days following the end of each calendar quarter during which the dormancy period is in effect. This reporting obligation continues until such time as the Material Impediment Event is resolved and the dormancy is lifted, or until the Vehicle is wound down pursuant to Section 7.04(c) or otherwise dissolved in accordance with Article X of the LP Agreement.

The third quarter of 2023 ended on September 30, 2023, which fell on a Saturday. Counting fifteen (15) business days from the first business day following the end of the quarter — Monday, October 2, 2023 — yields a delivery deadline of approximately Friday, October 20, 2023, taking into account the Columbus Day / Indigenous Peoples' Day federal holiday observed on Monday, October 9, 2023. The Q3 Report was delivered by the GP to Ironside via the Thackeray Solutions secure data room (designated for reporting purposes under Section 14.02 of the LP Agreement) and by email to Marcus Calloway and Renata Obasi on October 5, 2023, which is well within the required fifteen business day window. Accordingly, delivery of the Q3 Report was timely, and the GP is in compliance with the timeliness requirements of Section 7.04(b).

We note, for the record, that the GP has delivered all three quarterly reports during the dormancy period in a timely manner. The Q1 2023 Report was delivered on April 17, 2023 (within the 15-business-day window following March 31, 2023), and the Q2 2023 Report was delivered on July 14, 2023 (within the 15-business-day window following June 30, 2023).

B. Content Requirements

Section 7.04(b) of the LP Agreement prescribes specific content requirements for quarterly status reports during a dormancy period. Each quarterly report must include the following elements:

(i) A description of the status of the Material Impediment Event and any developments toward its resolution;

(ii) A financial summary of the Vehicle's assets and liabilities as of the last day of the applicable calendar quarter;

(iii) A summary of any expenses incurred by or on behalf of the Vehicle during the quarter;

(iv) A description of the status of any regulatory approvals required in connection with the Proposed Investment (as defined in the LP Agreement), including any pending or anticipated proceedings before federal, state, or local regulatory authorities;

(v) A description of the status of the Equity Purchase Agreement and any amendments, extensions, or modifications thereto; and

(vi) The GP's assessment of the prospects for reactivation of the Vehicle and completion of the Proposed Investment, or, alternatively, the GP's recommendation regarding initiation of wind-down proceedings under Section 7.04(c).

In addition to these LP Agreement requirements, the Side Letter imposes a supplemental disclosure obligation on the GP. Pursuant to paragraph 4(c) of the Side Letter, the GP is required to provide Ironside with "such additional information as may be reasonably requested by the LP," and is specifically required to disclose any material correspondence with the target company, the selling shareholders, or the lenders during the applicable quarter. The Side Letter obligation is independent of and supplemental to the GP's obligations under the LP Agreement.

Assessment. We have reviewed the Q3 Report against each of these content requirements and confirm that the Q3 Report addresses all required elements. Specifically:

• The Q3 Report includes a detailed discussion of the Material Impediment Event, confirming that the event remains in effect and describing the continued (though unresolved) negotiations between Cascadia and the Water District. This satisfies the requirement of clause (i) above.

• The Q3 Report includes a financial summary of the Vehicle's position as of September 30, 2023, including committed capital, called capital, unfunded commitments, use of proceeds, and remaining reserves. This satisfies the requirements of clauses (ii) and (iii) above.

• The Q3 Report includes a discussion of the FERC, OPUC, and CFIUS regulatory approval processes, including the current status of each. This satisfies the requirement of clause (iv) above.

• The Q3 Report describes the status of the EPA, including the execution of the Third Amendment and the approaching December 31, 2023 outside date. This satisfies the requirement of clause (v) above.

• The GP provides its assessment and recommendation, concluding that continued dormancy is appropriate and that wind-down is not recommended at this time. This satisfies the requirement of clause (vi) above.

Notwithstanding the foregoing compliance, we observe — as we have noted in our two prior quarterly review memoranda — that the level of detail provided by the GP regarding the substance of the concession renegotiation between Cascadia and the Water District remains limited. The Q3 Report describes the negotiations in general terms ("slow but constructive") but does not disclose the specific economic terms under discussion, any proposed reduction in concession fees, any changes to performance obligations or milestones, or any modifications to the concession term or renewal provisions. Given the centrality of the concession renegotiation to the resolution of the Material Impediment Event and the overall viability of the investment thesis, we continue to recommend that Ironside exercise its rights under the Side Letter to formally request more granular supplemental information from the GP on this topic.

With respect to the Side Letter's requirement to disclose material correspondence with the target, selling shareholders, or lenders, the Q3 Report references ongoing discussions but does not attach or summarize specific correspondence. The GP's compliance with this aspect of the Side Letter is, in our view, marginal. While the GP may take the position that no individual item of correspondence during Q3 2023 was sufficiently "material" to require specific disclosure, the aggregate significance of the concession renegotiation and the approaching debt commitment expiration would, in our judgment, warrant a more forthcoming approach to disclosure. We recommend that Ironside raise this with the GP in connection with the Side Letter information request described above.

C. Consistency with Prior Reports

We have compared the Q3 Report with the Q1 2023 and Q2 2023 reports for consistency in format, substance, and characterization of key facts and developments. The Q3 Report is consistent with the prior reports in all material respects. The GP has not retracted, modified, or qualified any factual statements made in prior reports, and the Q3 Report does not contain any information that is materially inconsistent with prior disclosures. The characterization of the Material Impediment Event, the description of the EPA structure and parties, the regulatory approval status, and the financial summary are all internally consistent across the three reports, adjusted for the passage of time and the occurrence of new developments (principally the execution of the Third Amendment and the approaching expiration of the debt commitment).

We note, as a matter of form, that the Q3 Report follows the same template and organizational structure as the prior reports, which facilitates comparison and reduces the risk of inadvertent omissions.

III. Summary of Q3 Report Content

This Section III provides a detailed summary of the substantive content of the Q3 Report, organized by topic area, together with C&H's observations where relevant.

A. Status of Material Impediment Event

The GP confirms that the Material Impediment Event declared on January 9, 2023, pursuant to Section 7.04(a) of the LP Agreement, remains in effect as of the date of the Q3 Report. The GP does not recommend lifting the Material Impediment Event at this time, and no party has challenged the declaration or requested that it be rescinded.

The basis for the declaration of the Material Impediment Event — the initiation by the Portland Metropolitan Water District of a renegotiation of the 40-year Bull Run Filtration Project concession originally entered into between the Water District and Cascadia in approximately 2018 — has not been resolved. The Bull Run Filtration Project concession is a significant component of Cascadia's revenue base, generating approximately $64 million in annual revenue and constituting approximately 13% of Cascadia's total fiscal year 2021 revenue of approximately $487 million. The concession renegotiation was initiated by the Water District in late 2022, following the enactment of Oregon Senate Bill 1567 (the "Oregon Water Infrastructure Accountability Act of 2022"), which imposed new requirements on water infrastructure concessionaires and provided municipalities with expanded rights to renegotiate the terms of existing concession agreements.

The Q3 Report states that negotiations between Cascadia and the Water District continued during Q3 2023 and that the GP characterizes the pace of negotiations as "slow but constructive." The GP notes that both parties have engaged in periodic discussions and that neither party has declared an impasse or exercised any termination or renegotiation-trigger rights under the existing concession agreement. However, the Q3 Report does not provide detail regarding the specific terms under discussion, the magnitude of any proposed reduction in concession fees, or the expected timeline for reaching agreement.

Oregon SB 1567 remains in effect as enacted. No amendments to the legislation have been proposed or are expected during the current legislative session, and the regulatory framework established by the Act — including the mandatory renegotiation provisions applicable to concessions exceeding $50 million in aggregate value — is expected to continue to materially alter the economic and legal landscape for infrastructure concessionaires operating in Oregon. The GP does not indicate whether Cascadia or any industry group has pursued or is contemplating any legal challenge to the Act.

The GP's recommendation to maintain the Material Impediment Event designation is, in our assessment, reasonable under the circumstances. The concession renegotiation is directly material to the valuation of Cascadia and the economics of the proposed acquisition, and until the renegotiation is resolved, the uncertainty it introduces into the investment thesis is sufficient to warrant continued dormancy under the LP Agreement framework.

B. Equity Purchase Agreement Status

The Q3 Report provides an update on the status of the Equity Purchase Agreement, dated as of September 30, 2022 (as amended, the "EPA"), pursuant to which Cascadia Acquisition Corp. (the "Buyer"), an acquisition vehicle indirectly controlled by Meridian Infrastructure Fund IV, LP ("Fund IV"), agreed to acquire all of the outstanding equity interests in Cascadia Renewables Holdings, Inc. from the Selling Shareholders.

Third Amendment. As disclosed in the Q2 2023 Report and confirmed in the Q3 Report, the Third Amendment to the EPA was executed on June 28, 2023, extending the outside date for closing the acquisition from June 30, 2023 to December 31, 2023. The Third Amendment is the most recent in a series of extensions of the original outside date, the history of which is summarized in the following table:

Parties. The EPA parties include the following Selling Shareholders: Timberline Growth Equity Fund III, LP ("Timberline III"), which holds approximately 62% of the outstanding equity interests in Cascadia; the Weir Family Trust, which holds approximately 18%; and the Management Rollover Pool, which holds approximately 20% and whose members include certain members of Cascadia's senior management. The Buyer is Cascadia Acquisition Corp., and Cascadia Renewables Holdings, Inc. is a party for purposes of certain representations, warranties, and covenants. We note that the Management Rollover Pool participants are expected to rollover a portion of their equity into the post-acquisition capital structure, although the specific rollover terms have not been disclosed in the Q3 Report.

Termination Rights. The GP states that no party has indicated an intent to exercise termination rights under the EPA during Q3 2023 or as of the date of the Q3 Report. Under the terms of the EPA, either the Buyer or the Selling Shareholders may terminate the agreement if the closing has not occurred by the outside date, subject to certain conditions including the requirement that the terminating party not be in material breach of its obligations under the EPA. The GP does not address whether any party has reserved its rights or communicated any conditions or demands in connection with a potential fourth extension.

Fourth Amendment Feasibility. The GP states that it is evaluating whether a further amendment extending the outside date beyond December 31, 2023 may be necessary and feasible. The GP acknowledges that the willingness of the Selling Shareholders to agree to a fourth extension has not yet been tested. The Q3 Report identifies the principal Selling Shareholder representatives as follows: Timberline III is represented by Garvey Lennox LLP (Steven F. Yun), and Cascadia is represented by Ridgeway, Ashford & Malone PC (Nina R. Castellano). The Weir Family Trust's counsel is not identified in the Q3 Report, although we understand from prior transaction documents that the Trust is represented by Jonathan M. Weir in his capacity as Trustee.

C&H Observation. The approaching December 31, 2023 outside date is a critical deadline for the transaction. If no further extension is obtained and the concession renegotiation remains unresolved by year-end, either party to the EPA will have the right to terminate the agreement, potentially leading to the permanent collapse of the acquisition. The practical significance of this deadline is compounded by the imminent expiration of the debt commitment (discussed in Section III.C below), which, if not extended, would deprive the Buyer of committed financing and raise questions about the Buyer's ability to satisfy the financing condition precedent to closing. C&H is preparing a separate detailed analysis of the termination rights, walk-away costs, and standstill options available to the parties under the EPA, which we anticipate delivering in advance of the December 31, 2023 outside date.

C. Debt Commitment Status

The Q3 Report provides a critically important update regarding the status of the debt financing commitments for the proposed acquisition.

Original Commitment. On August 30, 2022, Atlas National Bank, N.A. ("Atlas"), acting as administrative agent and initial lender, and Pinnacle Credit Partners LLC ("Pinnacle"), acting as co-lender, issued a commitment letter (the "Commitment Letter") in connection with the proposed acquisition of Cascadia. The Commitment Letter provided for the following facilities:

• Senior Secured Term Loan Facility: $975,000,000 in aggregate principal amount (Atlas: $650,000,000; Pinnacle: $325,000,000), to be secured by substantially all assets of the Buyer and its subsidiaries; and

• Senior Secured Revolving Credit Facility: $150,000,000 in aggregate availability (Atlas: sole lender), to be available for working capital and general corporate purposes of the acquired business.

The Commitment Letter was originally scheduled to expire on the earlier of (a) the closing of the acquisition and (b) December 31, 2022 (the original EPA outside date). Following the First and Second Amendments to the EPA, the Commitment Letter was extended by letter agreement to align with the then-current outside date. On April 30, 2023, following the execution of the Second Amendment to the EPA (which extended the outside date to June 30, 2023), Atlas and Pinnacle agreed to extend the Commitment Letter to October 31, 2023. The extension fee for this period — $2,437,500, calculated as 0.25% of the $975,000,000 term loan commitment — was paid by Fund IV (not by the Co-Invest Vehicle), consistent with the cost allocation provisions of the LP Agreement and the Side Letter. The revolving credit facility commitment was extended on the same terms and timeline.

Current Status. The Q3 Report discloses that, as of October 5, 2023 (the date of the Q3 Report), no further extension of the Commitment Letter has been agreed or is under active negotiation with Atlas or Pinnacle. The Commitment Letter is therefore set to expire by its terms on October 31, 2023 — approximately 26 days from the date of the Q3 Report and approximately 16 days from the date of this memorandum.

The GP acknowledges in the Q3 Report that the expiration of the debt commitment would constitute a "significant obstacle" to closing the acquisition. This is, in our assessment, an understatement. The transaction's sources and uses of funds, as set forth in the original EPA and the Commitment Letter, contemplate the following capital structure:

Without committed debt financing, the Buyer cannot satisfy the financing condition under the EPA and cannot close the acquisition on the terms originally agreed. The equity investors (Fund IV and the Co-Invest Vehicle) are not obligated to provide additional equity to fill the debt shortfall, and the LP Agreement does not contemplate an all-equity transaction structure.

C&H Observation. The likely expiration of the debt commitment on October 31, 2023 is, in our assessment, the most significant development disclosed in the Q3 Report and represents a material escalation of the risks facing the transaction. Without committed financing, any future closing would require a new financing process — including the solicitation of lenders (which may or may not include Atlas and Pinnacle), negotiation of a new commitment letter, drafting of definitive credit documentation, and satisfaction of all conditions to funding. Such a process would require substantial time (typically 8 to 16 weeks from mandate to signed commitment letter, plus additional time for definitive documentation) and may result in materially different economic terms, including higher interest rates, more restrictive covenants, reduced leverage ratios, or a smaller commitment amount, given the significant increase in benchmark interest rates and the tightening of credit market conditions since August 2022 when the original Commitment Letter was executed. Additionally, any new debt commitment would need to be underwritten based on the economics of the concession renegotiation, which remain uncertain.

The expiration of the debt commitment compounds the existing Material Impediment Event and effectively creates a second material obstacle to closing. Even if the concession renegotiation is resolved on terms acceptable to the parties, the transaction cannot proceed without replacement financing, and there can be no assurance that replacement financing will be available on commercially acceptable terms or at all.

We recommend that Ironside promptly seek clarification from the GP and its counsel, Breckenridge Sloane & Pratt LLP, regarding (i) whether any discussions with Atlas, Pinnacle, or alternative lenders are ongoing or anticipated; (ii) the GP's contingency plan for obtaining replacement financing; and (iii) the GP's assessment of the likely terms and timeline for any replacement financing process.

D. Regulatory Approvals

The Q3 Report provides an update on the status of the regulatory approvals required in connection with the proposed acquisition of Cascadia. The following approvals have been sought or obtained:

Federal Energy Regulatory Commission — Section 203 Approval (Docket No. EC22-143-000). The application for approval of the disposition of jurisdictional facilities under Section 203 of the Federal Power Act was filed with FERC on or about October 1, 2022. FERC granted conditional approval on December 15, 2022, subject to the requirement that Cascadia (or its successor) file all necessary license-transfer applications within 90 days of closing. The approval order is subject to a standard 18-month lapse provision, pursuant to which the approval will expire if the transaction does not close within 18 months of the date of the order. The 18-month mark from December 15, 2022 falls on approximately June 15, 2024.

The GP reports that no communication has been initiated with FERC staff regarding a possible extension of the approval or a request for tolling of the 18-month lapse period. The GP does not address the feasibility of obtaining such an extension.

Oregon Public Utility Commission (Docket No. UM-2287). The application for approval of the change of control of Cascadia's OPUC-regulated subsidiaries was filed on October 14, 2022. The proceedings were stayed at the joint request of the applicants and OPUC staff in February 2023, in light of the declaration of the Material Impediment Event and the resulting uncertainty regarding the closing timeline. The stay remains in effect as of the date of the Q3 Report, and the GP reports no substantive developments during Q3 2023. The GP does not address the expected timeline for lifting the stay or the anticipated OPUC review process if the transaction is reactivated.

Committee on Foreign Investment in the United States (CFIUS). A voluntary notice was filed with CFIUS in connection with the acquisition, and CFIUS acknowledged receipt of the notice on September 20, 2022. No further action was required by CFIUS, and clearance has been effectively received. The Q3 Report confirms that there has been no change in CFIUS status and no additional inquiries or requests from the CFIUS staff.

C&H Observation. The FERC Section 203 approval lapse risk is an important mid-term concern. The 18-month lapse date of approximately June 15, 2024 is now less than eight months away. If the transaction is not reactivated and closed before that date — a prospect that appears increasingly unlikely given the current trajectory of the concession renegotiation and the debt commitment status — the parties will need to either (a) seek an extension of the FERC approval, which is discretionary and not assured, or (b) re-file the Section 203 application, which would add significant time and regulatory uncertainty to the closing process. We recommend that Ironside raise this issue with the GP and request that Meridian's regulatory counsel (Breckenridge Sloane & Pratt LLP, Charles A. Delacroix) initiate preliminary discussions with FERC staff regarding extension possibilities.

With respect to the OPUC proceedings, we note that lifting the stay and re-engaging with the OPUC review process will require coordination with the transaction timeline and may need to account for any changes to the transaction structure (e.g., revised financing terms, revised enterprise value) that have occurred since the original application was filed. The OPUC staff may require supplemental filings or updated information, which could extend the regulatory review timeline.

The CFIUS clearance does not present any current concerns and requires no further action.

E. Financial Summary — Vehicle Position

The Q3 Report provides a financial summary of ICM Cascadia Co-Invest, LP as of September 30, 2023. The Vehicle is organized as a Delaware limited partnership (EIN: 88-3921457; Delaware Secretary of State File No. 7439218) with Meridian Infrastructure GP IV LLC serving as general partner and Ironside Capital Management LP (on behalf of its underlying fund accounts) serving as the sole limited partner.

The financial position of the Vehicle as of September 30, 2023 is summarized as follows:

A single capital call was issued on August 15, 2022, in the amount of $22,500,000 (representing 7.5% of total committed capital). No further capital calls have been issued, and all capital calls remain suspended pursuant to the Suspension Notice issued on January 9, 2023, in connection with the declaration of the Material Impediment Event.

The use of the $22,500,000 in called capital, as originally allocated and as reported in the Q3 Report, is as follows:

The Q3 Report indicates that the working-capital reserve has been partially drawn during the dormancy period to cover ongoing operating expenses. As of September 30, 2023, approximately $3,130,000 remains in the working-capital reserve, reflecting cumulative dormancy-period expenses of approximately $370,000 incurred over the period from January 9, 2023 through September 30, 2023 (approximately 8.7 months). The dormancy-period expenses have included fund administration fees payable to Kendrick Thorne & Associates LLP (the Vehicle's third-party fund administrator), Delaware franchise tax payments, registered agent fees, annual audit costs (payable to the Vehicle's independent auditors), and miscellaneous administrative expenses.

Based on the cumulative dormancy expenses of approximately $370,000 over approximately 8.7 months, the annualized dormancy operating expense rate is approximately $185,000 per year. At this rate, the remaining working-capital reserve of approximately $3,130,000 is sufficient to cover dormancy operating expenses for approximately 16 to 17 years, assuming no material change in the expense profile. Reserve adequacy is therefore not an immediate concern.

The Vehicle has not made any investments and has not received any distributions during the dormancy period. No revenue has been generated, and no investment returns have been realized. The Vehicle's sole assets consist of cash on deposit in the working-capital reserve account, and its sole liabilities consist of accrued but unpaid administrative expenses, if any. The Vehicle has no indebtedness.

F. R&W Insurance Status

The Q3 Report provides an update on the representations and warranties insurance policy obtained in connection with the proposed acquisition. The policy, issued by Northgate Specialty Insurance Co. ("Northgate"), bears Policy No. NSW-RI-2022-09814 and provides a coverage limit of $195,000,000, which represents 10% of the implied enterprise value of $1,950,000,000. The premium deposit of $4,875,000 was calculated at a rate of 2.5% of the coverage limit and was paid by the Co-Invest Vehicle from the initial capital call proceeds, as reflected in the financial summary above. The premium deposit was funded by the Co-Invest Vehicle on a pro rata basis consistent with its 28.57% share of total equity, with Fund IV separately funding its pro rata share of the total R&W insurance premium.

The policy remains bound but is in suspension pursuant to the terms of the Tolling Side Letter executed on January 20, 2023, between the named insureds (Cascadia Acquisition Corp. and its affiliates, including Fund IV and the Co-Invest Vehicle) and Northgate. The Tolling Side Letter was entered into shortly after the declaration of the Material Impediment Event and provides that the policy inception date will be tolled during the dormancy period and will recommence upon the earlier of (a) the closing of the acquisition and (b) the termination of the Tolling Side Letter by either party upon 30 days' written notice.

The GP reports no developments regarding the R&W policy during Q3 2023. Northgate has not indicated any intention to terminate the Tolling Side Letter or withdraw coverage. The GP does not address the recoverability of the premium deposit in a wind-down scenario, and C&H notes that the recoverability of the premium deposit will depend on the specific terms of the Northgate policy and the Tolling Side Letter. In our experience, R&W insurance premiums are generally non-refundable once the policy is bound, even if the underlying transaction does not close. This represents a potential crystallized loss of $4,875,000 in a wind-down scenario.

C&H Observation. While the R&W policy tolling arrangement remains in place and Northgate has not taken any adverse action, there is a risk that the policy may need to be materially amended or re-underwritten in a reactivation scenario if the transaction structure changes. Specifically, if the concession renegotiation results in a revised enterprise value for Cascadia (whether higher or lower), or if the financing terms change materially (affecting the debt-to-equity ratio and the risk profile of the acquisition), Northgate may require updated underwriting information, supplemental diligence, or revised policy terms. In an extreme case, Northgate could determine that the risk profile has changed sufficiently to warrant a premium adjustment or a new policy entirely.

We recommend that Ironside consider requesting confirmation from Northgate — through the GP or directly — regarding the policy's continued availability and the conditions under which coverage would remain available in a reactivation scenario. This request can be made informally through the insurance broker (identified in prior transaction documents as Raven & Associates, Inc.) or formally through counsel.

G. GP's Assessment and Recommendation

The Q3 Report concludes with the GP's assessment of the prospects for the transaction and its recommendation regarding the Vehicle's status. The GP recommends maintaining the dormancy and does not recommend initiating wind-down proceedings at this time.

The GP cites the following factors in support of its recommendation:

(i) The concession renegotiation between Cascadia and the Water District, while proceeding at a slow pace, has not broken down. Both parties remain engaged in negotiations, and neither has declared an impasse or exercised termination or renegotiation-trigger rights under the existing concession agreement. The GP views this as a positive indicator that a negotiated resolution remains possible.

(ii) Cascadia's underlying business performance remains stable. Although the Q3 Report does not provide detailed financial results for Cascadia (which would be available through Fund IV's monitoring of the target), the GP characterizes Cascadia's operations as continuing on a normal basis, with no material adverse changes in its regulated or unregulated business segments apart from the uncertainty created by the concession renegotiation.

(iii) The Selling Shareholders have not indicated an intent to terminate the EPA. Timberline III, as the majority selling shareholder, has continued to support the EPA extension process, and the Weir Family Trust and Management Rollover Pool participants have not expressed dissent or sought to exercise independent termination rights.

(iv) A forced wind-down at this time would crystallize losses on sunk costs. The Co-Invest Vehicle has called $22,500,000 in capital, of which approximately $19,370,000 has been expended on non-recoverable or difficult-to-recover items including organizational expenses ($285,000), the placement-agent fee ($1,050,000), due-diligence costs and deposits ($12,790,000), and the R&W insurance premium deposit ($4,875,000). The remaining reserve of approximately $3,130,000 would be available for distribution in a wind-down, but the balance of the called capital would represent a loss. The GP views continued dormancy as the option that preserves optionality and avoids the premature crystallization of these losses.

The GP acknowledges that the expiration of the debt commitment on October 31, 2023 is a "significant challenge" but notes that new financing could be arranged if the concession renegotiation reaches a resolution that provides sufficient certainty regarding Cascadia's revenue profile and cash flow projections. The GP does not provide detail on the expected cost, timeline, or feasibility of a new financing process.

C&H Assessment. The GP's recommendation to maintain dormancy is not unreasonable in light of the considerations cited, particularly the desire to avoid crystallizing losses on sunk costs and the fact that the concession renegotiation has not definitively broken down. However, we note that the GP's assessment may be influenced by considerations that do not perfectly align with Ironside's interests. As general partner, the GP (and its affiliated Fund IV) has its own investment thesis, timeline, and relationship considerations with the Selling Shareholders and the target management team. Ironside should independently evaluate whether continued dormancy — with the attendant consumption of management attention and the opportunity cost of the $277,500,000 unfunded commitment — continues to serve Ironside's strategic and portfolio objectives.

IV. Analysis of Upcoming Critical Deadlines

The Q3 Report, read in conjunction with the broader transaction timeline, highlights several critical deadlines that will shape the trajectory of the Co-Invest Vehicle and the proposed acquisition over the coming months. We address each in turn.

A. Debt Commitment Expiration — October 31, 2023

As discussed in Section III.C above, the Atlas National Bank / Pinnacle Credit Partners debt commitment — comprising the $975,000,000 senior secured term loan facility and the $150,000,000 revolving credit facility — is set to expire by its terms on October 31, 2023. This deadline is now approximately 16 days from the date of this memorandum.

The consequences of the commitment expiring without extension or replacement are significant and include the following:

(i) Financing Condition Failure. The financing condition under the EPA requires that the Buyer have committed debt financing in an amount sufficient to fund the debt portion of the acquisition. If the Commitment Letter expires, this condition cannot be satisfied on the current terms of the EPA. While the financing condition is technically a condition to the Buyer's obligation to close (rather than a condition to the Sellers' obligation), the practical effect is that the transaction cannot proceed without committed debt.

(ii) No Committed Debt Available. Upon expiration of the Commitment Letter, the Buyer will have no committed debt financing in place. The equity investors (Fund IV and the Co-Invest Vehicle) are not obligated, and should not be expected, to provide additional equity to fill the debt shortfall. The LP Agreement does not contemplate an all-equity transaction, and the investment thesis for the Co-Invest Vehicle was predicated on a leveraged capital structure.

(iii) Replacement Financing Process. Any future closing of the acquisition would require a new financing process. This would entail the solicitation and evaluation of potential lenders, negotiation of a new commitment letter (including updated terms reflecting current market conditions), drafting and negotiation of definitive credit agreement documentation, and satisfaction of all customary conditions to funding (including updated due diligence by the lenders, environmental assessments, insurance requirements, and legal opinions). Based on our experience with comparable infrastructure financings, this process would require a minimum of 8 to 16 weeks from mandate to signed commitment letter, with additional time required for definitive documentation. The total timeline from initiation to funded closing is typically 16 to 24 weeks under normal market conditions.

(iv) Changed Market Conditions. The interest rate environment has changed materially since August 2022, when the original Commitment Letter was executed. The Federal Funds effective rate has increased from approximately 2.33% in August 2022 to approximately 5.33% as of the date of this memorandum. SOFR, the benchmark rate for the term loan facility, has increased correspondingly. Any replacement financing is therefore likely to carry a materially higher interest rate than the rate contemplated by the original Commitment Letter. In addition, credit market conditions for leveraged infrastructure acquisitions have tightened, with lenders generally requiring lower leverage ratios, more restrictive covenants, and larger equity contributions than were available in mid-2022.

(v) Concession Uncertainty Premium. Any replacement financing would need to be underwritten based on the post-renegotiation economics of the Bull Run Filtration Project concession, which remain unknown. Lenders may require either (a) that the concession renegotiation be substantially resolved before committing to new financing, or (b) a discount to the concession's projected revenue to account for the uncertainty, which could result in a lower debt quantum and a commensurately larger equity requirement.

The extension fee for any further extension of the existing Commitment Letter, if obtainable, would likely be borne by Fund IV, consistent with the cost allocation for the prior extension. However, the Q3 Report does not indicate that Atlas or Pinnacle is willing to agree to a further extension, and the commercial rationale for the lenders to extend a commitment indefinitely — without the prospect of a near-term closing and in the context of a material change in market conditions — is questionable.

Recommendation. We recommend that Ironside promptly contact the GP, specifically David R. Hargreaves (Managing Director, Meridian) or Lillian Fong (Vice President, Meridian), to determine (i) whether any discussions with Atlas or Pinnacle regarding a further extension of the Commitment Letter are ongoing or contemplated; (ii) if no extension is being pursued, the GP's rationale for allowing the commitment to lapse; and (iii) the GP's contingency plan for obtaining replacement financing, including the expected timeline, cost, and any preliminary indications of interest from potential lenders.

B. EPA Outside Date — December 31, 2023

The Third Amendment to the EPA, executed on June 28, 2023, extended the outside date for closing the acquisition to December 31, 2023. This is the third extension of the original outside date, and the December 31, 2023 date represents the current contractual deadline by which the transaction must close.

If the outside date passes without closing or a further extension, the consequences are as follows:

(i) Either the Buyer or the Selling Shareholders may terminate the EPA by written notice, provided that the terminating party is not in material breach of its obligations under the EPA. Termination would effectively end the transaction absent a new agreement between the parties.

(ii) Depending on the specific termination provisions of the EPA (which C&H is analyzing in a separate forthcoming memorandum), the termination may trigger certain consequences including the release of deposits, the return of proprietary information, and the expiration of exclusivity and non-solicitation provisions that may constrain the Selling Shareholders from pursuing alternative transactions.

(iii) The practical effect of EPA termination, combined with the expiration of the debt commitment, would be to render the proposed acquisition of Cascadia effectively dead. Reconstituting the transaction after an EPA termination would require entirely new negotiations, new due diligence, new regulatory filings, and new financing — an outcome that is materially more costly and uncertain than continuing under the existing framework.

The GP has indicated that it is evaluating the feasibility of a fourth amendment to the EPA but has not confirmed the willingness of the counterparties to agree to such an amendment. The principal Selling Shareholder, Timberline III, is represented by Garvey Lennox LLP (Steven F. Yun), and its willingness to support a further extension will likely depend on a number of factors, including the progress of the concession renegotiation, the availability of committed financing, and the opportunity cost to Timberline III of remaining bound by the EPA. The Weir Family Trust, represented by its trustee Jonathan M. Weir (who also serves as CEO of Cascadia), and the Management Rollover Pool participants may have different interests, as their ongoing involvement in Cascadia's business creates alignment with a transaction that preserves management continuity and the existing operational framework.

C&H is preparing a separate detailed memorandum analyzing the termination rights, walk-away costs, and standstill options available to the parties under the EPA. We anticipate delivering that memorandum in advance of the December 31, 2023 outside date to allow Ironside sufficient time to evaluate its strategic options.

Recommendation. We recommend that Ironside press the GP for early engagement with the Selling Shareholders and Cascadia on the question of a fourth EPA amendment. To the extent that a further extension is contemplated, Ironside should consider whether the extension should be conditioned on certain milestones or benchmarks (e.g., a defined timeline for resolution of the concession renegotiation, a requirement that the GP demonstrate progress toward replacement financing) rather than a blanket extension of the outside date. Additionally, Ironside should begin its own independent assessment of whether continued participation in the transaction serves its strategic interests, taking into account the converging risks described in this memorandum.

C. 18-Month Dormancy Mark — July 9, 2024

Under Section 7.04(c) of the LP Agreement, the limited partner has the right to elect wind-down of ICM Cascadia Co-Invest, LP if the dormancy period exceeds 18 months from the date of the declaration of the Material Impediment Event. The Material Impediment Event was declared and the dormancy period commenced on January 9, 2023. The 18-month anniversary of that date falls on July 9, 2024.

If Ironside elects wind-down under Section 7.04(c), the GP is required to take all steps necessary to wind down the Vehicle in an orderly manner, including the liquidation of any remaining assets, the payment of outstanding liabilities, and the distribution of remaining cash to the limited partner. The GP's obligations in connection with a wind-down are further specified in Article X of the LP Agreement.

The 18-month wind-down election date is approximately nine months from the date of this memorandum. No action is required at this time, but we flag this date as an important strategic milestone. By July 9, 2024, Ironside will have a clearer picture of whether the transaction has a realistic path to closing or whether the converging risks — expired debt commitment, potentially lapsed EPA, FERC approval lapse, and unresolved concession renegotiation — have rendered the transaction unviable. We recommend that Ironside begin preliminary strategic evaluation of the wind-down election as part of its broader assessment of the transaction's viability, as discussed further in Section V below.

V. Observations and Concerns

A. Adequacy of Concession Renegotiation Disclosures

As noted in our reviews of both the Q1 2023 and Q2 2023 quarterly reports, the GP's disclosures regarding the substance of the Portland Metropolitan Water District concession renegotiation remain high-level and lack the specificity that Ironside requires to make informed strategic decisions regarding its continued participation in the Co-Invest Vehicle.

The Bull Run Filtration Project concession is a significant asset of Cascadia, generating approximately $64 million in annual revenue and constituting approximately 13% of Cascadia's total fiscal year 2021 revenue of approximately $487 million. The concession was originally entered into in approximately 2018 and has a 40-year term, making it one of the longest-duration and most economically significant assets in Cascadia's portfolio. The outcome of the renegotiation — specifically the magnitude of any reduction in concession fees, any changes to performance obligations, any modifications to the capital expenditure requirements, and any alterations to the concession term or renewal provisions — will directly affect the valuation of Cascadia and the economics of the proposed acquisition. A material adverse change in the concession terms could require a renegotiation of the purchase price under the EPA, a restructuring of the debt financing, and a reassessment of the investment thesis that underlies Ironside's commitment to the Co-Invest Vehicle.

Despite the centrality of this issue, the GP has consistently described the negotiations in general terms — "slow but constructive" in Q3, "continuing" in Q2, and "in early stages" in Q1 — without providing the specific detail that would enable Ironside to conduct its own assessment of the likely outcome and its implications for the investment. We recognize that the GP may be constrained by confidentiality obligations to Cascadia or to the Water District, but the Side Letter expressly entitles Ironside to "such additional information as may be reasonably requested by the LP," and we believe a request for enhanced disclosure is both reasonable and necessary under the circumstances.

We continue to recommend that Ironside exercise its rights under the Side Letter and formally request that the GP provide, in the Q4 2023 quarterly report or by separate communication, more detailed disclosure regarding: (a) the specific economic terms under discussion with the Water District, including any proposed reduction in concession fees or modification of the fee structure; (b) any proposed changes to Cascadia's performance obligations or capital expenditure requirements under the concession; (c) any proposed modifications to the concession term, renewal provisions, or termination triggers; (d) the GP's assessment of the likely range of outcomes and the timeline for resolution; and (e) copies of or summaries of any material correspondence between Cascadia and the Water District during the quarter.

B. Convergence of Negative Developments

Q3 2023 marks a quarter in which multiple negative developments are converging simultaneously, creating a materially elevated risk profile for the transaction and the Co-Invest Vehicle:

(i) Imminent Debt Commitment Expiration. The Atlas / Pinnacle debt commitment ($975 million term loan plus $150 million revolver) is set to expire on October 31, 2023, with no indication of further extension. The loss of committed financing is the single most significant new development and creates a fundamental obstacle to closing the acquisition on previously agreed terms.

(ii) Approaching EPA Outside Date. The EPA outside date of December 31, 2023 is approximately 11 weeks away, and the feasibility of a fourth amendment has not been confirmed. If the EPA is terminated, the transaction framework collapses and the sunk costs incurred by the Co-Invest Vehicle become effectively non-recoverable.

(iii) Unresolved Concession Renegotiation. The underlying Material Impediment Event — the renegotiation of the Bull Run Filtration Project concession — remains unresolved after nearly ten months of negotiations, with no clear timeline for resolution. The GP's characterization of the negotiations as "slow but constructive" provides some comfort that the discussions have not broken down, but also suggests that a near-term resolution is unlikely.

(iv) FERC Approval Lapse Risk. The FERC Section 203 approval, obtained on December 15, 2022, is subject to an 18-month lapse provision. The lapse date of approximately June 15, 2024 is less than eight months away. If the transaction is not reactivated and closed before that date — or if a FERC extension is not obtained — the regulatory approval will need to be re-obtained, adding time, cost, and uncertainty.

The cumulative effect of these developments materially increases the likelihood that the acquisition of Cascadia will not close on the originally agreed terms, if at all. While any one of these developments alone might be manageable, the convergence of all four creates a compounding risk dynamic in which the resolution of one obstacle (e.g., the concession renegotiation) does not, by itself, remove the other obstacles (e.g., the need for replacement financing, the need for a new or extended EPA, the need for regulatory approval renewal).

In light of these developments, C&H recommends that Ironside begin considering, on a preliminary basis, the full range of strategic options available to it. These options include:

(a) Supporting a Further EPA Extension with Appropriate Conditions. If the GP seeks a fourth amendment to the EPA, Ironside could support the extension but seek to condition its continued participation on certain milestones (e.g., a defined timeline for resolution of the concession renegotiation, demonstrated progress toward replacement financing, a cap on additional dormancy expenses chargeable to the Co-Invest Vehicle).

(b) Seeking a Negotiated Standstill if the EPA Lapses. If the December 31, 2023 outside date passes without a fourth amendment, Ironside could advocate for a negotiated standstill agreement among the parties that preserves the transaction framework and the parties' respective rights while providing additional time for resolution of the outstanding issues.

(c) Preparing for Exercise of the Wind-Down Election in Mid-2024. The 18-month dormancy mark falls on July 9, 2024. If the transaction's outlook has not materially improved by that date, Ironside should be prepared to exercise its wind-down election under Section 7.04(c) of the LP Agreement. This would terminate the Co-Invest Vehicle and allow Ironside to recover any remaining reserve funds, while crystallizing losses on non-recoverable sunk costs.

(d) Evaluating Recoverability of Sunk Costs. Of the $22,500,000 in capital called by the Co-Invest Vehicle, approximately $19,370,000 has been expended on items that are likely non-recoverable in a wind-down scenario, including organizational expenses ($285,000), the placement-agent fee ($1,050,000), due-diligence costs and deposits ($12,790,000), and the R&W insurance premium deposit ($4,875,000). The remaining working-capital reserve of approximately $3,130,000 would be available for distribution to Ironside in a wind-down. Ironside should evaluate whether any portion of the due-diligence deposits (included in the $12,790,000 figure) may be recoverable through refund, credit, or assignment, and whether the R&W insurance premium deposit is subject to any partial refund under the terms of the Northgate policy or the Tolling Side Letter.

C. Expense Allocation During Dormancy

Dormancy operating expenses continue to be drawn from the working-capital reserve at an annualized rate of approximately $185,000 per year. These expenses primarily consist of fund administration fees payable to Kendrick Thorne & Associates LLP, Delaware franchise tax obligations, registered agent fees, annual audit costs, and miscellaneous administrative expenses.

At the current expense rate, the remaining reserve balance of approximately $3,130,000 is sufficient to cover dormancy operating expenses for approximately 16 to 17 years. Reserve adequacy is therefore not an immediate concern, and the ongoing dormancy expenses do not, by themselves, create pressure for a wind-down decision.

However, we note an important distinction between dormancy operating expenses and reactivation costs. If the transaction is reactivated — whether on the originally agreed terms or on revised terms — the Co-Invest Vehicle would likely incur significant additional costs, including:

• Updated due diligence costs, including financial, legal, environmental, and technical diligence on any changes to Cascadia's business or the concession terms;

• Regulatory re-filing costs, including any FERC re-application or OPUC supplemental filing fees and associated legal costs;

• New financing costs, including commitment fees, extension fees, legal costs for credit documentation, and potentially increased R&W insurance premiums;

• Legal and advisory fees associated with negotiating a fourth EPA amendment, replacement financing, or a revised transaction structure.

These reactivation costs would likely require an additional capital call from the limited partner, which is currently suspended under the Suspension Notice. The mechanics for lifting the capital-call suspension and issuing a new call would need to be carefully analyzed in the context of Section 7.04 of the LP Agreement, which governs the GP's authority during a dormancy period. Section 7.04(a) provides that during a dormancy period, the GP shall not issue any new capital calls "except as necessary to fund dormancy operating expenses or as otherwise approved in writing by the LP." Accordingly, any capital call for reactivation costs would require Ironside's prior written consent, providing Ironside with a meaningful veto right over the cost and pace of any reactivation effort.

VI. Recommendations

Based on our review of the Q3 Report and our analysis of the developments and risks described in this memorandum, C&H recommends that Ironside take the following actions:

1. Debt Commitment Clarification. Ironside should promptly contact the GP — specifically David R. Hargreaves, Managing Director, or Lillian Fong, Vice President — to determine whether any discussions with Atlas National Bank, N.A. or Pinnacle Credit Partners LLC regarding a further extension of the Commitment Letter are underway. If no extension is being pursued, Ironside should seek a detailed explanation of the GP's rationale for allowing the commitment to lapse and a comprehensive description of the GP's contingency plan for obtaining replacement financing, including the expected timeline, the identity of any potential replacement lenders, and the GP's assessment of the likely economic terms of replacement financing in current market conditions.

2. EPA Extension Strategy. Ironside should request that the GP provide its assessment of the feasibility and desirability of a fourth amendment to the EPA extending the outside date beyond December 31, 2023. This assessment should address the positions and expected responses of the Selling Shareholders — including Timberline Growth Equity Fund III, LP (through Hugh Callister, Managing Partner, and counsel Steven F. Yun at Garvey Lennox LLP), the Weir Family Trust (through Jonathan M. Weir, Trustee and CEO of Cascadia), and the Management Rollover Pool — as well as any conditions, concessions, or modifications that may be required to secure a further extension. Ironside should also consider, independently, whether continued extensions serve Ironside's own interests and portfo

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP MEMORANDUM
TO: Marcus J. Calloway, Founder & Chief Investment Officer, Ironside Capital Management LP Renata Obasi, Senior Managing Director, Infrastructure, Ironside Capital Management LP
FROM: Pamela Cross, Responsible Partner, Calderwood & Harkness LLP Theresa Kim, Lead Associate, Calderwood & Harkness LLP
DATE: October 15, 2023
RE: Review of Meridian Infrastructure GP IV LLC Quarterly Status Report — Q3 2023 (July 1, 2023 – September 30, 2023) — ICM Cascadia Co-Invest, LP
MATTER NO.: 1023-00001
I. Executive Summary
This memorandum sets forth Calderwood & Harkness LLP's ("C&H") review and analysis of the quarterly status report delivered by Meridian Infrastructure GP IV LLC (the "GP") for the third quarter of 2023 (the "Q3 Report"), covering the period from July 1, 2023 through September 30, 2023. The Q3 Report was received by Ironside Capital Management LP ("Ironside" or the "LP") on October 5, 2023, in accordance with the reporting obligations set forth in Section 7.04(b) of the Amended and Restated Agreement of Limited Partnership of ICM Cascadia Co-Invest, LP, dated as of July 29, 2022 (the "LP Agreement"), and the Side Letter Agreement entered into between Ironside and the GP as of the same date (the "Side Letter"). This memorandum is prepared at the request of Ironside's investment team and is intended solely for the internal use of the addressees in connection with Ironside's ongoing monitoring of its co-investment in ICM Cascadia Co-Invest, LP (the "Co-Invest Vehicle" or the "Vehicle").
This is the third quarterly report delivered by the GP since January 9, 2023, when the GP declared a Material Impediment Event (as defined in Section 1.01 of the LP Agreement) and issued the Capital Call Suspension Notice (the "Suspension Notice"), placing the Co-Invest Vehicle into a state of dormancy under Section 7.04 of the LP Agreement. The two prior quarterly status reports — the Q1 2023 Report (covering January 1, 2023 through March 31, 2023) and the Q2 2023 Report (covering April 1, 2023 through June 30, 2023) — were reviewed by C&H in memoranda dated April 20, 2023 and July 18, 2023, respectively. This memorandum should be read in conjunction with those prior memoranda, which are incorporated herein by reference.
The key developments during Q3 2023, as disclosed in the Q3 Report and as supplemented by C&H's independent analysis, are as follows:
(i) The Third Amendment to the Equity Purchase Agreement (the "EPA") was executed on June 28, 2023, extending the outside date for closing the acquisition from June 30, 2023 to December 31, 2023. This represents the third extension of the original outside date and, while providing additional runway for resolution of the Material Impediment Event, raises questions regarding the willingness of the Selling Shareholders and the target to agree to further extensions if the concession renegotiation remains unresolved.
(ii) The debt commitment letter issued by Atlas National Bank, N.A. ("Atlas"), as administrative agent, and Pinnacle Credit Partners LLC ("Pinnacle") on August 30, 2022 — which was previously extended on April 30, 2023 to October 31, 2023 — is now approaching its expiration date. The Q3 Report does not indicate that any further extension has been agreed or is under active negotiation, and the commitment is set to lapse in approximately 16 days from the date of this memorandum.
(iii) The concession renegotiation between the Portland Metropolitan Water District (the "Water District") and Cascadia Renewables Holdings, Inc. ("Cascadia") regarding the 40-year Bull Run Filtration Project concession — the event underlying the GP's declaration of the Material Impediment Event — remains unresolved. The GP characterizes the pace of negotiations as "slow but constructive," but provides limited detail regarding the substance of the discussions.
(iv) The proceedings before the Oregon Public Utility Commission ("OPUC") in Docket No. UM-2287 remain stayed pursuant to the joint request of the parties, with no substantive developments during Q3 2023.
Overall Assessment. The Q3 Report is compliant with the contractual reporting obligations set forth in Section 7.04(b) of the LP Agreement and the Side Letter. The report was delivered in a timely fashion, addresses each of the required content elements, and is consistent in format and substance with the Q1 2023 and Q2 2023 reports. However, the Q3 Report raises significant forward-looking concerns. The imminent expiration of the debt commitment on October 31, 2023 — without any indication of further extension — represents the most significant new development and materially increases the complexity and cost of reactivating the transaction should the Material Impediment Event be resolved. The approaching December 31, 2023 EPA outside date further compresses the timeline for a resolution, and the mid-2024 lapse risk on the FERC Section 203 approval adds an additional source of uncertainty.
We recommend that Ironside promptly engage with the GP and its counsel regarding contingency planning for the debt commitment expiration, the feasibility of a fourth EPA amendment, and the GP's assessment of the transaction's viability. Our specific recommendations are set forth in Section VI of this memorandum.
II. Compliance Review — Reporting Obligations
A. Timeliness of Delivery
Section 7.04(b) of the LP Agreement imposes a mandatory reporting obligation on the GP during any period of dormancy following the declaration of a Material Impediment Event. Specifically, the GP is required to deliver to the LP a quarterly status report within fifteen (15) business days following the end of each calendar quarter during which the dormancy period is in effect. This reporting obligation continues until such time as the Material Impediment Event is resolved and the dormancy is lifted, or until the Vehicle is wound down pursuant to Section 7.04(c) or otherwise dissolved in accordance with Article X of the LP Agreement.
The third quarter of 2023 ended on September 30, 2023, which fell on a Saturday. Counting fifteen (15) business days from the first business day following the end of the quarter — Monday, October 2, 2023 — yields a delivery deadline of approximately Friday, October 20, 2023, taking into account the Columbus Day / Indigenous Peoples' Day federal holiday observed on Monday, October 9, 2023. The Q3 Report was delivered by the GP to Ironside via the Thackeray Solutions secure data room (designated for reporting purposes under Section 14.02 of the LP Agreement) and by email to Marcus Calloway and Renata Obasi on October 5, 2023, which is well within the required fifteen business day window. Accordingly, delivery of the Q3 Report was timely, and the GP is in compliance with the timeliness requirements of Section 7.04(b).
We note, for the record, that the GP has delivered all three quarterly reports during the dormancy period in a timely manner. The Q1 2023 Report was delivered on April 17, 2023 (within the 15-business-day window following March 31, 2023), and the Q2 2023 Report was delivered on July 14, 2023 (within the 15-business-day window following June 30, 2023).
B. Content Requirements
Section 7.04(b) of the LP Agreement prescribes specific content requirements for quarterly status reports during a dormancy period. Each quarterly report must include the following elements:
(i) A description of the status of the Material Impediment Event and any developments toward its resolution;
(ii) A financial summary of the Vehicle's assets and liabilities as of the last day of the applicable calendar quarter;
(iii) A summary of any expenses incurred by or on behalf of the Vehicle during the quarter;
(iv) A description of the status of any regulatory approvals required in connection with the Proposed Investment (as defined in the LP Agreement), including any pending or anticipated proceedings before federal, state, or local regulatory authorities;
(v) A description of the status of the Equity Purchase Agreement and any amendments, extensions, or modifications thereto; and
(vi) The GP's assessment of the prospects for reactivation of the Vehicle and completion of the Proposed Investment, or, alternatively, the GP's recommendation regarding initiation of wind-down proceedings under Section 7.04(c).
In addition to these LP Agreement requirements, the Side Letter imposes a supplemental disclosure obligation on the GP. Pursuant to paragraph 4(c) of the Side Letter, the GP is required to provide Ironside with "such additional information as may be reasonably requested by the LP," and is specifically required to disclose any material correspondence with the target company, the selling shareholders, or the lenders during the applicable quarter. The Side Letter obligation is independent of and supplemental to the GP's obligations under the LP Agreement.
Assessment. We have reviewed the Q3 Report against each of these content requirements and confirm that the Q3 Report addresses all required elements. Specifically:
• The Q3 Report includes a detailed discussion of the Material Impediment Event, confirming that the event remains in effect and describing the continued (though unresolved) negotiations between Cascadia and the Water District. This satisfies the requirement of clause (i) above.
• The Q3 Report includes a financial summary of the Vehicle's position as of September 30, 2023, including committed capital, called capital, unfunded commitments, use of proceeds, and remaining reserves. This satisfies the requirements of clauses (ii) and (iii) above.
• The Q3 Report includes a discussion of the FERC, OPUC, and CFIUS regulatory approval processes, including the current status of each. This satisfies the requirement of clause (iv) above.
• The Q3 Report describes the status of the EPA, including the execution of the Third Amendment and the approaching December 31, 2023 outside date. This satisfies the requirement of clause (v) above.
• The GP provides its assessment and recommendation, concluding that continued dormancy is appropriate and that wind-down is not recommended at this time. This satisfies the requirement of clause (vi) above.
Notwithstanding the foregoing compliance, we observe — as we have noted in our two prior quarterly review memoranda — that the level of detail provided by the GP regarding the substance of the concession renegotiation between Cascadia and the Water District remains limited. The Q3 Report describes the negotiations in general terms ("slow but constructive") but does not disclose the specific economic terms under discussion, any proposed reduction in concession fees, any changes to performance obligations or milestones, or any modifications to the concession term or renewal provisions. Given the centrality of the concession renegotiation to the resolution of the Material Impediment Event and the overall viability of the investment thesis, we continue to recommend that Ironside exercise its rights under the Side Letter to formally request more granular supplemental information from the GP on this topic.
With respect to the Side Letter's requirement to disclose material correspondence with the target, selling shareholders, or lenders, the Q3 Report references ongoing discussions but does not attach or summarize specific correspondence. The GP's compliance with this aspect of the Side Letter is, in our view, marginal. While the GP may take the position that no individual item of correspondence during Q3 2023 was sufficiently "material" to require specific disclosure, the aggregate significance of the concession renegotiation and the approaching debt commitment expiration would, in our judgment, warrant a more forthcoming approach to disclosure. We recommend that Ironside raise this with the GP in connection with the Side Letter information request described above.
C. Consistency with Prior Reports
We have compared the Q3 Report with the Q1 2023 and Q2 2023 reports for consistency in format, substance, and characterization of key facts and developments. The Q3 Report is consistent with the prior reports in all material respects. The GP has not retracted, modified, or qualified any factual statements made in prior reports, and the Q3 Report does not contain any information that is materially inconsistent with prior disclosures. The characterization of the Material Impediment Event, the description of the EPA structure and parties, the regulatory approval status, and the financial summary are all internally consistent across the three reports, adjusted for the passage of time and the occurrence of new developments (principally the execution of the Third Amendment and the approaching expiration of the debt commitment).
We note, as a matter of form, that the Q3 Report follows the same template and organizational structure as the prior reports, which facilitates comparison and reduces the risk of inadvertent omissions.
III. Summary of Q3 Report Content
This Section III provides a detailed summary of the substantive content of the Q3 Report, organized by topic area, together with C&H's observations where relevant.
A. Status of Material Impediment Event
The GP confirms that the Material Impediment Event declared on January 9, 2023, pursuant to Section 7.04(a) of the LP Agreement, remains in effect as of the date of the Q3 Report. The GP does not recommend lifting the Material Impediment Event at this time, and no party has challenged the declaration or requested that it be rescinded.
The basis for the declaration of the Material Impediment Event — the initiation by the Portland Metropolitan Water District of a renegotiation of the 40-year Bull Run Filtration Project concession originally entered into between the Water District and Cascadia in approximately 2018 — has not been resolved. The Bull Run Filtration Project concession is a significant component of Cascadia's revenue base, generating approximately $64 million in annual revenue and constituting approximately 13% of Cascadia's total fiscal year 2021 revenue of approximately $487 million. The concession renegotiation was initiated by the Water District in late 2022, following the enactment of Oregon Senate Bill 1567 (the "Oregon Water Infrastructure Accountability Act of 2022"), which imposed new requirements on water infrastructure concessionaires and provided municipalities with expanded rights to renegotiate the terms of existing concession agreements.
The Q3 Report states that negotiations between Cascadia and the Water District continued during Q3 2023 and that the GP characterizes the pace of negotiations as "slow but constructive." The GP notes that both parties have engaged in periodic discussions and that neither party has declared an impasse or exercised any termination or renegotiation-trigger rights under the existing concession agreement. However, the Q3 Report does not provide detail regarding the specific terms under discussion, the magnitude of any proposed reduction in concession fees, or the expected timeline for reaching agreement.
Oregon SB 1567 remains in effect as enacted. No amendments to the legislation have been proposed or are expected during the current legislative session, and the regulatory framework established by the Act — including the mandatory renegotiation provisions applicable to concessions exceeding $50 million in aggregate value — is expected to continue to materially alter the economic and legal landscape for infrastructure concessionaires operating in Oregon. The GP does not indicate whether Cascadia or any industry group has pursued or is contemplating any legal challenge to the Act.
The GP's recommendation to maintain the Material Impediment Event designation is, in our assessment, reasonable under the circumstances. The concession renegotiation is directly material to the valuation of Cascadia and the economics of the proposed acquisition, and until the renegotiation is resolved, the uncertainty it introduces into the investment thesis is sufficient to warrant continued dormancy under the LP Agreement framework.
B. Equity Purchase Agreement Status
The Q3 Report provides an update on the status of the Equity Purchase Agreement, dated as of September 30, 2022 (as amended, the "EPA"), pursuant to which Cascadia Acquisition Corp. (the "Buyer"), an acquisition vehicle indirectly controlled by Meridian Infrastructure Fund IV, LP ("Fund IV"), agreed to acquire all of the outstanding equity interests in Cascadia Renewables Holdings, Inc. from the Selling Shareholders.
Third Amendment. As disclosed in the Q2 2023 Report and confirmed in the Q3 Report, the Third Amendment to the EPA was executed on June 28, 2023, extending the outside date for closing the acquisition from June 30, 2023 to December 31, 2023. The Third Amendment is the most recent in a series of extensions of the original outside date, the history of which is summarized in the following table:
Parties. The EPA parties include the following Selling Shareholders: Timberline Growth Equity Fund III, LP ("Timberline III"), which holds approximately 62% of the outstanding equity interests in Cascadia; the Weir Family Trust, which holds approximately 18%; and the Management Rollover Pool, which holds approximately 20% and whose members include certain members of Cascadia's senior management. The Buyer is Cascadia Acquisition Corp., and Cascadia Renewables Holdings, Inc. is a party for purposes of certain representations, warranties, and covenants. We note that the Management Rollover Pool participants are expected to rollover a portion of their equity into the post-acquisition capital structure, although the specific rollover terms have not been disclosed in the Q3 Report.
Termination Rights. The GP states that no party has indicated an intent to exercise termination rights under the EPA during Q3 2023 or as of the date of the Q3 Report. Under the terms of the EPA, either the Buyer or the Selling Shareholders may terminate the agreement if the closing has not occurred by the outside date, subject to certain conditions including the requirement that the terminating party not be in material breach of its obligations under the EPA. The GP does not address whether any party has reserved its rights or communicated any conditions or demands in connection with a potential fourth extension.
Fourth Amendment Feasibility. The GP states that it is evaluating whether a further amendment extending the outside date beyond December 31, 2023 may be necessary and feasible. The GP acknowledges that the willingness of the Selling Shareholders to agree to a fourth extension has not yet been tested. The Q3 Report identifies the principal Selling Shareholder representatives as follows: Timberline III is represented by Garvey Lennox LLP (Steven F. Yun), and Cascadia is represented by Ridgeway, Ashford & Malone PC (Nina R. Castellano). The Weir Family Trust's counsel is not identified in the Q3 Report, although we understand from prior transaction documents that the Trust is represented by Jonathan M. Weir in his capacity as Trustee.
C&H Observation. The approaching December 31, 2023 outside date is a critical deadline for the transaction. If no further extension is obtained and the concession renegotiation remains unresolved by year-end, either party to the EPA will have the right to terminate the agreement, potentially leading to the permanent collapse of the acquisition. The practical significance of this deadline is compounded by the imminent expiration of the debt commitment (discussed in Section III.C below), which, if not extended, would deprive the Buyer of committed financing and raise questions about the Buyer's ability to satisfy the financing condition precedent to closing. C&H is preparing a separate detailed analysis of the termination rights, walk-away costs, and standstill options available to the parties under the EPA, which we anticipate delivering in advance of the December 31, 2023 outside date.
C. Debt Commitment Status
The Q3 Report provides a critically important update regarding the status of the debt financing commitments for the proposed acquisition.
Original Commitment. On August 30, 2022, Atlas National Bank, N.A. ("Atlas"), acting as administrative agent and initial lender, and Pinnacle Credit Partners LLC ("Pinnacle"), acting as co-lender, issued a commitment letter (the "Commitment Letter") in connection with the proposed acquisition of Cascadia. The Commitment Letter provided for the following facilities:
• Senior Secured Term Loan Facility: $975,000,000 in aggregate principal amount (Atlas: $650,000,000; Pinnacle: $325,000,000), to be secured by substantially all assets of the Buyer and its subsidiaries; and
• Senior Secured Revolving Credit Facility: $150,000,000 in aggregate availability (Atlas: sole lender), to be available for working capital and general corporate purposes of the acquired business.
The Commitment Letter was originally scheduled to expire on the earlier of (a) the closing of the acquisition and (b) December 31, 2022 (the original EPA outside date). Following the First and Second Amendments to the EPA, the Commitment Letter was extended by letter agreement to align with the then-current outside date. On April 30, 2023, following the execution of the Second Amendment to the EPA (which extended the outside date to June 30, 2023), Atlas and Pinnacle agreed to extend the Commitment Letter to October 31, 2023. The extension fee for this period — $2,437,500, calculated as 0.25% of the $975,000,000 term loan commitment — was paid by Fund IV (not by the Co-Invest Vehicle), consistent with the cost allocation provisions of the LP Agreement and the Side Letter. The revolving credit facility commitment was extended on the same terms and timeline.
Current Status. The Q3 Report discloses that, as of October 5, 2023 (the date of the Q3 Report), no further extension of the Commitment Letter has been agreed or is under active negotiation with Atlas or Pinnacle. The Commitment Letter is therefore set to expire by its terms on October 31, 2023 — approximately 26 days from the date of the Q3 Report and approximately 16 days from the date of this memorandum.
The GP acknowledges in the Q3 Report that the expiration of the debt commitment would constitute a "significant obstacle" to closing the acquisition. This is, in our assessment, an understatement. The transaction's sources and uses of funds, as set forth in the original EPA and the Commitment Letter, contemplate the following capital structure:
Without committed debt financing, the Buyer cannot satisfy the financing condition under the EPA and cannot close the acquisition on the terms originally agreed. The equity investors (Fund IV and the Co-Invest Vehicle) are not obligated to provide additional equity to fill the debt shortfall, and the LP Agreement does not contemplate an all-equity transaction structure.
C&H Observation. The likely expiration of the debt commitment on October 31, 2023 is, in our assessment, the most significant development disclosed in the Q3 Report and represents a material escalation of the risks facing the transaction. Without committed financing, any future closing would require a new financing process — including the solicitation of lenders (which may or may not include Atlas and Pinnacle), negotiation of a new commitment letter, drafting of definitive credit documentation, and satisfaction of all conditions to funding. Such a process would require substantial time (typically 8 to 16 weeks from mandate to signed commitment letter, plus additional time for definitive documentation) and may result in materially different economic terms, including higher interest rates, more restrictive covenants, reduced leverage ratios, or a smaller commitment amount, given the significant increase in benchmark interest rates and the tightening of credit market conditions since August 2022 when the original Commitment Letter was executed. Additionally, any new debt commitment would need to be underwritten based on the economics of the concession renegotiation, which remain uncertain.
The expiration of the debt commitment compounds the existing Material Impediment Event and effectively creates a second material obstacle to closing. Even if the concession renegotiation is resolved on terms acceptable to the parties, the transaction cannot proceed without replacement financing, and there can be no assurance that replacement financing will be available on commercially acceptable terms or at all.
We recommend that Ironside promptly seek clarification from the GP and its counsel, Breckenridge Sloane & Pratt LLP, regarding (i) whether any discussions with Atlas, Pinnacle, or alternative lenders are ongoing or anticipated; (ii) the GP's contingency plan for obtaining replacement financing; and (iii) the GP's assessment of the likely terms and timeline for any replacement financing process.
D. Regulatory Approvals
The Q3 Report provides an update on the status of the regulatory approvals required in connection with the proposed acquisition of Cascadia. The following approvals have been sought or obtained:
Federal Energy Regulatory Commission — Section 203 Approval (Docket No. EC22-143-000). The application for approval of the disposition of jurisdictional facilities under Section 203 of the Federal Power Act was filed with FERC on or about October 1, 2022. FERC granted conditional approval on December 15, 2022, subject to the requirement that Cascadia (or its successor) file all necessary license-transfer applications within 90 days of closing. The approval order is subject to a standard 18-month lapse provision, pursuant to which the approval will expire if the transaction does not close within 18 months of the date of the order. The 18-month mark from December 15, 2022 falls on approximately June 15, 2024.
The GP reports that no communication has been initiated with FERC staff regarding a possible extension of the approval or a request for tolling of the 18-month lapse period. The GP does not address the feasibility of obtaining such an extension.
Oregon Public Utility Commission (Docket No. UM-2287). The application for approval of the change of control of Cascadia's OPUC-regulated subsidiaries was filed on October 14, 2022. The proceedings were stayed at the joint request of the applicants and OPUC staff in February 2023, in light of the declaration of the Material Impediment Event and the resulting uncertainty regarding the closing timeline. The stay remains in effect as of the date of the Q3 Report, and the GP reports no substantive developments during Q3 2023. The GP does not address the expected timeline for lifting the stay or the anticipated OPUC review process if the transaction is reactivated.
Committee on Foreign Investment in the United States (CFIUS). A voluntary notice was filed with CFIUS in connection with the acquisition, and CFIUS acknowledged receipt of the notice on September 20, 2022. No further action was required by CFIUS, and clearance has been effectively received. The Q3 Report confirms that there has been no change in CFIUS status and no additional inquiries or requests from the CFIUS staff.
C&H Observation. The FERC Section 203 approval lapse risk is an important mid-term concern. The 18-month lapse date of approximately June 15, 2024 is now less than eight months away. If the transaction is not reactivated and closed before that date — a prospect that appears increasingly unlikely given the current trajectory of the concession renegotiation and the debt commitment status — the parties will need to either (a) seek an extension of the FERC approval, which is discretionary and not assured, or (b) re-file the Section 203 application, which would add significant time and regulatory uncertainty to the closing process. We recommend that Ironside raise this issue with the GP and request that Meridian's regulatory counsel (Breckenridge Sloane & Pratt LLP, Charles A. Delacroix) initiate preliminary discussions with FERC staff regarding extension possibilities.
With respect to the OPUC proceedings, we note that lifting the stay and re-engaging with the OPUC review process will require coordination with the transaction timeline and may need to account for any changes to the transaction structure (e.g., revised financing terms, revised enterprise value) that have occurred since the original application was filed. The OPUC staff may require supplemental filings or updated information, which could extend the regulatory review timeline.
The CFIUS clearance does not present any current concerns and requires no further action.
E. Financial Summary — Vehicle Position
The Q3 Report provides a financial summary of ICM Cascadia Co-Invest, LP as of September 30, 2023. The Vehicle is organized as a Delaware limited partnership (EIN: 88-3921457; Delaware Secretary of State File No. 7439218) with Meridian Infrastructure GP IV LLC serving as general partner and Ironside Capital Management LP (on behalf of its underlying fund accounts) serving as the sole limited partner.
The financial position of the Vehicle as of September 30, 2023 is summarized as follows:
A single capital call was issued on August 15, 2022, in the amount of $22,500,000 (representing 7.5% of total committed capital). No further capital calls have been issued, and all capital calls remain suspended pursuant to the Suspension Notice issued on January 9, 2023, in connection with the declaration of the Material Impediment Event.
The use of the $22,500,000 in called capital, as originally allocated and as reported in the Q3 Report, is as follows:
The Q3 Report indicates that the working-capital reserve has been partially drawn during the dormancy period to cover ongoing operating expenses. As of September 30, 2023, approximately $3,130,000 remains in the working-capital reserve, reflecting cumulative dormancy-period expenses of approximately $370,000 incurred over the period from January 9, 2023 through September 30, 2023 (approximately 8.7 months). The dormancy-period expenses have included fund administration fees payable to Kendrick Thorne & Associates LLP (the Vehicle's third-party fund administrator), Delaware franchise tax payments, registered agent fees, annual audit costs (payable to the Vehicle's independent auditors), and miscellaneous administrative expenses.
Based on the cumulative dormancy expenses of approximately $370,000 over approximately 8.7 months, the annualized dormancy operating expense rate is approximately $185,000 per year. At this rate, the remaining working-capital reserve of approximately $3,130,000 is sufficient to cover dormancy operating expenses for approximately 16 to 17 years, assuming no material change in the expense profile. Reserve adequacy is therefore not an immediate concern.
The Vehicle has not made any investments and has not received any distributions during the dormancy period. No revenue has been generated, and no investment returns have been realized. The Vehicle's sole assets consist of cash on deposit in the working-capital reserve account, and its sole liabilities consist of accrued but unpaid administrative expenses, if any. The Vehicle has no indebtedness.
F. R&W Insurance Status
The Q3 Report provides an update on the representations and warranties insurance policy obtained in connection with the proposed acquisition. The policy, issued by Northgate Specialty Insurance Co. ("Northgate"), bears Policy No. NSW-RI-2022-09814 and provides a coverage limit of $195,000,000, which represents 10% of the implied enterprise value of $1,950,000,000. The premium deposit of $4,875,000 was calculated at a rate of 2.5% of the coverage limit and was paid by the Co-Invest Vehicle from the initial capital call proceeds, as reflected in the financial summary above. The premium deposit was funded by the Co-Invest Vehicle on a pro rata basis consistent with its 28.57% share of total equity, with Fund IV separately funding its pro rata share of the total R&W insurance premium.
The policy remains bound but is in suspension pursuant to the terms of the Tolling Side Letter executed on January 20, 2023, between the named insureds (Cascadia Acquisition Corp. and its affiliates, including Fund IV and the Co-Invest Vehicle) and Northgate. The Tolling Side Letter was entered into shortly after the declaration of the Material Impediment Event and provides that the policy inception date will be tolled during the dormancy period and will recommence upon the earlier of (a) the closing of the acquisition and (b) the termination of the Tolling Side Letter by either party upon 30 days' written notice.
The GP reports no developments regarding the R&W policy during Q3 2023. Northgate has not indicated any intention to terminate the Tolling Side Letter or withdraw coverage. The GP does not address the recoverability of the premium deposit in a wind-down scenario, and C&H notes that the recoverability of the premium deposit will depend on the specific terms of the Northgate policy and the Tolling Side Letter. In our experience, R&W insurance premiums are generally non-refundable once the policy is bound, even if the underlying transaction does not close. This represents a potential crystallized loss of $4,875,000 in a wind-down scenario.
C&H Observation. While the R&W policy tolling arrangement remains in place and Northgate has not taken any adverse action, there is a risk that the policy may need to be materially amended or re-underwritten in a reactivation scenario if the transaction structure changes. Specifically, if the concession renegotiation results in a revised enterprise value for Cascadia (whether higher or lower), or if the financing terms change materially (affecting the debt-to-equity ratio and the risk profile of the acquisition), Northgate may require updated underwriting information, supplemental diligence, or revised policy terms. In an extreme case, Northgate could determine that the risk profile has changed sufficiently to warrant a premium adjustment or a new policy entirely.
We recommend that Ironside consider requesting confirmation from Northgate — through the GP or directly — regarding the policy's continued availability and the conditions under which coverage would remain available in a reactivation scenario. This request can be made informally through the insurance broker (identified in prior transaction documents as Raven & Associates, Inc.) or formally through counsel.
G. GP's Assessment and Recommendation
The Q3 Report concludes with the GP's assessment of the prospects for the transaction and its recommendation regarding the Vehicle's status. The GP recommends maintaining the dormancy and does not recommend initiating wind-down proceedings at this time.
The GP cites the following factors in support of its recommendation:
(i) The concession renegotiation between Cascadia and the Water District, while proceeding at a slow pace, has not broken down. Both parties remain engaged in negotiations, and neither has declared an impasse or exercised termination or renegotiation-trigger rights under the existing concession agreement. The GP views this as a positive indicator that a negotiated resolution remains possible.
(ii) Cascadia's underlying business performance remains stable. Although the Q3 Report does not provide detailed financial results for Cascadia (which would be available through Fund IV's monitoring of the target), the GP characterizes Cascadia's operations as continuing on a normal basis, with no material adverse changes in its regulated or unregulated business segments apart from the uncertainty created by the concession renegotiation.
(iii) The Selling Shareholders have not indicated an intent to terminate the EPA. Timberline III, as the majority selling shareholder, has continued to support the EPA extension process, and the Weir Family Trust and Management Rollover Pool participants have not expressed dissent or sought to exercise independent termination rights.
(iv) A forced wind-down at this time would crystallize losses on sunk costs. The Co-Invest Vehicle has called $22,500,000 in capital, of which approximately $19,370,000 has been expended on non-recoverable or difficult-to-recover items including organizational expenses ($285,000), the placement-agent fee ($1,050,000), due-diligence costs and deposits ($12,790,000), and the R&W insurance premium deposit ($4,875,000). The remaining reserve of approximately $3,130,000 would be available for distribution in a wind-down, but the balance of the called capital would represent a loss. The GP views continued dormancy as the option that preserves optionality and avoids the premature crystallization of these losses.
The GP acknowledges that the expiration of the debt commitment on October 31, 2023 is a "significant challenge" but notes that new financing could be arranged if the concession renegotiation reaches a resolution that provides sufficient certainty regarding Cascadia's revenue profile and cash flow projections. The GP does not provide detail on the expected cost, timeline, or feasibility of a new financing process.
C&H Assessment. The GP's recommendation to maintain dormancy is not unreasonable in light of the considerations cited, particularly the desire to avoid crystallizing losses on sunk costs and the fact that the concession renegotiation has not definitively broken down. However, we note that the GP's assessment may be influenced by considerations that do not perfectly align with Ironside's interests. As general partner, the GP (and its affiliated Fund IV) has its own investment thesis, timeline, and relationship considerations with the Selling Shareholders and the target management team. Ironside should independently evaluate whether continued dormancy — with the attendant consumption of management attention and the opportunity cost of the $277,500,000 unfunded commitment — continues to serve Ironside's strategic and portfolio objectives.
IV. Analysis of Upcoming Critical Deadlines
The Q3 Report, read in conjunction with the broader transaction timeline, highlights several critical deadlines that will shape the trajectory of the Co-Invest Vehicle and the proposed acquisition over the coming months. We address each in turn.
A. Debt Commitment Expiration — October 31, 2023
As discussed in Section III.C above, the Atlas National Bank / Pinnacle Credit Partners debt commitment — comprising the $975,000,000 senior secured term loan facility and the $150,000,000 revolving credit facility — is set to expire by its terms on October 31, 2023. This deadline is now approximately 16 days from the date of this memorandum.
The consequences of the commitment expiring without extension or replacement are significant and include the following:
(i) Financing Condition Failure. The financing condition under the EPA requires that the Buyer have committed debt financing in an amount sufficient to fund the debt portion of the acquisition. If the Commitment Letter expires, this condition cannot be satisfied on the current terms of the EPA. While the financing condition is technically a condition to the Buyer's obligation to close (rather than a condition to the Sellers' obligation), the practical effect is that the transaction cannot proceed without committed debt.
(ii) No Committed Debt Available. Upon expiration of the Commitment Letter, the Buyer will have no committed debt financing in place. The equity investors (Fund IV and the Co-Invest Vehicle) are not obligated, and should not be expected, to provide additional equity to fill the debt shortfall. The LP Agreement does not contemplate an all-equity transaction, and the investment thesis for the Co-Invest Vehicle was predicated on a leveraged capital structure.
(iii) Replacement Financing Process. Any future closing of the acquisition would require a new financing process. This would entail the solicitation and evaluation of potential lenders, negotiation of a new commitment letter (including updated terms reflecting current market conditions), drafting and negotiation of definitive credit agreement documentation, and satisfaction of all customary conditions to funding (including updated due diligence by the lenders, environmental assessments, insurance requirements, and legal opinions). Based on our experience with comparable infrastructure financings, this process would require a minimum of 8 to 16 weeks from mandate to signed commitment letter, with additional time required for definitive documentation. The total timeline from initiation to funded closing is typically 16 to 24 weeks under normal market conditions.
(iv) Changed Market Conditions. The interest rate environment has changed materially since August 2022, when the original Commitment Letter was executed. The Federal Funds effective rate has increased from approximately 2.33% in August 2022 to approximately 5.33% as of the date of this memorandum. SOFR, the benchmark rate for the term loan facility, has increased correspondingly. Any replacement financing is therefore likely to carry a materially higher interest rate than the rate contemplated by the original Commitment Letter. In addition, credit market conditions for leveraged infrastructure acquisitions have tightened, with lenders generally requiring lower leverage ratios, more restrictive covenants, and larger equity contributions than were available in mid-2022.
(v) Concession Uncertainty Premium. Any replacement financing would need to be underwritten based on the post-renegotiation economics of the Bull Run Filtration Project concession, which remain unknown. Lenders may require either (a) that the concession renegotiation be substantially resolved before committing to new financing, or (b) a discount to the concession's projected revenue to account for the uncertainty, which could result in a lower debt quantum and a commensurately larger equity requirement.
The extension fee for any further extension of the existing Commitment Letter, if obtainable, would likely be borne by Fund IV, consistent with the cost allocation for the prior extension. However, the Q3 Report does not indicate that Atlas or Pinnacle is willing to agree to a further extension, and the commercial rationale for the lenders to extend a commitment indefinitely — without the prospect of a near-term closing and in the context of a material change in market conditions — is questionable.
Recommendation. We recommend that Ironside promptly contact the GP, specifically David R. Hargreaves (Managing Director, Meridian) or Lillian Fong (Vice President, Meridian), to determine (i) whether any discussions with Atlas or Pinnacle regarding a further extension of the Commitment Letter are ongoing or contemplated; (ii) if no extension is being pursued, the GP's rationale for allowing the commitment to lapse; and (iii) the GP's contingency plan for obtaining replacement financing, including the expected timeline, cost, and any preliminary indications of interest from potential lenders.
B. EPA Outside Date — December 31, 2023
The Third Amendment to the EPA, executed on June 28, 2023, extended the outside date for closing the acquisition to December 31, 2023. This is the third extension of the original outside date, and the December 31, 2023 date represents the current contractual deadline by which the transaction must close.
If the outside date passes without closing or a further extension, the consequences are as follows:
(i) Either the Buyer or the Selling Shareholders may terminate the EPA by written notice, provided that the terminating party is not in material breach of its obligations under the EPA. Termination would effectively end the transaction absent a new agreement between the parties.
(ii) Depending on the specific termination provisions of the EPA (which C&H is analyzing in a separate forthcoming memorandum), the termination may trigger certain consequences including the release of deposits, the return of proprietary information, and the expiration of exclusivity and non-solicitation provisions that may constrain the Selling Shareholders from pursuing alternative transactions.
(iii) The practical effect of EPA termination, combined with the expiration of the debt commitment, would be to render the proposed acquisition of Cascadia effectively dead. Reconstituting the transaction after an EPA termination would require entirely new negotiations, new due diligence, new regulatory filings, and new financing — an outcome that is materially more costly and uncertain than continuing under the existing framework.
The GP has indicated that it is evaluating the feasibility of a fourth amendment to the EPA but has not confirmed the willingness of the counterparties to agree to such an amendment. The principal Selling Shareholder, Timberline III, is represented by Garvey Lennox LLP (Steven F. Yun), and its willingness to support a further extension will likely depend on a number of factors, including the progress of the concession renegotiation, the availability of committed financing, and the opportunity cost to Timberline III of remaining bound by the EPA. The Weir Family Trust, represented by its trustee Jonathan M. Weir (who also serves as CEO of Cascadia), and the Management Rollover Pool participants may have different interests, as their ongoing involvement in Cascadia's business creates alignment with a transaction that preserves management continuity and the existing operational framework.
C&H is preparing a separate detailed memorandum analyzing the termination rights, walk-away costs, and standstill options available to the parties under the EPA. We anticipate delivering that memorandum in advance of the December 31, 2023 outside date to allow Ironside sufficient time to evaluate its strategic options.
Recommendation. We recommend that Ironside press the GP for early engagement with the Selling Shareholders and Cascadia on the question of a fourth EPA amendment. To the extent that a further extension is contemplated, Ironside should consider whether the extension should be conditioned on certain milestones or benchmarks (e.g., a defined timeline for resolution of the concession renegotiation, a requirement that the GP demonstrate progress toward replacement financing) rather than a blanket extension of the outside date. Additionally, Ironside should begin its own independent assessment of whether continued participation in the transaction serves its strategic interests, taking into account the converging risks described in this memorandum.
C. 18-Month Dormancy Mark — July 9, 2024
Under Section 7.04(c) of the LP Agreement, the limited partner has the right to elect wind-down of ICM Cascadia Co-Invest, LP if the dormancy period exceeds 18 months from the date of the declaration of the Material Impediment Event. The Material Impediment Event was declared and the dormancy period commenced on January 9, 2023. The 18-month anniversary of that date falls on July 9, 2024.
If Ironside elects wind-down under Section 7.04(c), the GP is required to take all steps necessary to wind down the Vehicle in an orderly manner, including the liquidation of any remaining assets, the payment of outstanding liabilities, and the distribution of remaining cash to the limited partner. The GP's obligations in connection with a wind-down are further specified in Article X of the LP Agreement.
The 18-month wind-down election date is approximately nine months from the date of this memorandum. No action is required at this time, but we flag this date as an important strategic milestone. By July 9, 2024, Ironside will have a clearer picture of whether the transaction has a realistic path to closing or whether the converging risks — expired debt commitment, potentially lapsed EPA, FERC approval lapse, and unresolved concession renegotiation — have rendered the transaction unviable. We recommend that Ironside begin preliminary strategic evaluation of the wind-down election as part of its broader assessment of the transaction's viability, as discussed further in Section V below.
V. Observations and Concerns
A. Adequacy of Concession Renegotiation Disclosures
As noted in our reviews of both the Q1 2023 and Q2 2023 quarterly reports, the GP's disclosures regarding the substance of the Portland Metropolitan Water District concession renegotiation remain high-level and lack the specificity that Ironside requires to make informed strategic decisions regarding its continued participation in the Co-Invest Vehicle.
The Bull Run Filtration Project concession is a significant asset of Cascadia, generating approximately $64 million in annual revenue and constituting approximately 13% of Cascadia's total fiscal year 2021 revenue of approximately $487 million. The concession was originally entered into in approximately 2018 and has a 40-year term, making it one of the longest-duration and most economically significant assets in Cascadia's portfolio. The outcome of the renegotiation — specifically the magnitude of any reduction in concession fees, any changes to performance obligations, any modifications to the capital expenditure requirements, and any alterations to the concession term or renewal provisions — will directly affect the valuation of Cascadia and the economics of the proposed acquisition. A material adverse change in the concession terms could require a renegotiation of the purchase price under the EPA, a restructuring of the debt financing, and a reassessment of the investment thesis that underlies Ironside's commitment to the Co-Invest Vehicle.
Despite the centrality of this issue, the GP has consistently described the negotiations in general terms — "slow but constructive" in Q3, "continuing" in Q2, and "in early stages" in Q1 — without providing the specific detail that would enable Ironside to conduct its own assessment of the likely outcome and its implications for the investment. We recognize that the GP may be constrained by confidentiality obligations to Cascadia or to the Water District, but the Side Letter expressly entitles Ironside to "such additional information as may be reasonably requested by the LP," and we believe a request for enhanced disclosure is both reasonable and necessary under the circumstances.
We continue to recommend that Ironside exercise its rights under the Side Letter and formally request that the GP provide, in the Q4 2023 quarterly report or by separate communication, more detailed disclosure regarding: (a) the specific economic terms under discussion with the Water District, including any proposed reduction in concession fees or modification of the fee structure; (b) any proposed changes to Cascadia's performance obligations or capital expenditure requirements under the concession; (c) any proposed modifications to the concession term, renewal provisions, or termination triggers; (d) the GP's assessment of the likely range of outcomes and the timeline for resolution; and (e) copies of or summaries of any material correspondence between Cascadia and the Water District during the quarter.
B. Convergence of Negative Developments
Q3 2023 marks a quarter in which multiple negative developments are converging simultaneously, creating a materially elevated risk profile for the transaction and the Co-Invest Vehicle:
(i) Imminent Debt Commitment Expiration. The Atlas / Pinnacle debt commitment ($975 million term loan plus $150 million revolver) is set to expire on October 31, 2023, with no indication of further extension. The loss of committed financing is the single most significant new development and creates a fundamental obstacle to closing the acquisition on previously agreed terms.
(ii) Approaching EPA Outside Date. The EPA outside date of December 31, 2023 is approximately 11 weeks away, and the feasibility of a fourth amendment has not been confirmed. If the EPA is terminated, the transaction framework collapses and the sunk costs incurred by the Co-Invest Vehicle become effectively non-recoverable.
(iii) Unresolved Concession Renegotiation. The underlying Material Impediment Event — the renegotiation of the Bull Run Filtration Project concession — remains unresolved after nearly ten months of negotiations, with no clear timeline for resolution. The GP's characterization of the negotiations as "slow but constructive" provides some comfort that the discussions have not broken down, but also suggests that a near-term resolution is unlikely.
(iv) FERC Approval Lapse Risk. The FERC Section 203 approval, obtained on December 15, 2022, is subject to an 18-month lapse provision. The lapse date of approximately June 15, 2024 is less than eight months away. If the transaction is not reactivated and closed before that date — or if a FERC extension is not obtained — the regulatory approval will need to be re-obtained, adding time, cost, and uncertainty.
The cumulative effect of these developments materially increases the likelihood that the acquisition of Cascadia will not close on the originally agreed terms, if at all. While any one of these developments alone might be manageable, the convergence of all four creates a compounding risk dynamic in which the resolution of one obstacle (e.g., the concession renegotiation) does not, by itself, remove the other obstacles (e.g., the need for replacement financing, the need for a new or extended EPA, the need for regulatory approval renewal).
In light of these developments, C&H recommends that Ironside begin considering, on a preliminary basis, the full range of strategic options available to it. These options include:
(a) Supporting a Further EPA Extension with Appropriate Conditions. If the GP seeks a fourth amendment to the EPA, Ironside could support the extension but seek to condition its continued participation on certain milestones (e.g., a defined timeline for resolution of the concession renegotiation, demonstrated progress toward replacement financing, a cap on additional dormancy expenses chargeable to the Co-Invest Vehicle).
(b) Seeking a Negotiated Standstill if the EPA Lapses. If the December 31, 2023 outside date passes without a fourth amendment, Ironside could advocate for a negotiated standstill agreement among the parties that preserves the transaction framework and the parties' respective rights while providing additional time for resolution of the outstanding issues.
(c) Preparing for Exercise of the Wind-Down Election in Mid-2024. The 18-month dormancy mark falls on July 9, 2024. If the transaction's outlook has not materially improved by that date, Ironside should be prepared to exercise its wind-down election under Section 7.04(c) of the LP Agreement. This would terminate the Co-Invest Vehicle and allow Ironside to recover any remaining reserve funds, while crystallizing losses on non-recoverable sunk costs.
(d) Evaluating Recoverability of Sunk Costs. Of the $22,500,000 in capital called by the Co-Invest Vehicle, approximately $19,370,000 has been expended on items that are likely non-recoverable in a wind-down scenario, including organizational expenses ($285,000), the placement-agent fee ($1,050,000), due-diligence costs and deposits ($12,790,000), and the R&W insurance premium deposit ($4,875,000). The remaining working-capital reserve of approximately $3,130,000 would be available for distribution to Ironside in a wind-down. Ironside should evaluate whether any portion of the due-diligence deposits (included in the $12,790,000 figure) may be recoverable through refund, credit, or assignment, and whether the R&W insurance premium deposit is subject to any partial refund under the terms of the Northgate policy or the Tolling Side Letter.
C. Expense Allocation During Dormancy
Dormancy operating expenses continue to be drawn from the working-capital reserve at an annualized rate of approximately $185,000 per year. These expenses primarily consist of fund administration fees payable to Kendrick Thorne & Associates LLP, Delaware franchise tax obligations, registered agent fees, annual audit costs, and miscellaneous administrative expenses.
At the current expense rate, the remaining reserve balance of approximately $3,130,000 is sufficient to cover dormancy operating expenses for approximately 16 to 17 years. Reserve adequacy is therefore not an immediate concern, and the ongoing dormancy expenses do not, by themselves, create pressure for a wind-down decision.
However, we note an important distinction between dormancy operating expenses and reactivation costs. If the transaction is reactivated — whether on the originally agreed terms or on revised terms — the Co-Invest Vehicle would likely incur significant additional costs, including:
• Updated due diligence costs, including financial, legal, environmental, and technical diligence on any changes to Cascadia's business or the concession terms;
• Regulatory re-filing costs, including any FERC re-application or OPUC supplemental filing fees and associated legal costs;
• New financing costs, including commitment fees, extension fees, legal costs for credit documentation, and potentially increased R&W insurance premiums;
• Legal and advisory fees associated with negotiating a fourth EPA amendment, replacement financing, or a revised transaction structure.
These reactivation costs would likely require an additional capital call from the limited partner, which is currently suspended under the Suspension Notice. The mechanics for lifting the capital-call suspension and issuing a new call would need to be carefully analyzed in the context of Section 7.04 of the LP Agreement, which governs the GP's authority during a dormancy period. Section 7.04(a) provides that during a dormancy period, the GP shall not issue any new capital calls "except as necessary to fund dormancy operating expenses or as otherwise approved in writing by the LP." Accordingly, any capital call for reactivation costs would require Ironside's prior written consent, providing Ironside with a meaningful veto right over the cost and pace of any reactivation effort.
VI. Recommendations
Based on our review of the Q3 Report and our analysis of the developments and risks described in this memorandum, C&H recommends that Ironside take the following actions:
1. Debt Commitment Clarification. Ironside should promptly contact the GP — specifically David R. Hargreaves, Managing Director, or Lillian Fong, Vice President — to determine whether any discussions with Atlas National Bank, N.A. or Pinnacle Credit Partners LLC regarding a further extension of the Commitment Letter are underway. If no extension is being pursued, Ironside should seek a detailed explanation of the GP's rationale for allowing the commitment to lapse and a comprehensive description of the GP's contingency plan for obtaining replacement financing, including the expected timeline, the identity of any potential replacement lenders, and the GP's assessment of the likely economic terms of replacement financing in current market conditions.
2. EPA Extension Strategy. Ironside should request that the GP provide its assessment of the feasibility and desirability of a fourth amendment to the EPA extending the outside date beyond December 31, 2023. This assessment should address the positions and expected responses of the Selling Shareholders — including Timberline Growth Equity Fund III, LP (through Hugh Callister, Managing Partner, and counsel Steven F. Yun at Garvey Lennox LLP), the Weir Family Trust (through Jonathan M. Weir, Trustee and CEO of Cascadia), and the Management Rollover Pool — as well as any conditions, concessions, or modifications that may be required to secure a further extension. Ironside should also consider, independently, whether continued extensions serve Ironside's own interests and portfo

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP MEMORANDUM

MATTER NO.: 1023-00001

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